A step in the right direction

If asked to describe the hydro power licensing process in the US, how would a member of the hydro industry reply? ‘Slow, inefficient, uncertain and burdened with mixed mandates and redundant bureaucracy’ is just one of many descriptions used over the years. However, in a recent effort to simplify the complicated process that must be endured when licensing non-federal power facilities in the US, the hydro industry has united in an effort to introduce what it calls ‘reasonable and balanced’ legislation. The new Bill — the Hydroelectric Licensing Process Improvement Act of 1998 — aims to balance environmental laws with the viability of US hydro power.

‘The overall idea behind the Bill,’ James McKinney, director of government affairs at the national-hydropower-association (NHA), explains, ‘is to produce better decision-making in the licensing process. We don’t want to roll back environmental laws,’ he stressed. ‘Our real concern is to promote more certainty and reasonableness in the licensing process.’ Senator Larry Craig, who was responsible for introducing the Bill into the US Senate on 30 September 1998, has worked very closely with the hydro power industry and shares its concern about the ‘bureaucratic monster’ relicensing has become. ‘Senator Craig is personally very interested in this issue,’ McKinney said. ‘His constituent state of Idaho is dependent on hydro for energy, flood control, water supplies and transportation. Indeed Idaho is economically dependent on hydro power and so the licensing issue is a matter of great concern for his constituents.’ The difficulties involved with licensing and relicensing hydro power facilities have been a growing problem for the US industry. Looking to the future, with two-thirds of all non-federal hydroelectric capacity (284 projects) due for relicensing in the next 15 years, the hydro industry is warning that without legislative intervention the problem will intensify. ‘The need to reform hydro power relicensing is an extremely important energy policy issue that urgently requires Congressional attention and action,’ said John Devine, president of NHA. ‘Without the bill hydro will not have a rosy future, thanks to deregulation and the amount of relicensing we will face in the near future.’

Gamut of agencies

The problems associated with the licensing process can lead to lengthy delays and escalating costs, and these are slowly eroding one of the US’s important energy resources. Relicensing a single, existing hydroelectric project can take up to ten years or more to complete, while the cost of processing an application alone can exceed US$10M. Department of Energy research has also shown that hydro projects consistently lose generation as a result of relicensing. Indeed, the uncertainty associated with the present process can result in capital being diverted from hydro projects. As John Devine explained, a completely new natural gas turbine facility can be sited, permitted and constructed in less than half the time it takes just to relicense an existing hydro project.

But what has made relicensing such a lengthy task? ‘The problem,’ James McKinney said, ‘is the gamut of agencies involved.’ Resource agencies, such as the Department of the Interior, the National Marine and Fisheries Service and the US Forestry Service, have mandatory conditioning authority. When participating in licensing they generally focus exclusively on their own single purpose (such as the protection of fish), and they do not have to take any other factors into consideration when stipulating conditions on which a licence can be issued. The process is also hindered by unco-ordinated environ-mental reviews, 47 federal laws, a lack of enforceable deadlines and little consideration of project economics. It is therefore not surprising that relicensing applications can frequently end in gridlock and litigation.

Recent improvements have been made to the process but these have only been administrative efforts. (See IWP&DC, July 1998, pp24-29). The hydro industry has worked with its licensing body, the Federal Energy Regulatory Commission (FERC), to improve the current procedure. In October 1997 FERC issued Order No 596 and established an alternative licensing process. Licensees and all stakeholders (resource agencies, fishery groups, local people, etc) have been encouraged to narrow the range of contested issues in applications and obtain a settlement prior to filing an application with FERC, thus saving time and money and reducing the risk of litigation.

The US hydro industry is committed to making alternative processes work but it is clear that Order 596 will not be appropriate in all cases. FERC predicts that less than 50% of all licences will be obtained through the alternative process. Industry members are also adamant that the alternative process should not be viewed as a substitute for statutory reform.

Legislation

Failings of the alternative process can be traced back to the resource agencies, the power they enjoy and the way that this can undermine negotiations. Already licensees are being told by resource agencies that “yes we will work with you in a collaborative process, but we won’t waive our right to impose mandatory conditions at the end”.

‘A collaborative process can only work if both parties see a benefit and want it to work,’ John Devine commented.

As last year’s president of NHA, Julie Keil, added: ‘You can collaborate until the cows come home, but if you’ve still got single purpose resource agencies sitting at the table, who have the final say on certain licensing conditions, that is a very difficult negotiating atmosphere.’ It seems that even with the alternative process resource agencies still have a hammer with which to deal the final blow.

‘We’ve come to the conclusion,’ Devine went on to explain, ‘that we need a legislative solution to the problem of relicensing hydro facilities. FERC’s ruling on the alternative process was along the lines of what NHA and the hydro industry sought but key ideas, which we thought were vital, were also rejected.

‘Administrative remedies alone cannot repair the broken hydro licensing process. The absolute power enjoyed by resource agencies over the relicensing process creates an environment where there is little incentive to compromise and great incentive to exercise full authority in order to further narrow agendas. We believe,’ he said, ‘the time is right to develop a legislative solution to the problems in the licensing process.’ The key to Senator Craig’s Bill is that resource agencies should be made more responsible and accountable for their decisions in the licensing process. ‘We do not want to repeal mandatory conditioning,’ Mckinney explained, ‘this is not a roll-back Bill. We just want to improve the decision-making and ensure that costs do not go into the actual relicensing process, but into the resource itself [ie hydro power].’ The only way to achieve this is to take a closer look at resource agencies and their mandatory conditioning authority. The Bill asks agencies to consider the broader issues involved when licensing hydro. ‘The Bill is asking for resource agencies to exercise their authority with appropriate measures of accountability and responsibility,’ Devine said. ‘It aims to create a level playing field. Resource agencies can influence the licensing process more than other stakeholders and the Bill will just ensure that they consider the impact of their actions on others.’ Bill S2533 stipulates that: •In determining a condition for a licence an agency must take into consideration the impact of the condition on: economic and power values; electric generation capacity and system reliability; air quality; drinking water; flood control; and irrigation, navigation or recreation water supplies. Consideration must also be given to the compatibility of the condition with other conditions to the licence, especially those issued by other agencies.

•Deadlines are to be established. After a licence application has been filed with FERC the Commission may set a date by which resource agencies must recommend conditions. Failure to do so within this time means that agencies will not have the authority to mandate a condition to the licence.

•Each condition determined by an agency will be subjected to appropriately substantiated scientific review. ‘Biological and fish studies etc need to be peer reviewed,’ McKinney explained. ‘We need to make sure that any scientific data used in licensing applications is based on sound evidence, has been field tested and the methodology is reasonable to ensure that we get the same types of results.’ •A provision in the Bill is also made for the licensee to obtain administrative review of an agency’s decisions. This will be carried out by a law judge or an independent reviewing body and aims to reduce litigation. In the traditional licensing process mandatory conditions can only be changed through court action. ‘With provisions in the Bill to review resource agencies’ conditions to a licence, we are confident that better decisions can be made,’ Mckinney added.

•FERC will conduct an economic analysis of each condition submitted by an agency to determine whether it will make a project uneconomic. ‘FERC is already responsible for balancing power and non-power issues under the Electricity Consumers Protection Act,’ Mckinney explained. ‘This new Bill just re-iterates that FERC needs to carry out an economic analysis, something which perhaps has been neglected in the past.’

Essential

Reflecting on the Bill, NHA president John Devine said that members of the hydro industry view it as being essential. ‘It’s a common sense Bill at a time when we’re facing critical issues such as air quality and climate change,’ he added.

Although the Bill may be welcomed by the hydro industry, what do the resource agencies think of it? ‘They are very apprehensive about it,’ McKinney commented. ‘But this is what we expected. Any challenge to the resource agencies’ authority will not be welcomed with open arms. However, they do agree that there is something wrong with the licensing process.’ And what are the chances of the Bill becoming law? ‘There is a very good chance that it will succeed,’ McKinney said. ‘There is a lot of interest in it, especially when you bring in broader issues such as global climate change. There is great potential here and we think it will work.’ As Devine explained, the industry is looking to both political parties to support the Bill. ‘The issues surrounding it are not democratic or republican issues, they just make for good government,’ he said. Meanwhile, NHA is quietly confident that the Bill will obtain government support. Linda Church Ciocci, executive director of NHA, met President Clinton recently and his message was that hydro is seen as a key to the climate change debate.

At the present time the hydro industry is optimistic the Bill could become law within the next two years. It seems probable that the US government will heed the warning that, if legislative reform does not take place, hydro power will suffer in a deregulated market. Indeed, considering the mass relicensing which is imminent (see over), it may only be a matter of time before Senator Craig’s Bill passes into the US law books.

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