[Federal Register Volume 60, Number 2 (Wednesday, January 4, 1995)]
[Rules and Regulations]
[Pages 339-356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-63]



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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.

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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 [[Page 340]] 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.

    \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 pre-project 
condition.
    \2\Project Decommissioning at Relicensing; Notice of Inquiry, 58 
FR 48991 (Sept. 21, 1993), IV Stats. & Regs. 35,526 (1993).
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    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 pre-
retirement 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 case-by-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 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.
    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, [[Page 341]] project retirement based on current 
conditions.

II. The Commission's Options at Relicensing

    A. The Original Legislation
    When the Federal Water Power Act (FWPA)<SUP>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.<SUP>4

    \3\Pub. L. 66-280, 41 Stat. 1063 (June 10, 1920).
    \4\That 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].
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    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,<SUP>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.

    \5\See, 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].
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    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.<SUP>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.

    \6\See, 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).
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    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.<SUP>7 As has been recognized:<SUP>8

    \7\Section 6 of the FWPA.
    \8\S. Rep. No. 1338, 90th Cong., 2d Sess. 2-3 (1968).

    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 
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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:<SUP>9

    \9\Section 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.

    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 
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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.<SUP>10 Each license 
was to be conditioned on acceptance of those terms,<SUP>11 and if the 
licensee did not accept the license, as conditioned, its rights to an 
annual license would end, as well.<SUP>12

    \10\Section 15 of the FWPA.
    \11\Section 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).
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    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,<SUP>13 authorizing the Commission 
to issue nonpower licenses.<SUP>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.

    \13\16 U.S.C. Sec. 791a, et seq.
    \14\Section 3 of Pub. L. 90-451, 82 Stat. 617 (Aug. 3, 1968).
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    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.<SUP>15 It no longer has the almost exclusively pro-
development 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.<SUP>16

    \15\Section 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.
    \16\See, e.g., H.R. Rep. No. 715, 65th Cong., 2d Sess. 15, 29 
(1918); H.R. Rep. No. 61, 66th Cong., 1st Sess. 4 (1919); 1918 House 
Hearings 5-15, 458-59; 56 Cong. Rec. 8929, 9120-22, 9614 (1918); 58 
Cong. Rec. 1932 (1919). [[Page 342]] 
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    Environmental considerations evoked virtually no comment in the 
debates and reports immediately preceding adoption of the FWPA.<SUP>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.

    \17\As 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.
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    The first steps in this direction were taken by the Commission in 
various individual licensing orders it issued.<SUP>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,<SUP>19 but underscored further the Commission's responsibilities 
for environmental protection.<SUP>20

    \18\The 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.
    \19\FPC v. Oregon, 349 U.S. 435 (1955).
    \20\Udall v. FPC, 387 U.S. 428 (1967).
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    Finally, in 1986 changes were made to the Act which codified and 
extended the earlier actions.<SUP>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.

    \21\Pub. L. 99-495, 100 Stat. 1243 (Oct. 16, 1986).
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    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.<SUP>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.<SUP>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.

    \22\33 U.S.C. Sec. 1341(a)(1).
    \23\See PUD No. 1 of Jefferson County v. Washington Department 
of Ecology, U.S., 114 S.Ct. 1900 (1994).
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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.<SUP>24

    \24\See language quoted supra at p. 7.
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    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.<SUP>25

    \25\FPC v. Union Electric Co., 381 U.S. 90, 98 (1965); First 
Iowa Hydro-Electric Cooperative v. FPC, 328 U.S. 152, 180-81 (1946).
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    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.<SUP>26 This tended to result in reliance on a single source that 
had been developed to serve its surrounding area.

    \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].
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    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 
[[Page 343]] 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.<SUP>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.<SUP>28

    \27\See, 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).
    \28\The 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. 
Secs. 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).
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    As already noted, the FWPA was not drafted and passed with 
environmental concerns in mind.<SUP>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.

    \29\However, 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.
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    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.<SUP>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:<SUP>31

    \30\As 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.
    \31\Wisconsin Public Service Corp. v. FERC, 32 F.3d 1165, 1168 
(7th Cir. 1994).

    [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.<SUP>32

    \32\H.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. Sec. 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).
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    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.<SUP>33 Experience has shown that this approach in 
fact usually does yield an acceptable result.

    \33\See, e.g., sections 10(a) and 10(j) of the Act.
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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 [[Page 344]] 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.<SUP>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.''<SUP>35

    \34\The 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.
    \35\FPC 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, Sec. 6.2 
(1948).
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    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.<SUP>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.

    \36\59 Cong. Rec. 1046, 1443, 1474-75 (1920) [remarks of Sen. 
Lenroot].
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    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.<SUP>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.

    \37\Niagara Mohawk Power Corp., 49 FPC 1352 (1973), 4 FERC 
61,209 (1978).
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    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,<SUP>38 but it 
is not unusual that they be breached or removed.<SUP>39 The determining 
circumstances vary with each case.

    \38\See, 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).
    \39\Consumers 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.
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    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:<SUP>40

    \40\Niagara 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).

    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 
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problems and doctrines.

    Likewise, the Supreme Court has observed:<SUP>41

    \41\Chevron 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.''

    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.<SUP>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.<SUP>43

    \42\The 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.
    \43\This 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, 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.
[[Page 345]]

    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\

    \44\See FPC Order No. 175 (Attachment A p. 28) (1954). See also 
18 CFR 6.2.
    \45\See 36 CFR 251.60(j) and 43 CFR 2803.4-1.
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    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.

    \46\While 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.
---------------------------------------------------------------------------

    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.

    \47\See 33 U.S.C. Secs. 401, 403.
---------------------------------------------------------------------------

    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.

    \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).
---------------------------------------------------------------------------

    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 no-longer-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 [[Page 346]] 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\

    \49\The 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.
---------------------------------------------------------------------------

    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.

    \50\On 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.
---------------------------------------------------------------------------

    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 State-imposed 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.<SUP>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.

    \51\This 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.
---------------------------------------------------------------------------

    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 
pre-retirement planning and funding. The [[Page 347]] Commission 
encourages creative solutions in this regard.<SUP>52

    \52\See Consumers Power Company, 68 FERC  61,077 at pp. 61,380-
83 (1994).
---------------------------------------------------------------------------

    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.<SUP>53 The licensee has the responsibility for project 
retirement. In those situations where a licensee has not been required 
to undertake pre-retirement 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.

    \53\By 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.
---------------------------------------------------------------------------

    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.<SUP>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.

    \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.
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    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,<SUP>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.

    \55\For 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.
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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 Sec. 2.24, to read as follows:


Sec. 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 cross-references to their broader 
discussion.<SUP>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.

    \56\EEI, 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.
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    This summary discusses first the comments on the broader issues and 
then the comments in response to the specific questions posed by the 
NOPR. [[Page 348]] 

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.<SUP>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.<SUP>58

    \57\See discussion and citations below; a variety of legal 
theories was advanced.
    \58\See, e.g., EEI at 12; APPA reply comments at 4-7.
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    Licensees suggest that hydroelectric projects, if properly 
maintained, may be physically and economically viable ``indefinitely,'' 
such that decommissioning would be a rare occurrence.<SUP>59 These 
commenters stress the formidable structural integrity of dams, designed 
to last for ``thousands'' of years.<SUP>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.<SUP>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.<SUP>62 Some licensees suggest 
that when projects become uneconomic the licensee will itself take the 
initiative of proposing decommissioning and surrender of the license.

    \59\EEI reply comments at 13.
    \60\Id. at 5.
    \61\See, e.g., Reform at 5-6, 11-13.
    \62\See, e.g., NHA at 28; APPA at 9.
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    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.<SUP>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.<SUP>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.<SUP>65

    \63\See, 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.
    \64\See, e.g., Reform at 5-6, 11-13.
    \65\Reform at 13-14.
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    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.<SUP>66

    \66\See discussion and citation below.
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    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.<SUP>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.<SUP>68 They go on to contend that the FPA also does not 
provide an absolute right to compensation.<SUP>69

    \67\See e.g., Pacificorp at 3.
    \68\Kennebec at 12-18; Walton at 7-8.
    \69\Kennebec at 18-20.
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    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.<SUP>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.<SUP>71

    \70\NHA at 11-16; EEI at 18, 20-33; Duke at 9-13; Mt. Hope at 4-
5.
    \71\See, e.g., Wisconsin Department at 3-13; Washington 
Department at 1-2.
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    The crux of the licensees' position<SUP>72 is that sections 14 and 
15 of the FPA give the Commission four choices at relicensing, and only 
four choices.<SUP>73 EEI expresses it as follows:<SUP>74

    \72\See, e.g., EEI at 16-20.
    \73\Section 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.''
    \74\EEI 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.
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    In a relicensing proceeding, FERC has authority to:
<bullet> issue a new license to the existing licensee or a new 
licensee;
<bullet> recommend a federal takeover in accordance with the 
provision of the FPA applicable to such action;
<bullet> issue a nonpower license to an applicant for such a 
license, or
<bullet> 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.<SUP>75

    \75\See e.g., EEI at 25, 29; Chelan at 15-16.
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    Environmental groups and government agencies characterize this 
result as ``absurd.''<SUP>76 Discussing the standards in sections 4 and 
10 of the [[Page 349]] FPA,<SUP>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.<SUP>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.<SUP>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.<SUP>80

    \76\See, e.g., Kennebec at 30-34; Kennebec reply comments at 6-
7; Michigan at 8.
    \77\16 USC 797 and 803.
    \78\See, 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.
    \79\See, e.g., Kennebec at 5-7; Interior at 3.
    \80\See, e.g., Reform at 24-25.
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    Reform points out that licensees are required to obtain a water 
quality certification under section 401(a) of the Clean Water 
Act<SUP>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.<SUP>82

    \81\33 USC 1341(a).
    \82\Reform reply comments at 15-16.
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    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.''<SUP>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.<SUP>84

    \83\Commerce at 1-3.
    \84\Id. at 4.
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    Licensees also contend that section 6 of the FPA<SUP>85 requires 
mutual agreement between the licensee and the Commission as a 
prerequisite to any Commission order requiring removal of project 
facilities.<SUP>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.<SUP>87

    \85\16 USC 799. Section 6 provides that licenses ``may be 
altered only upon mutual agreement between the licensee and the 
Commission * * *''
    \86\EEI at 33-38; NHA at 21-22; APPA at 5.
    \87\See, e.g., Interior at 6; Reform reply comments at 12.
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    Municipal licensees also emphasize the Act of August 15, 
1953,<SUP>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,''<SUP>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.<SUP>90

    \88\Pub. L. 83-278, 67 Stat. 587, codified at 16 USC 828-828b.
    \89\Water at 9.
    \90\Chelan at 7-10; Centralia at 4-5; Grant at 2-3.
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    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.<SUP>91 Some commenters cite section 23(b) of 
the FPA,<SUP>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.<SUP>93 Some commenters cite sections 4(g), 10(c), and 309 
of the FPA.<SUP>94 Others point to historical precedent.<SUP>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.''<SUP>96

    \91\See, 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.
    \95\See, e.g., Kennebec at 20-21.
    \96\Id. at 27-28.
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    Licensees contend that their construction of the FPA is consistent 
with court and Commission decisions.<SUP>97 Environmental groups and 
government agencies cite judicial precedents supporting their more 
expansive interpretation of the statutory scheme.<SUP>98

    \97\See, e.g., NHA at 9-11, 16; EEI at 39-43.
    \98\See, e.g., Reform at 16-19, 22-24; Interior at 2. Licensees 
disagree. See, e.g., EEI reply comments at 30-31.
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    Licensees refer to the enactment by Congress in 1992 of the Elwha 
River Ecosystem and Fisheries Act,<SUP>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.<SUP>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.

    \99\Pub. L. No. 102-495.
    \100\NHA at 18-20; EEI at 43-48; APPA at 14-15; James at 5-7.
---------------------------------------------------------------------------

    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. [[Page 350]] 

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.<SUP>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.<SUP>102

    \101\NHA at 22-25.
    \102\Id. at 25-27.
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    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.<SUP>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.<SUP>104 Interior suggests that 
the Commission can use either a nonpower license or an annual license 
as a vehicle for mandating decommissioning.<SUP>105

    \103\Reform at 25-28. EEI, at 26-27, disagrees.
    \104\Kennebec at 38.
    \105\Interior at 1.
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    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.<SUP>106

    \106\Commerce at 5-7.
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    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.<SUP>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.<SUP>108 APPA agrees, 
provided that the new license as a whole is ``reasonable.''<SUP>109 
Reform suggests use of FPA section 23(b) to remove those portions of a 
project that are located in navigable waters.<SUP>110

    \107\Interior at 6; Commerce at 8.
    \108\Kennebec at 40.
    \109\APPA at 6-7.
    \110\Reform at 29.
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    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.<SUP>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.''<SUP>112

    \111\NHA at 30.
    \112\APPA at 7-9.
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    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.''<SUP>113

    \113\Reform at 30-31; see also Kennebec at 42.
---------------------------------------------------------------------------

    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.<SUP>114

    \114\Kennebec at 41.
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    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.<SUP>115

    \115\Interior at 6; Commerce at 8-9.

    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)?

    [[Page 351]] 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.<SUP>116 NHA would 
also regard such a result as an impermissible balancing of 
developmental and nondevelopmental values under the ECPA amendments to 
the FPA.<SUP>117

    \116\NHA at 31.
    \117\NHA at 31-33.
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    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.<SUP>118

    \118\APPA 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.
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    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.<SUP>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.<SUP>120

    \119\Reform at 32.
    \120\Kennebec at 44-46.
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    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.<SUP>121 Commerce, New York, and Michigan, would treat it 
as a de facto surrender.<SUP>122

    \121\Interior at 7.
    \122\Commerce at 9-10; New York at 2; Michigan at 9.
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    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.<SUP>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.<SUP>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.<SUP>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.<SUP>126

    \123\NHA at 34; see also Central Maine at 4.
    \124\APPA at 13.
    \125\Id. at 15.
    \126\Montana Power at 10.
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    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.<SUP>127

    \127\Reform at 33-34.
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    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.<SUP>128 Kennebec also contends 
that the Commission has authority to compel a licensee to remove its 
dam at the expiration of its license.<SUP>129

    \128\Kennebec at 45-46.
    \129\Kennebec reply comments at 8-11.
---------------------------------------------------------------------------

    Interior and Commerce believe that the Commission has inherent 
authority to mandate either partial or total decommissioning, with or 
without environmental mitigatory measures.<SUP>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.<SUP>131

    \130\Interior at 7-8; Commerce at 11.
    \131\Commerce at 10. Section 18 of the FPA, 16 USC 811, requires 
the Commission to include the Secretaries' fishway prescriptions in 
any license it issues.
---------------------------------------------------------------------------

    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.<SUP>132

    \132\NHA at 35-37.
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    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.<SUP>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.<SUP>134

    \133\Reform at 34-35.
    \134\Kennebec at 47; Nebraska at 3-4; New York at 2; Brazos.
---------------------------------------------------------------------------

    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.<SUP>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 
[[Page 352]] facilities and the feasibility and costs of alternative 
water supply facilities.<SUP>136

    \135\Water at 3-5, 10.
    \136\Id. at 12-13.
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    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.<SUP>137

    \137\New York at 3.
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    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.<SUP>138

    \138\Central Maine at 3.
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    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.<SUP>139

    \139\NHA at 37-40.
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    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.''<SUP>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.<SUP>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.<SUP>142

    \140\Reform at 35-36.
    \141\Wisconsin Electric at 8.
    \142\Walton at 13.
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    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.<SUP>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.''<SUP>144

    \143\Interior at 8.
    \144\Commerce at 11-12.
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    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.<SUP>145

    \145\New York at 3.
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    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\

    \146\Susquehanna at 1-3.
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    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\

    \147\Oregon at 4.
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    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\

    \148\Alabama Power at 8-9.
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    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\

    \149\NHA at 40-41.
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    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\

    \150\APPA at 17.
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    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\

    \151\Interior at 8-9; Reform at 36-37.
    \152\Commerce at 12.
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    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\

    \153\NHA at 42.
    \154\APPA at 18-19.
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    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\

    \155\Reform at 38-39.
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    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\

    \156\Susquehanna at 2-3. [[Page 353]] 
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    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\

    \157\Oregon at 8-9.
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    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\

    \158\Michigan at 12.
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    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\

    \159\Public Pool at 8-9.
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    Consolidated contends that establishing mandated reserve funds for 
decommissioning places a disproportionate burden on independent non-
utility licensees and industrial owners because investor-owned 
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\

    \160\Consolidated at 6.
    \161\Washington Water at 10-11.
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    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\

    \162\Wisconsin Electric at 9-10.

    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\

    \163\NHA at 43.
    \164\APPA 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.
    \165\Reform at 39-40.
    \166\Walton at 15.

    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\

    \167\APPA at 20-21.
    \168\Reform at 41-42.
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    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\

    \169\EPA at 2.
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    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\

    \170\Michigan at 12.

    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 program-wide 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.<SUP>171

    \171\APPA at 21-23.
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    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.<SUP>172

    \172\Reform at 43.
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    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.''<SUP>173

    \173\Kentucky at 1.
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    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.''<SUP>174

    \174\EPA at 2.
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    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.''<SUP>175

    \175\Interior at 9.
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    Commerce suggests consideration of a program-wide fund administered 
by either the Commission or an independent authority analogous to a 
[[Page 354]] public utility commission, but believes project-specific 
funds would be preferable.<SUP>176

    \176\Commerce at 13-15.
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    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.<SUP>177

    \177\New York at 3.
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    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.''<SUP>178

    \178\Oregon at 5-6.
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    Walton proposes a ``multi-faceted approach'' that includes project-
specific funds, regional funds, watershed funds, and multi-project 
single owner funds, as appropriate.<SUP>179 S'Klallam suggests 
individual performance bonds backed up by an industry-wide 
fund.<SUP>180 Seattle suggests a national decommissioning insurance 
fund financed through fees assessed on all licensees.<SUP>181

    \179\Walton at 17.
    \180\S'Klallam at 16.
    \181\Seattle reply comments.
---------------------------------------------------------------------------

    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.<SUP>182

    \182\APPA at 23.
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    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.<SUP>183

    \183\Reform at 43-47; see also Walton at 17-19.
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    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.''<SUP>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.

    \184\Vermont at 1-2.
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    Commerce suggests that project-specific 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.<SUP>185

    \185\Commerce at 14; see also Walton at 17-19.
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    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''.<SUP>186

    \186\New York at 4.
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    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.''<SUP>187 Washington Department advocates control of the 
fund by the Commission, to best assure that the money will be available 
when needed.<SUP>188

    \187\Michigan at 13.
    \188\Washington Department at 2.
---------------------------------------------------------------------------

    New England suggests a case-by-case approach, fine tuning the trust 
fund mechanism to the peculiar facts and circumstances of each 
project.<SUP>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.<SUP>190

    \189\New England at 7-9.
    \190\PG&E at 7.
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    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.<SUP>191

    \191\Northern at 4-5.
---------------------------------------------------------------------------

    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.<SUP>192

    \192\Peninsula at 13.
---------------------------------------------------------------------------

    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-by-case approach to decommissioning issues as they arise. APPA 
proposes elimination of certain existing regulations that it believes 
to be inconsistent with the FPA.<SUP>193 A number of commenters 
recommend that the Commission establish a decommissioning policy 
through the adoption of new regulations and standard license 
articles.<SUP>194 Interior suggests that the articles set forth the 
Commission's policy on decommissioning including requirements for 
advance planning and for funding mechanisms.<SUP>195

    \193\APPA at 24.
    \194\Reform 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.
---------------------------------------------------------------------------

    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 [[Page 355]] articles to establish a decommissioning 
reserve fund.<SUP>196

    \196\Commerce at 15.
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    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.<SUP>197

    \197\Kennebec at 48-49.
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    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\

    \198\All of the commenters filed initial comments. Commenters 
identified by this footnote also filed reply comments.
---------------------------------------------------------------------------

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 [[Page 356]] 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