FERC Floats Financial Assurance Requirements for Hydropower Projects To Ensure Funding for Dam Safety and Environmental Requirements

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The Federal Energy Regulatory Commission (FERC or the Commission) released a Notice of Inquiry (Notice) on January 19, 2021 to solicit public comments on whether FERC should impose financial assurance requirements on hydropower projects to ensure that licensees have adequate financial resources to maintain their projects in safe condition.  The Notice comes on the heels of a significant and costly failure of two dams in Michigan in May 2020 following years of the licensee’s noncompliance with FERC dam safety orders, partly due to its alleged inability to pay for the work required.  In the months since the dam failures, the licensee declared bankruptcy, leaving insufficient resources to conduct over $300 million in repairs to four different dams, reimburse neighboring property owners for damages caused by flooding, and pay the substantial civil penalty recently proposed by FERC

According to the Commission’s January 19 Notice, an increasing number of projects have become either non-operational or have fallen into noncompliance with FERC license conditions “where licensees have stated that they cannot afford to operate or maintain the projects or implement required environmental or safety measures.”  Against the backdrop of the recent Michigan dam failures, the Commission is considering whether additional, programmatic mechanisms should be required to ensure that licensees can afford to keep their projects in safe operating condition.  FERC in its Notice stated that even with considerable license enforcement resources at its disposal, “the Commission has seen increasing numbers of projects that are non-operational or out of compliance with their license conditions.”  While FERC currently includes a financing plan requirement in licenses for new construction to ensure the licensee has adequate funds to complete a project and operate and maintain the project, it has only in rare cases required a licensee to demonstrate financial capacity to address future environmental concerns or potential significant dam safety issues.

FERC’s Notice seeks information and comment on three main possibilities for ensuring that licensees have sufficient financial resources to carry out their license requirements and maintain their projects in safe condition:  1) bonds; 2) a trust, escrow, or remediation fund, either at the industry-wide level, similar to the Environmental Protection Agency’s Superfund program, or at the licensee level, similar to what is required in the nuclear industry; and 3) insurance.  For each of these different avenues, the Commission requests comment on what level of funding would be sufficient, as well as what challenges might be associated with the particular financial assurance method for individual licensees, municipal licensees, the public, and FERC itself.

FERC also poses a number of other practical questions in the Notice regarding how and when financial assurance requirements should be imposed, including whether they should be included in both original licenses and at relicensing, whether they should be included in other types of authorizations, such as exemption, amendments, and transfers, and whether licenses should be reopened to include the measures.  Additionally, the Notice asks for input on possible requirements to ensure that any required financial assurance measures continue in effect, including recertification during the license term and notification to the Commission if circumstances underlying the financial assurances change.

Comments on the Notice are due 60 days from the date of publication in the Federal Register.  The Notice can be viewed here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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