Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 339

Omnidirectional Range/Tactical Air

Navigation (VORTAC) facility to the

Toronto, ON, Canada, VORTAC via the

Waterloo, ON, Canada, Very High

Frequency Omnidirectional Range/

Distance Measuring Equipment (VOR/

DME). This action is necessary to

realign the airway from the United

States into Canadian airspace.

EFFECTIVE DATE: 0901 UTC, February 2,

1995.

FOR FURTHER INFORMATION CONTACT:

Patricia P. Crawford, Airspace and

Obstruction Evaluation Branch (ATP–

240), Airspace-Rules and Aeronautical

Information Division, Air Traffic Rules

and Procedures Service, Federal

Aviation Administration, 800

Independence Avenue SW.,

Washington, DC 20591; telephone: (202)

267–9255.

SUPPLEMENTARY INFORMATION

The Rule

This amendment to part 71 of the

Federal Aviation Regulations (14 CFR

part 71) amends the airspace

designation for VOR Federal Airway V–

216 from the Peck, MI, 084° and the

United States/Canadian border to

Toronto, ON, Canada, via Waterloo, ON,

Canada. Canada has completed

restructuring their internal airspace

system that affected several Federal

airways within the United States. This

action is necessary to realign the airway

from the United States into Canadian

airspace. I find that notice and public

procedure under 5 U.S.C. 553(b) are

unnecessary, because this action is a

minor technical amendment in which

the public is not particularly interested.

Domestic VOR Federal airways are

published in paragraph 6010(a) of FAA

Order 7400.9B, dated July 18, 1994, and

effective September 16, 1994, which is

incorporated by reference in 14 CFR

71.1. The airway listed in this document

will be published subsequently in the

Order.

The FAA has determined that this

regulation only involves an established

body of technical regulations for which

frequent and routine amendments are

necessary to keep them operationally

current. It, therefore—(1) is not a

‘‘significant regulatory action’’ under

Executive Order 12866; (2) is not a

‘‘significant rule’’ under DOT

Regulatory Policies and Procedures (44

FR 11034; February 26, 1979); and (3)

does not warrant preparation of a

regulatory evaluation as the anticipated

impact is so minimal. Since this is a

routine matter that will only affect air

traffic procedures and air navigation, it

is certified that this rule will not have

a significant economic impact on a

substantial number of small entities

under the criteria of the Regulatory

Flexibility Act.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference,

Navigation (air).

Adoption of the Amendment

In consideration of the foregoing, the

Federal Aviation Administration

amends 14 CFR part 71 as follows:

PART 71—[AMENDED]

1. The authority citation for 14 CFR

part 71 continues to read as follows:

Authority: 49 U.S.C. app. 1348(a), 1354(a),

1510; E.O. 10854; 24 FR 9565, 3 CFR, 1959–

1963 Comp., p. 389; 49 U.S.C. 106(g); 14 CFR

11.69.

§ 71.1 [Amended]

2. The incorporation by reference in

14 CFR 71.1 of Federal Aviation

Administration Order 7400.9B, Airspace

Designations and Reporting Points,

dated July 18, 1994, and effective

September 16, 1994, is amended as

follows:

Paragraph 6010(a)—Domestic VOR Federal

Airways

* * * * *

V–216 [Revised]

From Lamar, CO; Hill City, KS; Mankato,

KS; Pawnee City, NE; Lamoni, IA; Ottumwa,

IA; Iowa City, IA; INT Iowa City 062° and

Janesville, WI, 240° radials; Janesville; INT

Janesville 076° and Muskegon, MI, 252°

radials; Muskegon; Saginaw, MI; Peck, MI;

INT Peck 084° and Waterloo, ON, Canada,

262° radials; Waterloo; INT Waterloo 057°

and Toronto, ON, Canada, 278° radials; to

Toronto. The airspace within Canada is

excluded.

* * * * *

Issued in Washington, DC, on December

21, 1994.

Harold W. Becker,

Manager, Airspace-Rules and Aeronautical

Information Division.

[FR Doc. 95–75 Filed 1–3–95, 8:45 am]

BILLING CODE 4910–13–P

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

18 CFR Part 2

[Docket No. RM93–23–000]

Project Decommissioning at

Relicensing; Policy Statement

Issued December 14, 1994.

AGENCY: Federal Energy Regulatory

Commission.

ACTION: Policy statement.

SUMMARY: The Federal Energy

Regulatory Commission (Commission) is

adopting a policy statement that

addresses its authority to issue or deny

new hydropower licenses at the time of

relicensing, and its authority over the

decommissioning of a licensed project

when no new license is sought or a new

license is rejected or denied, as well as

pre-retirement planning and funding.

The Commission stated that it has the

authority to deny new licenses to

hydroelectric projects when existing

licenses expire. Such action would

occur if the Commission concluded that

the project, no matter how conditioned,

could no longer meet the

comprehensive development standard

of the Federal Power Act. In the great

majority of cases, decommissioning is

likely to result from a license holder’s

desire to abandon an uneconomical

facility rather than the Commission

deciding it should be closed. The

Commission also concluded that its

authority over decommissioning

extends to determining what project

features, beyond the turbines and

generators, should be removed, if the

project is decommissioned. In issuing

future licenses, the Commission may

require that funding for

decommissioning be provided in certain

circumstances.

EFFECTIVE DATE: February 3, 1995.

FOR FURTHER INFORMATION CONTACT:

Joanne Leveque, Office of the General

Counsel, Federal Energy Regulatory

Commission, 825 N. Capitol Street, NE.,

Washington, DC 20426, (202) 208–0961.

SUPPLEMENTARY INFORMATION: In

addition to publishing the full text of

this document in the Federal Register,

the Commission also provides all

interested persons an opportunity to

inspect or copy the contents of this

document during normal business hours

in room 3104, 941 North Capitol Street,

NE., Washington, DC 20426.

The Commission Issuance Posting

System (CIPS), an electronic bulletin

board service, provides access to the

texts of formal documents issued by the

Commission. CIPS is available at no

charge to the user and may be accessed

using a personal computer with a

modem by dialing (202) 208–1397. To

access CIPS, set your communications

software to 19200, 14400, 12000, 9600,

7200, 4800, 2400, 1200 or 300bps, full

duplex, no parity, 8 data bits, and 1 stop

bit. The full text of this document will

be available on CIPS for 60 days from

the date of issuance in ASCII and

WordPerfect 5.1 format. After 60 days

the document will be archived, but still
340 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

1 In this document, the term decommissioning is

used broadly. Possible forms of decommissioning

extend from simply shutting down the power

operations to tearing out all parts of the project,

including the dam, and restoring the site to its preproject condition.

2Project Decommissioning at Relicensing; Notice

of Inquiry, 58 FR 48991 (Sept. 21, 1993), IV Stats.

& Regs. ¶ 35,526 (1993).

accessible. The complete text on

diskette in Wordperfect format may also

be purchased from the Commission’s

copy contractor, La Dorn Systems

Corporation, located in room 3104, 941

North Capitol Street, NE., Washington,

DC 20426.

Before Commissioners: Elizabeth Anne

Moler, Chair; Vicky A. Bailey, James J.

Hoecker, William L. Massey, and Donald F.

Santa, Jr.

I. Introduction and Summary

The Federal Energy Regulatory

Commission (Commission) is adopting a

policy statement that addresses issues

related to relicensing and

decommissioning 1 raised in its

September 15, 1993 Notice of Inquiry

(NOI) in the above-captioned

proceeding. 2 In that Notice, the

Commission invited comment on a

series of fifteen questions dealing with

the relicensing and decommissioning of

licensed hydropower projects after the

original license has expired. The

individual questions, as well as a

summary of the commenters’ responses,

are set forth in Appendix A to this

Policy Statement.

There are three major areas of inquiry

encompassed in the ensuing analysis

and discussion. The first involves

relicensing of a project. The second

addresses what happens when no new

license goes into effect for the project at

the time of relicensing, and the project

in question must be decommissioned.

Finally, the discussion addresses preretirement funding of retirement costs

that will be incurred upon

decommissioning.

Regarding the first issue, generally,

when the license for a project expires,

the Commission issues a new license to

the existing licensee. However, that is

not the only option available. After

examining the legislative history and

the relevant statutory provisions, the

Commission concludes that it has the

legal authority to deny a new license at

the time of relicensing if it determines

that, even with ample use of its

conditioning authority, no license can

be fashioned that will comport with the

statutory standard under section 10(a) of

the Federal Power Act (the Act) and

other applicable law. The Commission

anticipates that, where existing projects

are involved, license denial would

rarely occur.

At the time a license expires, the

Commission will review any application

for a new license in terms of current

conditions and public interest

considerations. There may be instances

where a new license can be fashioned,

but the terms will not be acceptable to

the licensee, and so the license will be

rejected. This is most likely to occur

where the licensee of an already

marginal project is confronted with

additional costs at relicensing that

render the project uneconomic. The

Commission concludes that this

possibility will not preclude it from

imposing the environmental (and other)

conditions it deems appropriate to

carrying out its responsibilities under

the Act.

In those instances where it has been

determined that a project will no longer

be licensed, because the licensee either

decides not to seek a new license,

rejects the license issued, or is denied

a new license, the project must be

decommissioned. The second subject

involves the extent of the Commission’s

authority over decommissioning and the

process to be applied when a project is

to be decommissioned. The statutory

language does not expressly address, in

any comprehensive manner, the

Commission’s authority over

decommissioning and the process to be

applied in carrying it out. In such a

situation, the Commission has the

authority to fill in gaps left by the

statute and to ensure that a project is

decommissioned in a manner that is

consistent with the public interest. The

Commission will take a very flexible

approach to the carrying out of this

process.

Possible forms of decommissioning

extend from simply shutting down the

power operations to tearing out all parts

of the project, including the dam, and

restoring the site to its pre-project

condition. Multiple concerns must be

considered in determining which

alternative is appropriate, and the

solutions necessarily will vary from one

situation to another. Judging from the

Commission’s experience with project

license surrenders, interested parties

should generally be able to negotiate the

proper approach to decommissioning.

The Commission strongly encourages all

the interested parties to work together to

accomplish a mutually acceptable

resolution in each case.

The Commission, however, rejects the

notion that it is without statutory power

to act where negotiated solutions cannot

be arranged. The Commission has

concluded that it has the power to take

steps necessary to assure that the public

interest is suitably protected, including,

in the rare case, requiring removal of the

project dam. Assuring protection of the

public interest may involve the need to

coordinate with other government

bodies that will succeed to regulatory

responsibility over certain aspects of the

formerly-licensed projects.

The Commission will not generically

impose decommissioning funding

requirements on licensees. However, in

certain situations, where supported by

the record, the Commission may impose

license conditions to assure that funds

are available to do the job when the time

for decommissioning arrives. The

Commission will determine whether to

impose funding requirements on a caseby-case basis, at the time of relicensing.

Further, even in situations in which

the Commission does not impose a

funding requirement at the time a

project is relicensed, the licensee will

ultimately be responsible for meeting a

reasonable level of decommissioning

costs if and when the project is

decommissioned. The licensee should

plan accordingly, and the Commission

will not accept the lack of adequate

preparation as justification for not

decommissioning a project. Some

provision for mid-course funding may

become appropriate for a variety of

reasons. The Commission encourages

affected parties to develop creative

solutions to pre-retirement funding in

such situations.

The Commission will be receptive to

proposals, concerning pre-planning and

pre-funding of decommissioning costs,

reached by mutual agreement during the

course of individual licensing

proceedings or during the term of a

license.

Where the Commission includes a

decommissioning funding provision in a

license it issues, if the licensee is a

public utility subject to the

Commission’s wholesale ratemaking

jurisdiction, it may file to include an

appropriate share of those costs in its

rates. In situations where the

Commission has not required preretirement funding in a license, and it

is subsequently determined that

decommissioning is necessary, a

licensee that is a public utility may file

to recover an appropriate share of

decommissioning costs through

wholesale rates, on a prospective basis.

Finally, the Commission is by

separate order rescinding the reserved

authority over decommissioning matters

that routinely has been included in

recent relicensing orders because of the

pendency of this proceeding. The

records in those cases demonstrate no

current need to plan for, or expect,
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 341

3Pub. L. 66–280, 41 Stat. 1063 (June 10, 1920).

4That was before the period of the large-scale

construction of hydropower projects by the Federal

Government that would mark future decades. At

that point, proponents of Federal ownership faced

considerable resistance to the concept (e.g., 53

Cong. Rec. 3416 (1916) [remarks of Sen. Shields];

53 Cong. Rec. 3356 [remarks of Sen. Works]; 56

Cong. Rec. 9121 (1918) [remarks of Rep. McArthur];

Water Power—Hearings before the House

Committee on Water Power, 65th Cong., 2d Sess.

235–36 (1918) (hereinafter cited as ‘‘1918 House

Hearings’’) [remarks of Rep. Sims]). Nonetheless,

they wanted to leave future possibilities open via

takeover. See, e.g., 53 Cong. Rec. 3297 (1916)

[remarks of Rep. Husting]; 53 Cong. Rec. 3228

[remarks of Sen. Walsh]; 1918 House Hearings at

447–53 [testimony of Secretary of the Interior Lane].

5See, e.g., 54 Cong. Rec. 1008 (1917) [remarks of

Sen. Shields]; 59 Cong. Rec. 1048, 1442–43, 1474

(1920) [remarks of Sen. Walsh]; 59 Cong. Rec. 1043,

1045 [remarks of Sen. Fletcher], 59 Cong. Rec. 1049

[remarks of Sen. Myers].

6See, e.g., Water Power Bill to Provide for the

Development of Water Power and the Use of Public

Lands in Relation Thereto, and for other Purposes,

Hearings on H.R. 14893 before the House

Committee on the Public Lands, 63d Cong., 1st

Sess. 477 (hereinafter cited as ‘‘1914 Hearings

before House Committee on Public Lands’’)

[testimony of O.C. Merrill]; 51 Cong. Rec. 13037,

13623–24 (1914) [remarks of Rep. Ferris]; 53 Cong.

Rec. 10469 (1916) [remarks of Rep. Adamson]; 1918

House Hearings 855 [letter from Secretary of

Agriculture Houston]; id. at 451 [testimony of

Secretary of the Interior Lane]; id. at 674 [testimony

of Secretary of War Baker] (the Secretaries of

Agriculture, War, and the Interior originally

constituted the Commission and were instrumental

in drafting the 1920 legislation).

7Section 6 of the FWPA.

8S. Rep. No. 1338, 90th Cong., 2d Sess. 2–3

(1968).

9Section 10(a) of the FWPA. This provision, with

some additions, remains today as section 10(a) of

the Federal Power Act, and is set forth at infra n.

46.

10Section 15 of the FWPA.

11Section 6 of the FWPA.

12 59 Cong. Rec. 6524 (1920) [remarks of Rep.

Esch]; 59 Cong. Rec. 7779 [remarks of Sen. Jones].

It is Commission practice to issue annual licenses

to permit it to complete certain actions, however.

See 18 CFR 16.18(b)(1) and (2).

13 16 U.S.C. § 791a, et seq.

14Section 3 of Pub. L. 90–451, 82 Stat. 617 (Aug.

3, 1968).

15Section 10(a) now reads:

That the project adopted . . . shall be such as in

the judgment of the Commission will be best

adapted to a comprehensive scheme for improving

and developing a waterway or waterways for the

use and benefit of interstate or foreign commerce,

for the improvement and utilization of water power

development, for the adequate protection,

mitigation, and enhancement of fish and wildlife

(including related spawning grounds and habitat),

and for other beneficial public uses, including

irrigation, flood control, water supply, and

recreational and other purposes referred to in

section 4(e) . . . .

Section 4(e) is set forth infra.

16See, e.g., H.R. Rep. No. 715, 65th Cong., 2d

Sess. 15, 29 (1918); H.R. Rep. No. 61, 66th Cong.,

Continued

project retirement based on current

conditions.

II. The Commission’s Options at

Relicensing

A. The Original Legislation

When the Federal Water Power Act

(FWPA) 3 was enacted in 1920 after

several years of consideration and

debate, sections 14 and 15 were key

parts of the legislation. There was a

keen interest by some members of

Congress in providing the opportunity

for eventual Federal takeover of

Commission-licensed power projects,

and that became reflected in section 14.

This section was designed as a vehicle

that would permit the Federal

government to own, maintain, and

operate valuable water-power projects

under terms which could make such

takeover practical when the

circumstances warranted. 4

Congress further provided in section

15 of the FWPA that if Congress did not

elect the first option of taking over and

operating the project when a license

expired, then the Commission was

authorized to issue a new license either

to the original licensee or to a new

licensee. Because of concern about what

would happen to service, and to the

industries and communities dependent

upon the project for service, 5 if

Congress and the Commission had not

acted by the time the license expired,

Congress included a provision for

annual licenses until the takeover/

licensing issue had been resolved.

The focus during this period was

plainly on the three options: Federal

takeover and continued operation; a

new license to a new licensee and

continued operation; and a new license

to the old licensee, who would also

continue operation. 6 In the first two

cases, the entity taking over the

operation would have to pay the

existing licensee for the project,

according to the formula established in

section 14.

This did not, however, necessarily

mean continuation of business as usual.

The statute provided for license terms of

up to 50 years on original licenses. 7 As

has been recognized: 8

By so limiting the duration for which these

licenses could be granted, Congress intended

to preserve for the Nation the opportunity of

reevaluating the use to which each project

site should be put in light of changing

conditions and national goals.

During the license period, as reflected

in sections 6 and 28 of the FWPA,

licensees enjoyed considerable security.

At the end of that period, the

Commission would reexamine the

statutory standard and make a new

determination. Under section 10 of the

FWPA, new licenses (except the interim

annual licenses) could be issued only on

the condition: 9

That the project adopted * * * shall be

such as in the judgment of the commission

will be best adapted to a comprehensive

scheme of improvement and utilization for

the purposes of navigation, of water-power

development, and of other beneficial uses;

and if necessary in order to secure such

scheme the commission shall have the

authority to require the modification of any

project and of the plans and specifications of

the project works before approval.

Any new license that the Commission

issued would be pursuant to the terms

of the then-prevailing laws and

regulations and carry such further

reasonable terms and conditions as the

Commission then deemed appropriate

to implement the statutory standard. 10

Each license was to be conditioned on

acceptance of those terms, 11 and if the

licensee did not accept the license, as

conditioned, its rights to an annual

license would end, as well. 12

There was no mention in the

legislation of the possibility of denying

a license, which would put the project

out of business. At the same time, there

was no discussion of what was to occur

if, at relicensing, the Commission could

not make the requisite finding under the

comprehensive development standard.

That is, there was no direction

concerning how the Commission was to

reconcile the potentially conflicting

terms of sections 10 and 15.

B. The Current Statutory Scheme

Section 14 remains on the books,

although the Federal Government has

never taken over a licensed project

under its terms, nor has the Commission

ever recommended that it do so. Section

15 likewise remains on the books. As

the first licenses were about to expire,

50 years after initial passage of the

FWPA, a term was added to section 15

of what was now the Federal Power

Act, 13 authorizing the Commission to

issue nonpower licenses. 14 No such

license has been issued, either. In nearly

every instance, existing licensees have

applied for, and received, new power

licenses when their old ones expired.

All of these decisions have been made

in the context of the Commission’s

implementation of the comprehensive

development standard of section 10(a)

of the Act. At the same time, section

10(a) has evolved since 1920.15 It no

longer has the almost exclusively prodevelopment focus of the 1918–20

period, when the original legislation

was propelled by the largely

undeveloped status of the country’s

water-power resources and the power

shortages that had existed during World

War I.16
342 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

1st Sess. 4 (1919); 1918 House Hearings 5–15, 458–

59; 56 Cong. Rec. 8929, 9120–22, 9614 (1918); 58

Cong. Rec. 1932 (1919).

17As discussed later, there were two provisions

included in the 1920 legislation, involving fishways

and Federal reservations, which have

environmental overtones. However, both were

carry-overs from predecessor legislation (requiring

permits for projects on Federal lands or in navigable

waters), and were not the subject of any significant

attention at that time.

18The first time such considerations were

reflected in the Commission’s Standard Terms and

Conditions for licenses was in 1964. See, e.g., 31

FPC 286, 530; 32 FPC 73, 841, 1116 (1964).

However, such terms began to appear with

increasing frequency in licenses issued during the

1950s.

19FPC v. Oregon, 349 U.S. 435 (1955).

20Udall v. FPC, 387 U.S. 428 (1967).

21Pub. L. 99–495, 100 Stat. 1243 (Oct. 16, 1986).

22 33 U.S.C. § 1341(a)(1).

23See PUD No. 1 of Jefferson County v.

Washington Department of Ecology, U.S., 114 S.Ct.

1900 (1994).

24See language quoted supra at p. 7.

25FPC v. Union Electric Co., 381 U.S. 90, 98

(1965); First Iowa Hydro-Electric Cooperative v.

FPC, 328 U.S. 152, 180–81 (1946).

26 51 Cong. Rec. 12753 (1914) [remarks of Rep.

Sherley], 53 Cong. Rec. 546 (1916) [remarks of Rep.

Ferris], 59 Cong. Rec. 243 (1919) [remarks of Sen.

Jones].

Environmental considerations evoked

virtually no comment in the debates and

reports immediately preceding adoption

of the FWPA.17 However, these

considerations have become important

factors since the 1950s, as experience

with the effects of water-power project

operation has grown. This has resulted

in new license conditions that have

generally increased the costs associated

with running hydropower projects.

The first steps in this direction were

taken by the Commission in various

individual licensing orders it issued.18

Then, as States began to challenge

Commission environmental actions, and

seek concurrent jurisdiction, the courts

put their imprimatur on the matter.

They generally upheld the

Commission’s preemptive authority in

this area, 19 but underscored further the

Commission’s responsibilities for

environmental protection.20

Finally, in 1986 changes were made to

the Act which codified and extended

the earlier actions. 21 This is reflected

principally in sections 10(a) and 10(j).

Section 10(a) was expanded to refer

explicitly to fish and wildlife concerns.

A new section 10(j) was added to

require expressly that, in every license

it issues, the Commission establish

conditions for the adequate and

equitable protection of, mitigation of

damages to, and enhancement of fish

and wildlife.

The 1986 legislation directed the

Commission, when establishing license

conditions, to reach an appropriate

balance between power and other

developmental interests and the

protection of nondevelopment

resources, such as fish and wildlife. It

must consider, but need not give

controlling weight to, the

recommendations of various Federal

and State resource agencies. There are

however two long-standing provisions

which authorize other federal agencies

to promulgate license conditions. The

Secretaries of the Interior and

Commerce have their own power under

section 18 to require construction,

maintenance, and operation of fishways.

In many instances fishways were not

required at the time of initial licensing,

but are being mandated at the time of

relicensing. Similarly, where the project

is built in a National Forest or other

Federal reservation, under section 4(e)

of the Act the Secretary of the

department responsible for supervision

of the reservation is empowered to

establish, at the time of licensing,

conditions he or she believes to be

necessary for the adequate protection

and utilization of the reservation. These

conditions may also be revisited at

relicensing.

More recently, most States have been

given implementation authority under

the Clean Water Act.22 If the State

denies water quality certification for a

hydropower project, the Commission

cannot issue a license for the project.

The States have broad authority under

the Clean Water Act to impose terms

and conditions on operation of the

project; the Commission must include

lawful terms and conditions they

impose in any license it issues.23 This

responsibility permits the States on

some occasions to establish conditions

independent of the Commission that

may alter the economic viability of a

project.

C. Discussion

As the Commission interprets the

terms of the Act, the statutory scheme

contemplates that normally the

balancing between power and

environmental interests can and will be

accommodated through license

conditions. If the licensee’s proposal

does not satisfy the comprehensive

development standard of section 10(a),

then the Commission will add terms

that will bring it into compliance.24

To date, the Commission has not been

confronted with any relicensing

situation where its conditioning

authority has been inadequate to do the

job, i.e., where there was unacceptable

environmental damage that proved

irremediable. Nonetheless, if such a

situation were to occur, the Commission

does not read the Act as requiring it to

issue a license. Such an approach would

compel it to ignore the strictures of

section 10(a), which the courts have

long recognized rests at the core of the

Commission’s licensing

responsibilities.25

The principal support for perpetual

licenses in 1920, which was before the

advent of serious environmental

concerns, rested on the idea that if the

project had to close down, it could be

a catastrophe to the community

dependent on that power. Electricity

was essentially local in nature, since it

could generally be transmitted no more

than 200–300 miles.26 This tended to

result in reliance on a single source that

had been developed to serve its

surrounding area.

Over the ensuing decades, this specter

has been transformed by technological

change. Today, power can be, and is,

transported considerable distances, as

communities are linked by an electric

grid that crosses vast areas of the

country. At the same time, rather than

emphasizing retention of existing

projects, as in 1920, the current

regulatory focus is on fostering greater

efficiency by expanding the

opportunities to shop for power from

distant projects.

Actually, by the time the first licenses

began to expire, the concept of the

inevitability of power operation from a

particular project was eroding. In 1968,

the statute was amended to provide for

nonpower licenses. Section 15(f) of the

Act states (emphasis added):

In issuing any licenses under this section

except an annual license, the Commission,

on its own motion or upon application of any

licensee, person, State, municipality, or State

commission, after notice to each State

commission and licensee affected, and after

opportunity for hearing, whenever it finds

that in conformity with a comprehensive

plan for improving or developing a waterway

or waterways for beneficial public uses all or

part of any licensed project should no longer

be used or adapted for use for power

purposes, may license all or part of the

project works for nonpower use.

The underscored language shadows

that of section 10(a), and recognizes that

there can be situations where the

standard embodied therein cannot be

met and the Commission decides that a

project should no longer be used for

power purposes.

Later, in language added to section

4(e) of the Act in 1986, Congress further

stated (emphasis added):

In deciding whether to issue any license

under this Part for any project, the

Commission, in addition to the power and
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 343

27See, e.g., 51 Cong. Rec. 13623 (1914) [remarks

of Rep. Ferris]; 54 Cong. Rec. 1008 (1917) [remarks

of Sen. Shields]; 1918 House Hearings 235–36

[remarks of Rep. Sims]; id. at 25–26 [remarks of O.C.

Merrill, instrumental in drafting the bill]. See also

the statutory language of sections 14(a) and 15(a)(1).

28The suggestion of municipal licensees that

Congress has barred denial of municipal licenses is

wide of the mark. The 1953 legislation to which

they refer precluded the Federal takeover of such

projects under section 14. It also expressly stated

that no provision of the Act was repealed or

affected except as was specifically referred to in the

1953 legislation. See 16 U.S.C. §§ 828b-828c. This

term was included at the Commission’s request to

ensure that such key provisions as sections 4, 10,

and 18 were not affected. See S. Rep. No. 599, 83d

Cong., 1st Sess. 5–6 (1953).

While the 1953 legislation prevented takeover

under section 14, the Federal Government’s

paramount right to take over by condemnation

remained. Id. at 3–5. See also H.R. Rep. No. 985,

83d Cong., 1st Sess. 2, 5 (1953).

29However, Congress did exhibit its concern with

public safety (see Section 10(c)). There is nothing

to suggest that the Commission could not deny a

license on these grounds (see South Carolina Public

Service Authority v. FERC, 850 F.2d 788, 793 (D.C.

Cir. 1988)), but would instead have to buy out the

dangerous properties in order to close them down.

30As discussed in a later section, any decision to

close down a project will generally involve

decommissioning costs. That element would also be

factored into the equation in determining whether

the licensee elects to continue in operation or close

down.

31Wisconsin Public Service Corp. v. FERC, 32

F.3d 1165, 1168 (7th Cir. 1994).

32H.R. Rep. No. 934, 99th Cong., 2d Sess. 22

(1986).

Hydropower projects, of course, do not stand

alone in this regard. Other sources of electric

generation must also meet costs of environmental

compliance. For example, coal burning facilities

must meet Clean Air Act standards (42 U.S.C.

§ 7651, et seq.) and nuclear facilities must incur the

costs of disposing of spent nuclear fuel and project

decommissioning (e.g., 10 CFR 50.75).

33See, e.g., sections 10(a) and 10(j) of the Act.

development purposes for which licenses are

issued, shall give equal consideration to the

purposes of energy conservation, the

protection, mitigation of damage to, and

enhancement of, fish and wildlife (including

related spawning grounds and habitat), the

protection of recreational opportunities, and

the preservation of other aspects of

environmental quality.

Similarly, among other recent

environmental legislation, the water

certification requirements under the

Clean Water Act could sometimes

effectively quash an application for a

new license.

Given this history, it is the

Commission’s view that, in those cases

where, even with ample use of its

conditioning authority, a license still

cannot be fashioned that will comport

with the statutory standard under

section 10(a), the Commission has the

power to deny a license.

The Commission rejects any

suggestion that, rather than denying a

new license, the United States would

have to take over the property under

section 14. It is abundantly clear from

the legislative history of the FWPA that

section 14 was designed to permit the

Federal Government to take over and

operate the property, not close it

down. 27 Under such circumstances, the

Government would get the output,

which it could either sell or use for its

own purposes, obviating the need to

acquire power from other sources. 28

As already noted, the FWPA was not

drafted and passed with environmental

concerns in mind. 29 There is nothing in

that legislation that contemplates the

prospect of requiring the Government to

routinely bail out projects that can no

longer pass muster under section 10(a)

because of serious and irremediable

adverse public impacts. In individual

cases, where the facts and

circumstances indicate that in fairness

the burden should fall on Federal

taxpayers, rather than on the licensee,

the language of section 14 is broad

enough to permit the Commission to

pursue that course. However, there is no

reason to interpret section 14 as

mandating that outcome.

To this point, the discussion has

focussed on license denial, which is

expected to be highly unusual. The

more likely scenario is one in which the

Commission is required to condition a

new power license with environmental

mitigation measures, and the licensee is

unwilling to accept the license

tendered. The licensee may prefer to

take the project out of business, because

the costs of doing business have become

too high.30 There is no merit to the

suggestion by some industry

commenters that a condition in a power

license is per se unreasonable if, as a

result of imposing the condition, the

project is no longer economically viable.

The statute calls for a balancing of

various development and

nondevelopment interests, and those

commenters’ position would elevate

power and other development interests

far above the environmental concerns. It

would mean that severe environmental

damage would have to be accepted in

order to protect even a very marginal

hydropower project. The Commission

does not read the Federal Power Act to

compel such a result. As the Court of

Appeals for the Seventh Circuit recently

observed: 31

[T]here can be no guarantee of profitability

of water power projects under the Federal

Power Act; profitability is at risk from a

number of variable factors, and values other

than profitability require appropriate

consideration.

The Commission’s approach to the

conditions it establishes will be realistic

and pragmatic. In assessing whether the

terms it is considering are reasonable,

the Commission looks at the costs to the

licensee in complying with the terms of

the license, as well as the environmental

benefits from imposing them. Within

those parameters, however, it must be

recognized that meeting reasonable

environmental costs is a part of today’s

cost of doing business.32

There may be some occasions where

the obligation to pay increased

environmental costs at relicensing will

force a hydropower project to close

down. With the increasing emphasis on

competition in the electric power

industry today, the prospect of shutting

down certain power projects may

increase. However, this is not unique to

hydroelectric projects.

The possibility that a project may

have to shut down is not a legitimate

basis for the Commission to ignore its

obligations to impose necessary

environmental conditions. However, the

Commission is required to balance a

number of different factors under

sections 4(e) and 10(a) of the Act in its

licensing decisions. Should it be

demonstrated that the environmental

costs would be excessive or that loss of

power supplied by the project would be

significant, that evidence can be

considered in assessing the power and

development aspects to be weighed

under section 10(a)’s comprehensive

development standard, as can the

renewable nature of water-power

resources. Similarly, hydropower may

carry significant environmental benefits

over some of the alternate power

sources that would be used instead, and

that is a factor to be considered in

weighing the nondevelopmental aspects

of the equation.

As the foregoing discussion indicates,

there are no definitive standards as to

how the varying accommodations

reflected in the statute are to be applied

by the Commission in fashioning its

license conditions. Environmental

considerations are important, but so are

developmental needs. Optimally, many

of the conflicting concerns can be

worked out through processes of

consultation and negotiation during the

licensing proceeding.33 Experience has

shown that this approach in fact usually

does yield an acceptable result.

III. The Decommissioning Process

A. Experience with Project Retirement

As discussed earlier, the emphasis in

1920 was on the continuation of

licensed projects. Nonetheless, over the

years various projects have in fact

stopped producing power and closed

down. Generally, the reasons have been

grounded in economics—for one reason

or another, it would simply be too
344 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

34The relevant sentence reads: Licenses may be

revoked only for the reasons and in the manner

prescribed under the provisions of this Act, and

may be altered or surrendered only upon mutual

agreement between the licensee and the

Commission after * * * public notice.

The words ‘‘or surrendered’’ were the late

addition.

35FPC Order No. 9, Regulation 10(5), issued Feb.

26, 1921. See also 18 CFR 6.2; FPC Order No. 175

(Attachment p. 28) (1954); FPC, General Rules and

Regulations in Force Jan. 1, 1948, § 6.2 (1948).

36 59 Cong. Rec. 1046, 1443, 1474–75 (1920)

[remarks of Sen. Lenroot].

37Niagara Mohawk Power Corp., 49 FPC 1352

(1973), 4 FERC ¶ 61,209 (1978).

38See, e.g., Porcupine Reservoir Co., 62 FERC

¶ 62,074 (1993); Kimberly-Clark Corp., 55 FERC

¶ 62,018 (1991); Red Bluff Water Power Control

District, 7 FERC ¶61,295 (1979); Pennsylvania

Electric Co., 58 FPC 1749 (1977); Central Vermont

Public Service Corp., 56 FPC 2532 (1976).

39Consumers Power Company, 68 FERC ¶ 61,080

at 61,438–40 (1994); American Hydro Power Co., 60

FERC ¶ 61,237 (1992); 64 FERC ¶ 62,097 (1993)

[safety concerns]; Watervliet Paper Co., 35 FERC

¶ 61,030 (1986); Duke Power Co., 43 FPC 265

(1970). The licensee itself, of course, may prefer this

approach, rather than to continue to pay for

maintenance and repairs on a project which is no

longer generating any power revenues.

40Niagara Mohawk Power Corp. v. FPC, 379 F.2d

153, 158 (D.C. Cir. 1967). See also Northern States

Power Co. v. FPC, 118 F.2d 141, 143 (7th Cir. 1941).

41Chevron v. Natural Resources Defense Council,

Inc., 467 U.S. 837, 843 (1984), quoting from Morton

v. Ruiz, 415 U.S. 199, 231 (1974). See also section

309, empowering the Commission to ‘‘perform any

and all acts, and to prescribe * * * such orders,

rules, and regulations as it may find necessary or

appropriate to carry out the provisions of this Act.’’

42The Commission has extended the concept in

section 6 to provide for annual licenses, during

which the Commission takes appropriate action to

properly close out its jurisdiction. See 18 CFR

16.18(b)(1)–(2).

On the other hand, the Commission rejects the

suggestion of some industry commenters that

section 6 gives the licensee a veto over what the

terms of surrender are to be. Under section 6, it

would be the licensee that sought an intra-term

surrender, in order to be relieved of the obligations

under the license. The Commission would be in the

position to deny the surrender unless its terms were

met.

43This policy statement focuses only on

decommissioning at the time of relicensing.

Licensees have occasionally raised concern that the

Commission might unilaterally decide to

decommission a project before the end of a license

term. However, the terms of section 6 of the Act

apply to that situation. The licensee can explicitly

or implicitly (by its actions) apply for license

surrender, and the Commission can agree to the

surrender. The Commission can order surrender

where the licensee has accepted a license whose

terms expressly permit the Commission to order

decommissioning within the license term. Finally,

expensive to continue operating the

project.

Rather late in the legislative process

leading to the FWPA, Congress added to

the other terms of section 6 a brief

reference to surrender of licenses,

without explanation or comment. 34

Shortly after passage, the Commission

issued a regulation that parallelled the

statute in providing that it was not

simply the licensee’s decision to

surrender a license during the term, but

that the Commission had to approve the

surrender, as well. Furthermore, the

regulation went on, if any project works

had been constructed, the surrender had

to be ‘‘upon such conditions with

respect to the disposition of such works

as may be determined by the

Commission.’’ 35

Since those days, surrenders have

been successfully worked out on many

occasions. There are a myriad of

considerations involved in determining

what form the decommissioning will

take. There was an occasional reference

in the pre-FWPA debates to the fact that

if a licensee decided not to continue

with a project and instead rejected a

new license, it would have to tear out

the project. 36 This sort of remark,

however, illustrates that no significant

consideration was being given at the

time to the intricacies of

decommissioning a power project.

For example, there can be very great

environmental consequences to tearing

out a dam that is part of a licensed

hydropower project. Over the life of the

project huge amounts of silt may

accumulate, and if the dam is removed,

that silt may sweep downstream,

causing major damage to other

properties or resources. 37 The situation

is even more serious where PCBs or

other hazardous materials are embedded

in the sediment. Equally significant,

even if the project is no longer to

produce power, the dam and related

project works may serve other,

nonpower functions worth preserving.

In some instances, power production

is a very secondary element. The

primary function of a project may be to

supply water for irrigation or domestic

needs, but power production facilities

were included to help with the costs of

the project. Certainly, under those

circumstances, tearing out a dam would

be unwarranted. Another example of

significant nonpower functions

associated with a project occurs when

property owners have built homes

around the project’s reservoir.

A review of prior Commission

surrender cases would reveal examples

of all of these situations. Commonly

dams are retained, 38 but it is not

unusual that they be breached or

removed. 39 The determining

circumstances vary with each case.

There is one factor which has

consistently been reflected in the

Commission’s orders. If the dam is to

remain in place or there are other

aspects of the project left which may

significantly affect public resources, the

Commission generally wants to be

satisfied that there is another authority

to take over regulatory supervision.

While this seems to be a matter of sound

public policy, it is further buttressed by

the terms of section 15(f) regarding what

happens when the Commission issues a

nonpower license:

Whenever, in the judgment of the

Commission, a State, municipality, interstate

agency, or another Federal agency is

authorized and willing to assume regulatory

supervision of the lands and facilities

included under the nonpower license and

does so, the Commission shall thereupon

terminate the license.

In other words, Congress anticipated

a continuing system of supervision over

public aspects of those project works

that would remain.

B. The Commission’s Role in

Decommissioning

Sections 6 and 15(f) deal expressly

with only two situations—surrenders

during a license term and situations

where the Commission has issued a

nonpower license at the end of a license

term. However, there is no evidence to

suggest that Congress determined or

intended that the Commission was to be

left powerless to deal with other,

analogous situations. As the Court of

Appeals for the District of Columbia

Circuit has recognized: 40

The Act is not to be given a tight reading

wherein every action of the Commission is

justified only if referable to express statutory

authorization. On the contrary, the Act is one

that entrusts a broad subject-matter to

administration by the Commission, subject to

Congressional oversight, in the light of new

and evolving problems and doctrines.

Likewise, the Supreme Court has

observed: 41

The power of an administrative agency to

administer a congressionally created * * *

program necessarily requires the formulation

of policy and the making of rules to fill any

gap left, implicitly or explicitly, by Congress.

The Commission is of the opinion that

implicit in the section 6 surrender

provision is the view that a licensee

ought not to be able simply to walk

away from a Commission-licensed

project without any Commission

consideration of the various public

interests that might be implicated by

that step. Rather, the Commission

should be able to take appropriate steps

that will satisfactorily protect the public

interests involved. 42 Section 15(f) takes

the approach one step further by

suggesting that wherever nonpower

activities are to continue, there should

be another regulatory authority prepared

to step in. Those principles have

validity well beyond the particular

contexts in which they are specifically

referenced in the Act. 43
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 345

the Commission can initiate a revocation

proceeding under sections 26 and 31 of the Act. In

other instances, the licensee has security against

mid-term surrenders.

44See FPC Order No. 175 (Attachment A p. 28)

(1954). See also 18 CFR 6.2.

45See 36 CFR 251.60(j) and 43 CFR 2803.4–1.

46While the Commission’s regulation does not

expressly state that it will be at the licensee’s

expense, this is implicit. The Commission has no

authority to subsidize the project by itself paying

or requiring the other agency to do so. It might be

noted that the BLM and Forest Service rules (cited

in the previous footnote) specifically state that:

If the holder fails to remove all such structures

or improvements within a reasonable period, as

determined by the authorized officer, they shall

become the property of the United States, but the

holder shall remain liable for the cost of removal

of the structures and improvements and for

restoration of the site.

47See 33 U.S.C. §§ 401, 403.

48 In the past, the dam removal projects that have

been carried out have generally involved relatively

modest expenditures. However, that would not

invariably be the case. For example, the projected

costs of removing the Glines/Elwha dams and

restoring the site and the resources impacted by the

projects have ranged up to $300 million, depending

on the scope of the work undertaken and other

factors. Dam removal costs alone are estimated at

about a quarter of that total. Department of the

Interior, et al., The Elwha Report; Restoration of the

Elwha River Ecosystem & Native Anadromous

Fisheries: A Report Submitted Pursuant to Public

Law 102–495, Executive Summary 13 (January

1994).

Some commenters in this docket have

nonetheless suggested that the

Commission should stay out of the

picture when a license ends. They

implicitly concede that the end of

licensing, and of power production,

does not necessarily mean the end of

impacts on public resources and values.

However, they contend, where Federal

interests are involved, as with Federal

lands and threats to navigation, other

Federal authorities can simply take

over. Otherwise, they contend, the

States can do so.

As the system presently operates, the

Commission staff and the licensees

work with all of these groups to arrange

a comprehensive resolution, and, until

this is done, the Commission retains

jurisdiction by issuing annual licenses.

Overall Commission supervision of the

process makes much more sense than a

piecemeal approach that raises the

chance of both overlaps and gaps in

coverage.

The Commission consequently

contemplates continuation of the

existing procedure. Experience suggests

that in nearly all instances the

interested parties should be able to

reach a resolution of the

decommissioning approach among

themselves. Where this is not possible,

the Commission will impose reasonable

terms appropriate to the situation, but

this is not the approach the Commission

favors.

C. The Role of Other Federal Agencies

Where project works at issue are

located on Federal lands, the

Commission’s surrender regulations

have for decades required the licensee

to restore the lands to the satisfaction of

the responsible agency when the

licensee surrenders its license.44 Most

commonly those agencies are the U.S.

Forest Service and the Bureau of Land

Management, and both apply analogous

principles in permits they grant for use

of Federal lands.45

Absent specific authority by the

Federal agency involved for continued

use of Federal lands at the termination

of Commission licensing, it is eminently

reasonable that the licensee must restore

the lands to that agency’s satisfaction, at

the licensee’s expense.46 No commenter

presents a persuasive case to the

contrary.

The Army Corps of Engineers

presumably would sometimes become

involved where there are navigable

waters. To the extent that new

construction in navigable waters is

proposed, as where dam removal or

modification is in issue, permits are

needed from the Corps under the River

and Harbor Act.47 Moreover, were

project works to actually pose a serious

threat to navigation, it can be assumed

that the Corps would step in to protect

that interest.

However, commenters have offered no

comprehensive legal analysis of the

Corps of Engineers’ responsibility

outside those relatively narrow contexts.

Absent that, or a clear indication from

the Corps that it intends to take a

leading role in assuming broad

responsibility for safety and other

aspects of projects previously regulated

by the Commission and believes that it

has the authority to do so, there is little

basis for the Commission to count on

the Corps of Engineers’ assuming

significant additional responsibility.

D. The Role of States and Municipalities

There remains a relatively large gap in

coverage left by Commission

withdrawal. However, many States

(though not all) have fairly

comprehensive programs in effect

governing dams and similar structures

in their waters, especially in the areas

of dam safety and the environment. It is

thus important that the responsible

State agencies be partners in any

arrangement that is worked out at the

time when Federal licensing ends.

The attitudes of States (and

municipalities) towards the prospect of

taking over regulation may vary,

depending on the circumstances. Where

a project has multiple uses, State or

municipal authorities may be willing to

assume responsibility in order to keep

major nonpower elements of the project

in operation. Where this is the case, the

Commission will entertain the request

that it simply require the shut-down of

power operations without further

actions that could affect those other

functions. It is unlikely that a dam or

reservoir serving key municipal water

needs, for example, is going to be shut

down.

There could be other situations,

however, where a State (or

municipality) would be reticent to have

responsibility for a project licensed by

the Federal Government now transferred

to it. This might include cases where

there are presently serious problems

associated with the project, and/or the

project serves no useful function other

than power production (which will be

unauthorized once Commission

licensing ends). Where a State makes a

persuasive case as to why it ought not

to have to bear the burden of future

regulation, the Commission will

consider the appropriateness of

requiring the affected project works to

be removed, thereby eliminating the

need for future oversight.

Many factors would enter into such a

decision, of course, including (but not

limited to) the costs of removal,48 the

burdens on the State of continued

supervision, what alternative

approaches are available, and the

environmental consequences of

removal. The Commission will also look

to whether it authorized the original

construction (and thus was directly

responsible for the project being there)

or simply issued the original license on

an existing project.

Where dams or other project works

are left in place, the State may

effectively be compelled to assume

supervisory responsibility over

remaining project works, however

unwillingly, because the public interest

demands that protection. Some State

agencies have complained about any

approach that leaves the States with the

financial burden of dealing with nolonger-useful or abandoned power

projects.

It is not clear that the specific

examples cited in the comments are in

fact under Commission regulation.

Rather, it appears that in most, if not all,

of these instances, the projects had

never been federally licensed.

Nonetheless, where the facts indicate

that there may be a significant problem

in terms of potential financial threat to

State finances, it is a matter for the

Commission to consider in deciding

how far it will take its own
346 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

49The Commission contemplates that its role

would end with seeing that the resources are made

available at the time of decommissioning. The State

would then be responsible for supervision of the

future oversight and administration.

50On the other hand, during decommissioning

negotiations, it might be mutually agreed that,

rather than restoring fish passage by tearing down

the existing facilities, a new fishway would be built

instead.

51This may be because the costs reach a level

which the Commission considers unreasonable.

However, there is a very practical aspect as well.

As the costs of decommissioning rise, they may

reach a point where it is more economical for the

licensee to continue to produce power in order to

fund future decommissioning. Where others would

like to see the project closed, this provides an

impetus for them to share the costs.

responsibility to deal with the

decommissioning process for a

particular project, especially with

respect to assuring adequate resources

for future maintenance of project works

that are to be left in place.49

Several commenters noted also that a

licensee might seek to transfer an

increasingly marginal project to a new

licensee that lacked the financial

resources to maintain it or close it down

in an appropriate manner. Through that

process, the former owner relieves itself

of the responsibility, which then may

fall to State authorities or, at least when

Federal lands are involved, on other

Federal agencies. While the Commission

is aware of no widespread problems on

this score, it agrees that transfer

applications should be scrutinized to

foreclose this sort of situation, and

where warranted, other authorities

should be consulted before transfers are

approved.

E. The Project After Decommissioning

When a project will no longer be

licensed, the Commission’s jurisdiction

is going to end. The future operation of

any remaining works is then the

responsibility of whoever next assumes

regulatory authority. The Commission

does not believe that, at that point, it

has the authority to require the existing

licensee to install new facilities, such as

fish ladders. Basically, the Commission

issues a license for a particular period,

subject to certain conditions. The

licensee may have an opportunity to

obtain a new license at the end of that

term, subject to new conditions; but, if

it elects not to do so, the Commission

cannot go forward and require the same

future steps to be taken anyway, as part

of the decommissioning process.50 That

new facility is a step for any successor

agency to take.

Similarly, while the Commission may

require licensees to provide certain

recreational opportunities in association

with licensed activities, that obligation

ends when the project is no longer

licensed. If these opportunities are to

continue at all, it will have to be as a

result of the former licensee’s voluntary

action or the requirements of the new

regulatory regime that follows.

On that score, once the Commission’s

jurisdiction has concluded, the

preemption which earlier displaced any

State laws would be at an end. The State

would then be at liberty to impose its

own licensing or other regulatory

regime, free from any restrictions

imposed earlier by operation of the

Federal Power Act. That is, projects left

in place would have to meet Stateimposed requirements. Where the

owner could not do so, presumably it

would have to remove the project or

take other appropriate remedial action

authorized or required under State law.

The Commission’s goal is that

generally matters of this type can and

will be resolved to the satisfaction of the

successor agency as part of the

Commission’s decommissioning

process, obviating the need for any later

other action. There could then be a

smooth transition to the new regime

with a minimum of interruption.

IV. Funding Decommissioning Costs

There may be some situations, as

noted earlier, where the Commission

decides to recommend Federal takeover,

which could involve taxpayer funding

of project retirement costs. There may

also be situations where the level of

costs involved is so large that some sort

of cost sharing arrangement must be

worked out if the retirement plan is to

be effectuated. 51 Normally, however,

the Commission anticipates that the

licensee will be responsible for paying

the costs (up to a reasonable level) of the

steps needed to decommission the

project, since the licensee created the

project and benefitted from its

operations.

A major focus of the NOI was on

possible plans for funding of

decommissioning costs over the life of

the project. This step would help assure

that the funds are available to do the job

when the time for decommissioning

arrives, thereby avoiding the possibility

that State or Federal taxpayers might, by

default, be compelled to pay them

because the licensee lacks the resources.

On the other hand, to require such prior

funding in all cases could mean

unnecessarily tying up substantial

amounts of the capital of financially

sound licensees in less than optimum

investments for extensive periods.

In any event, there are several

impediments to effectively carrying out

such a funding program. First, there is

the question of determining the proper

period for accumulating the funds.

Some would argue that the license term

is the proper period. However, it may be

possible to anticipate that there is a

substantial likelihood that a project will

close down before the end of a license

period. Poor physical condition,

marginal economics, and similar factors

may mark this potential situation. On

the other hand, the prospect of a project

closing down at the end of the license

term cannot be assumed to reflect the

general pattern, since physically, a

hydropower project, with proper

maintenance and replacement, may last

far beyond the new term.

Secondly, there is the problem of

measuring how much funding should be

provided. This will depend, inter alia,

on the scope of the decommissioning

that is to occur. As discussed earlier,

there are different possible

decommissioning scenarios, for which

the costs may vary markedly. Only at

the time of decommissioning will the

costs of that program actually be known.

The Commission’s primary concern is

that the licensee have the money

available to carry out whatever

decommissioning steps the Commission

decides are appropriate if the project

ceases to be licensed. In light of the

practical problems involved in trying to

deal with events far in the future, and

because in many cases the time horizon

and general financial strength of the

licensee may be such that there is no

substantial need for a pre-retirement

funding program, the Commission will

not act generically to impose such

programs on all licensees. Accordingly,

where the Commission has not required

pre-retirement funding in a license, the

licensee has no ongoing obligation to

create a decommissioning fund as a

contingency for the event that the

project is required to be

decommissioned at a later date.

There may be particular facts on the

record in individual cases, however,

that will justify license conditions

requiring the establishment of

decommissioning cost trust funds in

order to assure the availability of

funding when decommissioning occurs.

The Commission would consider, for

example, whether there are factors

suggesting that the life of the project

may end within the next 30 years, and

would also look at the financial viability

of the licensee for indications that it

would be unable to meet likely levels of

expenditure without some form of

advance planning.

In other cases, licensees and others

may wish to reach an agreement in the

context of individual licensing cases

concerning procedures for preretirement planning and funding. The
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 347

52See Consumers Power Company, 68 FERC ¶

61,077 at pp. 61,380–83 (1994).

53By the same token, the establishment of a fund

does not necessarily mean that a project will

ultimately be decommissioned. Likewise, any

planning and funding that does occur will not

control the scope of the ultimate decommissioning,

should that prove necessary. If funds prove

inadequate, more will have to be supplied. There

may also be more funds than are ultimately needed.

54 If it turns out that costs actually incurred for

decommissioning are greater than the funding

amounts, the licensee may seek to recover the

additional costs through rates. However, if it turns

out that the costs actually incurred at the time of

decommissioning are less than the funding

amounts, the licensee and its shareholders may not

keep those amounts; rather, the licensee will be

required to refund them to ratepayers.

55For example, the main support seems to come

from those government authorities who otherwise

fear they might have to absorb costs associated with

abandoned projects owned by those without

significant financial resources. However, those

authorities have not shown that they have broadly

implemented such a program for permittees within

their jurisdictions, as might be expected if major

problems had developed on this score.

56EEI, for instance, discussed the issues in one

broad narrative; APPA divided its comments into

separate responses to the specific questions; and

NHA commented broadly in the first half of its

submission and then responded to specific

questions in the second half. Reform and Kennebec

also split their comments between a general

discussion and specific responses to questions.

Commission encourages creative

solutions in this regard. 52

Without advance planning, the

financing of decommissioning costs may

well cause problems at the time of

decommissioning. Licensees have

argued that the Commission should

impose no funding requirements in its

licenses. While the Commission has

decided not to adopt any generic

funding requirements, licensees should

not view the Commission’s decision as

an impediment to ordering whatever

decommissioning steps it deems

appropriate when the time for

decommissioning a particular project

arrives.53 The licensee has the

responsibility for project retirement. In

those situations where a licensee has

not been required to undertake preretirement funding, and it determines

on its own that decommissioning is

probable and the costs can reasonably

be estimated, a public utility licensee

can file to recover such costs in rates.

If funding requirements have been

established in a license issued by the

Commission, licensees subject to the

Commission’s ratemaking jurisdiction

can recover an appropriate share of

funding amounts in subsequent

wholesale rate filings.54 In situations

where the Commission has not required

pre-retirement funding in a license, and

it is subsequently determined that

decommissioning is necessary, a

licensee that is a public utility may file

to recover an appropriate share of

decommissioning costs through

wholesale rates, on a prospective basis.

The foregoing discussion is directed

to project-specific funding. The NOI

also raised the possibility of establishing

some type of industry-wide fund,

financed by annual charges imposed by

the Commission. In this instance, the

licensee would not be pre-funding its

own decommissioning costs but rather

would be helping underwrite the costs

of other licensees (presumably those

lacking the resources to meet their own

obligations). The Commission has

concluded at the present time that such

a fund is inappropriate. There is little

specific evidence concerning the need

for such a fund,55 while the practical

problems of implementing the program

fairly and administering it soundly

would be formidable. Should later

experience with decommissioning

demonstrate a stronger need, the

Commission can reassess the issue at

that time.

List of Subjects in 18 CFR Part 2

Administrative practice and

procedure, Electric Power, Natural gas,

Pipelines, Reporting and recordkeeping

requirements.

By the Commission.

Commissioner Bailey dissented with a

separate statement attached.

Lois D. Cashell,

Secretary.

In consideration of the foregoing, the

Commission amends Part 2, Chapter I,

Title 18 of the Code of Federal

Regulations as set forth below.

PART 2—GENERAL POLICY AND

INTERPRETATIONS

1. The authority citation for part 2

continues to read as follows:

Authority: 15 U.S.C. 717–717w, 3301–

3432; 16 U.S.C. 792–825y, 2601–2645; 42

U.S.C. 4321–4361, 7101–7352.

2. Part 2 is amended by adding § 2.24,

to read as follows:

§ 2.24 Project Decommissioning at

Relicensing.

The Commission issued a statement of

policy on project decommissioning at

relicensing in Docket No. RM93–23–000

on December 14, 1994.

Note: This Appendix will not be published

in the Code of Federal Regulations.

Appendix A—Comment Summary

In response to the NOPR, the

Commission received comments and

reply comments from a great many

commenters, including municipal and

non-municipal licensees; federal, state,

and local governmental organizations;

national, regional, and local

environmental, trade, or other

organizations and associations; and

private citizens. The more substantial

comments are identified at the end of

this comment summary, grouped by

category and showing the shortened

names or acronyms used in this

summary. In addition, there was a large

volume of comments in the nature of

one to three-page letters. Many were

from individuals (including operators of

small hydro projects) and many were

from local or regional organizations or

local branches of national organizations.

In general, the commenters fall into

two distinct groups of roughly equal

size. One group takes what might be

loosely characterized as a ‘‘strict

construction’’ approach to the legal

issues, contending that the

Commission’s organic statutes do not

authorize it to compel the

decommissioning of a project except

under narrowly prescribed procedures

that entail reimbursement of the

licensee. The advocates of this position

include the licensees and their

organizations.

The second group might be loosely

characterized as taking a broader

approach to statutory interpretation,

contending that the Commission has

considerable inherent authority to

decline to relicense a project whose

license has expired, and to compel the

licensee to decommission the project

(including, if appropriate, removal of a

dam or other project facilities) at the

licensee’s expense. The advocates of

this position include a broad array of

national, regional, and local

environmental groups, as well as federal

and state agencies.

Many commenters addressed the

specific questions posed in the NOPR.

Other commenters expressed more

general views. Some commenters

expressed their legal analysis in broad

terms, with their answers to the

questions being framed as crossreferences to their broader discussion.56

Many commenters endorsed the more

extensive comments of an association to

which they belong, adding

supplemental views or emphasizing

particular points. Many of the shorter

letters referred to the views expressed

by organizations that filed lengthier

comments. A limited number of

commenters filed reply comments.

This summary discusses first the

comments on the broader issues and

then the comments in response to the

specific questions posed by the NOPR.
348 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

57See discussion and citations below; a variety of

legal theories was advanced.

58See, e.g., EEI at 12; APPA reply comments at

4–7.

59EEI reply comments at 13.

60 Id. at 5.

61See, e.g., Reform at 5–6, 11–13.

62See, e.g., NHA at 28; APPA at 9.

63See, e.g., NHA at 5; EEI at 4; PG&E reply

comments. (Reply comments are specifically

identified as such; all other citations are to initial

comments.) See also New England at 4–5.

64See, e.g., Reform at 5–6, 11–13.

65Reform at 13–14.

66See discussion and citation below.

67See e.g., Pacificorp at 3.

68 Kennebec at 12–18; Walton at 7–8.

69 Kennebec at 18–20.

70NHA at 11–16; EEI at 18, 20–33; Duke at 9–13;

Mt. Hope at 4–5.

71See, e.g., Wisconsin Department at 3–13;

Washington Department at 1–2.

72See, e.g., EEI at 16–20.

73Section 14 of the FPA, 16 USC 807, authorizes

federal takeover of hydropower projects at the

expiration of the license, pursuant to prescribed

procedures, and provided that the United States

pays the licensee its ‘‘net investment’’ in the

project, not to exceed its ‘‘fair value.’’ Section 15,

16 USC 808, prescribes the relicensing procedures

in the event that there is no federal takeover under

section 14. These procedures include issuance of a

new license (to either the existing licensee or a new

licensee), an annual license, or a nonpower license.

The compensation to be paid by the new owner

to the prior owner is defined in section 14 to be

‘‘the net investment of the licensee in the project

or projects taken, not to exceed the fair value of the

property taken, plus such reasonable damages, if

any, to property of the licensee valuable,

serviceable, and dependent as above set forth but

not taken, as may be caused by the severance

therefrom of property taken.’’

74EEI at 3–4. See also NHA at 7–8. EEI further

contends (at 13–14) that nonpower licenses can

only be used as the transitional authority pending

assumption of jurisdiction by another agency, and

cannot be used as a vehicle to implant an

involuntary decommissioning.

75See e.g., EEI at 25, 29; Chelan at 15–16.

76See, e.g., Kennebec at 30–34; Kennebec reply

comments at 6–7; Michigan at 8.

A. Broader Issues

As a preliminary matter, a number of

commenters note the range of activities

potentially includable within the scope

of the word ‘‘decommissioning.’’

Depending on the circumstances, it

could mean simply ceasing to operate a

project, without physically removing

any project facilities. At the opposite

end of the spectrum would be removing

a dam and dredging out the

accumulated silt in the reservoir, a

potentially complex and costly process

that could involve serious

environmental impacts of its own.

Environmental commenters find legal

authority for the Commission to

mandate physical removal of project

works.57 Licensees, on the other hand,

contend that once a project’s license

ends and the project ceases to generate

electrical power (and, perhaps, the

generator is disconnected and removed),

the Commission lacks jurisdiction to

mandate anything further.58

Licensees suggest that hydroelectric

projects, if properly maintained, may be

physically and economically viable

‘‘indefinitely,’’ such that

decommissioning would be a rare

occurrence.59 These commenters stress

the formidable structural integrity of

dams, designed to last for ‘‘thousands’’

of years.60 Environmental commenters,

on the other hand, analogizing to mines,

forests, nuclear plants, and landfills,

etc., suggest that all hydropower

projects have a finite ‘‘life-cycle’’; that

they all silt up in the end; and that plans

for their decommissioning should be

routinely considered from the outset of

their operation.61 Commenters of all

persuasions agree that project facilities

that become unsafe should be removed

(if they can’t be repaired) to alleviate the

hazard.62 Some licensees suggest that

when projects become uneconomic the

licensee will itself take the initiative of

proposing decommissioning and

surrender of the license.

Commenters who believe that the

decommissioning of a hydropower

project will be a comparatively rare

event urge case-by-case analysis of the

issues as they may arise, in the peculiar

factual context presented by the case at

hand.63 Commenters who believe that

decommissioning is part of the

inevitable life cycle of all hydropower

projects prefer a more generic approach

to determining the Commission’s policy

and practice.64 These commenters

advocate advance planning for

decommissioning, contending that,

absent a decommissioning policy by the

Commission, the inevitable costs of

decommissioning will be borne by

taxpayers.65

As a preliminary matter, a number of

commenters draw a distinction between

shutting down project operations and

removing project facilities, and, along

with this, a distinction between the

power to cause a project to cease

operating and the power to cause

someone (i.e., the licensee) to incur the

expense of removing its project’s

facilities. Licensees concede the

Commission’s authority to terminate a

project at relicensing as long as the

licensee is compensated for its

investment. The compensation could

come from either a government or a

private purchaser.66

In this regard, several commenters

suggest (but without legal discussion or

citation) that an involuntary

decommissioning of a project would

constitute a taking of property without

due process of law in violation of the

U.S. Constitution.67 Other commenters

dispute that assertion, with extended

discussion of legal precedent in support

of their position. In general, they

contend that a license is not a property

right, and that the termination of a

license does not constitute a taking of

property even if the termination results

in an economic loss.68 They go on to

contend that the FPA also does not

provide an absolute right to

compensation.69

Citing extensively to the legislative

history of the FPA, including its

amendments and precursors, licensees

argue that Congress sought to encourage

investment in hydro power projects by

assuring investors that they would be

able to recover the value of their project

at the expiration of the license.70 Also

citing to that legislative history,

environmental groups and government

agencies respond that Congress sought

to protect the investors’ financial

interests in the event that the project

was taken over and operated by the

government, or by another group of

investors, after the license expired, but

did not intend to reimburse the

investors if the project was

decommissioned at the expiration of the

license term; at that point, the investors

would already have fully recovered

their investment.71

The crux of the licensees’ position 72

is that sections 14 and 15 of the FPA

give the Commission four choices at

relicensing, and only four choices.73 EEI

expresses it as follows: 74

In a relicensing proceeding, FERC has

authority to:

• issue a new license to the existing licensee

or a new licensee;

• recommend a federal takeover in

accordance with the provision of the FPA

applicable to such action;

• issue a nonpower license to an applicant

for such a license, or

• issue annual licenses to the existing

licensee until a final decision is made.

A unilateral order of surrender to be

followed by decommissioning or project

removal at the licensee’s expense are not

options available to FERC under the FPA.

A corollary argument to this view is

that the FPA section 15 authority to

issue an annual license is mandatory

and not discretionary. Thus, the

Commission is compelled to issue

annual licenses (in perpetuity if

necessary) until such time as it either

issues a new license or a nonpower

license or recommends federal takeover;

the FPA does not afford the Commission

the option of issuing no license at all. 75

Environmental groups and

government agencies characterize this

result as ‘‘absurd.’’ 76 Discussing the

standards in sections 4 and 10 of the
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 349

77 16 USC 797 and 803.

78See, e.g., Reform at 20–24; Kennebec at 8–12;

Kennebec reply comments at 5–8; Interior at 3–4;

S’Klallam at 3–4.

79See, e.g., Kennebec at 5–7; Interior at 3.

80See, e.g., Reform at 24–25.

81 33 USC 1341(a).

82Reform reply comments at 15–16.

83Commerce at 1–3.

84 Id. at 4.

85 16 USC 799. Section 6 provides that licenses

‘‘may be altered only upon mutual agreement

between the licensee and the Commission * * *’’

86EEI at 33–38; NHA at 21–22; APPA at 5.

87See, e.g., Interior at 6; Reform reply comments

at 12.

88Pub. L. 83–278, 67 Stat. 587, codified at 16 USC

828–828b.

89Water at 9.

90Chelan at 7–10; Centralia at 4–5; Grant at 2–3.

91See, e.g., Reform at 27.

92 16 USC 817.

93 Kennebec at 21–25, 27; Reform at 25–27;

Walton at 11. Licensees disagree. NHA reply

comments at 5–6; EEI reply comments at 26; Duke

reply comments at 3.

94 Interior at 1; Reform at 16, 25–27; Kennebec at

22–23, 25–26. Section 4(g) of the FPA, 16 USC

797(g), authorizes the Commission to conduct

investigations. Section 10(c) of the FPA, 16 USC

803(c), requires the licensee to maintain and repair

the project. Section 309 of the FPA, 16 USC 825h,

confers general authority on the Commission to

implement the FPA. Licensees disagree. APPA

reply comments at 2; EEI reply comments at 12.

95See, e.g., Kennebec at 20–21.

96 Id. at 27–28.

97See, e.g., NHA at 9–11, 16; EEI at 39–43.

98See, e.g., Reform at 16–19, 22–24; Interior at 2.

Licensees disagree. See, e.g., EEI reply comments at

30–31.

99Pub. L. No. 102–495.

100NHA at 18–20; EEI at 43–48; APPA at 14–15;

James at 5–7.

FPA,77 as amended by the Electric

Consumers Protection Act of 1986

(ECPA), they note that the Commission

is required to conduct an extensive

inquiry into the alternative, non-power

uses of the water, and to consider those

uses in deciding whether to issue a new

license. They argue from this that

Congress surely intended for the

Commission to have the authority to

conclude that issuance of any form of

license (whether new, annual, or

nonpower) would be inconsistent with

the public interest, and to implement

that conclusion by not issuing any

license. 78 Citing the legislative history

of the FPA and its predecessor, the

Federal Water Power Act, these

commenters contend that Congress

intended licenses to be for a finite term

with a definite end, implying that they

need not be renewed or reissued.79 They

construe the provision for annual

licenses as applying solely during the

pendency of the relicense proceedings;

if those proceedings conclude with a

determination to not issue a license,

then there is no further obligation to

issue annual licenses.80

Reform points out that licensees are

required to obtain a water quality

certification under section 401(a) of the

Clean Water Act 81 as a prerequisite to

receiving a new license. Reform

contends that it would be absurd to

construe the FPA as requiring issuance

of an annual license in perpetuity in the

event that the water quality certification

was denied.82

Commerce contends that the authority

to withhold permission is basic to and

inherent in the concept of a license.

Commerce construes the FPA, as

amended, and its legislative history, as

reserving ‘‘paramount rights’’ in the

United States over navigable waters, and

refers to ‘‘the generic powers and

authority of the Commission set forth in

section 4(e) to exercise discretion in

determining whether or not to issue a

licensee.’’ 83 Commerce construes the

nonissuance of a license as the ‘‘no

action’’ alternative under the National

Environmental Policy Act (NEPA), and

seems to construe NEPA itself as

supporting adoption of a

decommissioning alternative.84

Licensees also contend that section 6

of the FPA 85 requires mutual agreement

between the licensee and the

Commission as a prerequisite to any

Commission order requiring removal of

project facilities.86 Other commenters

respond that section 6 applies only

during the term of the license, and does

not preclude unilateral Commission

action to compel removal of facilities

after the license has expired.87

Municipal licensees also emphasize

the Act of August 15, 1953,88 which

made certain provisions of the FPA

inapplicable to states and

municipalities, including the section 14

authorization of federal takeover upon

payment of the ‘‘net investment’’ in the

project. Municipal licensees emphasize

that the purpose of the 1953 legislation

was ‘‘to provide greater certainty to state

and municipal licensees that the public

uses and benefits conferred by such

projects will not be disrupted,’’ 89 and to

assist state and municipal agencies in

financing their projects through the sale

of revenue bonds with amortization

schedules beyond the term of the

license. These commenters contend that

Congress deliberately eliminated the

possibility of federal takeover of

municipal projects so as to encourage

investment in them, and that requiring

decommissioning at the end of the

license term would be inconsistent with

the purpose of the 1953 legislation.90

Environmental groups and

government agencies suggest a variety of

sources of legal authority to compel

licensees to remove project facilities at

the expiration of a license if a new

license isn’t issued. Some commenters

suggest that the Rivers and Harbors Act

of 1899 provides a source of authority

with respect to the removal of project

works on navigable waters.91 Some

commenters cite section 23(b) of the

FPA,92 which requires a Commission

license as a prerequisite to construction,

operation, or maintenance of

hydropower facilities; they contend that

the power to order removal of existing

unauthorized facilities is inherent in the

power to decline to authorize those

facilities.93 Some commenters cite

sections 4(g), 10(c), and 309 of the

FPA.94 Others point to historical

precedent.95 Kennebec suggests that the

Commission can compel removal of

facilities either by a direct order under

FPA section 23(b) or by a ‘‘forced

surrender.’’ 96

Licensees contend that their

construction of the FPA is consistent

with court and Commission decisions.97

Environmental groups and government

agencies cite judicial precedents

supporting their more expansive

interpretation of the statutory scheme.98

Licensees refer to the enactment by

Congress in 1992 of the Elwha River

Ecosystem and Fisheries Act,99 which

provides a scheme for compensation in

the event of the decommissioning of

projects on the Elwha River in

Washington. Licensees contend that this

legislation further confirms that the

overall intent of Congress, and the

overall scheme of hydro legislation, is

that decommissioning and dam removal

is a federal responsibility to be

implemented through federal takeover

with full reimbursement of the

licensee.100 Environmental groups

respond that the Elwha River legislation

is unique to the peculiar facts and

circumstances of that river and its

projects and has no dispositive or

precedential value with respect to the

rest of the legislative scheme.

Licensees stress that hydropower

projects provide clean, renewable

energy, and contend that the FPA was

enacted to foster development of those

resources. Licensees also emphasize the

environmental and recreational benefits

of their projects. Environmental groups,

emphasizing the more recent

amendments to the FPA that require

consideration of fish and wildlife

resources and other alternative uses of

water, contend that hydropower projects

inevitably alter the physical

environment to its detriment, by

blocking rivers and flooding land, etc.
350 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

101NHA at 22–25.

102 Id. at 25–27.

103Reform at 25–28. EEI, at 26–27, disagrees.

104 Kennebec at 38.

105 Interior at 1.

106Commerce at 5–7.

107 Interior at 6; Commerce at 8.

108 Kennebec at 40.

109APPA at 6–7.

110Reform at 29.

111NHA at 30.

112APPA at 7–9.

113Reform at 30–31; see also Kennebec at 42.

114 Kennebec at 41.

115 Interior at 6; Commerce at 8–9.

B. Specific Questions

The NOPR posed 15 specific

questions. For convenience each

question is reprinted here, followed by

a summary of the comments received on

it.

1. Does the Commission have the authority

to determine that no project should be

operated or maintained at the site of a project

whose original license has expired? May the

Commission decline to issue a new license

for the project without issuing an annual

license or a nonpower license or

recommending federal takeover?

The comments on these issues were

summarized above. With respect to the

first sentence, licensees contend that the

Commission’s authority is limited to

recommending federal takeover with

full compensation to the original

licensee. Environmental groups and

government agencies disagree, finding

implicit authority to decline to issue

any license at all, neither a new license,

nor a nonpower license, nor an annual

license. Licensees contend that if the

Commission does not issue a new

license it must issue either an annual

license or a nonpower license or

recommend federal takeover.

Environmental groups contend that

once the relicense proceeding has ended

there is no further requirement to issue

annual licenses (or anything else in lieu

thereof).

2. Does the Commission have the authority

to require the holder of an annual license to

file an application to surrender it? Assuming

no new application has been filed, can the

Commission require the holder of an annual

license to decommission the project and

cease operating it?

NHA contends that FPA section 6

precludes involuntary decommissioning

unless no application for a new license

has been filed or the original licensee

refuses to accept the terms of the new

license tendered to it.101 NHA believes

the Commission could construe a

refusal to accept a ‘‘reasonable’’ new

license, or a cessation of project

operations, as constituting an implied

surrender, but with substantial legal

restraints on the Commission’s ability to

compel particular actions (e.g., removal

of facilities) after surrender has

occurred.102

In addition to other statutory

provisions discussed above, Reform

contends that the Commission could

issue a nonpower license, ‘‘on its own

motion’’ under FPA section 15(f), that

compelled a licensee to decommission

its project, remove project facilities, and

restore the project site.103 Kennebec

finds such authority inherent in FPA

section 309, and would use an annual

license as the vehicle to compel

decommissioning and site restoration.104

Interior suggests that the Commission

can use either a nonpower license or an

annual license as a vehicle for

mandating decommissioning.105

Commerce believes that the

Commission can reasonably conclude

that Congress left a gap in the statutory

scheme, and that the Commission can

utilize its ‘‘policymaking authority and

expertise’’ to fill that gap by construing

the FPA to authorize the Commission

‘‘to order the surrender of an expired

license and require the

decommissioning of the project by the

license holder.’’ Commerce ‘‘encourages

the Commission to take further

regulatory or interpretive action to

provide a better foundation’’ for this

position.106

3. Should the licensee’s conduct and/or the

particular circumstances of the case affect in

any way the Commission’s authority

regarding decommissioning? For example,

should it make any difference if the licensee

requests or consents to project

decommissioning? Should it make any

difference if the decommissioning issue

affects only part of a project (such as a

reservoir, dam, or some other project

facility)?

Interior and Commerce regard these

factors as irrelevant to the Commission’s

authority to mandate

decommissioning.107 Kennebec suggests

that the Commission’s analysis under

FPA sections 4 and 10 could result in

a determination to omit authority at

relicensing for some previously-licensed

project facilities.108 APPA agrees,

provided that the new license as a

whole is ‘‘reasonable.’’ 109 Reform

suggests use of FPA section 23(b) to

remove those portions of a project that

are located in navigable waters.110

4. Does question No. 1 pose an implicit

choice between licensee responsibility and

federal takeover, i.e., an implicit choice as to

who is responsible for removing project

works and who should bear that cost? If the

Commission required the holder of an annual

license to file an application to surrender it,

would the Commission be required to ensure

that the annual licensee received its ‘‘net

investment’’ in the project and reasonable

severance damages?

NHA contends that the choice is

explicit, and is determined by the

FPA.111 APPA distinguishes the federal

takeover process under FPA section 14

from a voluntary ‘‘surrender’’ within the

mutual agreement parameters of FPA

section 6; notes that municipal license

projects ‘‘are not subject to recapture or

relicensing at the Section 14 price’’; and

contends that FPA section 15 requires

issuance of annual licenses ‘‘until it

receives the compensation to which it

would be entitled in a federal takeover,

paid either by the United States or a

new licensee, or until it is offered a new

license on reasonable terms’’ defined as

‘‘terms which yield a license that would

be valued at no less than the takeover

compensation.’’ 112

Reform distinguishes between the

transfer of a project and the

decommissioning of a project,

contending that under FPA sections 14

and 15 the licensee is entitled to recover

its net investment and reasonable

severance costs only in the event of a

federal takeover, third party takeover, or

grant of a nonpower license, all of

which involve a transfer of ownership of

a project. In Reform’s view, in the event

of decommissioning of the project—

either voluntary or involuntary—there is

no change of ownership and, therefore,

the ‘‘licensee does not qualify for the

return of its net investment.’’ 113

Kennebec contends that the

Commission has the legal authority to

determine, in effect, who should most

appropriately bear the cost of

decommissioning: the ‘‘taxpayer’’

through federal takeover or the licensee.

Kennebec believes those costs are most

efficiently and appropriately borne by

the licensee.114

Interior and Commerce agree that

compensation of the licensee’s net

investment is required if the project is

taken over, but not if it is

decommissioned.115

5. Barring federal takeover or issuance of

a non-power license or of a new license to

a third party applicant, must an existing

licensee be given a new license with

whatever conditions are necessary for

mitigation, enhancement, and protection of

natural resources regardless of the effect of

the conditions on the economic viability of

the project? If such a new license were issued

and the applicant declined the license,

refused to comply with its terms, or indicated

an intent to abandon the project, could the

Commission construe the applicant/existing

licensee’s position as a de facto application

to surrender the license? Could the

Commission then order the decommissioning

of part or all of the project (with or without

removal of project facilities)?
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 351

116NHA at 31.

117NHA at 31–33.

118APPA at 9–12. Sections 26 and 31 of the FPA,

16 U.S.C. 820 and 823b, generally pertain to

violation of the terms of a license and Commission

remedies in response thereto. See also EEI at 27.

119Reform at 32.

120 Kennebec at 44–46.

121 Interior at 7.

122Commerce at 9–10; New York at 2; Michigan

at 9.

123NHA at 34; see also Central Maine at 4.

124APPA at 13.

125 Id. at 15.

126Montana Power at 10.

127Reform at 33–34.

128 Kennebec at 45–46.

129 Kennebec reply comments at 8–11.

130 Interior at 7–8; Commerce at 11.

131Commerce at 10. Section 18 of the FPA, 16

USC 811, requires the Commission to include the

Secretaries’ fishway prescriptions in any license it

issues.

132NHA at 35–37.

133Reform at 34–35.

134 Kennebec at 47; Nebraska at 3–4; New York at

2; Brazos.

135Water at 3–5, 10.

NHA contends that FPA section 15

requires that new licenses must be

issued ‘‘upon reasonable terms,’’ and

that this precludes issuance of a new

license containing environmental

mitigation measures whose costs render

the project uneconomic.116 NHA would

also regard such a result as an

impermissible balancing of

developmental and nondevelopmental

values under the ECPA amendments to

the FPA.117

APPA contends that if the

Commission does not recommend

federal takeover, issue a nonpower

license, or issue a new license ‘‘on

reasonable terms,’’ then it must

continue issuing annual licenses; it

cannot terminate the proceeding and

stop issuing annual licenses if a licensee

rejects an ‘‘unreasonable’’ new license.

APPA then goes on to explore the

potential applicability of the Rivers and

Harbors Act, and sections 4(g) and 23(b)

of the FPA, with respect to removal of

facilities after a license has expired, and

also explores the related ramifications of

sections 26 and 31 of the FPA.118

Reform suggests a variety of legal

authority to which the Commission

might resort if a licensee declines to

accept a new license, or accepts it but

declines to implement the mitigatory

measures that render it uneconomic.119

Kennebec contends that sections 10 and

15 of the FPA provide adequate

authority to impose reasonable

environmental conditions on a new

license even if those conditions render

the project uneconomic. Kennebec

further contends that the Commission

has authority to compel the licensee to

‘‘remove the project’’ if the licensee

declines to accept a new license so

conditioned.120

Interior contends that the Commission

must deny the relicense application if

continued operation of the project is not

in the national interest. Under the

circumstances posited in the latter part

of the question, Interior would have the

Commission pursue the matter as a de

facto license surrender or as an

enforcement case under section 31 of

the FPA.121 Commerce, New York, and

Michigan, would treat it as a de facto

surrender.122

6. If the Commission has the authority to

require the holder of an annual license to file

an application to surrender it, and if the

Commission requires that the project be

decommissioned, may the Commission

require an existing licensee to install new

project facilities to protect the environment,

such as fish screens or fish passage facilities,

as part of the decommissioning process? May

the Commission require the existing licensee

to remove any project facilities as part of the

decommissioning process or, alternatively, to

maintain certain project facilities in

perpetuity as part of that process? In

particular, does the Commission have the

legal authority to require removal of a dam

as part of the relicensing process? Would the

answers to any of the above be different if

only part of the project were

decommissioned?

NHA contends that, in a surrender or

decommissioning situation, the

Commission’s jurisdiction terminates

and passes on to relevant federal or state

authorities once the license has been

surrendered and the project has ceased

generating electricity.123 APPA notes

that many licensees lease their dams but

do not own them, and that the leases are

not likely to permit removal of the

dam.124 APPA contends that the

Commission’s statutory responsibility is

to regulate functioning hydropower

projects, and that ‘‘ecosystem

restoration’’ after decommissioning is

the province of other governmental

agencies.125 Montana Power contends

that the licensee’s obligations are

limited to making certain that the

project is no longer capable of

generating electricity and ensuring that

the dam is left in a safe condition.126

Reform contends that the Commission

has inherent authority to attach

environmental mitigatory conditions at

any stage, including decommissioning.

Reform suggests that, in the long run,

removal of a dam would be less costly

than ‘‘perpetual’’ maintenance and

rebuilding of it.127

Citing section 23(b) of the FPA,

Kennebec also finds inherent authority

to mandate environmental mitigation at

decommissioning. Kennebec construes

such measures as less costly than

removal of the project, and therefore

inherent in the authority it perceives for

the Commission to mandate project

removal.128 Kennebec also contends that

the Commission has authority to compel

a licensee to remove its dam at the

expiration of its license.129

Interior and Commerce believe that

the Commission has inherent authority

to mandate either partial or total

decommissioning, with or without

environmental mitigatory measures.130

Commerce contends that the

Commission should require installation

of new fish passage facilities as part of

a surrender or decommissioning process

if the Commission deems such fishways

necessary or if such facilities are

prescribed by the Secretary of

Commerce or the Secretary of Interior

pursuant to section 18 of the FPA.131

7. May the Commission issue a new license

to an existing licensee that prefers to

continue operating a project that is no longer

economical, rather that incur the one-time

cost of decommissioning the project?

NHA points out that the cost of

decommissioning a project must be

factored into the determination of which

alternative is the most economical. In

other words, it may be less costly to

operate the project than to shut it down

or remove it. NHA encourages the

Commission to defer to market forces to

determine the future economic viability

of existing, operating projects.132

Reform contends that since all

projects have a finite life, the one-time

cost of decommissioning is inevitable

and does not justify operation of an

otherwise uneconomic project.133

Several commenters point out that a

project may have beneficial flood

control or recreational purposes that

justify continuation of its operations

even if its electric generating functions

are not, by themselves, economic.134

The Western Urban Water Coalition

stresses the importance of not

decommissioning hydropower projects

that serve municipal water supply

purposes, which is often a vital primary

or secondary purpose of projects that

also generate electricity. In this regard,

it refers to FPA section 15(f) as

providing a mechanism for municipal

licensees, through the use of nonpower

licenses, to temporarily ensure the

continued operation of projects that are

needed for water supply purposes.135 It

also recommends preparation of an

environmental impact statement that

analyzes the impact, of any proposed

decommissioning of a project, on water

supply and existing water supply
352 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

136 Id. at 12–13.

137New York at 3.

138Central Maine at 3.

139NHA at 37–40.

140Reform at 35–36.

141Wisconsin Electric at 8.

142Walton at 13.

143 Interior at 8.

144Commerce at 11–12.

145New York at 3.

146Susquehanna at 1–3.

147Oregon at 4.

148Alabama Power at 8–9.

149NHA at 40–41.

150APPA at 17.

151 Interior at 8–9; Reform at 36–37.

152Commerce at 12.

153NHA at 42.

154APPA at 18–19.

155Reform at 38–39.

156Susquehanna at 2–3.

facilities and the feasibility and costs of

alternative water supply facilities.136

Mines urges the Commission to

consider the socioeconomic impact of

decommissioning hydropower projects,

pointing out that electricity can account

for as much as one third of the cost of

smelting aluminum. Thus, the loss of a

source of affordable electricity could

lead to a loss of jobs and social

dislocation.

New York suggests that if a decision

is made to continue operation of an

uneconomic project because of its other

benefits, then long-term maintenance

costs could be shared by government

agencies or financed out of a

decommissioning trust fund.137

Central Maine states that, because the

cost of applying to surrender a license

is the same as the cost of applying for

a new license, under certain

circumstances there is a financial

incentive to seek a new license for an

uneconomic project.138

8. What are the existing licensee’s

responsibilities with respect to

decommissioning, if the existing licensee

does not apply for a new license and wants

to abandon the project? In such a situation,

is a licensee responsible for

decommissioning the project, with or

without removal of facilities, at the end of the

term of the license or of the project’s useful

life? If so, how should ‘‘useful life’’ be

defined?

NHA states that there is no means of

predicting a project’s useful life; it can

only be determined after the fact on a

case-by-case basis. NHA refers to U.S.

projects that have been in operation

since the previous century, and dams in

India and Ceylon that have stored water

for irrigation for over 2000 years. NHA

states that projects can be damaged or

destroyed by natural events (e.g.,

earthquakes, landslides, or floods), or

can be rendered obsolete by improper or

outmoded design or construction, or by

improper maintenance or operation. A

project’s useful life could also be

affected by economic circumstances, or

by the conditions imposed in a license

and their related costs.139

Reform states that ‘‘useful life’’ has

been defined as ‘‘the number of years as

a baseload facility plus the number of

years as an indeterminate load

facility.’’ 140 Wisconsin Electric suggests

a definition based on ‘‘useful economic

life’’ measured in terms of the project’s

capacity, the value of its energy, and its

projected future costs.141 Walton defines

‘‘useful life’’ as the length of time during

which the project is profitable, but with

profitability adjusted to include ‘‘social

and environmental costs’’ including the

costs of dam removal and associated

sediment control.142

Interior believes that it is reasonable

to require the licensee to bear the cost

of decommissioning after it has enjoyed

the economic benefits of the license.143

Commerce urges the Commission to

require prompt removal of project

facilities within a ‘‘reasonable period’’

after expiration of the license ‘‘rather

than allowing projects to remain

abandoned until the end of a ‘useful life’

threshold.’’ 144

New York notes that the ‘‘useful life’’

of a hydropower project could run much

longer than that of a nuclear plant, and

that the project could be abandoned

well before it reaches the end of that

useful life. Therefore, New York would

require that decommissioning planning

take place at the midpoint of the term

of the license.145

Susquehanna recommends that ‘‘the

Commission should commission a

comprehensive study to develop

guidelines to determine the useful life

and projected cost of decommissioning

a ‘typical’ or generic project.’’

Susquehanna recommends that

licensees submit decommissioning

studies 20 years in advance of license

expiration; Susquehanna believes this

would provide adequate time for

planning.146

Oregon advises that the Oregon Public

Utility Commission has the authority to

allow rate recovery for project

decommissioning for regulated utilities.

Oregon suggests that unregulated project

owners could treat decommissioning as

a cost of doing business.147

Alabama Power points out that if the

Commission determines that the public

interest mandates relicensing a project

after a trust fund has been accumulated

to decommission it, then the trust will

have increased the operating cost of the

project for no useful purpose.148

9. Assuming that project facilities removal/

decommissioning is the project owner’s

responsibility, how should the appropriate

time to begin recognition of this liability be

determined in light of the fact that most

projects continue to be economic when the

original license expires? Would it be

appropriate to impose such a requirement at

the time the first new license is issued?

NHA reiterates its view that the useful

life of a project cannot be determined in

advance, and that licensees cannot be

compelled to decommission their

projects without their consent.

Therefore, it rejects any generic rule on

this subject.149

APPA points out that

decommissioning in the sense of

shutting down project operations

without removing the dam is relatively

inexpensive, and contends that

removing a dam is too speculative to

warrant collection of funds in advance.

APPA would allow licensees flexibility

to determine when and how to

accumulate funding for

decommissioning, noting that project

costs are frequently front-loaded in the

earlier years of the project.150

Interior and Reform advocate

inclusion in all licenses of a condition

reserving the Commission’s right to

mandate decommissioning of the project

if it ceases to be in the public interest

to continue operating it.151 Commerce

would review the propriety of

decommissioning at license

expiration.152

10. Can the Commission condition new

licenses (if so requested) to require a reserve

or trust fund that could be used to finance

the cost of decommissioning and/or the

removal of project facilities when the new

license expires? If so, under what

circumstances should it do so?

NHA contends that, since in its view

the Commission lacks statutory

authority to compel decommissioning, it

also lacks legal authority to mandate a

trust fund for that purpose.153 APPA

finds legal authority for a trust fund

only with respect to minor licenses

when sections 14 and 15 of the FPA are

waived.154

Reform finds legal authority for

mandating trust funds in section 10(c) of

the FPA, and would have the

Commission issue regulations requiring

the creation of trust funds. Reform

would also require licensees to submit

decommissioning plans.155

Referring to regulations governing the

decommissioning of nuclear facilities,

Susquehanna believes that a

decommissioning trust fund

requirement would fall within the scope

of the Commission’s authority, but does

not elaborate on the source of that legal

authority.156
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 353

157Oregon at 8–9.

158Michigan at 12.

159Public Pool at 8–9.

160Consolidated at 6.

161Washington Water at 10–11.

162Wisconsin Electric at 9–10.

163NHA at 43.

164APPA at 20; Chelan at 10, 20–21; Centralia at

6–7. Centralia goes on to contend that the lack of

legal authority to prescribe accounting requirements

means that the Commission also lacks legal

authority to audit municipal licensees’ books.

165Reform at 39–40.

166Walton at 15.

167APPA at 20–21.

168Reform at 41–42.

169EPA at 2.

170Michigan at 12.

171APPA at 21–23.

172Reform at 43.

173 Kentucky at 1.

174EPA at 2.

175 Interior at 9.

Oregon notes that its Energy Facility

Siting Council has adopted regulations

that require site certificate applicants to

demonstrate their ability to pay for

decommissioning.157

Michigan contends that ‘‘by requiring

the establishment of funding

mechanisms, FERC will ensure that a

marginally-funded prospective licensee

is only issued a license if it has the

funds to eventually retire the

project.’’ 158

Public Pool contends that the

Commission cannot mandate

involuntary decommissioning, but states

that in the event of voluntary surrender

or abandonment the licensee would be

responsible for ensuring public health

and safety, including removal of

facilities if necessary, and that a funding

mechanism may be appropriate for this

purpose.159

Consolidated contends that

establishing mandated reserve funds for

decommissioning places a

disproportionate burden on

independent non-utility licensees and

industrial owners because investorowned utilities and municipalities can

recover the additional cost of

decommissioning from their respective

ratepayers and taxpayers.160

Washington Water believes that, as an

investor-owned utility, it would be

required to pay income taxes on the

revenues collected for such a fund, and

would therefore have to charge its

customers more than the direct cost of

the fund.161

Wisconsin Electric suggests that the

revenues allocated to a trust fund for

decommissioning might otherwise be

used to finance ‘‘upgrades, replacement,

repair and redevelopment’’ of a project,

suggesting that the requirement for a

trust fund would shorten the useful life

of the project by reducing its level of

maintenance. Wisconsin Electric further

suggests that, if the Commission

mandates a trust fund, it should reduce

its maintenance standards

commensurately.162

11. There are licensees over which the

Commission does not have ratemaking

jurisdiction. Should the Commission

establish accounting or other requirements

and undertake to audit these entities to

ensure the availability of funds for

decommissioning?

NHA contends that, since in NHA’s

view the Commission lacks authority to

mandate decommissioning, it also lacks

authority to establish accounting

requirements to implement

decommissioning.163 Several

commenters state that under the Act of

August 15, 1953, 16 USC 828b, states

and municipalities cannot be required

to comply with the Commission’s

records and accounting procedures.164

Reform would find legal authority under

section 10(c) of the FPA to impose

accounting requirements regardless of

the status of the licensee, and would

have the Commission impose such

requirements.165 Walton distinguishes

between ratemaking regulatory

functions, on the one hand, and

accounting requirements that

implement trust fund or other license

requirements that are designed to

protect ‘‘the public’s interest in health,

safety, navigability, and environmental

quality.’’ 166

12. Can and should the Commission

include, in either a new or an original

license, a requirement that the licensee

accumulate a fund or reserve that can be used

to retire or decommission the project,

including removal of project facilities, at the

termination of the license? Would the

propriety of such a condition depend either

(1) on whether there is some particular

threshold of evidence in the present record

indicating that project decommissioning may

or would be appropriate in the future, or (2)

on the agreement of the license applicant to

accept such a condition in a new license?

APPA would impose a trust fund

requirement only on minor licensees

whose licenses require removal of the

dam at the expiration of the license.167

Reform would impose a trust fund

requirement in all licenses, with the

cost of the project’s decommissioning to

be determined in the environmental

assessment or environmental impact

statement at the time of licensing.168

EPA states that decommissioning is a

reasonable alternative that should be

explored in the environmental analysis

associated with the relicensing process.

This exploration should include the

potential impact of decommissioning on

water quality because the release of

stored sediments could adversely affect

aquatic resources.169

Michigan contends that if there is

evidence in the record that

decommissioning is likely to occur

within 50 years it would be ‘‘arbitrary

and capricious’’ for the Commission not

to require a decommissioning fund.170

13. What alternatives would there be to

requiring individual licensees to contribute

to a project-specific fund? Would it be

feasible and appropriate to have a programwide fund, funded through a collection of

charges for that purpose from all licensees?

APPA contends that there is no legal

authority for compelling licensees to

contribute to a program-wide fund, and

that such a fund would be quite

impractical to establish. APPA contends

that such a fund would inevitably be

inequitable, penalizing either small or

large projects, and raising a host of

complex accounting questions, some of

which APPA poses back to the

Commission.171

Reform proposes a two-tiered system

under which each licensee would be

responsible for its own

decommissioning costs but would also

make modest contributions to a

program-wide ‘‘insurance fund’’ to

finance decommissioning of projects

whose licensees lack the necessary

funds.172

Kentucky suggests that the

Commission consider ‘‘the need for a

national decommissioning fund,

supported by annual fees paid by

licensees, to address abandoned

projects.’’ It believes that these costs

should be borne by ‘‘those who build

the dam and reap the benefits of it.’’ 173

EPA suggests that ‘‘the Commission

consider the approaches to site

restoration responsibility in mining

operations as possible models for

developer funding of dam removal and

site restoration.’’ 174

Interior encourages the Commission

to explore the bonding formulae used by

the mining and nuclear energy

industries to calculate and administer

decommissioning and site restoration

funds. Interior recommends that the

Commission ‘‘consider pooling funds

within certain geographical units,

perhaps by watershed or geographical

regions. A reserve or trust fund

supported by a single project or a group

of projects in a river basin could receive

annual monies based on a percentage of

construction or removal costs, profit

margins, generating capacity, or other

project features.’’ 175

Commerce suggests consideration of a

program-wide fund administered by

either the Commission or an

independent authority analogous to a
354 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

176Commerce at 13–15.

177New York at 3.

178Oregon at 5–6.

179Walton at 17.

180S’Klallam at 16.

181Seattle reply comments.

182APPA at 23.

183Reform at 43–47; see also Walton at 17–19.

184 Vermont at 1–2.

185Commerce at 14; see also Walton at 17–19.

186New York at 4.

187Michigan at 13.

188Washington Department at 2.

189New England at 7–9.

190PG&E at 7.

191Northern at 4–5.

192Peninsula at 13.

193APPA at 24.

194Reform at 48; Interior at 10; Michigan at 13–

14; Washington Department at 3; New York at 4; see

also Walton at 19–20.

195 Interior at 10.

public utility commission, but believes

project-specific funds would be

preferable.176

New York suggests that new projects

be required to establish a trust fund, but

that existing projects contribute to a

statewide or regional pool of funds. New

York expresses concern that a

nationwide pool of funds might lead to

inequitable use of the funds by different

regions.177

Oregon notes that a program-wide

fund would finance decommissioning of

‘‘orphaned’’ projects, but believes the

problems inherent in administering it

would outweigh the benefits in that it

would likely be contentious,

burdensome, and inequitable. Oregon

also suggests that part of a fund could

be used ‘‘as an endowment’’ to help

finance maintenance. Oregon states that

it might ‘‘be willing to assume

responsibility for some projects that no

longer generate power.’’ 178

Walton proposes a ‘‘multi-faceted

approach’’ that includes project-specific

funds, regional funds, watershed funds,

and multi-project single owner funds, as

appropriate.179 S’Klallam suggests

individual performance bonds backed

up by an industry-wide fund.180 Seattle

suggests a national decommissioning

insurance fund financed through fees

assessed on all licensees.181

14. With respect to both a project-specific

fund and a program-wide fund, what

mechanisms would be used for collecting

and administering the money? Would such a

fund be administered by the licensees (jointly

or severally), by State government agencies,

or by the Commission? Who would

determine how much money to collect, and

pursuant to what guidelines? Who would

determine how and when to allow monies

from the fund to be dispersed, and what

findings would be needed to make those

determinations? What accounting standards

would be utilized?

APPA suggests that there are no good

answers to these questions, and that a

program-wide fund would be

inconsistent with sound regulatory

policy.182

Reform would require each licensee to

establish a segregated fund for each of

its projects, administered by a corporate

trustee appointed by the licensee, and

subject to periodic audit by the

Commission. The Commission would

determine the amount of money to be

collected in the fund, based on its

environmental analysis at relicensing of

the cost of restoring preproject

conditions at the project site. The

money would be accumulated either

through prepayment and appreciation or

through periodic payments into an

external sinking fund. The Commission

would oversee the fund’s investment

strategy through promulgation of

regulations. The Commission would

determine when to decommission the

project, and would require periodic

financial accounting.183

Vermont contends that ‘‘[l]icensees

should be required to project the cost of

decommissioning and create a

decommissioning fund through an

annual set aside that would enable

decommissioning by the end of the

license term.’’ 184 The estimated cost

could be based on either dam retention

or dam removal, with due consideration

to any flood control purposes served by

the dam. Vermont would also include a

national fund to cover license

surrenders by project owners who can’t

afford decommissioning costs. Vermont

suggests use of a standard license article

to implement whatever policies are

adopted.

Commerce suggests that projectspecific trust funds could be

administered by the licensee under

strict guidelines established by the

Commission, either in the license or

generically, including minimum

funding requirements and restrictions

on investment interests, with

Commission monitoring during the

course of the license.185

New York prefers that

decommissioning funds ‘‘be controlled

at the state level. FERC could ultimately

determine the amount of money to

collect, based on the recommendations

of consulting agencies and based on

estimates provided as part of

decommissioning plans submitted by

the licensee’’.186

Michigan believes that the licensees

should administer project-specific trust

funds, and that the states, ‘‘on behalf of

the ratepayers, as appropriate, and as

guardians of the public trust, as well as

their citizens’ health, welfare, and

safety, should be the beneficiaries.’’187

Washington Department advocates

control of the fund by the Commission,

to best assure that the money will be

available when needed.188

New England suggests a case-by-case

approach, fine tuning the trust fund

mechanism to the peculiar facts and

circumstances of each project.189 PG&E

also emphasizes the project-specific

nature of decommissioning procedures

and costs, ranging from removal of

generating equipment to removal of a

dam.190

Northern proposes, as an alternative

to trust funds, that licensees incorporate

estimated dam removal costs into

depreciation for each specific project, so

that the project owner would ‘‘carry a

negative value for each project.’’

Northern also suggests use of an internal

account similar to an amortization

reserve. A further alternative would be

allowing the licensee to demonstrate

that ‘‘the current net worth of all

company assets’’ is large enough to

cover any estimated project removal

costs. All of these alternatives would be

subject to verification through periodic

Commission audit.191

Peninsula suggests that some

licensees might want to cooperate on a

funding pool for a trust fund, perhaps

with an insurance company, while

others may prefer to self-finance

through project-specific funds.192

15. Would it be appropriate for the

Commission to propose new regulations,

license articles, or a policy statement that

address any of the above matters? If so, what

new regulations, license articles, or policy

clarification should the Commission

consider?

As noted above, licensees and their

associations generally favor a case-bycase approach to decommissioning

issues as they arise. APPA proposes

elimination of certain existing

regulations that it believes to be

inconsistent with the FPA.193 A number

of commenters recommend that the

Commission establish a

decommissioning policy through the

adoption of new regulations and

standard license articles.194 Interior

suggests that the articles set forth the

Commission’s policy on

decommissioning including

requirements for advance planning and

for funding mechanisms.195

Commerce urges the Commission to

promulgate decommissioning standards

in a policy statement, with

implementing regulations to clarify that

the Commission will mandate

decommissioning when it finds that it

would best serve the public interest.

Commerce also suggests adding license
Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations 355

196Commerce at 15.

197 Kennebec at 48–49.

198All of the commenters filed initial comments.

Commenters identified by this footnote also filed

reply comments.

articles to establish a decommissioning

reserve fund.196

Kennebec recommends issuance of a

policy statement clarifying the

Commission’s authority to mandate

decommissioning, removal of project

works, and ‘‘returning the site to its

natural state.’’ Kennebec also suggests

the possibility of new regulations, or of

new license articles, but in such a

manner as to avoid restricting the

Commission’s flexibility to mandate

decommissioning even absent such

articles in the license.197

The U.S. Forest Service supports

adoption of regulations on

decommissioning, but believes that new

legislation may be needed to clarify the

Commission’s legal authority. In

particular, the Forest Service seeks

clarification as to its own

responsibilities, and that of other federal

land management agencies, in the event

that a licensee ‘‘abandons’’ a project but

can’t afford to remove project facilities.

The Forest Service suggests that the

Commission ascertain, during the

licensing process, what it will cost to

decommission such projects; require a

trust fund for that purpose; and clarify

these procedures and requirements in

new regulations.

Commenters

Federal Agencies

National Marine Fisheries Service (NMFS)

U.S. Department of the Interior (Interior)

U.S. Department of the Interior, Bureau of

Mines, Western Field Operations Center

(Mines)

U.S. Environmental Protection Agency (EPA)

U.S. Forest Service

State Agencies

Kentucky Department for Environmental

Protection (Kentucky)

Michigan Department of Natural Resources

(Michigan)

New York Department of Environmental

Conservation (New York)

State of Oregon (Oregon)

State of Vermont (Vermont)

Washington Department of Wildlife

(Washington Department)

Wisconsin Department of Natural Resources

(Wisconsin Department)

Associations

American Forest and Paper Association

(Paper)

American Public Power Association and

Certain Public Systems (APPA) 198

American Whitewater Affiliation

(Whitewater)

Appalachian Mountain Club (Appalachian)

Edison Electric Institute (EEI) 143

Elwha S’Klallam Tribe (S’Klallam)

Friends of the Earth (Earth)

Hydropower Reform Coalition (Reform) 143

Industrial Licensee Group (Industrial)

Izaak Walton League (Walton)

Kennebec Coalition (Kennebec)

Natural Hydropower Association (NHA) 143

Northwest Hydroelectric Association

(Northwest)

Pacific Rivers Council (Pacific)

Public Generating Pool (Public Pool)

Public Power Council (Public Power)

Trout Unlimited (Trout)

Western Urban Water Coalition (Water)

Municipal Licensees

Brazos River Authority (Brazos)

City of Centralia, Washington (Centralia)

City of New Martinsville, West Virginia (New

Martinsville)

City of Saint Cloud, Minnesota (Saint Cloud)

City of Seattle, Washington (Seattle) 143

Nebraska Public Power District (Nebraska)

Ketchikan Public Utilities (Ketchikan)

Oroville-Wyandotte Irrigation District, Friant

Power Authority, and Tri-Dam Project

(Oroville-Wyandotte)

Public Utility District No. 1 of Chelan

County, Washington (Chelan)

Public Utility District No. 2 of Grant County,

Washington (Grant)

Non-Municipal Licensees

Alabama Power Company and Georgia Power

Company (Alabama Power) 143

Allegheny Power System (Allegheny)

Bangor Hydroelectric Company (Bangor)

Central Maine Power Company (Central

Maine)

Consolidated Hydro, Inc. (Consolidated)

Duke Power Company (Duke) 143

Idaho Power Company (Idaho Power)

James River Corporation (James) 143

Montana Power Company (Montana Power)

Mt. Hope Hydro Inc., United Energy

Corporation, and Liberty Power

Corporation (Mt. Hope)

New England Power Company (New

England)

Northern States Power Company (Northern)

Pacific Gas and Electric Company (PG&E) 143

Pacificorp

Pennsylvania Electric Company and York

Haven Power Company (Penelec)

Public Service Company of Colorado

(Colorado Company)

Puget Sound Power & Light Company (Puget)

Simpson Paper (Vermont) Company

(Simpson)

Southern California Edison Company

(California Edison)

Susquehanna Electric Company

(Susquehanna)

Union Electric Company (Union)

Upper Peninsula Power Company

(Peninsula)

Washington Water Power Company

(Washington Water)

Wisconsin Electric Company (Wisconsin

Electric)

Wisconsin Valley Improvement Company,

Wisconsin Public Service Corporation,

Weyerhaeuser Company, Consolidated

Water Power Company, Neekosa Papers

Inc., and Wisconsin River Power Company

(Wisconsin Companies)

Other Organizations and Individuals

A great number of local organizations and

private citizens, including many local and

regional environmental groups and many

licensees of small hydropower projects,

submitted comments in letter form of one to

several pages in length.

BAILEY, Commissioner, dissenting

I respectfully dissent from the views

expressed in this policy statement. I will

admit that as a regulator, both here and

formerly as a State Commissioner, I am

sympathetic to the analysis that an agency

that has been vested with the authority to

implement a particular statute must, of

necessity, fill in certain specifics as changing

circumstances warrant. In this case, an

argument can be made that inherent in the

authority to grant a relicense application is

the ability to deny that application and to

oversee the process of decommissioning the

project.

But I pull away from the majority after a

review of the record in this proceeding. I

cannot concur in the decision that the

Federal Power Act authorizes this

Commission to require the decommissioning

of a hydroelectric project. While someone

drafting the Federal Power Act today may

very well write it differently, the provisions

of the statute as they currently stand, read

together with the legislative history, do not

support, in my view, the conclusion that the

Commission has the authority to order dam

removal.

The whole tone of the legislative history is

the encouragement of development. And in

order to encourage development, the drafters

strove to give investors certain assurances

that their investments would be secure. Thus,

they set out the specific scenario that would

occur at the time of license renewal.

That scenario is reflected today in sections

14 and 15 of the Federal Power Act: the

Commission may issue a new license, either

to the original licensee or a third party, issue

a license for the nonpower use of the project,

or recommend Federal takeover. The

extensive legal analysis supporting this

conclusion is articulated in detail in

numerous comments filed in response to the

Notice of Inquiry, and I will not begin to

repeat those arguments here.

In addition, I find the passage of Public

Law No. 83–278 in 1953 to be a strong

indicator that, even 30 years after passage of

the Federal Water Power Act, no one

envisioned dam decommissioning as being

part of the Commission’s authority. By

enacting that law, Congress exempted

municipal licensees from the possibility of

Federal takeover at the end of the license

term. This legislation was intended to

facilitate the financing of project expansions

through the sale of revenue bonds with

amortization schedules extending well

beyond the term of the initial license.

Clearly, the legislation anticipated that

these municipally-owned projects would

continue to operate and provide sufficient

revenue to meet debt service obligations. The

threat that a municipal licensee might not

only lose its license at the end of the term,

but also have to fund the project’s

decommissioning or removal, would
356 Federal Register / Vol. 60, No. 2 / Wednesday, January 4, 1995 / Rules and Regulations

1Cost-of-Service Reporting and Filing

Requirements for Oil Pipelines, Order No. 571, 59

FR 59137 (November 16, 1994), III Stats. & Regs.

¶ 31,006 (1994).

2 49 App. U.S.C. 1 (1988).

3See 18 CFR 342.1 (a) and (b), to be effective

January 1, 1995.

4Revisions to Oil Pipeline Regulations Pursuant

to the Energy Policy Act, Order No. 561, 58 FR

58785 November 4, 1993), III FERC Stats. & Regs.

¶ 30,985 (1993), order on reh’g and clarification,

Order No. 561–A, 59 FR 40243 August 8, 1994), III

FERC Stats. & Regs. ¶31,000 (1994). These orders

are jointly referred to as ‘‘Order No. 561,’’ unless

the text clearly specifies otherwise.

5Section 12 provides, in material part, that ‘‘The

Commission may obtain from such carriers * * *

such information as the Commission deems

necessary to carry out the provisions of this chapter

obviously be a much larger obstacle to

financing than the Federal takeover

possibility that Congress eliminated in 1953.

Thus, as argued in the comments, the

imposition of a decommissioning

requirement would directly undermine and

be contrary to the specific intent of Public

Law No. 83–278.

Although the policy statement indicates

that the Commission rarely expects to

mandate project decommissioning, the

decision to imply such authority has

significant consequences. While this

Commission may exercise that authority

narrowly, parties and intervenors will

continue to call for its broad application,

including the imposition of trust funds at

each project, as well as contributions to

regional funds. Indeed, the policy statement

concludes that, should later experience with

decommissioning demonstrate a stronger

need, the Commission can reassess the issue

of establishing some type of industry-wide

fund.

I question whether the Federal Power Act

contemplates such a scheme. In addition,

there will be social and economic

consequences that flow from such decisions.

Decommissioning funds, should they be

required, are traditionally included in rates.

The likely increase in electric rates for

consumers in potentially large regions of the

country and the possible negative impact on

the financial viability of certain projects are

issues not addressed by the policy statement.

In sum, there are major social

consequences, in the broadest sense, that

derive from the decision to imply authority

here, and I am unwilling to assume lightly

that authority. Sections 14 and 15 of the

Federal Power Act outline the relicensing

process to be implemented by the

Commission. Many of the issues raised by the

decommissioning debate are not solely

FERC’s to decide and I believe should be

addressed in a broader forum.

Vicky A. Bailey,

Commissioner.

[FR Doc. 95–63 Filed 1–3–95; 8:45 am]

BILLING CODE 6717–01–P

18 CFR Part 347

(Docket No. RM94–2–001)

Cost-of-Service Reporting and Filing

Requirements for Oil Pipelines; Order

on Rehearing and Clarification

Issued December 28, 1994.

AGENCY: Federal Energy Regulatory

Commission.

ACTION: Final rule; Order on rehearing

and clarification.

SUMMARY: The Federal Energy

Regulatory Commission in ruling on a

request for rehearing is making a minor

change to its regulations that provide

revised filing requirements for oil

pipelines seeking to establish new or

changed depreciation rates, and

clarifying Order No. 571, issued October

26, 1994. The change is to ensure that

the information provided is in a format

that will protect individual shippers.

EFFECTIVE DATE: The amendment to the

regulations is effective January 1, 1995.

FOR FURTHER INFORMATION CONTACT:

Harris S. Wood, Office of the General

Counsel, Federal Energy Regulatory

Commission, 825 North Capitol Street

NE., Washington, DC 20426, (202) 208–

0224.

SUPPLEMENTARY INFORMATION: In

addition to publishing the full text of

this document in the Federal Register,

the Commission also provides all

interested persons an opportunity to

inspect or copy the contents of this

document during normal business hours

in room 3104, 941 North Capitol Street

NE., Washington, DC 20426.

The Commission Issuance Posting

System (CIPS), an electronic bulletin

board service, provides access to the

texts of formal documents issued by the

Commission. CIPS is available at no

charge to the user and may be accessed

using a personal computer with a

modem by dialing (202) 208–1397. To

access CIPS, set your communications

software to 19200, 14400, 12000, 9600,

7200, 4800, 2400, 1200 or 300 bps, full

duplex, no parity, 8 data bits, and 1 stop

bit. The full text of this document will

be available on CIPS for 60 days from

the date of issuance in ASCII and

WordPerfect 5.1 format. After 60 days

the document will be archived, but still

accessible. The complete text on

diskette in WordPerfect format may also

be purchased from the Commission’s

copy contractor, La Dorn Systems

Corporation, also located in room 3104,

941 North Capitol Street NE.,

Washington, DC 20426.

Before Commissioners: Elizabeth Anne

Moler, Chair; Vicky A. Bailey, James J.

Hoecker, William L. Massey, and Donald F.

Santa, Jr.

Order on Rehearing and Clarification

Issued December 28, 1994.

On October 28, 1994, the Federal

Energy Regulatory Commission

(Commission) issued Order No. 571, in

which it established filing requirements

for cost-of-service rate filings for oil

pipelines; filing requirements for oil

pipelines seeking to establish new or

changed depreciation rates; and new

and revised pages of FERC Form No. 6,

Annual Report for Oil Pipelines.1 On

November 28, 1994, the Association of

Oil Pipe Lines (AOPL) filed a request for

rehearing and clarification of Order No.

571. As discussed below, the

Commission clarifies Order No. 571,

and grants in part and denies in part

AOPL’s request for rehearing.

Discussion

A. AOPL argues that the Commission

cannot prescribe initial filing

requirements for cost-of-service rates in

excess of requirements specified in

Section 6 of the Interstate Commerce

Act (ICA).2 Section 6(3) provides that a

carrier must file a notice of rate change

‘‘which shall plainly state the changes

proposed to be made in the schedule

then in force and the time when the

changed rates * * * will go into effect;

and the proposed changes shall be

shown by printing new schedules

* * *’’ These requirements of Section

6(3) are preserved intact in sections

346.1 (a) and (b) of the regulations

adopted by the Commission in Order

No. 571.3 Thus, AOPL’s dispute is with

section 346.1(c), which requires that an

oil pipeline file statements and

supporting workpapers to make an

Opinion No. 154–B cost-of-service

showing as set forth in section 346.2, on

the basis that these requirements go

beyond the limiting provisions of

section 6(3).

As the Commission explained in

Order No. 571, the requirement that a

pipeline file these statements and

workpapers is justified, not by the filing

of information as a part of a notice of

rate change, but by the requirement of

Order No. 561 4 that the oil pipeline

meet the threshold test of demonstrating

a substantial divergence between rates

at the indexed ceiling level and the

pipeline’s cost of service. Rather than a

‘‘filing requirement’’ for a notice of rate

change, the statements and workpapers

must be filed to demonstrate that the

pipeline is entitled to change rates on a

cost-of-service basis as an exception to

changing rates under the indexing

methodology.

The Commission relied on section 12

of the ICA as the statutory authority for

requiring a pipeline to demonstrate that

it meets the threshold test specified in

Order No. 561.5 AOPL argues, however,