Power & Pipes

FERC, CFTC, and State Energy Law Developments

FERC recently held a Staff-led technical conference to discuss whether, and if so, how, the Commission should require additional financial assurance mechanisms in the licenses and other authorizations it issues for hydroelectric projects, to ensure that licensees have the capability to carry out license requirements and, particularly, to maintain their projects in safe condition. The feedback received during the conference, as well as the comments to be filed, will likely shape the ultimate FERC rule on financial assurance requirements currently under consideration.

In January 2021, FERC issued a notice of inquiry inviting comments on potential changes to its regulations requiring financial assurance measures in licenses and other authorizations for hydroelectric projects. FERC has expressed concern that inadequate financing may result in threats to public safety and environmental resources. Therefore, FERC seeks to ensure that hydroelectric project licensees have the financial capability to meet the requirements of their license, including maintaining their projects in safe condition, through the rulemaking process.

The technical conference consisted of three panels. The first panel, Protecting Hydroelectric Facilities and Communities with Financial Assurance Requirements, focused on risks specific to projects (e.g., condition of the project), the regions where projects are located (e.g., dam safety hazard potential), and the world at large (e.g., climate change and severe weather). The panel discussed how financial assurance requirements could mitigate these risks.

The second panel, Establishing a Financial Assurance Requirement, focused on factors informing the Commission’s establishment of financial assurance measures. The panel discussed project characteristics that FERC should consider, the level of funding to be required, the methodology FERC may use to set funding levels, and whether to differentiate requirements for projects at government dams.

The third panel, Evaluating Mechanisms for Financial Assurance, focused on potential mechanisms licensees could use to satisfy a financial assurance requirement and the availability of those mechanisms. The panel discussed options such as a performance or surety bond, an individual trust or escrow fund, or insurance.

On April 27, 2022, FERC issued a notice inviting post-conference comments by June 13, 2022. Current and potential licensees of hydroelectric projects, as well as their owners and investors, should continue their engagement with the rulemaking proceeding as the ultimate rule is likely to increase the financial requirements of holding a hydroelectric project license.