On October 19, 2017, the Federal Energy Regulatory Commission (FERC) issued its Policy Statement on Establishing License Terms for Hydroelectric Projects (Policy Statement), available here. In a change from FERC’s prior policy, the Policy Statement provides a 40-year default license term for all original and new hydroelectric projects located at non-federal dams, subject to certain exceptions detailed below.
Section 6 of the Federal Power Act (FPA) provides that hydroelectric licenses shall be issued for terms not to exceed 50 years. There is no minimum license term for “original” licenses (i.e., initial licenses), although FERC practice has generally been to issue such licenses for 50-year terms.1 Section 15(e) of the FPA requires that “new” licenses (i.e., relicenses) be issued for terms not less than 30 years or more than 50 years.1 Under its prior policy applicable to hydroelectric facilities located at non-federal dams, FERC generally issued 30-year licenses for projects with minimal improvements, 40-year licenses for projects with moderate improvements, and 50-year licenses for projects with extensive improvements. Improvements implemented during a current license term, however, were historically not considered by FERC when determining new license terms. FERC also looked to coordinate the license terms of projects in the same river basin and would take into consideration settlement agreements providing for a specific license term.
On November 17, 2016, through a Notice of Inquiry (“NOI”), FERC requested stakeholder comment on whether it should: (1) retain its existing license term policy; (2) consider measures implemented during the prior license term in determining the term of the new license; (3) adopt a 50-year license term as a default license term; (4) employ a quantitative cost-based analysis to inform license terms; and (5) allow settlement agreements to play a role in determining license terms. Given the administrative costs associated with the relicensing process, the resources needed to undertake relicensing, and the increased costs generally associated with new license terms, the NOI provided an opportunity for licensees to make the case for a FERC policy that provides for longer license terms (i.e., license terms of 50 years).
NEW LICENSING POLICY
FERC’s Policy Statement establishes a 40-year default license term for all original and new hydroelectric projects located at non-federal dams. The Policy Statement provides that FERC will, in the following three circumstances, consider issuing a license for a term different from the new 40-year default:
- To coordinate license terms in the same river basin (shorter or longer term);
- In accordance with an explicitly agreed upon and generally supported comprehensive settlement, provided it does not conflict with coordination in the same river basin (shorter or longer term); and
- In connection with an applicant’s request supported by significant measures expected to be required for the license to be issued or voluntarily undertaken in the prior license term, provided the term is consistent with coordination in the same river basin (longer term only).
The Policy Statement explains that the new 40-year default license term should provide increased certainty, increased administrative efficiency, and longer license terms for licensees to recoup costs. It also explains that the new default term may promote additional voluntary capacity upgrades and enhancement of environmental and recreational resources during license terms, and encourage stakeholder negotiation.
The Policy Statement does not directly address whether FERC will maintain its prior policy of generally providing 50-year terms for original licenses. However, certain examples of “significant measures” in the Policy Statement suggest that the activities required to construct a new hydroelectric project requiring an original license would warrant a license term beyond the 40-year default. The examples identified include the construction of pumped storage facilities, fish passage facilities, fish hatcheries, substantial recreation facilities, dams, and powerhouses.
The Policy Statement will be applied from the date of its publication in the Federal Register and will not be retroactive. License applicants with pending applications may file a comprehensive settlement agreement, or an addendum to an existing agreement, that includes an explicitly agreed upon license term, or may make a filing demonstrating why FERC should grant a longer license term. FERC will not, however, consider applications to amend existing licenses simply on the basis of the Policy Statement.
1See City of Danville, Virginia, 58 FERC ¶ 61,318, at 62,020 (1992).
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of approximately 700 lawyers practicing throughout a network of 12 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.