FERC inquires re hydro financial assurance

Federal hydropower regulators in the U.S. are considering changes to the way financial assurance measures are incorporated into hydroelectric project approvals, and have requested public comment on whether and how hydro projects should be made to provide financial assurance to cover the costs of compliance with their license terms.

Under the Federal Power Act, the Federal Energy Regulatory Commission has jurisdiction over many hydroelectric developments in the U.S. On January 19, 2021, the Commission issued a Notice of Inquiry seeking public comment on whether and how the Commission "should require financial assurance measures in licenses and other authorizations for hydroelectric projects to ensure that licensees have the capability to carry out license requirements and, particularly, to maintain their projects in safe condition."

In the Notice of Inquiry and a related staff presentation, the Commission notes steps it has taken to protect against the "failure of a licensee's financing planning" such as the inclusion of a "financing plan article" in recently issued licenses which requires licensees to show that they have the necessary funds to complete project construction and to operate and maintain the project. However, most FERC-issued hydro licenses do not include such a clause, because most existing hydropower licenses were issued before the Commission began this practice. Moreover, the Commission has noted that the financing plan requirement focuses on normal project expenses, not unexpected major costs.

The inquiry is prompted in part by dam failures in Michigan in May 2020, events the Commission staff pointed to in observing that "non-operational or non-compliant projects can pose public safety and environmental hazards in the event of a dam failure or breach." Staff noted that while significant dam failures have been rare, "Commission staff is aware of a number of projects that are non-operational or out of compliance with their license conditions and where licensees have stated that they cannot afford to operate or maintain the projects or implement the required environmental or safety measures."

Citing "concern that inadequate financing may result in threats to public safety and environmental resources", the Notice of Inquiry seeks public comment on when the Commission should require financial assurance from licensees -- whether in original licenses, on relicense, or in other authorizations such as transfers -- and whether the Commission should require licensees to reaffirm or recertify that they have adequate financial assurance instruments in place.

The Notice of Inquiry describes three potential options identified by Commission staff:  

(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.