[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