Document ID: FERC-2021-0080-0001
Agency: ferc
Document Type: Notice
Title: Financial Assurance Measures for Hydroelectric Projects
Posted Date: 2021-01-26T05:00Z

[Federal Register Volume 86, Number 15 (Tuesday, January 26, 2021)]
[Notices]
[Pages 7081-7084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01613]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. RM21-9-000]

Financial Assurance Measures for Hydroelectric Projects

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of inquiry.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
inviting comments on what changes, if any, the Commission should make 
to its practices for requiring financial assurance measures in licenses 
and other authorizations for hydroelectric projects.

DATES: Comments are due March 29, 2021.

ADDRESSES: Comments, identified by Docket No. RM21-9-000, may be filed 
in the following ways:
     Agency website: Electronic filing through http://www.ferc.gov. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format.
     Mail: Those unable to file electronically may mail 
comments via the U.S. Postal Service to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE, 
Washington, DC 20426. Hand-delivered comments or comments sent via any 
other carrier should be delivered to: Federal Energy Regulatory 
Commission, 12225 Wilkins Avenue, Rockville, Maryland 20852.
    Instructions: For detailed instructions on submitting comments, see 
the Comment Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT: 
Elizabeth Bootz (Legal Information) Office of the General Counsel--
Energy Projects, Federal Energy Regulatory Commission, 888 First Street 
NE, Washington, DC 20426, (202) 502-6452, Elizabeth.Bootz@ferc.gov.
Kelly Houff (Technical Information) Office of Energy Projects, Federal 
Energy Regulatory Commission, 888 First Street NE, Washington, DC 
20426, (202) 502-6393, Kelly.Houff@ferc.gov.

SUPPLEMENTARY INFORMATION: In this Notice of Inquiry, the Federal 
Energy Regulatory Commission (Commission) seeks comments on whether, 
and if so, how the Commission should require additional financial 
assurance

[[Page 7082]]

mechanisms in the licenses \1\ and other authorizations it issues for 
hydroelectric projects, to ensure that licensees have the capability to 
carry out license requirements and, particularly, to maintain their 
projects in safe condition.
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    \1\ Use of the word ``license'' herein refers to both licenses 
and exemptions or licensees and exemptees, unless otherwise 
specified.
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I. Background

    1. Section 4(e) of the Federal Power Act (FPA) authorizes the 
Commission to issue licenses ``for the purpose of constructing, 
operating, and maintaining dams, water conduits, reservoirs, power 
houses, transmission lines, or other project works necessary or 
convenient . . . for the development, transmission, and utilization of 
power.'' \2\ Approximately 1,600 hydroelectric projects throughout the 
United States are under Commission license. In issuing these 
hydroelectric licenses, the Commission is required to consider power 
and development purposes and ``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.'' \3\ Section 
10(a) of the FPA requires that any project for which the Commission 
issues a license be best adapted to a comprehensive plan for improving 
or developing a waterway or waterways for the use or benefit of 
interstate or foreign commerce; for the improvement and use of 
waterpower development; for the adequate protection, mitigation, and 
enhancement of fish and wildlife; and for other beneficial public uses, 
including irrigation, flood control, water supply, recreation, and 
other purposes.\4\
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    \2\ 16 U.S.C. 797(e).
    \3\ Id.
    \4\ 16 U.S.C. 803(a).
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    2. Section 10(c) of the FPA also requires licensees to ``maintain 
the project works in a condition of repair adequate for the purposes of 
navigation and for the efficient operation of said works in the 
development and transmission of power, . . . make all necessary 
renewals and replacements, . . . establish and maintain adequate 
depreciation reserves for such purposes, . . . so maintain and operate 
said works as not to impair navigation, and . . . conform to such rules 
and regulations as the Commission may from time to time prescribe for 
the protection of life, health, and property.'' \5\
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    \5\ Id.
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    3. In making its public interest determination under section 10(a), 
the Commission considers a number of factors, including the economic 
benefits of project power. The basic purpose of the Commission's 
economic analysis is to provide a general estimate of the potential 
power benefits and the costs of a project, and reasonable alternatives 
to project power. As articulated in Mead Corp., project economics is 
one of many factors the Commission considers in determining whether or 
not, and under what conditions to issue a license.\6\ Ultimately, it is 
up to the applicant to decide whether to accept a license as 
conditioned and any financial risks that entails. However, the Mead 
Corp. analysis is intended only to provide a rough estimate of the cost 
of project power compared to that of alternative energy sources: It is 
not intended to show whether and to what degree the project will have a 
positive cash flow over the life of the license. The Commission has 
explained that making predictions of long-term project economics would 
involve speculation as there are many variables, known and unknown.\7\
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    \6\ 72 FERC ] 61,027, at 61,069 (1995). For example, the 
Commission will impose reasonable conditions, regardless of their 
impact on project economics. See City of Tacoma, Wash., 84 FERC ] 
61,107 (1998), aff'd in pertinent part, City of Tacoma, Wash. v. 
FERC, 460 F.3d 53 (D.C. Cir. 2006).
    \7\ See Mead Corp., 72 FERC at 61,068 (explaining that long-term 
economic analyses require many assumptions and that even under 
relatively stable conditions, ``such forecasts could never be more 
than a general guide'').
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    4. The Commission has taken steps to protect against the failure of 
a project sponsor's financial planning. For example, to reduce the risk 
that a project under construction could be abandoned before completion 
of construction because of inadequate funds, the Commission has 
required the licensee to file a financing plan prior to beginning 
construction.\8\ Initially, financing plans were included in original 
licenses or relicenses with extensive new construction to ensure that 
construction could be completed; \9\ however, the financing plan 
article has been modified to ensure funds are available for operation 
and maintenance in addition to construction.\10\ Accordingly, the 
Commission currently includes a financing plan article in licenses that 
authorize new construction.\11\ This article requires licensees to file 
a project financing plan with the Commission to show that the licensee 
has the necessary funds to complete project construction and to operate 
and maintain the project.\12\ This article, however, does not require a 
licensee to demonstrate the ability to finance unknown future 
obligations that may arise from environmental concerns or significant 
dam safety issues.
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    \8\ See, e.g., City of Le Claire, Iowa, 74 FERC ] 61,127, at 
61,462 (1996). In requiring financing plans, the Commission has 
explained that it is concerned not only about potential 
environmental impacts associated with a partially constructed 
project, but also with ensuring that projects are developed in a 
timely and diligent manner. See, e.g., Clark Canyon Hydro, LLC, 150 
FERC ] 61,195, at P 44 (2015); see also City of Augusta, Ky., 72 
FERC ] 61,114, at 61,594 (1995).
    \9\ E.g., Halecrest Co., 60 FERC ] 61,121 (1992).
    \10\ E.g., Marseilles Land and Water Co., 137 FERC ] 62,235, at 
art. 307 (2011), order on reh'g and clarification, 138 FERC ] 61,120 
(2012).
    \11\ License amendments that approve construction for 
significant modifications to project facilities may also include 
financing plan requirements. See, e.g., BMB Enters., Inc., 147 FERC 
] 62,044, at art. 206 (2014).
    \12\ E.g., Kenai Hydro, LLC, 168 FERC ] 61,125, at P 109 and 
art. 207 (2019).
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    5. In rare cases, the Commission has also included a requirement to 
file a financial assurance plan.\13\ The financial assurance article 
requires licensees to submit a plan that identifies the costs of 
project facilities that would be removed, secured in-place, or 
otherwise modified to ensure public safety, as well as other measures 
needed to protect environmental resources, in the event the licensee 
cannot complete project construction or is unable to operate the 
project once construction is complete. After approval of the financial 
assurance plan and before beginning ground disturbing activities, the 
licensee must obtain a bond or equivalent financial instrument to 
ensure the licensee has the economic means to implement the plan. The 
licensee is also required to file annual reports to document that the 
bond or equivalent financial instrument remains in effect for the 
ensuing year.
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    \13\ See, e.g., PacifiCorp, 144 FERC ] 62,239, at art. 307 
(2013) (requiring license transferee to file financial assurance 
plan to demonstrate it had funds necessary to operate and maintain 
project). See also Marseilles Land and Water Co., 137 FERC ] 62,235 
at P 80 n.46 (requiring financial assurance plan in addition to the 
financing plan for an original license, based on ``a reasonable 
possibility that the licensee could find itself in the position of 
having insufficient funds or project land rights to continue 
constructing or operating the . . . Project in the absence of a 
Financial Assurance Plan'').
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    6. However, the vast majority of existing licenses do not include 
requirements addressing whether a licensee can afford ongoing operation 
and maintenance expenses, required environmental or safety measures, or 
measures required to ensure the facility can meet future dam safety 
requirements.
    7. Non-operational or non-compliant projects can pose public safety 
hazards

[[Page 7083]]

in the event of a dam failure or breach, as demonstrated by the failure 
of the Edenville and Sanford dams near Midland, Michigan, on May 19, 
2020. The cause of these dam failures is still under investigation. 
Nonetheless, the licensee of both projects had for many years failed to 
comply with dam safety directives, at least in part due to the alleged 
lack of financial capacity to meet Commission requirements, which 
resulted in the Commission revoking the license for the Edenville 
project in 2018.\14\ The dam failures created an immediate safety 
hazard requiring thousands to evacuate, and estimates to repair and 
restore the dams have been more than $300 million dollars, which does 
not include the damages that property owners affected by the flooding 
may have suffered.
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    \14\ See Boyce Hydro Power, LLC, 164 FERC ] 61,178 (2018) 
(revoking the license for the Edenville Project No. 10808 due to the 
licensee's ``longstanding failure to increase the project's spillway 
capacity to safely pass flood flows, as well as its failure to 
comply with its license, the Commission's regulations, and a June 
15, 2017 Compliance Order''), order on reh'g, 166 FERC ] 61,029 
(2019).
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    8. While significant dam failures have fortunately been very rare, 
the Commission has seen increasing numbers of projects that are non-
operational or out of compliance with their license conditions, where 
licensees have stated that they cannot afford to operate or maintain 
the projects or implement required environmental or safety measures. 
Commission staff regularly works with these licensees to bring these 
projects back into operation or compliance, but only with mixed 
success.\15\
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    \15\ Section 6.4 of the Commission's regulations gives licensees 
three years to resolve their non-operating issues. 18 CFR 6.4.
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    9. As of December 2020, Commission staff is aware of approximately 
88 projects that are non-operational and is working with licensees of 
non-operating projects to restore operations. A licensee's lack of 
financial resources is often a key factor in a project becoming non-
operational. For those licensees that cannot restore operation, some 
licensees apply to surrender their licenses. However, for those where 
operating the project or bringing the project into compliance is too 
financially burdensome, the surrender process may also be economically 
infeasible. Where licensees show the inability or unwillingness to 
maintain their projects and do not voluntarily seek surrender, the 
Commission has terminated licenses by implied surrender.\16\ But 
implied surrender may not be appropriate where environmental or dam 
safety measures need to be taken to leave the project in acceptable 
condition. In addition to voluntary and implied surrender, the 
Commission has enforcement mechanisms at its disposal, including 
license revocation, the imposition of civil penalties, seeking 
injunction relief in federal court, and referral to the Department of 
Justice for criminal prosecution. These measures, while appropriate in 
some cases, may not result in necessary license compliance.
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    \16\ See, e.g., Brentwood Dam Ventures, LLC, 158 FERC ] 61,037 
(2017) (terminating the exemption for the Exeter River Hydro #1 
Project No. 4254 by implied surrender because the exemptee did not 
make the necessary repairs to restore project operation); see also 
James Lichoulas Jr., 124 FERC ] 61,255 (2008) (terminating the 
license for the Appleton Trust Project No. 9300 by implied surrender 
because the licensee failed to restore project operation after more 
than a decade), aff'd, Lichoulas v. FERC, 600 F.3d 769 (D.C. Cir. 
2010).
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    10. Based on the concern that inadequate financing may result in 
threats to public safety and environmental resources, the Commission is 
considering whether additional measures should be taken to ensure 
licensees have the financial resources to operate and maintain their 
projects for the life of the project, including under unforeseen 
circumstances. We recognize that imposing additional financial 
requirements may pose difficulties for licensees, particularly those 
operating small projects, but are also cognizant of our 
responsibilities to the public. Therefore, the Commission is soliciting 
public comment on potential mechanisms to ensure that licensees can 
afford required safety measures, ongoing project operation and 
maintenance expenses, and license compliance to prevent future safety 
and environmental hazards.

II. Subject of the Notice of Inquiry

    11. The Commission seeks comments on whether, and, if so, how the 
Commission should revise its practices for requiring financial 
assurance mechanisms in the licenses and other authorizations it issues 
for hydroelectric projects. First, we solicit comments regarding how 
and when the Commission should require financial assurance from 
licensees. Specifically, should a financial assurance requirement be 
included in original licenses and/or on relicense? If on relicense, 
should such a requirement be included in both new licenses for major 
projects and subsequent licenses for minor projects? Should the 
Commission also require financial assurance requirements in other 
authorizations, such as all exemptions, amendment requests, and 
transfers? Should the Commission reopen licenses to impose financial 
assurance measures? Should the Commission require licensees to reaffirm 
or recertify that they have adequate financial assurance instruments 
every few years during their license term? If so, how often during a 
license term should the Commission require licensees to demonstrate 
that they still have adequate finances? Should the Commission require 
licensees to notify the Commission if the circumstances underlying 
their financial assurance instruments have changed?
    12. Below we outline three potential options that Commission staff 
has identified for establishing financial assurance mechanisms in 
hydroelectric licenses: (1) Requiring licensees to obtain bonds to 
cover the costs of safety measures and project operation and 
maintenance; (2) establishing an industry-wide trust or remediation 
fund or requiring licensees to maintain an individual trust, escrow, or 
remediation fund; or (3) requiring licensees to obtain insurance 
policies for unforeseen safety hazards or dam failures. We encourage 
comments on these options as well as the suggestion of any other 
alternatives. While the Commission will consider all comments filed, 
the Commission may not, and is not required to, take further action.

A. Bonds

    13. The Commission could require licensees to obtain bonds to 
ensure they have sufficient funds to pay for operation, maintenance, 
environmental, and safety measures throughout the duration of the 
license. The Commission seeks comment on this option and the following 
questions:
    i. Should the Commission require licensees to obtain bonds as a 
financial assurance mechanism?
    ii. If so, how should the Commission determine the amount of the 
bond or what factors should the Commission consider when determining 
the bond amount?
    iii. Are bonds within the resources of all licensees, including 
those of small hydroelectric projects. Could the Commission mitigate 
these expenses?
    iv. What other challenges would bond requirements pose to 
individual licensees, municipal licensees, the public, or the 
Commission?

B. Trust, Escrow, or Remediation Fund

    14. The Commission could establish an industry-wide trust or 
remediation fund to pay for necessary repairs and remediation, similar 
to the Environmental Protection Agency's superfund program, or could 
require

[[Page 7084]]

licensees to maintain an individual trust or remediation fund that is 
similar to what is done in the nuclear industry. The Commission could 
also require funds to be placed in escrow. The Commission seeks comment 
on this option and the following questions:
    i. Should the Commission establish an industry-wide trust or fund 
as a financial assurance mechanism?
    ii. If so, how should the Commission generate funds for the trust? 
Should the Commission consider using its annual charge authority to 
fund an industry-wide trust?
    iii. How should the Commission determine the appropriate level of 
funds for an industry-wide trust?
    iv. How should the Commission determine how funds are distributed?
    v. Should the Commission require licensees to maintain an 
individual trust or escrow fund as a financial assurance mechanism?
    vi. For individual trusts, how should the Commission determine the 
appropriate level of the trust and what factors should the Commission 
consider in determining amounts?
    vii. For individual escrows, should the Commission require 
licensees to retain a certain percentage of generation receipts in an 
escrow account?
    viii. What other challenges would an industry-wide or individual 
trust pose on individual licensees, small hydroelectric project 
licensees, municipal licensees, the public, or the Commission?

C. Insurance

    15. The Commission could require licensees to obtain insurance 
policies to cover costs in the event of a safety hazard or dam failure. 
The Commission seeks comment on this option and the following 
questions:
    i. Should the Commission require licensees to obtain insurance 
policies as a financial assurance mechanism for project maintenance?
    ii. How should the Commission determine the amount of required 
coverage of an insurance policy or what factors should the Commission 
consider when determining the amount of coverage?
    iii. What other challenges would a requirement to obtain an 
insurance policy pose on individual licensees, small hydroelectric 
project licensees, municipal licensees, the public, or the Commission?

III. Comment Procedures

    16. The Commission invites interested persons to submit comments 
and other information on the matters, issues, and specific questions 
identified in this notice, and any alternative proposals that 
commenters may wish to discuss. Comments are due March 29, 2021. 
Comments must refer to Docket No. RM21-9-000, and must include the 
commenter's name, the organization they represent, if applicable, and 
their address.
    17. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's website at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    18. In lieu of electronic filing, you may submit a paper copy. 
Submissions sent via the U.S. Postal Service must be addressed to: 
Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 
First Street NE, Room 1A, Washington, DC 20426. Submissions sent via 
any other carrier must be addressed to: Kimberly D. Bose, Secretary, 
Federal Energy Regulatory Commission, 12225 Wilkins Avenue, Rockville, 
Maryland 20852. The first page of any filing should include docket 
number RM21-9-000.
    19. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

IV. Document Availability

    20. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (http://www.ferc.gov). At 
this time, the Commission has suspended access to the Commission's 
Public Reference Room due to the President's March 13, 2020 
proclamation declaring a National Emergency concerning the Novel 
Coronavirus Disease (COVID-19).
    21. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    22. User assistance is available for eLibrary and the Commission's 
website during normal business hours from the Commission's Online 
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

    By direction of the Commission.

    Issued: January 19, 2021.
Kimberly D. Bose,
Secretary.
[FR Doc. 2021-01613 Filed 1-25-21; 8:45 am]
BILLING CODE 6717-01-P