On September 23, 2021, the Federal Energy Regulatory Commission (FERC), for the first time, issued two orders reserving the right to require future license measures to ensure that licensees have adequate financial reserves “to carry out the terms of the license and Commission orders pertaining thereto.”  FERC’s orders follow its January 2021 Notice of Inquiry, in which it solicited public comments on whether and how it should impose financial assurance requirements on hydropower licensees to ensure licensees have sufficient financial resources to maintain their projects in safe condition.

FERC’s January 2021 Notice followed the costly failure of two dams in Michigan in May 2020, following several years of the licensee’s non-compliance with FERC dam safety orders, partly due to its alleged inability to pay for remedial work.  In its Notice, FERC stated it was “considering whether additional, programmatic mechanisms should be required to ensure that licensees can afford to keep their projects in safe operating condition” beyond the financing plan requirement already included in licenses for new construction.  FERC’s Notice sought 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 (EPA) Superfund program); and 3) insurance.  Comments on FERC’s Notice were due 60 days after its issuance.

Although FERC has yet to take any action in response to its Notice and the comments received, it recently took formal action in two proceedings requiring the licensees of the subject project to adhere to any future, yet-to-be developed requirements for financial assurances.  First, in issuing an original license for a 1.5 megawatt (MW) hydroelectric project in Inyo County, California, the Commission included a financial assurance license article, which reserves the Commission’s “right to require future measures to ensure that the licensee maintains sufficient financial reserves to carry out the terms of the license and Commission orders pertaining thereto.”  Commissioner James Danly issued a concurring opinion, in which he stated that licensees should “have the financial wherewithal to physically maintain their facilities,” but expressed his concern about how to achieve that goal, particularly given the many complex issues raised in comments on the January 2021 Notice.  He explained that such a reservation—which does not include information about whether or when the Commission will promulgate financial assurance requirements, what form they will take, or how much they will cost—may chill investment in hydropower facilities and limit licensees’ access to financing.

In a second order, the Commission approved the transfer of a 360-kilowatt project in Vermont from one licensee to another.  In approving the transfer, FERC unilaterally added a new license article reserving its authority to require financial assurance measures, and requiring the transferee to submit signed documentation that it agrees to the terms of the license, including the new financial assurance article.  Commissioner Danly concurred with the transfer, but dissented with respect to the Commission’s decision to impose a financial assurance article in a transfer order.  He explained that, pursuant to section 8 of the Federal Power Act, “the new licensee steps into the shoes of the old licensee,” who “enjoys the finality of its license order, knowing that the Commission cannot reopen its license to impose new conditions unless there is an expressly stated reopening provision in the license.”  He also noted his concern with the “broad terms” of the majority’s financial assurance license article and encouraged the Commission to “deliberately determine” how to implement financial assurance requirements to achieve the goal of the January 2021 Notice while maintaining certainty for the regulated community.