Statement of Stephen Johnson, Washington Public Utility District Association, Seattle, Washington,
and American Public Power Association

On behalf of the American Public Power Association (APPA) and Washington Public Utility District Association (WPUDA), I appreciate the opportunity to provide testimony today regarding Congresswoman Dunn’s bill on incremental hydropower, the Hydropower Capacity Improvement Act.

I am Stephen Johnson, Executive Director of the WPUDA, an association of 28 utilities (8 of whom are hydropower owners) in Washington State. WPUDA members have a long history of making conservation, efficiency and the development of renewable resources a top priority.

Today I am providing testimony on behalf of the American Public Power Association in support of H.R. 1677, the Hydropower Capacity Improvement Act. This bill helps to accomplish an important conservation and energy objective: reversing the decline in generation of electricity from clean, "zero emissions" hydropower. Specifically, the bill would provide a credit of $65 times the number of additional kilowatts of licensed generating capacity added during a tax year that can be used to offset tax liability, or traded with any taxpayer. I would briefly note that the "tradability" feature is key for APPA’s member systems, who own almost 40% of the total hydropower capacity in the U.S. and yet would not receive any incentive from a conventional tax credit.

Before I comment on the details of the credit, I would like to explain why the hydropower industry, which enjoys a relatively abundant and inexpensive source of clean generation, needs an incentive to add hydropower capacity.

The U.S. Department of Energy has conducted studies that have uncovered up to 21,000 MW of undeveloped hydropower capacity at existing U.S. dams and hydropower facilities.¹ This is a significant amount of power -- enough to displace 24 million metric tons of carbon emissions from coal.² Why has this capacity gone undeveloped when the demand for new energy supplies -- particularly clean energy with a unique capacity to quickly meet peak demands -- exists across the country and urgently in the West?

One reason is that incremental hydropower additions are capital intensive. The National Hydropower Association has estimated that the cost of new hydro generation upgrades run up to $2,000 per KW, or more, if regulatory costs are considered. By way of comparison, capital costs for a typical combined cycle gas plant can cost $550 per KW. Although costly, making upgrades to hydropower facilities is important both for power generation and the environment. Upgraded turbines and newer technologies provide increased protection for fish, and can greatly improve efficiency.

In addition to high capital costs, hydropower resources have gone untapped because hydropower owners face significant regulatory hurdles to license or relicense a facility, or even just to add capacity. Adding capacity requires an amendment to a hydropower license, and depending upon the environmental impacts, a simple amendment can trigger regulatory hurdles like Federal Energy Regulatory Commission (FERC) environmental reviews and agency studies equivalent to those required when licensing an entire facility.

The regulations connected with hydropower licenses are designed to ensure that the industry considers the welfare of the environment as well as our power needs when we operate our existing dams or add capacity. Though this goal is appropriate, the licensing process through which these regulations are enforced is broken. Our hydro owners face conflicting statues, a host of agency regulators at the local and federal level, and federal agency licensing conditions that can be set without regard to the effects on project economics and power output. The process is costly and can take 10 years or more to complete.

To summarize, because of the costs of incremental hydropower upgrades, disincentives presented by the licensing process, hurdles that must be cleared in order to amend licenses and restrictions on power generation presented by new licenses, the industry is not adding hydropower. Instead, the Department of Energy has projected that we are losing hydroelectric generation.³ Looking in my own backyard, 73 percent of the hydro capacity in the Northwest will face relicensing in the next 15 years, and in the process is likely to lose a significant amount of generation capacity.

The incentive described in Congresswoman Dunn’s bill could help offset these losses and maintain this vital commodity for energy consumers, without the construction of a single new dam. In addition, if Congress and the FERC make the needed improvements to the relicensing process, we can make the most of our hydropower resources.

For this reason, the APPA, Washington PUD Association and National Hydropower Association (NHA) applaud Congresswoman Dunn for introducing H.R. 1677. We agree that our valuable hydropower resources must be protected for future generations, and encourage this Committee to strongly consider this bill as a means of addressing critical near-term and long-term energy needs.

We further commend Congresswoman Dunn for ensuring that the owners of 40% of the nations’ hydropower capacity will not be excluded from receiving this incentive. Hydropower systems owned by municipalities or units of state and local government are not-for-profit and do not generate federally taxable income. Our federalist system precludes the taxation of one level of government, including local public power systems, by another. Thus, conventional energy incentives through the tax code, which are currently being advanced in a number of bills before Congress, do not provide incentives for us because we have no federal income tax liability to offset with a credit. To address this situation, Congresswoman Dunn’s bill would enable us to sell the credit to any taxpayer. The taxpayer – which could include our customers -- would be able to purchase the credit at a discount from face value, and we would in turn be able to use the proceeds to offset the high capital costs of making capacity additions.

We greatly appreciate Congresswoman Dunn’s recognition not only of our unique status, but of the fact that hydropower is a renewable resource that should be enhanced, along with solar, wind, biomass, landfill gas and other resources so that this nation’s consumers can benefit from a diverse mix of fuels and greater energy security. As Congress considers this and other bills to provide incentives for renewable and clean energy resources that fulfill important public and environmental purposes, we urge Congress to ensure that public power and rural electric cooperatives – which serve 25% of the nation’s power consumers – also receive an incentive through a tradable credit program.

Thank you again for the opportunity to provide this subcommittee with testimony and tell you why H.R. 1677 is so important to us. Do not hesitate to contact me if I can answer any questions or be of any assistance to you.

1. Hydropower Resource Assessment program draft report, US DOE Hydropower Program, Idaho National Engineering and Environmental Laboratory, www.inel.gov/national/hydropower/index.html, November 1998.
2. According to "impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity," prepared by the Energy Information Administration, October, 1998, Table 17, p. 75, coal fired technologies emit 571 pound of carbon per Megwatthour.
3. Scenarios of US Carbon Reductions: Potential Impacts of Energy Technologies by 2010 and Beyond," Office of Energy Efficiency and Renewable Energy, US DOE, September 15, 1997, p. 7.21