trending Market Intelligence /marketintelligence/en/news-insights/trending/NRIfnlUVqZxCeXTI8E_eaw2 content esgSubNav
In This List

Stakeholders divided on FERC hydropower licensing policy


Understanding Loss Given Default A Review of Three Approaches


Insight Weekly: Path to net-zero; US manufacturing momentum; China's lithium M&A frenzy


Insight Weekly: US recession outlook; mortgage activity slowdown; climate disclosure push


Firms Realize the Value of Data Driven Decision Making

Stakeholders divided on FERC hydropower licensing policy

In recent comments, stakeholders showed little agreement on whether FERC should modify the length of hydropower licences.

The commission generally issues original and new licenses for generation facilities at non federal dams for terms of 30 to 50 years, depending on the amount of redevelopment, new construction, or environmental mitigation or enhancement authorized for the facility. To determine where in that range a facility's license term will fall, the agency considers whether the degree of authorized activities is minimal, moderate or extensive, and grants license terms of 30 years, 40 years and 50 years, respectively.

But noting that it recently had turned down requests for it to deviate from that policy, FERC in November 2016 issued a notice of inquiry explaining that it was considering revising the way it determines the length of new hydropower licenses, otherwise known as relicenses.

Stakeholders were asked to weigh in on five separate options for going forward: retain its existing license term policy, consider measures implemented during a previous license term when determining a new license term, establish a 50-year default license term, include a more quantitative cost-based analysis, and accept the terms negotiated in settlement agreements.

Some back 50-year default license...

The American Public Power Association, Large Public Power Council and various hydropower licensees that together referred to themselves as the "industry commenters" jointly expressed dissatisfaction with the commission's current policy. They insisted that a shorter-term license can act as a deterrent to relicensing and can lead to decommissioning of a hydropower project given that relicensing can cost tens of millions of dollars and take a decade or more.

"A long license term is vitally important to ensure continued investment in hydropower and to attract new hydropower development," the industry commenters said.

According to the group, FERC's existing policies treat similarly situated licensees differently. For instance, the commission routinely grants a 50-year license for a project that entails construction of a new dam but issues a shorter one for a project that does not, even though the latter may involve the construction of hydropower facilities that could cost hundreds of millions of dollars and result in relatively few environmental impacts, the industry commenters said. That uncertainty "leaves licensees unable to predict what measures they must commit to undertake in relicensing in order to secure a 50-year license," they added.

FERC therefore should adopt a default 50-year term for both original and new hydropower licenses, except when a settlement agreement calls for a shorter term or when a licensee seeks to coordinate licenses for multiple projects within the same river basin, the industry commenters said.

In the alternative, the industry commenters said FERC should adopt a 40-year default license term but give licensees credit for up to 10 additional years, in recognition of early action measures taken during the previous license term, and defer to license term provisions included in relicensing settlement agreements.

Noting that over 500 hydropower projects — approximately half of all FERC-jurisdictional projects representing about 30% of commission-licensed capacity — will begin the relicensing process within the next 15 years, the industry commenters asserted that the time is right for the agency to make changes to its existing policy.

A coalition of trade groups that includes the National Hydropower Association, Edison Electric Institute and National Rural Electric Cooperative Association similarly supported the adoption of a 50-year default license term, asserting that it would be "no less protective of resources than the commission's current license term policy."

"The commission's ability to reopen licenses after notice and opportunity for hearing, the incorporation of adaptive management measures in licenses, and legal obligations under the Endangered Species Act, all potentially serve as mechanisms to address, on a targeted basis, unanticipated resource issues that may arise during a 50-year license term," the trade groups said.

Additionally, the trade groups recommended that FERC allow licensees to extend the terms of their licenses to 50 years, without requiring them to make capacity additions or substantial capital investments, while still imposing discrete mitigation or enhancement measures as necessary. Doing so would recognize that certain projects were granted shorter licenses because they were environmentally benign and did not require substantial investment in mitigation measures, relieve some of the administrative burdens associated with relicensing, and address the inherent disadvantage of hydroelectric projects compared with other resources, the trade groups said.

"Most generators operating in the market today simply do not have to address the costs, operational uncertainties, and dedicated personnel that the relicensing process requires," the trade groups said. "By allowing projects to extend their existing licenses to 50 years, the commission can help level the playing field."

... and others don't

In contrast, the Hydropower Reform Coalition generally supported FERC's retaining its existing policy, asserting that it "is well defined and appropriately allows for consideration and balancing of a variety of factors." Taking a "one-size-fits-all" approach by adopting a default 50-year license term would be "ill-conceived" and may have unintended safety consequences, the HRC said.

"Projects should continue to be evaluated on a case-by-case basis because an action that is in the public interest in one watershed may not be in the public interest in another," the HRC said.

The HRC nevertheless said FERC should expand the factors it looks at when determining what license term length best serves the public interest so that it also considers the license terms included in any uncontested settlement or measures a licensee has voluntarily undertaken during a previous licensing term.

"It is appropriate for a licensee that invests more in its project or takes voluntary steps to mitigate its environmental impact to receive a longer license term than a licensee that does not," the HRC said.

Another factor FERC should consider when determining the appropriate license term for a project is the impact that climate change can have on a facility, the HRC continued, citing the recent failure of both the main and auxiliary spillways at the Oroville dam when California experienced "a wet winter beyond anything thought possible."

The group recalled that during the Oroville project's relicensing process, requests for a requirement that the auxiliary spillway be armored were rebuffed because that spillway had never been used in the project's 50-plus years of operation.

"This is a scenario that could be repeated across the country with direct implications for public safety if a 50-year default license term is implemented," the HRC warned.

The U.S. Department of Interior likewise said FERC should retain its existing policy, asserting that it "allows for consistent application, provides known and straightforward interpretation of the statute, and appropriately considers site-specific variables."

According to the DOI, 50 years is "too long to wait to assess how the project is affecting the environment, since tremendous changes can occur during that time."

As for whether FERC should consider measures implemented during a prior license term when determining the term of a new license, the DOI said "measures required under a specific license are intended to address impacts for the duration of that license" and therefore FERC should "continue to require a fresh look at all project-related impacts through a relicensing process."

A number of individuals also weighed in on the NOI, urging FERC not to adopt a default 50-year license term but instead to consider shortening its standard licensing term to ensure that projects remain safe and any environmental impacts are appropriately addressed. One commenter even suggested that hydropower licenses be reassessed yearly.

"Beyond just the potential for scientific breakthroughs adjusting management plans, 30 years is so long that it's easy for new stakeholder groups to develop that have no say in management for as many as 29 years, 364 days," the commenter, Nicholas Gottlieb, said. "Just because nobody was fishing on or kayaking in a river 30 years ago doesn't mean there wouldn't be a thriving industry doing that today."

What about cost-based analyses?

The industry commenters said they do not support FERC taking a quantitative cost-based approach to establishing license terms. But, if FERC should decide to do so, they said the agency should consider all costs to both obtain and implement a new license and should not take either a total cost or a proportional cost approach but instead should adopt "a more qualitative approach that takes all cost factors into account."

"Certainly, the magnitude of relicensing costs should be considered," the industry commenters said. "However, consideration should be given to costs proportional to the economic value of the project and what the project can reasonably 'afford.'"

The trade groups likewise said any cost-based analyses undertaken by FERC must take into account "all costs incurred by the licensee." Such costs should include those associated with improvements made during the existing license term and subsequent annual licenses that were not required by the existing license and with the relicensing process and measures proposed as part of the new license application, the trade groups said.

FERC also should consider factors such as the public benefits provided by the project, including the generation of zero emission power and any reliability benefits, as well as the relative need for improvements at the facility, according to the trade groups. They said a project "should not receive a shorter license term simply because the project or the surrounding environment did not require a significant expenditure of funds."

The HRC said a quantitative cost-based analysis should not be the sole or even primary means of determining a project license term but rather should be just "one factor among many to be balanced in determining what is in the public interest."

"We believe that a purely cost-based analysis to determine license terms is rife with complications and at heart is somewhat arbitrary," the HRC said. "Given the vagaries of this kind of analysis, we favor more transparency in FERC's economic analysis." (FERC docket RM17-4)