7 Settlements as Preferred Basis for Licenses
As a matter of policy, FERC now encourages settlement as the basis of a license whenever the licensee and a critical mass of other participants believe there is a reasonable prospect of timely success. A settlement is a legal document binding between signatories to settle disputed legal and factual issues. See Appendix C for forms of settlement. FERC prefers settlement as the basis of new license for a given project, no matter which of the licensing processes is used. Even though the ILP, TLP, and ALP differ in their emphasis on collaboration, Practice and Procedure Rule 601 establishes settlement as an accepted method to resolve disputed issues in any proceeding before FERC.
This policy reflects FERC’s experience that collaboration tends to reduce the transaction (or process) cost incurred by the licensee in the course of the licensing proceeding. Settlement also prevents or at least reduces the frequency or severity of disputes about the adequacy of the licensee’s study plan, such as a model used to predict how alternative flow release schedules may affect the availability and quality of fish habitat below the project. In a survey of projects licensed since 1993, OEP estimated that process costs in disputed proceedings under the ALP averaged $39/kw of project capacity, versus $109/kw under the TLP. Indeed, such process costs under the TLP averaged nearly 30% of the cost of the actual environmental measures included in the resulting license. The ILP is projected to be 30% more efficient than the ALP, because of the parallel track of license application development and environmental review. Such process costs may be thought of as overhead associated with the production of a good or service: the lower the overhead, the more the producer may invest in quality.
 See 18 CFR § 385.601 et seq.
 See OEP, Report on Hydroelectric Licensing Policies, Procedures, and Regulations: Comprehensive Review and Recommendations Pursuant to Section 603 of the Energy Policy Act of 2000, p. 46 (hereinafter Section 603 Report). The GAO cautions: “FERC does not request licensees to report their process-related licensing costs. Some licensees have, however, voluntarily reported these costs to FERC so that FERC can include them together with estimated mitigation costs, annual charges, and the value of power generation lost at relicensing in its economic analysis of the projects’ benefits and costs. As of February 2001, FERC had compiled data on licensees’ process related licensing costs for 83 or about 20 percent of the 395 projects with licenses pending or issued between January 1, 1993, and December 31, 2000. However, because FERC did not provide licensees with guidance on what costs they should report, it has no assurance that the reported costs are consistent and comparable. Moreover, since the 83 projects did not represent a randomly selected sample, FERC cannot use these data to project the costs incurred by the universe of 395 projects. Moreover, FERC often could not link the costs to the various steps in the licensing process to identify which steps were the most costly. Finally, licensees reported only those costs that they incurred before they filed a formal application to FERC to obtain a new license and, thus, FERC has no data on any of their costs associated with the post-application analysis phase of the licensing process.” GAO, Licensing Hydropower Projects (GAO-01-499), p.13 (2001).
 See id., pp. 48-50.
 104 FERC ¶ 61,109, p. 139.