March 1, 2021

Volume XI, Number 60

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February 26, 2021

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FERC Seeks Industry Input on Financial Assurances for Hydro Projects

On January 19, 2021, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a Notice of Inquiry (NOI) requesting industry input regarding the scope and necessity of potential financial assurances that it should impose on hydroelectric projects seeking FERC licenses.[1]  In opening this NOI, the Commission noted recent experiences where a lack of funding for needed dam safety repairs led to the recent dam failures near Midland, Michigan in May of 2020.  This proceeding has been instituted to determine whether additional Commission requirements for financial assurances by licensees might ensure, or at least increase the probability, that funds would be available for dam safety and repairs throughout the term of the license. 

The NOI noted that the Commission currently requires licensees to file financing plans prior to beginning project construction to ensure the project will remain financially viable during the construction phase as well as for maintenance after construction has been completed.  Although in rare instances the Commission requires licensees to file a “financial assurance plan” wherein the project owner is required to obtain a bond or a bond-equivalent to ensure that the licensee has the economic means to continue operation, normally the Commission does not do that.  Rather, the Commission evaluates the economics of a project when the license is issued, as well as the licensee’s financial well-being, and relies upon the licensee’s acceptance of the license, together with the investment commitments inherent in that, as sufficient incentive for there to be money in the future to cover needed repairs. 

This NOI seeks information to assist the Commission in determining whether it might incorporate, either in licenses or in regulations, additional mechanisms that would provide financial resources for licensees to deal with unexpected safety or environmental issues.  The Commission proposes three possible alternatives for action, but also encourages commenters to propose other alternatives.  The three possible solutions include (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. 

Although ensuring that licensees will have the funds necessary to do dam safety repairs or remediate unforeseen environmental problems with a project represents a real policy issue, it is unclear how much leeway the Commission will have in devising a solution given the existing structure of Part I of the Federal Power Act.  All of the mechanisms proposed in the NOI entail imposing additional costs on new licensees, which of itself could hinder additional growth in new hydro renewables, and the Commission’s authority to impose additional regulatory requirements on existing licensees is limited.  Striking a balance will be a challenge.


[1] Financial Assurance Measures for Hydroelectric Projects, Notice of Inquiry, 174 FERC ¶ 61,039 (2021)

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© 2020 Bracewell LLPNational Law Review, Volume XI, Number 21
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About this Author

David R. Poe, Litigation Attorney, Bracewell Law Firm
Partner

David Poe’s practice focuses on providing administrative, regulatory and litigation advice to clients in infrastructure service industries, particularly electric utilities (including hydroelectric and nuclear generation), telecommunications and cable TV companies. He has been involved in federal and state legal issues specific to these industries.

202-828-5830
Boris Shkuta Environmental Energy utilities Attorney Bracewell law Firm
Associate

Boris Shkuta’s practice focuses on electric power and transmission regulatory work and energy storage technologies. He also advises clients on matters related to lending, project finance, mergers and acquisitions, and infrastructure and development, primarily in the energy industry.

202.845.5164
Taylor M. Stuart Energy & Infrastructure Attorney Bracewell Washington, DC
Associate

Taylor Stuart focuses her practice on regulatory, transactional and policy matters for clients in the energy and infrastructure sectors.

Prior to joining Bracewell, she served as a law clerk for the Honorable Micaela Alvarez of the United States District Court for the Southern District of Texas, one of the nation’s busiest federal courts.

202-828-1732
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