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Deregulation, Dams, and the Nation's Rivers

By Charlie Higley

0ut of many important economic, social, political and environmental issues raised in debates about electricity deregulation, most of the attention has been focused on the many fallacious benefits of retail deregulation, the fate of expensive nuclear power plants, and whether consumers have to bail out bad investments by utilities (so-called stranded costs). Hydropower has received little attention by either regulators or environmental and consumer groups. Nevertheless, electricity deregulation will affect hydro, which may lead to serious consequences for the environment:

A deregulated market for electricity will demand that electricity suppliers keep costs as low as possible. Deregulation will take away the assurances of recovery of utility costs and investments, including the costs of environmental protection measures. Therefore, electricity suppliers will want to minimize costs as never before. In the case of hydropower operators, they will resist financing fish passage facilities, increased river flows, and habitat improvements, all of which directly affect their costs of producing electricity. Furthermore, since the relicensing of hydro dams involves a balancing judgment by the Federal Energy Regulatory Commission (FERC) that expressly involves economics, a shift to a market economy may encourage FERC to lessen environmental protections to minimize the cost of power produced.

Deregulated power markets are placing a greater value on "peak hour" electricity, creating incentives that could harm rivers. For example, California's open market is providing increased incentives for dam owners to operate their projects to provide valuable peak power, by storing large volumes of water for generation during periods of highest demand. Hydro plants have the prized advantage of stopping or starting generation in a matter of minutes, so they allow operators to respond quickly to sudden increases in demand. This peaking power operation creates many more environmental impacts than run-of-river operations. Flows downstream of peak-power dams are held back during periods of low demand, and then surge to very high levels during peak demand hours, regardless of the needs of the river.

Economically marginal dams will not be able to compete in deregulated markets, and many dam projects could be abandoned. Hundreds of smaller dam projects, especially those that receive special subsidies or above-market PURPA (Public Utility Regulatory Policies Act) contracts may be too expensive to operate if these protections are removed. In addition, as the 30- to 50-year licenses of these marginal dams are renewed under the Federal Power Act, environmental controls will be required where few or none had previously existed, and safety upgrades may be required, making some dams more expensive to operate.

Abandoned dams present great environmental and safety hazards. The negative impacts on rivers continue, including blocking downstream flow of nutrients, alteration of water temperatures and oxygen levels, and impeding fish migration. Most dams that are likely to be abandoned are older dams that need safety upgrades. Without ongoing investment of funds to maintain them, the dams will fall into disrepair, creating threats to public safety as well as damage to river ecosystems.

Policies to support renewable energy sources could benefit already-competitive hydroelectric power, unless those policies address only non-hydro renewables. Hydropower is an established technology requiring no market protection. Wind, solar, biomass, and geothermal technologies, on the other hand, need support to compete against fossil fuel and nuclear power, which have received billions of dollars in subsidies.

Marketing of all hydroelectric power as "green," regardless of how it is generated, misrepresents the harmful environmental impacts of dams on rivers, and could squelch the development of non-hydro renewables. The general public perception is that hydropower has minimal environmental impacts because it uses renewable water and does not produce air emissions. In many instances, hydro is also significantly cheaper than other renewables, potentially providing a larger profit margin for green marketers. There is also a relatively large amount of hydropower; it provides nine percent of the nation's power mix versus only about two percent total for all non-hydro renewables. Thus, there is a great incentive for green power marketers to describe all hydropower as green.

The divestiture of dams throughout the country may lead to detrimental consequences for our rivers. In California, Montana, and New England states, many large utilities have announced the sale of their dams. Environmental activists, fish and wildlife agencies, dam safety experts, and recreationists are concerned about the future management of the projects, specifically about how far the new owners will go to provide environmental protection, funds for safety and maintenance, and access for recreation to the lands and waters of the projects. Under deregulation the dams may be owned by out-of-state companies or even international corporations that have little stake in the regions where the projects are located and may operate the dams solely for profit.

Tens of thousands of acres of lands surrounding hydroelectric dam projects may be sold, much of it to private development. Big utilities like Pacific Gas & Electric Company in California, PacificCorp in Oregon, and the New England Electric System own and manage thousands of acres of open, undeveloped lands associated with their hydroelectric plants. Due to public-interest requirements of utility regulation, the lands have been relatively well protected and managed. Now, to trim costs, utilities preparing for deregulation have sought to sell off lands that are not within hydro project boundaries.

There are no policies established to protect these lands from development, and no government funding set aside for purchasing the lands. Ultimately, hundreds of thousands of acres of prime open space could be carved up for development, clearcut for timber, or in other ways degraded over the next decade.

Efforts to require disclosure of how electricity is produced may reward hydro dam owners, even for environmentally damaging projects. Disclosure advocates contend that customers need to be fully informed about the environmental impacts of their electricity purchases. However, to date, most renewables disclosure policies have focused on listing air-quality impacts, and do not single out the environmental impacts of hydro projects. While these disclosure policies are desirable and important for informed consumers, they need to be more comprehensive in nature. Otherwise, utilities with hydroelectric assets will appear to be environmentally responsible regardless of how their dam projects are operated.

Deregulation may have the effect of encouraging the development of more hydro electricity in Canada, where environmental controls are significantly weaker. Foreign electricity suppliers, with approval by FERC, are free to sell their power in the U.S. in a deregulated market. Because Canada has an abundance of cheap hydro to sell in the U.S., open access to U.S. markets will enable ongoing damage to dammed rivers in Canada and even encourage the widespread construction of new dams, especially on rivers near to or crossing into the United States.

Pressure from dam owners may lead to changes in how the environmental impacts of dams are regulated. For several years, the National Hydropower Association, the lobby for the hydroelectric power industry, has been seeking changes in the Federal Power Act to facilitate dam relicensing. In 1997 and 1998, Congressional hearings were held to discuss these potential changes. The NHA argued that deregulation was threatening the hydro industry, and that resource agencies' mandatory licensing authority must be curtailed, due to the huge expense of environmental improvements in dam operations.

Senator Larry Craig (R-Idaho) has introduced legislation (S. 740) that would give FERC more power in determining the level of environmental protections in dam licenses, taking away a great deal of resource agencies' conditioning authority. Since FERC's balancing authority expressly takes economics into consideration, there is little question that if this legislation was enacted, the ultimate result would be weaker environmental standards in dam licenses.

Excerpted from "Dammed Deregulation: How Deregulation of the Electric Power Industry Could Affect the Nation's Rivers," by Charlie Higley, June 1999, Public Citizen's Critical Mass Energy Project.