The next decade will bring serious disruption to the utility industry. But with cooperation from regulators and legislators, utility companies will be able to shift their business models to...
Hydro Relicensing Redux: Will Dams Be Saved?
FERC general counsel Douglas W. Smith admitted under Senate questioning last year that by the commission's calculation under its test, a number of the projects that received initial or renewed licenses during the last few years would have produced negative economic value. Yet the parties went forward anyway. The results, said Smith, suggested that the FERC's calculations do not quite accurately measure the true market value of project operation.
"We have essentially left commercial decisions about whether a project is profitable, economically viable or attractive [to the hydro operator]," he said, explaining that the decision to keep operating under the conditions set forth in the license is up to the licensee.
The test emerged from the FERC's 1995 relicensing decision involving the Mead Corp. In that relicensing, FERC found that because of the changing economics of the electric utility industry and the fact that project economics are one of many public interest factors the commission considers, it would change its approach to evaluating the economics of both new and existing hydro electric plants. Specifically, FERC dropped the traditional 30- to 50-year analysis it now considers unreliable. The FERC decided to base its analysis on current economic factors rather than forecasting, and let the Mead Corp. determine whether continued operation of its Escanaba hydro project was reasonable.
But Sen. Craig argues that mandatory conditions force hydro operators to choose between the "lesser of two economic disasters": whether to continue operating at a loss or pay millions for decommissioning. Meanwhile, licensees have no recourse but to go to court.
Sen. Craig explains that because several agencies have an absolute right to participate in the process, their absence or delay can serve as a veto. "I have seen a lot of foot-dragging right now. They don't deserve, nor should they get, three, four, or five years. They have bright, talented staffs and they should get to it," he says.
Delay in the process caused by participating agencies is a procedural fault the FERC readily has admitted in testimony before the Senate Subcommittee on Water and Power.
Sen. Gordon Smith, vice chairman of the Subcommittee on Water and Power, made this point in a Senate hearing last year. He said, "According to past testimony by FERC Chairman Hoecker before this subcommittee, 'The agencies have differing time tables and internal process and in some cases, appeals of the license conditions they have submitted to the commission have been pending for years.'"
For example, Tacoma Power, the city-owned utility, was granted a license after 24 years of political wrangling for the company's Cushman hydroelectric project. Even then, the terms of the license were unacceptable, according to Steve Klein, head of Tacoma Power. The utility is appealing the decision, and is expected to go to court later this year.
The license included a mandatory condition to increase the river flow from 30 to 240 cubic feet per second and build new fish passage and hatchery facilities. These conditions would add $2.5 million per year to the operating costs of a project that provides just 5 percent of the city's