Evaluation of Cost Estimates Related to the Relicensing of Hydroelectric Projects

RCED-85-169: Published: Sep 16, 1985. Publicly Released: Sep 16, 1985.

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In response to a congressional request, GAO evaluated widely varying cost estimates associated with relicensing three hydroelectric projects in California and transferring the projects' licenses from a private utility to municipalities and transferring all investor-owned hydroelectric projects nationwide.

A study prepared by the public utility involved estimated a cost of $147.5 million per year in increased costs to individual customers for replacement power. A study prepared by a consultant hired by the municipalities estimated the cost that the public utility would incur at $18.3 million per year in additional costs. Most of the cost difference was caused by different estimates of replacement power costs and the amount of power needing to be replaced. The two studies also used different data to calculate some costs related to the transfer of the project licenses and the benefits from reduced ownership and operating expenses. GAO recalculated the estimates using different assumptions about the amount of power needing to be replaced and the cost of such power and estimated that the increased average costs would be $105.1 million per year. GAO found that two studies on the nationwide impact of transferring hydroelectric licenses used different methodologies, different assumptions, and different data, and the studies were based on assumptions that are difficult to support. Since the amount of power that might need to be replaced is not predictable, its cumulative nationwide impact cannot be accurately predicted. Because of the difficulty in predicting the number of licenses that might be competed for, the number subsequently transferred, and the need to replace power from these licenses, it is not possible at this time to estimate the nationwide impact on customers.

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