Document ID: FERC-2006-1811-0001
Agency: ferc
Document Type: Notice
Title: Reports and guidance documents; availability, etc.: Hydropower licensing proceedings settlements; policy statement
Posted Date: 2006-09-27T04:00Z

[Federal Register: September 27, 2006 (Volume 71, Number 187)]
[Notices]               
[Page 56520-56527]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27se06-88]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL06-5-000]

 
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. 
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff; 
Settlements in Hydropower Licensing Proceedings Under Part I of the 
Federal Power Act; Policy Statement on Hydropower Licensing Settlements

Issued September 21, 2006.
    1. Hydroelectric licensing proceedings under Part I of the Federal 
Power Act (FPA) are ulti-faceted and complex. These proceedings involve 
the balancing of many public interest factors, as well as consideration 
of the views of all interested groups and individuals. Moreover, since 
the physical design, environmental impact, and history of every project 
is different, each licensing proceeding is, to at least some extent, 
unique.
    2. Given this backdrop, the Commission looks with great favor on 
settlements in licensing cases. When parties are able to reach 
settlements, it can save time and money, avoid the need for protracted 
litigation, promote the development of positive relationships among 
entities who may be working together during the course of a license 
term, and give the Commission, as it acts on license and exemption 
applications, a clear sense as to the parties' views on the issues 
presented in each settled case.
    3. At the same time, the Commission cannot automatically accept all 
settlements, or all provisions of settlements. Section 10(a)(1) of the 
FPA requires that the Commission determine that any licensed project is 
best adapted

[[Page 56521]]

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 utilization of waterpower 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).\1\
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    \1\ See 16 U.S.C. 803(a)(1) (2000). FPA section 4(e), 16 U.S.C. 
797(e), provides, in pertinent part, that the Commission, in 
addition to the power and development purposes for which licenses 
are issued, shall give equal consideration to the purposes of energy 
conservation, the protection, mitigation of damages 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.
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    4. Consequently, in reviewing settlements, the Commission looks not 
only to the wishes of the settling parties, but also at the greater 
public interest, and whether settlement proposals meet the 
comprehensive development/equal consideration standard. Because of the 
requirements of Part I of the FPA, the Commission's review of 
hydropower licensing settlements is often different from that accorded 
to other settlements presented to us, such as those in rate cases. In 
the latter type of cases, the Commission may accept settlements as a 
whole, given that it has authority under section 5 of the Natural Gas 
Act and section 206 of the FPA to examine at any time whether rates, 
charges, rules, regulations, practices, or contracts are unjust, 
unreasonable, unduly discriminatory, or preferential. Because section 6 
of the FPA precludes revision of hydropower licenses without the 
licensee's consent, it is necessary that the Commission examine 
proposed license conditions in detail before approving them. The 
Commission does include reopener provisions in hydropower licenses, but 
these are only exercised where environmental conditions have 
significantly changed. Were the Commission to assert a broad, general 
authority to reopen any part of a license during its term, equivalent 
to the authority provided by sections 5 and 206, this would sharply 
undercut the certainty sought by parties to licensing proceedings. As a 
separate matter, the Commission's role in overseeing license compliance 
makes it important that license conditions be clear and enforceable.
    5. The Commission must also ensure that its decisions on 
settlements, like all decisions under the FPA, are supported by 
substantial evidence.\2\ To support a proposed license condition, then, 
it is necessary for the parties to develop a factual record that 
provides substantial evidence to support the proposed condition, and 
demonstrates how the condition is related to project purposes or to 
project effects. The settling parties should provide the Commission 
with record support showing a nexus between the proposal and the 
impacts of the project, as well as to project purposes, and also 
explain how the proposal will accomplish its stated purpose.
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    \2\ See FPA section 313(b), 16 U.S.C. 825l (2000) (``[t]he 
finding of the Commission as to the facts, if supported by 
substantial evidence, shall be conclusive'') (emphasis added).
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    6. In addition, proposed license conditions must be enforceable. By 
way of example, the Commission is precluded by law from assessing 
damages, so any condition that would do so would be unenforceable. To 
the extent that the Commission does not adopt proposed conditions that 
it has no jurisdiction to enforce, this does not evidence general 
opposition to settlements or to the settlement at hand, but rather 
recognition that the Commission can only exercise that authority given 
it by Congress. Also, the Commission has jurisdiction over only its 
licensees, and therefore cannot enforce any condition to the extent 
that it purports to place responsibility on a non-licensee. In 
addition, conditions that do not clearly outline the licensee's 
responsibilities and establish the parameters governing required 
actions may be difficult or impossible to enforce. However, as 
discussed below, contracts that the Commission cannot enforce may well 
be made enforceable by other means, such as binding arbitration, or 
resort to State or Federal court.
    7. It should be noted that the fact that the Commission does not, 
whether as a matter of law or policy, include certain provisions in 
licenses does not mean that they are precluded from being included in a 
settlement. Settling parties are free to enter into ``off-license'' or 
``side'' agreements with respect to matters that will not be included 
in a license. However, the Commission has no jurisdiction over such 
agreements and their existence will carry no weight in the Commission's 
consideration of a license application under the FPA.
    8. Based on the foregoing, the logical process for arriving at an 
acceptable settlement is for the parties to undertake the following 
steps:
     Use existing information and pre-license studies to 
determine the environmental effects of the proposed project.
     Based on this record, develop appropriate environmental 
measures to address those effects.
     Craft settlement provisions based on the record and the 
proposed measures, taking into account recent Commission precedent.
     Prepare an explanation of the settlement that will enable 
the Commission to understand the parties' intent and what in the record 
they believe supports their proposals.\3\
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    \3\ In its regulations, the Commission has set forth details 
concerning the content of settlements, and the procedures relating 
to their filing. See 18 CFR 385.602 (2006).
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    9. We are aware that settling parties have a strong interest in 
knowing in advance which provisions of proposed settlements are likely 
to be acceptable to the Commission. Precedent can serve as a very 
useful guide in this regard. If parties engaged in settlement 
discussions wish to obtain additional guidance as to particular 
concepts or proposed provisions, it may be useful to seek the advice of 
Commission staff, by requesting that staff either participate in an 
advisory role in settlement discussions or review proposed settlements 
before they are filed with the Commission. While Commission staff 
cannot speak for the Commission itself, staff will be able to give 
parties the benefit of its experience, as well as advice regarding 
recent Commission actions. Advice from experienced staff, coupled with 
careful reading of recent Commission precedent, is the best way to 
predict the Commission's likely reaction to particular provisions 
proposed in settlement agreements.
    10. At the same time, we recognize the value of more general 
guidance. Therefore, we have prepared this document, in an attempt to 
elucidate certain principles regarding settlements. Some of the matters 
discussed below have been dealt with in Commission orders; others 
represent application of the principles enunciated in those orders. 
While we hope that this document will be useful to parties engaged in 
settlement negotiations, we caution that the Commission will review 
every case on its facts and make in each instance the public interest 
determination required by the FPA. Thus, the statements in this 
document represent guidance, but not a guarantee. It may be that the 
facts of a particular case dictate a different result from that in a 
previous proceeding where a similar issue arose, or that policy changes 
over time.
    11. Certain general types of issues have arisen with some frequency 
over

[[Page 56522]]

the last several years. The following discussion outlines some 
principles with respect to these issues, in the hope of providing 
general principles that may assist settling parties. In the last 
section of this guidance, we list more specific settlement provisions 
that have been of concern. While individual cases are cited throughout 
this document, this guidance is not intended to be an encyclopedic 
reference to all cases involving settlements.
    12. The following basic principles, which are discussed in more 
detail below, apply to the consideration of measures proposed to be 
included as conditions in project licenses:
     Measures must be based on substantial evidence in the 
record of the licensing proceeding.
     Measures must be consistent with the law and enforceable. 
In particular, measures must be within the Commission's jurisdiction.
     A relationship must be established between a proposed 
measure and project effects or purposes.
     Measures should be as narrow as possible, with specific 
measures (e.g., installing riprap to prevent erosion) preferred over 
general measures, such as creation of an aquatic resource fund.
     Actions required under measures should occur physically/
geographically as close as possible to the project.
     Measures must reserve the Commission's compliance 
authority, as well as its authority to review and modify as necessary 
proposed resource or activity plans (for example, a provision that a 
stakeholder committee can determine new measures during the license 
term should also provide that the proposed measures be filed with the 
Commission for its review, modification, and approval).

Substantial Evidence

    13. As noted above, the FPA provides that the Commission's 
determinations will be upheld if they are supported by substantial 
evidence. In consequence, the Commission must have substantial evidence 
to support its licensing decisions. If parties want the Commission to 
accept the terms of a settlement, they must provide substantial 
evidence to support the measures they ask the Commission to impose. 
Thus, for example, it would not be sufficient to ask the Commission to 
set a particular minimum instream flow solely because the parties have 
compromised on that number. Rather, the parties would need to provide a 
scientific explanation, supported by facts in the record, of how that 
level of flows meets the needs of affected resources and how it is 
consistent with the comprehensive development of the waterway. 
Similarly, if there is no showing of harm of a fishery, the record will 
not support a measure requiring the mitigation of harm to fish species. 
See Allegheny Energy Supply Company, LLC, 109 FERC ] 61,028 at P 6 
(2004); see also City of Centralia, WA v. FERC, 213 F.3d 742 (D.C. Cir. 
2000).

Lawful And Enforceable

    14. A settlement provision that extends beyond the Commission's 
jurisdiction to require or to enforce cannot become a lawful term in a 
Commission license. It would seem axiomatic that proposed settlement 
provisions and license conditions must be consistent with law. Yet, in 
some instances, settlements include provisions that purport to extend 
the Commission's jurisdiction. It is important for parties to bear in 
mind that the bounds of the Commission's jurisdiction are established 
by law and cannot be expanded through an order implementing a 
settlement. Thus, the Commission has jurisdiction only over its 
licensees and cannot enforce the provisions of a settlement against 
other parties, such as Federal and State agencies, or private parties. 
See, e.g., Avista Corporation, 93 FERC ] 61,116 at 61,329 (2000). 
Matters that are beyond the Commission's jurisdiction can be resolved 
by parties in ``off-license'' agreements that will not be included in a 
license, see, e.g., City of Seattle, WA, 75 FERC ] 61,319 at 62,014, 
n.6 (1996). As another example, because the FPA does not allow the 
Commission to impose damages, a damages provision may not properly be 
included in a license. See, e.g. Consumers Power Company, 68 FERC ] 
61,077 at 61,378-80 (1994). In addition, the Commission cannot expand 
its own jurisdiction. Thus, even if parties agree that a license should 
include measures that are outside of the Commission's jurisdiction--for 
example, a requirement that a State agency manage a wildlife refuge--
the Commission could not enforce the measures.

Dispute Resolution/Enforceability

    15. Parties to settlements often agree as to the form of dispute 
resolution they will use during the license term. Initially, the 
Commission declined to include in licenses dispute resolution 
provisions that purported to bind parties other than the licensee, on 
the ground that those provisions were unenforceable, given that the 
Commission had jurisdiction only over its licensees. See, e.g., Avista 
Corporation, 93 FERC ] 61,116 (2000). The Commission later modified its 
policy, to the extent of deciding that it would require licensees to 
comply with settlement provisions of this kind, even though it could 
only enforce them against licensees. See Erie Boulevard Hydropower, LP, 
100 FERC ] 61,321 at 62,502 (2002). Parties who want such provisions in 
licenses should bear in mind, however, the limited nature of the 
Commission's enforcement authority in such matters. Thus, for example, 
the Commission could require a licensee to comply with notice 
provisions or to attend meetings required by a dispute resolution 
provision. It could not require a Federal or State resource agency or a 
non-governmental entity to do so.

Relationship to the Project

Comprehensive Development

    16. As noted above, pursuant to Part I of the FPA, the Commission 
is required to license projects that best result in the comprehensive 
development of a waterway. In order to determine whether proposed 
settlement provisions or license conditions meet this standard, it is 
necessary for the Commission to determine to what extent these 
proposals relate to project effects or project purposes. This is easier 
to do if the provisions in question call for specific measures (rather 
than a general expenditure of funds), if the measures call for actions 
in the project vicinity, and if the settling parties document how the 
measures are tied to project effects or purposes. Thus, it may be easy 
to understand and explain how construction of a campground or a boat 
put-in at a project reservoir is tied to the project purpose of 
recreation. It is harder to draw that connection if, for example, a 
settlement measure calls for recreation facilities many miles above or 
below the project, or for facilities, such as a snowmobile trail, that 
may not have an obvious connection to the project. Similarly, it is 
more difficult to explain how paying a dollar amount for future, 
unspecified enhancements is tied to a project purpose. As the 
Commission explained in Virginia Electric Power Company, 110 FERC ] 
61,241 at P 11 (2005):

    We * * * note with approval the fact that the many measures 
required by the settlement and the corresponding license articles 
appear to call for activities related to project impacts and 
purposes. It is our strong preference that measures required in a 
license be clearly tied to the project at issue. We are sometimes 
troubled by settlements which require measures, such as general 
funds to be used for unspecified measures, that are not tied to 
either project impacts or purposes. In addition, we prefer measures 
requiring specific actions (i.e., the licensee

[[Page 56523]]

shall construct a fish hatchery) to those mandating general actions 
whose effects are unclear (i.e., the licensee shall contribute 
$100,000 to support fisheries enhancements). It is much easier for 
us to conclude that a project proposal based on specific measures is 
in the public interest, as opposed to one made up in large part of 
measures whose impacts we cannot truly assess. We also note that we 
have a preference for mitigation or enhancement measures that are 
located in the vicinity of the project unless this is impractical or 
unless substantially increased overall project benefits can be 
realized from adopting off-site measures.

Project Purposes

    17. Instances of orders concluding that settlement measures were 
not sufficiently tied to project purposes or project effects include: 
Portland General Electric Company, 107 FERC ] 61,158 at P 21, n.21 
(2004) (disposition of non-project lands and of water rights); 
PacificCorp, 105 FERC ] 61,237 at P 113, n.27 (2003) (portions of 
settlement not relating to project operations or environmental effects 
not included in license); Pacific Gas and Electric Company, 97 FERC ] 
61,084 at 61,409-10 (2001) (monitoring of water temperature, flows, and 
meteorological conditions in reservoirs and river reaches within 
boundaries of upstream project; investigating feasibility of, and 
possibly making, modifications to upstream project); Northern States 
Power Company, 111 FERC ] 62,212 at P 31 (2005) (recreation enhancement 
measures outside project boundary that did not provide access to 
project lands or waters, where adequate access already provided at 
project); PacifiCorp, 104 FERC ] 62,059 at P 28 (2003) (provisions 
providing for recreation enhancements outside project boundary, and for 
sale of non-project lands); USGen New England, 99 FERC ] 62,025 at 
64,060-61 (2002) (partially rejecting proposal for enhancement fund, to 
extent fund would cover activities outside project boundary, with no 
nexus to project, or, in case of mitigation for tax revenue impacts, 
beyond Commission's jurisdiction).

Recreation

    18. Many settlements contain provisions regarding recreation. As 
with other settlement provisions, it is important that parties base 
proposed recreation provisions on record evidence supporting the need 
for the proposed facilities and that they link the measures in question 
to the project. Thus, if a settlement proposes enhancements to 
campgrounds in the project area, parties should explain how those 
facilities are used in connection with the project and demonstrate the 
need for the facilities. For example, if data show that existing 
campgrounds are not greatly used, it may be hard to justify expanding 
them or adding new campgrounds.
    19. Given that a project is primarily a water-based facility, it 
may not be hard to conclude that construction of a boat ramp, a fishing 
pier, or a hiking trail along the reservoir perimeter could be an 
appropriate environmental measure that serves a project purpose, if the 
need for that facility is established. These facilities would enable 
the public to better use the project lands and waters. It may be more 
difficult to justify recreation that is more remote from the project 
site (as in a campground located 20 miles away from any project works). 
Similarly, it may be hard to draw a public interest connection between 
a project and a recreation feature that does not appear to be tied to 
the nature of the project. For example, a community near a project 
might consider itself to be in need of a public auditorium. It would be 
difficult to justify inclusion of such a requirement in a license, 
unless the parties could demonstrate, not just why the proposed measure 
is generally worthwhile, but, more specifically, how it is linked to 
the effects and purposes of the project. See Wisconsin Public Service 
Corporation, 104 FERC ] 61,295 at P 32-33 (2003) (noting, with respect 
to decision not to require retention of certain recreation facilities 
within project boundary that environmental assessment had found ``these 
facilities are not directly associated with public recreational access 
to project waters or facilities,'' and concluding that facilities not 
included ``have [insufficient] nexus to reservoir-based recreation and 
[similar facilities] are found elsewhere in the area.''); Northern 
States Power Company, 111 FERC ] 62,212 at P 31 (2005) (declining to 
include proposed recreation measures in license where it is unclear how 
measures address access to project lands or waters and when adequate 
recreational access provided by existing facilities).
    20. Two other matters that can arise in connection with recreation 
facilities are inclusion within the project boundary and cost-sharing, 
both discussed below. If the licensee is expected to undertake measures 
throughout the license term, such as ongoing maintenance with respect 
to a recreation facility that the Commission has determined is 
necessary for project purposes,--and the Commission consequently will 
have ongoing responsibility to ensure compliance--the licensee may be 
required to include the facility within the project boundary. As noted, 
this means that the licensee will have to obtain sufficient rights with 
respect to the facility to ensure that it can comply with Commission 
requirements, but it does not mean that the licensee must obtain fee 
ownership. With respect to cost-sharing, settlements occasionally 
provide that the licensee will share the costs of maintaining a 
facility with a State or Federal agency (often the entity that owns the 
facility, such as a campground owned by the U.S. Forest Service). Again 
as noted below, if the Commission requires that a facility be 
maintained, it can look only to the licensee to do so. Thus, a license 
condition must place responsibility for completion of a measure on the 
licensee. As noted above, any cost-sharing agreement may have to be a 
matter of contract between the licensee and the third party, but will 
not be something that Commission staff will recommend including in a 
license. See Alcoa Power Generating, Inc., 110 FERC ] 61,056 at P 31 
(2005) (finding that, although licensee agreed with U.S. Forest Service 
and State agencies to share costs of recreation areas and facilities, 
ultimate responsibility for performance of license obligations must be 
borne by licensee).

Specific Measures

Cost Caps

    21. In some settlements, parties place financial limits on the 
licensee's obligation to perform certain tasks (for example, ``the 
licensee shall build a campsite at a cost of $10,000'') or limit the 
licensee's obligation to the payment of funds to a third party (for 
example, ``the licensee shall pay $10,000 to the State to construct a 
fishing pier), rather than the performance of a particular measure. As 
the Commission has made clear, a licensee cannot satisfy the obligation 
to perform certain tasks by a simple payment to another party, nor can 
the obligation be limited by a particular dollar figure. The Commission 
will take an independent look at proposed measures and their costs, to 
determine if the proposals are reasonable. If a measure is required, 
however, it will be because the Commission has determined that the 
measure is required to meet the FPA's comprehensive development 
standard. In consequence, although the Commission sometimes includes in 
license articles spending caps that parties have agreed to, it does so 
to memorialize the intent of the parties, but not to approve the limit. 
The Commission expects the required measure to be performed by the 
licensee, even if the cost exceeds the

[[Page 56524]]

agreed-upon cap. As the Commission stated in Virginia Electric Power 
Company,

[s]ettlements filed with us often include specific dollar 
limitations (i.e., the licensee shall build a fishing pier, at a 
cost of up to $15,000), and we sometimes include those limitations 
in license articles at the parties' request, in an effort to revise 
proposed articles as little as possible. It is important for all 
entities involved in settlements to know, however, that we consider 
the licensee's obligation to be to complete the measures required by 
license articles, in the absence of authorization from the 
Commission to the contrary. Dollar figures agreed to by the parties 
are not absolute limitations.

110 FERC ] 61,241 at P 10 (2005). See also New York Power Authority, 
105 FERC ] 61,102 at P 66 (2003) (reserving Commission's right to amend 
agreed-upon funding requirements to ensure that project is operated in 
public interest); Allete, Inc., 107 FERC ] 62,036 at P 26 (2004); City 
of Sturgis, Michigan, 105 FERC ] 62,132 at P 37 (2003); Charter 
Township of Ypsilanti, Michigan, 105 FERC ] 62,019 at P 39 (2003); 
PacifiCorp, 105 FERC ] 62,207 at P 27 (2005).

Cost Sharing

    22. As noted, the Commission has no jurisdiction over any party to 
a hydroelectric licensing settlement other than the licensee. Some 
settlements include agreement that the licensee and some other party 
will share the costs of performing certain measures, such as an 
agreement that the licensee and a State and Federal agency will jointly 
manage a recreation area. The Commission cannot enforce such an 
agreement against a non-licensee. Another problem can arise if the 
agreement is premised on the receipt of matching funds; that is, the 
licensee won't be expected to make a payment unless another entity also 
does so. As discussed in regard to cost caps, if the Commission 
requires the licensee to undertake a particular measure, it will look 
to the licensee alone for the performance of that measure. See, e.g., 
Virginia Electric Power Company, 106 FERC ] 62,245 at P 44 (2004) 
(finding that, while settlement provisions require licensee to provide 
funds to agency for construction and maintenance of facilities, 
licensee is ultimately responsible for compliance with license 
conditions); PacifiCorp, 105 FERC ] 62,207 at P 28 (2005) (noting, with 
respect to settlement provision requiring licensee to designate 
environmental coordinator, that, while licensee may hire others to 
perform required measures, burden of compliance rests with licensee). 
While licensees and other parties are free to enter into cost-sharing 
side agreements, including such provisions in a license is problematic 
because the Commission has no ability to enforce them.
    23. Similarly, the parties may agree that a third party will 
undertake a certain task, and perhaps be paid by the licensee to do so. 
For example, it might be agreed that the licensee will pay a State 
agency or a tribe to operate a fish hatchery. If the Commission finds 
that operation of the fish hatchery is required for the comprehensive 
development of the affected waterway, it will not include in the 
license a provision requiring the licensee to pay another entity to 
operate the hatchery, but rather will require the licensee to operate 
the hatchery and leave to it how to fulfill that obligation. See 
Portland General Electric Company, 114 FERC ] 61,137 at P 11, 15 
(2006). This is because the Commission has jurisdiction only over its 
licensee, and thus cannot ensure that a measure will be carried out 
unless ultimate responsibility for doing so rests with the licensee.
    24. Settlement provisions requiring licensees to pay for the 
salaries of personnel who work for other entities, such as a State 
wildlife biologist or a law enforcement officer, also raise several 
issues. First, as noted, the Commission prefers concrete measures with 
measurable requirements and impacts such as ``construct and operate a 
fish hatchery'' to more indefinite ones such as ``pay the salary of a 
State fisheries biologist.'' In addition, the Commission has no way of 
assuring that the hiring of personnel paid for by the licensee will 
actually accomplish a project purpose or ameliorate a project effect. 
Again, this is why measures that require specific, direct, on-the-
ground actions are preferable to more general ones. It makes most sense 
for the license to establish what measures a licensee must perform, and 
for any settlement between the licensee and third parties regarding the 
performance of those measures to be addressed in off-license 
agreements.

Funds

    25. As noted above, in order to include a specific environmental 
measure in a license, the Commission needs to be able to conclude that 
the measure relates to project impacts or project purposes. This is why 
the Commission has expressed a preference for specific measures and 
that, where possible, such measures be implemented within the project 
boundary or close to the project and the area that it affects. An 
increasing number of settlements include funds intended to cover the 
costs of measures to be undertaken during the course of the license 
term. The principles enunciated above apply to consideration of such 
funds.
    26. For example, where the record shows that a project has an 
impact on certain aquatic species or could enhance such species, it may 
be possible to obtain Commission approval of a fund that is designated 
for the purpose of enhancing and mitigating impacts on those species 
within the project vicinity, such as a fund to pay for a set of 
specified fishery habitat enhancements within the project boundary, 
provided that the licensee retains sufficient control over the fund 
that the Commission can ensure compliance with the related license 
article and ensure satisfaction of the underlying project purposes 
supporting the fund. As the ties between the proposed fund and record 
evidence and project effects and purposes become more tenuous, as with 
a fund to undertake unspecified fishery measures within the basin where 
the project is located, the propriety of the fund may increasingly come 
into question. Thus, if the record does not show that the project has 
an adverse effect on fishery resources or does not demonstrate that 
effective enhancement measures can be undertaken in the project 
vicinity, it may be more difficult to justify inclusion of a fishery 
fund in a license. Similarly, a fund that may be used anywhere in a 
State or in a broad geographic area may be less likely to be 
recommended than one more closely tied to the project. To the extent 
that parties feel measures should be undertaken beyond the project 
vicinity, they should explain in detail why those measures are related 
to project purposes, why they cannot be carried out at the project 
site, and why their proposals would satisfy the comprehensive 
development standard.

Physical Proximity

Project Boundaries

    27. In the course of Commission action on settlements, issues often 
arise with respect to project boundaries. Specifically, parties may be 
concerned about what facilities need to be within project boundaries, 
and what the impact of such inclusion will be. Therefore, a brief 
discussion of this issue may be helpful.
    28. Part I of the FPA directs the Commission, when issuing a 
license for a hydroelectric project, to require the licensee to 
undertake appropriate measures on behalf of both developmental and non-
developmental public interest uses of the waterway,

[[Page 56525]]

including fish, wildlife, and recreation.\4\ These requirements, as set 
forth in a license, constitute the ``project purposes.''
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    \4\ As discussed earlier, FPA section 10(a)(1) sets forth the 
standard by which the Commission acts on hydropower license 
applications, and incorporates by reference those public purposes 
set forth in FPA section 4(e).
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    29. The Commission has regulatory authority only over the licensee, 
and thus can administer and enforce the terms of the license only 
through the licensee and the licensee's property rights. Standard 
license Article 5 requires the licensee to acquire and retain all 
interests in non-Federal lands and other property necessary or 
appropriate to carry out project purposes.\5\ The licensee may obtain 
these property interests by contract or, if necessary, by means of 
Federal eminent domain pursuant to FPA section 21.\6\
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    \5\ Standard Article 5 appears in what are called ``L-Forms,'' 
which are published at 54 FPC 1792-1928 (1975) and are incorporated 
into project licenses by an ordering paragraph. See 18 CFR 2.9 
(2006). Article 5 states in pertinent part: ``The Licensee, within 
five years from the date of issuance of the license, shall acquire 
title in fee or the right to use in perpetuity all lands, other than 
lands of the United States, necessary or appropriate for the 
construction, maintenance, and operation of the project. The 
Licensee or its successors and assigns shall, during the period of 
the license, retain the possession of all project property covered 
by the license as issued or as later amended, including the project 
area, the project works, and all franchises, easements, water 
rights, and rights of occupancy and use; and none of such properties 
shall be voluntarily sold, leased, transferred, abandoned, or 
otherwise disposed of without the prior written approval of the 
Commission, except that the Licensee may lease or otherwise dispose 
of interests in project lands or property without specific written 
approval of the Commission pursuant to the then current regulations 
of the Commission * * *.''
    \6\ 16 U.S.C. 814 (2000).
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    30. A licensee's property interests can range from fee simple to 
perpetual or renewable leases, easements, and rights-of-way. Thus, 
title to lands within the boundary can be owned by someone other than 
the licensee, so long as the licensee holds the necessary property 
interests (e.g., flowage easements) and permits (e.g., a Forest Service 
special use permit) to carry out licensed project purposes. The license 
covers only those property interests held by the licensee; each license 
with a project boundary states (in an ordering paragraph) that ``the 
project consists [inter alia] of (1) All lands, to the extent of the 
licensee's interests in those lands, enclosed by the project boundary 
shown by [a designated exhibit] * * *.''
    31. If the Commission requires additional control in order to 
accomplish a project purpose, or amends the license to expand or add a 
project purpose, it can direct its licensee to obtain any necessary 
additional property rights, whether inside or outside the existing 
project boundary, and amend the boundary as appropriate. See, e.g., 
Upper Peninsula Power Company, 104 FERC ] 62,135 at P 72 (2003) 
(finding that, notwithstanding settlement provision that licensee's 
obligation to develop buffer zone and wildlife and land management plan 
applied only to license-owned lands within project boundary, obligation 
in fact extended to all lands within boundary). Conversely, if the 
Commission determines that less land is needed to meet project 
purposes, or if it redefines project purposes, it can remove land from 
the boundary. If the Commission deletes a parcel of land from the 
project and its boundary, the Commission is placing that land outside 
of its jurisdiction and regulatory reach. See, e.g., Pacific Gas & 
Electric Company, 102 FERC ] 61,309 at P 21; 56-61 (2003) (rejecting 
portion of land management plan agreement that would have removed from 
project boundaries lands needed for project purposes). Compare 
Wisconsin Public Service Corporation, 104 FERC ] 61,295 at P 29-38 
(2003) (approving in part application to amend project boundaries).
    32. Project boundaries are used to designate the geographic extent 
of the lands, waters, works, and facilities that the license identifies 
as comprising the licensed project and for which the licensee must hold 
the rights necessary to carry out project purposes. The establishment 
of a project boundary makes it easier for the Commission, the licensee, 
and other interested parties to understand the geographic scope of a 
project. All facilities, lands, and waters needed to carry out project 
purposes should be within the project boundary. A project boundary does 
not change property rights, nor does the conveyance of a property right 
change a project boundary.
    33. To an extent, the Commission has allowed an exception for lands 
and waters on which a licensee is to carry out one-time measures. For 
example, if a licensee is required once to place material in a stream 
in order to create fish habitat, but is not required to undertake other 
measures in that area during the license term, the Commission may not 
include that reach within the project boundary. If, however, the 
licensee is obligated to undertake measures throughout the license 
term, such as implementing an ongoing habitat restoration plan, the 
Commission may require that the affected lands be included in the 
project boundary. See, e.g., PacifiCorp, 105 FERC ] 61,237 at P 114 
(2003) (noting that licensee would have to amend project boundary to 
include lands previously outside of project boundaries, on which 
activities required by license).
    34. Thus, if settling parties have a desire to include or exclude 
certain lands, waters, or facilities within project boundaries, they 
should examine carefully the licensee's obligations and how the lands 
or facilities in question relate to project purposes. If lands or 
facilities are to be included within the project boundary, there must 
be a showing of how they are needed for project purposes; if they are 
to be excluded there must be a showing of why they are not needed for 
those purposes, or that the measures affecting project lands or 
facilities are one-time measures that will not require Commission 
oversight throughout the life of the license.

Roads

    35. One specific instance in which project boundary issues arise is 
roads. Some settlements require licensees to pay for the upkeep of 
roads leading to the project or to specific project works, such as 
recreation areas. Several issues can arise with respect to such 
measures. First, in order to decide whether a license should include a 
requirement that road activities be funded, the Commission must 
determine that the road is necessary for project purposes, as with a 
road that is needed in order to reach the powerhouse or a road that is 
the only way to reach a project recreation site. If the road merely 
passes near the project and is used only incidentally for project 
purposes, it may not be appropriate to require the licensee to maintain 
it. The Commission must also be able to determine what part of the road 
is needed for project purposes. Thus, it will be appropriate to develop 
license conditions covering only the relevant portion of a long road 
that at some point provides necessary access to a project, rather than 
the entire road.
    36. Finally, if a road is deemed necessary for project purposes 
such that the licensee is required to undertake ongoing activities with 
respect to the road throughout the license term, the Commission may 
require that the road be included within the project boundary, so that 
the Commission can exercise its compliance jurisdiction to ensure that 
the required activities take place. As indicated above, inclusion of a 
road or a portion of a road within a project does not mean that the 
licensee must obtain fee title to the road, only that it must obtain 
sufficient rights, such as an easement, a lease, or a right-of-

[[Page 56526]]

way, to ensure that it can implement the required measures. There are 
instances in which road owners, such as towns, counties, or the U.S. 
Forest Service, have been reluctant to have roads included within 
project boundaries. Parties should consider this issue carefully when 
deciding to what extent they want the Commission to impose ongoing 
obligations on licensees with respect to roads.

Reserve Commission Authority

Commission Approval

    37. As the agency charged with the administration of hydropower 
licenses, the Commission must approve licensees' post-licensing plans. 
That authority cannot be ceded to other entities. Thus, settlement 
conditions that provide that the licensee must file specified plans 
after obtaining the approval of other parties, such as resource 
agencies, tribes, or non-governmental organizations, are acceptable if 
they provide that the plans will be filed with the Commission for its 
approval, and that the Commission will have the right to revise the 
plans as it deems necessary. Provisions that envision plans (or 
operational changes outside of the parameters approved in the license) 
being approved by other entities but not the Commission are not 
acceptable. In Virginia Electric Power Company, the Commission stated 
that:

* * * we are pleased that the settling parties were able to develop 
means for carrying out the goals of the settlement in a manner 
consistent with the Commission's responsibilities under the Federal 
Power Act. For example, Article 411, which calls for a bypassed 
reach flow release plan, requires the licensee to develop the plan 
in consultation with State and Federal resource agencies, and then 
to file the plan for Commission approval, with the explicit 
understanding that the Commission may require changes in the plan.

110 FERC ] 61,241 at P 35.

    38. Where, on the other hand, the parties establish a mechanism 
that purports to give the licensee and other parties the ability to 
alter license terms or obligations without first obtaining the 
Commission's approval, the Commission has revised proposed license 
articles to include its approval authority. See New York Power 
Authority, 105 FERC ] 61,102 at P 65 (2003) (modifying proposed license 
articles to require Commission approval of fishway plans).

Adaptive Management

    39. Settlement provisions often contemplate that adjustments to 
measures required during the license term will be based on information 
gleaned from ongoing monitoring or other post-license studies. This is 
sometimes called adaptive management. Settling parties may agree, for 
example, that a committee will meet and decide on an annual level of 
spring flows for fishery purposes. To the extent that the proposed 
flows are within parameters considered in the licensing proceeding and 
determined to be appropriate, this does not pose a problem. A license 
might provide that a licensee be required to release increased flows of 
between 100 and 200 cfs for a period, to be determined on an annual 
basis, between March 15 and June 15. It would be appropriate for the 
committee to decide each year what flows within these parameters should 
be released, with notification to the Commission. However, it would not 
be appropriate to give the committee authority to require flows beyond 
the limits set forth in the license, because the Commission would not 
have had a prior opportunity to determine whether those flows were in 
the public interest. In order for this to occur, the licensee would 
have to file an amendment application with the Commission, seeking 
authority to alter the terms of the license. For the same reason, it 
would not be appropriate to propose that the license not contain flow 
parameters at all, and simply leave flow decisions up to an adaptive 
management group. As the Commission explained in Virginia Electric 
Power Company:

We receive many settlements in which parties agree to adaptive 
management measures, calling for future studies and possible changes 
in project operations based on experience. For the Commission to 
exercise its oversight authority, it is necessary that license 
conditions embodying these measures provide for Commission review 
and, where required, modification of proposed actions that go beyond 
the limits imposed by the license.

110 FERC ] 61,241 at P 23. See also PacificCorp, 103 FERC ] 62,183 at P 
35 (2003)

(``The Agreement provides for possible modifications to project 
structures and operations during the license term. For example, the 
proposed articles contain provisions to alter whitewater flow releases 
in the event that monitoring attributes to these releases deleterious 
impacts to biological resources. While such adaptive management 
provisions are not uncommon in licenses issued in recent years, the 
proposed articles would put project modifications under the direction 
of [a committee]. It is, however, the Commission's role and 
responsibility to give prior approval, through appropriate license 
amendments, for all material amendments to the project and the 
license'').

Other Issues

    40. In addition to the matters discussed above, there have been a 
number of other instances over the last few years in which proposed 
provisions that do not fit precisely into the more general categories 
discussed above were not included in licenses. These provisions are 
briefly summarized below, in order to provide additional guidance:
    (1) Provisions that would require amending the license for another 
project. Section 6 of the FPA precludes the Commission from altering a 
license without the licensee's consent. See Pacific Gas & Electric 
Company, 97 FERC ] 61,084 (2001); Arizona Public Service Company, 109 
FERC ] 62,241 (2004); FPL Energy Maine Hydro, LLC, 106 FERC ] 62,021 
(2004).
    (2) Financial restrictions with respect to future surrender of a 
project. See Northern States Power Company, 111 FERC ] 62,212 at P 33 
(2005) (Commission has previously declined to impose generic project 
retirement plans and licensee is anticipated to have sufficient 
financial resources to satisfy any conditions on surrender); Northern 
States Power Company, 111 FERC ] 62,123 at P 34 (2005) (same).
    (3) A provision purporting to restrict parties' statutory right to 
seek rehearing. FPL Energy Maine Hydro, LLC, 106 FERC ] 62,021 at P 23 
(2004).
    (4) A proposed license condition stating that the Commission would 
not object to ``reasonable'' fees charged by licensees and operators of 
recreational facilities within the project boundaries. See FPL Energy 
Maine Hydro, LLC, 106 FERC ] 62,021 at P 24 (2004) (Commission 
generally does not review reasonableness of such fees).
    (5) Provision tying future actions to the date that the licensee 
accepts the license, contrary to general Commission practice of using 
the more certain date of license issuance. See Virginia Electric Power 
Company, 106 FERC ] 62,245 at P 46 (2004).
    (6) Settlement provision requiring that requesting party pay 
licensee for whitewater releases above those set forth in settlement 
not accepted, because licensee must bear cost of any releases required 
by Commission. See Alcoa Power Generating, Inc., 110 FERC ] 61,056 at P 
23, n.14 (2005).

Comment Procedures

    41. We invite interested persons to submit written comments on the 
Commission's policy with regard to settlements in hydropower licensing

[[Page 56527]]

proceedings. Comments are due 45 days from the date of publication of 
the policy statement in the Federal Register. Comments must refer to 
Docket No. PL06-5-000, and must include the commenter's name, the 
organization they represent, if applicable, and their address in their 
comments. Comments may be filed either in electronic or paper format.
    42. Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. The Commission 

accepts most standard word processing formats and requests commenters 
to submit comments in a text-searchable format rather than a scanned 
image format. Commenters filing electronically do not need to make a 
paper filing. Commenters that are not able to file comments 
electronically must send an original and 14 copies of their comments 
to: Federal Energy Regulatory Commission, Secretary of the Commission, 
888 First Street, NE., Washington, DC 20426.
    43. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described below. 
Commenters on this policy statement are not required to serve copies of 
their comments on other commenters.
    44. 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 FERC's Home Page (http://www.ferc.gov) and in FERC 

Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.

    By the Commission.
Magalie R. Salas,
Secretary.
 [FR Doc. E6-15800 Filed 9-26-06; 8:45 am]

BILLING CODE 6717-01-P