Under Section 10(f) of the Federal Power Act, an owner of a hydropower project is required to reimburse upstream headwater project owners for an equitable part of the benefits it receives. These benefits, referred to as Headwater Benefits, are the additional energy production possible at a downstream hydropower project resulting from the regulation of river flows by an upstream storage reservoir. The Federal Power Act instructs the Commission to determine headwater benefits received by downstream hydropower project owners.
The Federal government owns storage projects throughout the country. Therefore, in addition to determining the benefits, the Commission also assesses charges to the corresponding downstream hydropower beneficiaries. Monies collected for energy-gain benefits received from Federal projects are returned to the U.S. Treasury, and credited to the sponsoring agency.