Suppose you own a federally-licensed dam and hydroelectric
generation facilities on a river. The
amount of electricity you can produce is determined by factors including how
much water is flowing through your turbines every second and the dam’s “head”,
or effective height through which that water falls. Over an entire year, the amount of power you
can produce is also affected by how much water can be stored in the watershed
above your dam, and how well you can regulate the flow of water through your
turbines. For example, if you can
impound more floodwaters upstream instead of spilling excess water over the dam, you can maintain maximum flows through your powerhouse
for a longer period of time than you otherwise could.
Now suppose someone else builds a dam upstream from your
site that enables better storage and regulation of water flows through the
river. Setting aside any environmental
impacts from that change in flow, one upside of the improved flow regulation is
that you can produce more power at your dam thanks to the upstream
improvements.
Under the Federal Power Act, you may be required to
reimburse that upstream dam owner for an equitable part of the benefits you
receive from its improvements. Federal
hydropower licenses typically include a provision requiring the licensee to
reimburse the owner of an upstream improvement for these headwater benefits.
Under the Commission’s regulations, headwater benefits
charges can be calculated using an “energy gains” methodology. This analysis includes an assessment of the
difference between the number of kilowatt-hours of energy produced at a
downstream project with the headwater project and that which would be produced
without the headwater project. Alternatively,
dam owners may negotiate an agreement on headwater benefits charges and present
it to the Commission for approval as a settlement offer.
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