Project Decommissioning at Relicensing; Policy Statement

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 2

[Docket No. RM93-23-000]

Project Decommissioning at Relicensing; Policy Statement

Issued December 14, 1994.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Policy statement.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is

adopting a policy statement that addresses its authority to issue or

deny new hydropower licenses at the time of relicensing, and its

authority over the decommissioning of a licensed project when no new

license is sought or a new license is rejected or denied, as well as

pre-retirement planning and funding. The Commission stated that it has

the authority to deny new licenses to hydroelectric projects when

existing licenses expire. Such action would occur if the Commission

concluded that the project, no matter how conditioned, could no longer

meet the comprehensive development standard of the Federal Power Act.

In the great majority of cases, decommissioning is likely to result

from a license holder's desire to abandon an uneconomical facility

rather than the Commission deciding it should be closed. The Commission

also concluded that its authority over decommissioning extends to

determining what project features, beyond the turbines and generators,

should be removed, if the project is decommissioned. In issuing future

licenses, the Commission may require that funding for decommissioning

be provided in certain circumstances.

EFFECTIVE DATE: February 3, 1995.

FOR FURTHER INFORMATION CONTACT: Joanne Leveque, Office of the General

Counsel, Federal Energy Regulatory Commission, 825 N. Capitol Street,

NE., Washington, DC 20426, (202) 208-0961.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of

this document in the Federal Register, the Commission also provides all

interested persons an opportunity to inspect or copy the contents of

this document during normal business hours in room 3104, 941 North

Capitol Street, NE., Washington, DC 20426.

The Commission Issuance Posting System (CIPS), an electronic

bulletin board service, provides access to the texts of formal

documents issued by the Commission. CIPS is available at no charge to

the user and may be accessed using a personal computer with a modem by

dialing (202) 208-1397. To access CIPS, set your communications

software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, 1200 or

300bps, full duplex, no parity, 8 data bits, and 1 stop bit. The full

text of this document will be available on CIPS for 60 days from the

date of issuance in ASCII and WordPerfect 5.1 format. After 60 days the

document will be archived, but still [[Page 340]] accessible. The

complete text on diskette in Wordperfect format may also be purchased

from the Commission's copy contractor, La Dorn Systems Corporation,

located in room 3104, 941 North Capitol Street, NE., Washington, DC

20426.

Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A.

Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa,

Jr.

I. Introduction and Summary

The Federal Energy Regulatory Commission (Commission) is adopting a

policy statement that addresses issues related to relicensing and

decommissioning\1\ raised in its September 15, 1993 Notice of Inquiry

(NOI) in the above-captioned proceeding.\2\ In that Notice, the

Commission invited comment on a series of fifteen questions dealing

with the relicensing and decommissioning of licensed hydropower

projects after the original license has expired. The individual

questions, as well as a summary of the commenters' responses, are set

forth in Appendix A to this Policy Statement.

\1\In this document, the term decommissioning is used broadly.

Possible forms of decommissioning extend from simply shutting down

the power operations to tearing out all parts of the project,

including the dam, and restoring the site to its pre-project

condition.

\2\Project Decommissioning at Relicensing; Notice of Inquiry, 58

FR 48991 (Sept. 21, 1993), IV Stats. & Regs. 35,526 (1993).

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There are three major areas of inquiry encompassed in the ensuing

analysis and discussion. The first involves relicensing of a project.

The second addresses what happens when no new license goes into effect

for the project at the time of relicensing, and the project in question

must be decommissioned. Finally, the discussion addresses pre-

retirement funding of retirement costs that will be incurred upon

decommissioning.

Regarding the first issue, generally, when the license for a

project expires, the Commission issues a new license to the existing

licensee. However, that is not the only option available. After

examining the legislative history and the relevant statutory

provisions, the Commission concludes that it has the legal authority to

deny a new license at the time of relicensing if it determines that,

even with ample use of its conditioning authority, no license can be

fashioned that will comport with the statutory standard under section

10(a) of the Federal Power Act (the Act) and other applicable law. The

Commission anticipates that, where existing projects are involved,

license denial would rarely occur.

At the time a license expires, the Commission will review any

application for a new license in terms of current conditions and public

interest considerations. There may be instances where a new license can

be fashioned, but the terms will not be acceptable to the licensee, and

so the license will be rejected. This is most likely to occur where the

licensee of an already marginal project is confronted with additional

costs at relicensing that render the project uneconomic. The Commission

concludes that this possibility will not preclude it from imposing the

environmental (and other) conditions it deems appropriate to carrying

out its responsibilities under the Act.

In those instances where it has been determined that a project will

no longer be licensed, because the licensee either decides not to seek

a new license, rejects the license issued, or is denied a new license,

the project must be decommissioned. The second subject involves the

extent of the Commission's authority over decommissioning and the

process to be applied when a project is to be decommissioned. The

statutory language does not expressly address, in any comprehensive

manner, the Commission's authority over decommissioning and the process

to be applied in carrying it out. In such a situation, the Commission

has the authority to fill in gaps left by the statute and to ensure

that a project is decommissioned in a manner that is consistent with

the public interest. The Commission will take a very flexible approach

to the carrying out of this process.

Possible forms of decommissioning extend from simply shutting down

the power operations to tearing out all parts of the project, including

the dam, and restoring the site to its pre-project condition. Multiple

concerns must be considered in determining which alternative is

appropriate, and the solutions necessarily will vary from one situation

to another. Judging from the Commission's experience with project

license surrenders, interested parties should generally be able to

negotiate the proper approach to decommissioning. The Commission

strongly encourages all the interested parties to work together to

accomplish a mutually acceptable resolution in each case.

The Commission, however, rejects the notion that it is without

statutory power to act where negotiated solutions cannot be arranged.

The Commission has concluded that it has the power to take steps

necessary to assure that the public interest is suitably protected,

including, in the rare case, requiring removal of the project dam.

Assuring protection of the public interest may involve the need to

coordinate with other government bodies that will succeed to regulatory

responsibility over certain aspects of the formerly-licensed projects.

The Commission will not generically impose decommissioning funding

requirements on licensees. However, in certain situations, where

supported by the record, the Commission may impose license conditions

to assure that funds are available to do the job when the time for

decommissioning arrives. The Commission will determine whether to

impose funding requirements on a case-by-case basis, at the time of

relicensing.

Further, even in situations in which the Commission does not impose

a funding requirement at the time a project is relicensed, the licensee

will ultimately be responsible for meeting a reasonable level of

decommissioning costs if and when the project is decommissioned. The

licensee should plan accordingly, and the Commission will not accept

the lack of adequate preparation as justification for not

decommissioning a project. Some provision for mid-course funding may

become appropriate for a variety of reasons. The Commission encourages

affected parties to develop creative solutions to pre-retirement

funding in such situations.

The Commission will be receptive to proposals, concerning pre-

planning and pre-funding of decommissioning costs, reached by mutual

agreement during the course of individual licensing proceedings or

during the term of a license.

Where the Commission includes a decommissioning funding provision

in a license it issues, if the licensee is a public utility subject to

the Commission's wholesale ratemaking jurisdiction, it may file to

include an appropriate share of those costs in its rates. In situations

where the Commission has not required pre-retirement funding in a

license, and it is subsequently determined that decommissioning is

necessary, a licensee that is a public utility may file to recover an

appropriate share of decommissioning costs through wholesale rates, on

a prospective basis.

Finally, the Commission is by separate order rescinding the

reserved authority over decommissioning matters that routinely has been

included in recent relicensing orders because of the pendency of this

proceeding. The records in those cases demonstrate no current need to

plan for, or expect, [[Page 341]] project retirement based on current

conditions.

II. The Commission's Options at Relicensing

A. The Original Legislation

When the Federal Water Power Act (FWPA)3 was enacted in 1920

after several years of consideration and debate, sections 14 and 15

were key parts of the legislation. There was a keen interest by some

members of Congress in providing the opportunity for eventual Federal

takeover of Commission-licensed power projects, and that became

reflected in section 14. This section was designed as a vehicle that

would permit the Federal government to own, maintain, and operate

valuable water-power projects under terms which could make such

takeover practical when the circumstances warranted.4

\3\Pub. L. 66-280, 41 Stat. 1063 (June 10, 1920).

\4\That was before the period of the large-scale construction of

hydropower projects by the Federal Government that would mark future

decades. At that point, proponents of Federal ownership faced

considerable resistance to the concept (e.g., 53 Cong. Rec. 3416

(1916) [remarks of Sen. Shields]; 53 Cong. Rec. 3356 [remarks of

Sen. Works]; 56 Cong. Rec. 9121 (1918) [remarks of Rep. McArthur];

Water Power--Hearings before the House Committee on Water Power,

65th Cong., 2d Sess. 235-36 (1918) (hereinafter cited as ``1918

House Hearings'') [remarks of Rep. Sims]). Nonetheless, they wanted

to leave future possibilities open via takeover. See, e.g., 53 Cong.

Rec. 3297 (1916) [remarks of Rep. Husting]; 53 Cong. Rec. 3228

[remarks of Sen. Walsh]; 1918 House Hearings at 447-53 [testimony of

Secretary of the Interior Lane].

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Congress further provided in section 15 of the FWPA that if

Congress did not elect the first option of taking over and operating

the project when a license expired, then the Commission was authorized

to issue a new license either to the original licensee or to a new

licensee. Because of concern about what would happen to service, and to

the industries and communities dependent upon the project for

service,5 if Congress and the Commission had not acted by the time

the license expired, Congress included a provision for annual licenses

until the takeover/licensing issue had been resolved.

\5\See, e.g., 54 Cong. Rec. 1008 (1917) [remarks of Sen.

Shields]; 59 Cong. Rec. 1048, 1442-43, 1474 (1920) [remarks of Sen.

Walsh]; 59 Cong. Rec. 1043, 1045 [remarks of Sen. Fletcher], 59

Cong. Rec. 1049 [remarks of Sen. Myers].

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The focus during this period was plainly on the three options:

Federal takeover and continued operation; a new license to a new

licensee and continued operation; and a new license to the old

licensee, who would also continue operation.6 In the first two

cases, the entity taking over the operation would have to pay the

existing licensee for the project, according to the formula established

in section 14.

\6\See, e.g., Water Power Bill to Provide for the Development of

Water Power and the Use of Public Lands in Relation Thereto, and for

other Purposes, Hearings on H.R. 14893 before the House Committee on

the Public Lands, 63d Cong., 1st Sess. 477 (hereinafter cited as

``1914 Hearings before House Committee on Public Lands'') [testimony

of O.C. Merrill]; 51 Cong. Rec. 13037, 13623-24 (1914) [remarks of

Rep. Ferris]; 53 Cong. Rec. 10469 (1916) [remarks of Rep. Adamson];

1918 House Hearings 855 [letter from Secretary of Agriculture

Houston]; id. at 451 [testimony of Secretary of the Interior Lane];

id. at 674 [testimony of Secretary of War Baker] (the Secretaries of

Agriculture, War, and the Interior originally constituted the

Commission and were instrumental in drafting the 1920 legislation).

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This did not, however, necessarily mean continuation of business as

usual. The statute provided for license terms of up to 50 years on

original licenses.7 As has been recognized:8

\7\Section 6 of the FWPA.

\8\S. Rep. No. 1338, 90th Cong., 2d Sess. 2-3 (1968).

By so limiting the duration for which these licenses could be

granted, Congress intended to preserve for the Nation the

opportunity of reevaluating the use to which each project site

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should be put in light of changing conditions and national goals.

During the license period, as reflected in sections 6 and 28 of the

FWPA, licensees enjoyed considerable security. At the end of that

period, the Commission would reexamine the statutory standard and make

a new determination. Under section 10 of the FWPA, new licenses (except

the interim annual licenses) could be issued only on the

condition:9

\9\Section 10(a) of the FWPA. This provision, with some

additions, remains today as section 10(a) of the Federal Power Act,

and is set forth at infra n. 46.

That the project adopted * * * shall be such as in the judgment

of the commission will be best adapted to a comprehensive scheme of

improvement and utilization for the purposes of navigation, of

water-power development, and of other beneficial uses; and if

necessary in order to secure such scheme the commission shall have

the authority to require the modification of any project and of the

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plans and specifications of the project works before approval.

Any new license that the Commission issued would be pursuant to the

terms of the then-prevailing laws and regulations and carry such

further reasonable terms and conditions as the Commission then deemed

appropriate to implement the statutory standard.10 Each license

was to be conditioned on acceptance of those terms,11 and if the

licensee did not accept the license, as conditioned, its rights to an

annual license would end, as well.12

\10\Section 15 of the FWPA.

\11\Section 6 of the FWPA.

\12\59 Cong. Rec. 6524 (1920) [remarks of Rep. Esch]; 59 Cong.

Rec. 7779 [remarks of Sen. Jones].

It is Commission practice to issue annual licenses to permit it

to complete certain actions, however. See 18 CFR 16.18(b)(1) and

(2).

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There was no mention in the legislation of the possibility of

denying a license, which would put the project out of business. At the

same time, there was no discussion of what was to occur if, at

relicensing, the Commission could not make the requisite finding under

the comprehensive development standard. That is, there was no direction

concerning how the Commission was to reconcile the potentially

conflicting terms of sections 10 and 15.

B. The Current Statutory Scheme

Section 14 remains on the books, although the Federal Government

has never taken over a licensed project under its terms, nor has the

Commission ever recommended that it do so. Section 15 likewise remains

on the books. As the first licenses were about to expire, 50 years

after initial passage of the FWPA, a term was added to section 15 of

what was now the Federal Power Act,13 authorizing the Commission

to issue nonpower licenses.14 No such license has been issued,

either. In nearly every instance, existing licensees have applied for,

and received, new power licenses when their old ones expired.

\13\16 U.S.C. Sec. 791a, et seq.

\14\Section 3 of Pub. L. 90-451, 82 Stat. 617 (Aug. 3, 1968).

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All of these decisions have been made in the context of the

Commission's implementation of the comprehensive development standard

of section 10(a) of the Act. At the same time, section 10(a) has

evolved since 1920.15 It no longer has the almost exclusively pro-

development focus of the 1918-20 period, when the original legislation

was propelled by the largely undeveloped status of the country's water-

power resources and the power shortages that had existed during World

War I.16

\15\Section 10(a) now reads:

That the project adopted . . . shall be such as in the judgment

of the Commission will be best adapted to a comprehensive scheme for

improving and developing a waterway or waterways for the use and

benefit of interstate or foreign commerce, for the improvement and

utilization of water power development, for the adequate protection,

mitigation, and enhancement of fish and wildlife (including related

spawning grounds and habitat), and for other beneficial public uses,

including irrigation, flood control, water supply, and recreational

and other purposes referred to in section 4(e) . . . .

Section 4(e) is set forth infra.

\16\See, e.g., H.R. Rep. No. 715, 65th Cong., 2d Sess. 15, 29

(1918); H.R. Rep. No. 61, 66th Cong., 1st Sess. 4 (1919); 1918 House

Hearings 5-15, 458-59; 56 Cong. Rec. 8929, 9120-22, 9614 (1918); 58

Cong. Rec. 1932 (1919). [[Page 342]]

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Environmental considerations evoked virtually no comment in the

debates and reports immediately preceding adoption of the FWPA.17

However, these considerations have become important factors since the

1950s, as experience with the effects of water-power project operation

has grown. This has resulted in new license conditions that have

generally increased the costs associated with running hydropower

projects.

\17\As discussed later, there were two provisions included in

the 1920 legislation, involving fishways and Federal reservations,

which have environmental overtones. However, both were carry-overs

from predecessor legislation (requiring permits for projects on

Federal lands or in navigable waters), and were not the subject of

any significant attention at that time.

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The first steps in this direction were taken by the Commission in

various individual licensing orders it issued.18 Then, as States

began to challenge Commission environmental actions, and seek

concurrent jurisdiction, the courts put their imprimatur on the matter.

They generally upheld the Commission's preemptive authority in this

area,19 but underscored further the Commission's responsibilities

for environmental protection.20

\18\The first time such considerations were reflected in the

Commission's Standard Terms and Conditions for licenses was in 1964.

See, e.g., 31 FPC 286, 530; 32 FPC 73, 841, 1116 (1964). However,

such terms began to appear with increasing frequency in licenses

issued during the 1950s.

\19\FPC v. Oregon, 349 U.S. 435 (1955).

\20\Udall v. FPC, 387 U.S. 428 (1967).

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Finally, in 1986 changes were made to the Act which codified and

extended the earlier actions.21 This is reflected principally in

sections 10(a) and 10(j). Section 10(a) was expanded to refer

explicitly to fish and wildlife concerns. A new section 10(j) was added

to require expressly that, in every license it issues, the Commission

establish conditions for the adequate and equitable protection of,

mitigation of damages to, and enhancement of fish and wildlife.

\21\Pub. L. 99-495, 100 Stat. 1243 (Oct. 16, 1986).

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The 1986 legislation directed the Commission, when establishing

license conditions, to reach an appropriate balance between power and

other developmental interests and the protection of nondevelopment

resources, such as fish and wildlife. It must consider, but need not

give controlling weight to, the recommendations of various Federal and

State resource agencies. There are however two long-standing provisions

which authorize other federal agencies to promulgate license

conditions. The Secretaries of the Interior and Commerce have their own

power under section 18 to require construction, maintenance, and

operation of fishways. In many instances fishways were not required at

the time of initial licensing, but are being mandated at the time of

relicensing. Similarly, where the project is built in a National Forest

or other Federal reservation, under section 4(e) of the Act the

Secretary of the department responsible for supervision of the

reservation is empowered to establish, at the time of licensing,

conditions he or she believes to be necessary for the adequate

protection and utilization of the reservation. These conditions may

also be revisited at relicensing.

More recently, most States have been given implementation authority

under the Clean Water Act.22 If the State denies water quality

certification for a hydropower project, the Commission cannot issue a

license for the project. The States have broad authority under the

Clean Water Act to impose terms and conditions on operation of the

project; the Commission must include lawful terms and conditions they

impose in any license it issues.23 This responsibility permits the

States on some occasions to establish conditions independent of the

Commission that may alter the economic viability of a project.

\22\33 U.S.C. Sec. 1341(a)(1).

\23\See PUD No. 1 of Jefferson County v. Washington Department

of Ecology, U.S., 114 S.Ct. 1900 (1994).

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C. Discussion

As the Commission interprets the terms of the Act, the statutory

scheme contemplates that normally the balancing between power and

environmental interests can and will be accommodated through license

conditions. If the licensee's proposal does not satisfy the

comprehensive development standard of section 10(a), then the

Commission will add terms that will bring it into compliance.24

\24\See language quoted supra at p. 7.

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To date, the Commission has not been confronted with any

relicensing situation where its conditioning authority has been

inadequate to do the job, i.e., where there was unacceptable

environmental damage that proved irremediable. Nonetheless, if such a

situation were to occur, the Commission does not read the Act as

requiring it to issue a license. Such an approach would compel it to

ignore the strictures of section 10(a), which the courts have long

recognized rests at the core of the Commission's licensing

responsibilities.25

\25\FPC v. Union Electric Co., 381 U.S. 90, 98 (1965); First

Iowa Hydro-Electric Cooperative v. FPC, 328 U.S. 152, 180-81 (1946).

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The principal support for perpetual licenses in 1920, which was

before the advent of serious environmental concerns, rested on the idea

that if the project had to close down, it could be a catastrophe to the

community dependent on that power. Electricity was essentially local in

nature, since it could generally be transmitted no more than 200-300

miles.26 This tended to result in reliance on a single source that

had been developed to serve its surrounding area.

\26\51 Cong. Rec. 12753 (1914) [remarks of Rep. Sherley], 53

Cong. Rec. 546 (1916) [remarks of Rep. Ferris], 59 Cong. Rec. 243

(1919) [remarks of Sen. Jones].

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Over the ensuing decades, this specter has been transformed by

technological change. Today, power can be, and is, transported

considerable distances, as communities are linked by an electric grid

that crosses vast areas of the country. At the same time, rather than

emphasizing retention of existing projects, as in 1920, the current

regulatory focus is on fostering greater efficiency by expanding the

opportunities to shop for power from distant projects.

Actually, by the time the first licenses began to expire, the

concept of the inevitability of power operation from a particular

project was eroding. In 1968, the statute was amended to provide for

nonpower licenses. Section 15(f) of the Act states (emphasis added):

In issuing any licenses under this section except an annual

license, the Commission, on its own motion or upon application of

any licensee, person, State, municipality, or State commission,

after notice to each State commission and licensee affected, and

after opportunity for hearing, whenever it finds that in conformity

with a comprehensive plan for improving or developing a waterway or

waterways for beneficial public uses all or part of any licensed

project should no longer be used or adapted for use for power

purposes, may license all or part of the project works for nonpower

use.

The underscored language shadows that of section 10(a), and

recognizes that there can be situations where the standard embodied

therein cannot be met and the Commission decides that a project should

no longer be used for power purposes.

Later, in language added to section 4(e) of the Act in 1986,

Congress further stated (emphasis added):

In deciding whether to issue any license under this Part for any

project, the Commission, in addition to the power and

[[Page 343]] development purposes for which licenses are issued,

shall give equal consideration to the purposes of energy

conservation, the protection, mitigation of damage to, and

enhancement of, fish and wildlife (including related spawning

grounds and habitat), the protection of recreational opportunities,

and the preservation of other aspects of environmental quality.

Similarly, among other recent environmental legislation, the water

certification requirements under the Clean Water Act could sometimes

effectively quash an application for a new license.

Given this history, it is the Commission's view that, in those

cases where, even with ample use of its conditioning authority, a

license still cannot be fashioned that will comport with the statutory

standard under section 10(a), the Commission has the power to deny a

license.

The Commission rejects any suggestion that, rather than denying a

new license, the United States would have to take over the property

under section 14. It is abundantly clear from the legislative history

of the FWPA that section 14 was designed to permit the Federal

Government to take over and operate the property, not close it

down.27 Under such circumstances, the Government would get the

output, which it could either sell or use for its own purposes,

obviating the need to acquire power from other sources.28

\27\See, e.g., 51 Cong. Rec. 13623 (1914) [remarks of Rep.

Ferris]; 54 Cong. Rec. 1008 (1917) [remarks of Sen. Shields]; 1918

House Hearings 235-36 [remarks of Rep. Sims]; id. at 25-26 [remarks

of O.C. Merrill, instrumental in drafting the bill]. See also the

statutory language of sections 14(a) and 15(a)(1).

\28\The suggestion of municipal licensees that Congress has

barred denial of municipal licenses is wide of the mark. The 1953

legislation to which they refer precluded the Federal takeover of

such projects under section 14. It also expressly stated that no

provision of the Act was repealed or affected except as was

specifically referred to in the 1953 legislation. See 16 U.S.C.

Secs. 828b-828c. This term was included at the Commission's request

to ensure that such key provisions as sections 4, 10, and 18 were

not affected. See S. Rep. No. 599, 83d Cong., 1st Sess. 5-6 (1953).

While the 1953 legislation prevented takeover under section 14,

the Federal Government's paramount right to take over by

condemnation remained. Id. at 3-5. See also H.R. Rep. No. 985, 83d

Cong., 1st Sess. 2, 5 (1953).

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As already noted, the FWPA was not drafted and passed with

environmental concerns in mind.29 There is nothing in that

legislation that contemplates the prospect of requiring the Government

to routinely bail out projects that can no longer pass muster under

section 10(a) because of serious and irremediable adverse public

impacts. In individual cases, where the facts and circumstances

indicate that in fairness the burden should fall on Federal taxpayers,

rather than on the licensee, the language of section 14 is broad enough

to permit the Commission to pursue that course. However, there is no

reason to interpret section 14 as mandating that outcome.

\29\However, Congress did exhibit its concern with public safety

(see Section 10(c)). There is nothing to suggest that the Commission

could not deny a license on these grounds (see South Carolina Public

Service Authority v. FERC, 850 F.2d 788, 793 (D.C. Cir. 1988)), but

would instead have to buy out the dangerous properties in order to

close them down.

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To this point, the discussion has focussed on license denial, which

is expected to be highly unusual. The more likely scenario is one in

which the Commission is required to condition a new power license with

environmental mitigation measures, and the licensee is unwilling to

accept the license tendered. The licensee may prefer to take the

project out of business, because the costs of doing business have

become too high.30 There is no merit to the suggestion by some

industry commenters that a condition in a power license is per se

unreasonable if, as a result of imposing the condition, the project is

no longer economically viable. The statute calls for a balancing of

various development and nondevelopment interests, and those commenters'

position would elevate power and other development interests far above

the environmental concerns. It would mean that severe environmental

damage would have to be accepted in order to protect even a very

marginal hydropower project. The Commission does not read the Federal

Power Act to compel such a result. As the Court of Appeals for the

Seventh Circuit recently observed:31

\30\As discussed in a later section, any decision to close down

a project will generally involve decommissioning costs. That element

would also be factored into the equation in determining whether the

licensee elects to continue in operation or close down.

\31\Wisconsin Public Service Corp. v. FERC, 32 F.3d 1165, 1168

(7th Cir. 1994).

[T]here can be no guarantee of profitability of water power

projects under the Federal Power Act; profitability is at risk from

a number of variable factors, and values other than profitability

require appropriate consideration.

The Commission's approach to the conditions it establishes will be

realistic and pragmatic. In assessing whether the terms it is

considering are reasonable, the Commission looks at the costs to the

licensee in complying with the terms of the license, as well as the

environmental benefits from imposing them. Within those parameters,

however, it must be recognized that meeting reasonable environmental

costs is a part of today's cost of doing business.32

\32\H.R. Rep. No. 934, 99th Cong., 2d Sess. 22 (1986).

Hydropower projects, of course, do not stand alone in this

regard. Other sources of electric generation must also meet costs of

environmental compliance. For example, coal burning facilities must

meet Clean Air Act standards (42 U.S.C. Sec. 7651, et seq.) and

nuclear facilities must incur the costs of disposing of spent

nuclear fuel and project decommissioning (e.g., 10 CFR 50.75).

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There may be some occasions where the obligation to pay increased

environmental costs at relicensing will force a hydropower project to

close down. With the increasing emphasis on competition in the electric

power industry today, the prospect of shutting down certain power

projects may increase. However, this is not unique to hydroelectric

projects.

The possibility that a project may have to shut down is not a

legitimate basis for the Commission to ignore its obligations to impose

necessary environmental conditions. However, the Commission is required

to balance a number of different factors under sections 4(e) and 10(a)

of the Act in its licensing decisions. Should it be demonstrated that

the environmental costs would be excessive or that loss of power

supplied by the project would be significant, that evidence can be

considered in assessing the power and development aspects to be weighed

under section 10(a)'s comprehensive development standard, as can the

renewable nature of water-power resources. Similarly, hydropower may

carry significant environmental benefits over some of the alternate

power sources that would be used instead, and that is a factor to be

considered in weighing the nondevelopmental aspects of the equation.

As the foregoing discussion indicates, there are no definitive

standards as to how the varying accommodations reflected in the statute

are to be applied by the Commission in fashioning its license

conditions. Environmental considerations are important, but so are

developmental needs. Optimally, many of the conflicting concerns can be

worked out through processes of consultation and negotiation during the

licensing proceeding.33 Experience has shown that this approach in

fact usually does yield an acceptable result.

\33\See, e.g., sections 10(a) and 10(j) of the Act.

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III. The Decommissioning Process

A. Experience with Project Retirement

As discussed earlier, the emphasis in 1920 was on the continuation

of licensed projects. Nonetheless, over the years various projects have

in fact stopped producing power and closed down. Generally, the reasons

have been grounded in economics--for one reason or another, it would

simply be too [[Page 344]] expensive to continue operating the project.

Rather late in the legislative process leading to the FWPA,

Congress added to the other terms of section 6 a brief reference to

surrender of licenses, without explanation or comment.34 Shortly

after passage, the Commission issued a regulation that parallelled the

statute in providing that it was not simply the licensee's decision to

surrender a license during the term, but that the Commission had to

approve the surrender, as well. Furthermore, the regulation went on, if

any project works had been constructed, the surrender had to be ``upon

such conditions with respect to the disposition of such works as may be

determined by the Commission.''35

\34\The relevant sentence reads: Licenses may be revoked only

for the reasons and in the manner prescribed under the provisions of

this Act, and may be altered or surrendered only upon mutual

agreement between the licensee and the Commission after * * * public

notice.

The words ``or surrendered'' were the late addition.

\35\FPC Order No. 9, Regulation 10(5), issued Feb. 26, 1921. See

also 18 CFR 6.2; FPC Order No. 175 (Attachment p. 28) (1954); FPC,

General Rules and Regulations in Force Jan. 1, 1948, Sec. 6.2

(1948).

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Since those days, surrenders have been successfully worked out on

many occasions. There are a myriad of considerations involved in

determining what form the decommissioning will take. There was an

occasional reference in the pre-FWPA debates to the fact that if a

licensee decided not to continue with a project and instead rejected a

new license, it would have to tear out the project.36 This sort of

remark, however, illustrates that no significant consideration was

being given at the time to the intricacies of decommissioning a power

project.

\36\59 Cong. Rec. 1046, 1443, 1474-75 (1920) [remarks of Sen.

Lenroot].

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For example, there can be very great environmental consequences to

tearing out a dam that is part of a licensed hydropower project. Over

the life of the project huge amounts of silt may accumulate, and if the

dam is removed, that silt may sweep downstream, causing major damage to

other properties or resources.37 The situation is even more

serious where PCBs or other hazardous materials are embedded in the

sediment. Equally significant, even if the project is no longer to

produce power, the dam and related project works may serve other,

nonpower functions worth preserving.

\37\Niagara Mohawk Power Corp., 49 FPC 1352 (1973), 4 FERC

61,209 (1978).

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In some instances, power production is a very secondary element.

The primary function of a project may be to supply water for irrigation

or domestic needs, but power production facilities were included to

help with the costs of the project. Certainly, under those

circumstances, tearing out a dam would be unwarranted. Another example

of significant nonpower functions associated with a project occurs when

property owners have built homes around the project's reservoir.

A review of prior Commission surrender cases would reveal examples

of all of these situations. Commonly dams are retained,38 but it

is not unusual that they be breached or removed.39 The determining

circumstances vary with each case.

\38\See, e.g., Porcupine Reservoir Co., 62 FERC 62,074 (1993);

Kimberly-Clark Corp., 55 FERC 62,018 (1991); Red Bluff Water Power

Control District, 7 FERC 61,295 (1979); Pennsylvania Electric Co.,

58 FPC 1749 (1977); Central Vermont Public Service Corp., 56 FPC

2532 (1976).

\39\Consumers Power Company, 68 FERC 61,080 at 61,438-40

(1994); American Hydro Power Co., 60 FERC 61,237 (1992); 64 FERC

62,097 (1993) [safety concerns]; Watervliet Paper Co., 35 FERC

61,030 (1986); Duke Power Co., 43 FPC 265 (1970). The licensee

itself, of course, may prefer this approach, rather than to continue

to pay for maintenance and repairs on a project which is no longer

generating any power revenues.

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There is one factor which has consistently been reflected in the

Commission's orders. If the dam is to remain in place or there are

other aspects of the project left which may significantly affect public

resources, the Commission generally wants to be satisfied that there is

another authority to take over regulatory supervision. While this seems

to be a matter of sound public policy, it is further buttressed by the

terms of section 15(f) regarding what happens when the Commission

issues a nonpower license:

Whenever, in the judgment of the Commission, a State,

municipality, interstate agency, or another Federal agency is

authorized and willing to assume regulatory supervision of the lands

and facilities included under the nonpower license and does so, the

Commission shall thereupon terminate the license.

In other words, Congress anticipated a continuing system of

supervision over public aspects of those project works that would

remain.

B. The Commission's Role in Decommissioning

Sections 6 and 15(f) deal expressly with only two situations--

surrenders during a license term and situations where the Commission

has issued a nonpower license at the end of a license term. However,

there is no evidence to suggest that Congress determined or intended

that the Commission was to be left powerless to deal with other,

analogous situations. As the Court of Appeals for the District of

Columbia Circuit has recognized:40

\40\Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153, 158 (D.C.

Cir. 1967). See also Northern States Power Co. v. FPC, 118 F.2d 141,

143 (7th Cir. 1941).

The Act is not to be given a tight reading wherein every action

of the Commission is justified only if referable to express

statutory authorization. On the contrary, the Act is one that

entrusts a broad subject-matter to administration by the Commission,

subject to Congressional oversight, in the light of new and evolving

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problems and doctrines.

Likewise, the Supreme Court has observed:41

\41\Chevron v. Natural Resources Defense Council, Inc., 467 U.S.

837, 843 (1984), quoting from Morton v. Ruiz, 415 U.S. 199, 231

(1974). See also section 309, empowering the Commission to ``perform

any and all acts, and to prescribe * * * such orders, rules, and

regulations as it may find necessary or appropriate to carry out the

provisions of this Act.''

The power of an administrative agency to administer a

congressionally created * * * program necessarily requires the

formulation of policy and the making of rules to fill any gap left,

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implicitly or explicitly, by Congress.

The Commission is of the opinion that implicit in the section 6

surrender provision is the view that a licensee ought not to be able

simply to walk away from a Commission-licensed project without any

Commission consideration of the various public interests that might be

implicated by that step. Rather, the Commission should be able to take

appropriate steps that will satisfactorily protect the public interests

involved.42 Section 15(f) takes the approach one step further by

suggesting that wherever nonpower activities are to continue, there

should be another regulatory authority prepared to step in. Those

principles have validity well beyond the particular contexts in which

they are specifically referenced in the Act.43

\42\The Commission has extended the concept in section 6 to

provide for annual licenses, during which the Commission takes

appropriate action to properly close out its jurisdiction. See 18

CFR 16.18(b)(1)-(2).

On the other hand, the Commission rejects the suggestion of some

industry commenters that section 6 gives the licensee a veto over

what the terms of surrender are to be. Under section 6, it would be

the licensee that sought an intra-term surrender, in order to be

relieved of the obligations under the license. The Commission would

be in the position to deny the surrender unless its terms were met.

\43\This policy statement focuses only on decommissioning at the

time of relicensing. Licensees have occasionally raised concern that

the Commission might unilaterally decide to decommission a project

before the end of a license term. However, the terms of section 6 of

the Act apply to that situation. The licensee can explicitly or

implicitly (by its actions) apply for license surrender, and the

Commission can agree to the surrender. The Commission can order

surrender where the licensee has accepted a license whose terms

expressly permit the Commission to order decommissioning within the

license term. Finally, the Commission can initiate a revocation

proceeding under sections 26 and 31 of the Act. In other instances,

the licensee has security against mid-term surrenders.

[[Page 345]]

Some commenters in this docket have nonetheless suggested that the

Commission should stay out of the picture when a license ends. They

implicitly concede that the end of licensing, and of power production,

does not necessarily mean the end of impacts on public resources and

values. However, they contend, where Federal interests are involved, as

with Federal lands and threats to navigation, other Federal authorities

can simply take over. Otherwise, they contend, the States can do so.

As the system presently operates, the Commission staff and the

licensees work with all of these groups to arrange a comprehensive

resolution, and, until this is done, the Commission retains

jurisdiction by issuing annual licenses. Overall Commission supervision

of the process makes much more sense than a piecemeal approach that

raises the chance of both overlaps and gaps in coverage.

The Commission consequently contemplates continuation of the

existing procedure. Experience suggests that in nearly all instances

the interested parties should be able to reach a resolution of the

decommissioning approach among themselves. Where this is not possible,

the Commission will impose reasonable terms appropriate to the

situation, but this is not the approach the Commission favors.

C. The Role of Other Federal Agencies

Where project works at issue are located on Federal lands, the

Commission's surrender regulations have for decades required the

licensee to restore the lands to the satisfaction of the responsible

agency when the licensee surrenders its license.\44\ Most commonly

those agencies are the U.S. Forest Service and the Bureau of Land

Management, and both apply analogous principles in permits they grant

for use of Federal lands.\45\

\44\See FPC Order No. 175 (Attachment A p. 28) (1954). See also

18 CFR 6.2.

\45\See 36 CFR 251.60(j) and 43 CFR 2803.4-1.

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Absent specific authority by the Federal agency involved for

continued use of Federal lands at the termination of Commission

licensing, it is eminently reasonable that the licensee must restore

the lands to that agency's satisfaction, at the licensee's expense.\46\

No commenter presents a persuasive case to the contrary.

\46\While the Commission's regulation does not expressly state

that it will be at the licensee's expense, this is implicit. The

Commission has no authority to subsidize the project by itself

paying or requiring the other agency to do so. It might be noted

that the BLM and Forest Service rules (cited in the previous

footnote) specifically state that:

If the holder fails to remove all such structures or

improvements within a reasonable period, as determined by the

authorized officer, they shall become the property of the United

States, but the holder shall remain liable for the cost of removal

of the structures and improvements and for restoration of the site.

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The Army Corps of Engineers presumably would sometimes become

involved where there are navigable waters. To the extent that new

construction in navigable waters is proposed, as where dam removal or

modification is in issue, permits are needed from the Corps under the

River and Harbor Act.\47\ Moreover, were project works to actually pose

a serious threat to navigation, it can be assumed that the Corps would

step in to protect that interest.

\47\See 33 U.S.C. Secs. 401, 403.

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However, commenters have offered no comprehensive legal analysis of

the Corps of Engineers' responsibility outside those relatively narrow

contexts. Absent that, or a clear indication from the Corps that it

intends to take a leading role in assuming broad responsibility for

safety and other aspects of projects previously regulated by the

Commission and believes that it has the authority to do so, there is

little basis for the Commission to count on the Corps of Engineers'

assuming significant additional responsibility.

D. The Role of States and Municipalities

There remains a relatively large gap in coverage left by Commission

withdrawal. However, many States (though not all) have fairly

comprehensive programs in effect governing dams and similar structures

in their waters, especially in the areas of dam safety and the

environment. It is thus important that the responsible State agencies

be partners in any arrangement that is worked out at the time when

Federal licensing ends.

The attitudes of States (and municipalities) towards the prospect

of taking over regulation may vary, depending on the circumstances.

Where a project has multiple uses, State or municipal authorities may

be willing to assume responsibility in order to keep major nonpower

elements of the project in operation. Where this is the case, the

Commission will entertain the request that it simply require the shut-

down of power operations without further actions that could affect

those other functions. It is unlikely that a dam or reservoir serving

key municipal water needs, for example, is going to be shut down.

There could be other situations, however, where a State (or

municipality) would be reticent to have responsibility for a project

licensed by the Federal Government now transferred to it. This might

include cases where there are presently serious problems associated

with the project, and/or the project serves no useful function other

than power production (which will be unauthorized once Commission

licensing ends). Where a State makes a persuasive case as to why it

ought not to have to bear the burden of future regulation, the

Commission will consider the appropriateness of requiring the affected

project works to be removed, thereby eliminating the need for future

oversight.

Many factors would enter into such a decision, of course, including

(but not limited to) the costs of removal,\48\ the burdens on the State

of continued supervision, what alternative approaches are available,

and the environmental consequences of removal. The Commission will also

look to whether it authorized the original construction (and thus was

directly responsible for the project being there) or simply issued the

original license on an existing project.

\48\In the past, the dam removal projects that have been carried

out have generally involved relatively modest expenditures. However,

that would not invariably be the case. For example, the projected

costs of removing the Glines/Elwha dams and restoring the site and

the resources impacted by the projects have ranged up to $300

million, depending on the scope of the work undertaken and other

factors. Dam removal costs alone are estimated at about a quarter of

that total. Department of the Interior, et al., The Elwha Report;

Restoration of the Elwha River Ecosystem & Native Anadromous

Fisheries: A Report Submitted Pursuant to Public Law 102-495,

Executive Summary 13 (January 1994).

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Where dams or other project works are left in place, the State may

effectively be compelled to assume supervisory responsibility over

remaining project works, however unwillingly, because the public

interest demands that protection. Some State agencies have complained

about any approach that leaves the States with the financial burden of

dealing with no-longer-useful or abandoned power projects.

It is not clear that the specific examples cited in the comments

are in fact under Commission regulation. Rather, it appears that in

most, if not all, of these instances, the projects had never been

federally licensed. Nonetheless, where the facts indicate that there

may be a significant problem in terms of potential financial threat to

State finances, it is a matter for the Commission to consider in

deciding how far it will take its own [[Page 346]] responsibility to

deal with the decommissioning process for a particular project,

especially with respect to assuring adequate resources for future

maintenance of project works that are to be left in place.\49\

\49\The Commission contemplates that its role would end with

seeing that the resources are made available at the time of

decommissioning. The State would then be responsible for supervision

of the future oversight and administration.

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Several commenters noted also that a licensee might seek to

transfer an increasingly marginal project to a new licensee that lacked

the financial resources to maintain it or close it down in an

appropriate manner. Through that process, the former owner relieves

itself of the responsibility, which then may fall to State authorities

or, at least when Federal lands are involved, on other Federal

agencies. While the Commission is aware of no widespread problems on

this score, it agrees that transfer applications should be scrutinized

to foreclose this sort of situation, and where warranted, other

authorities should be consulted before transfers are approved.

E. The Project After Decommissioning

When a project will no longer be licensed, the Commission's

jurisdiction is going to end. The future operation of any remaining

works is then the responsibility of whoever next assumes regulatory

authority. The Commission does not believe that, at that point, it has

the authority to require the existing licensee to install new

facilities, such as fish ladders. Basically, the Commission issues a

license for a particular period, subject to certain conditions. The

licensee may have an opportunity to obtain a new license at the end of

that term, subject to new conditions; but, if it elects not to do so,

the Commission cannot go forward and require the same future steps to

be taken anyway, as part of the decommissioning process.\50\ That new

facility is a step for any successor agency to take.

\50\On the other hand, during decommissioning negotiations, it

might be mutually agreed that, rather than restoring fish passage by

tearing down the existing facilities, a new fishway would be built

instead.

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Similarly, while the Commission may require licensees to provide

certain recreational opportunities in association with licensed

activities, that obligation ends when the project is no longer

licensed. If these opportunities are to continue at all, it will have

to be as a result of the former licensee's voluntary action or the

requirements of the new regulatory regime that follows.

On that score, once the Commission's jurisdiction has concluded,

the preemption which earlier displaced any State laws would be at an

end. The State would then be at liberty to impose its own licensing or

other regulatory regime, free from any restrictions imposed earlier by

operation of the Federal Power Act. That is, projects left in place

would have to meet State-imposed requirements. Where the owner could

not do so, presumably it would have to remove the project or take other

appropriate remedial action authorized or required under State law.

The Commission's goal is that generally matters of this type can

and will be resolved to the satisfaction of the successor agency as

part of the Commission's decommissioning process, obviating the need

for any later other action. There could then be a smooth transition to

the new regime with a minimum of interruption.

IV. Funding Decommissioning Costs

There may be some situations, as noted earlier, where the

Commission decides to recommend Federal takeover, which could involve

taxpayer funding of project retirement costs. There may also be

situations where the level of costs involved is so large that some sort

of cost sharing arrangement must be worked out if the retirement plan

is to be effectuated.51 Normally, however, the Commission

anticipates that the licensee will be responsible for paying the costs

(up to a reasonable level) of the steps needed to decommission the

project, since the licensee created the project and benefitted from its

operations.

\51\This may be because the costs reach a level which the

Commission considers unreasonable. However, there is a very

practical aspect as well. As the costs of decommissioning rise, they

may reach a point where it is more economical for the licensee to

continue to produce power in order to fund future decommissioning.

Where others would like to see the project closed, this provides an

impetus for them to share the costs.

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A major focus of the NOI was on possible plans for funding of

decommissioning costs over the life of the project. This step would

help assure that the funds are available to do the job when the time

for decommissioning arrives, thereby avoiding the possibility that

State or Federal taxpayers might, by default, be compelled to pay them

because the licensee lacks the resources. On the other hand, to require

such prior funding in all cases could mean unnecessarily tying up

substantial amounts of the capital of financially sound licensees in

less than optimum investments for extensive periods.

In any event, there are several impediments to effectively carrying

out such a funding program. First, there is the question of determining

the proper period for accumulating the funds. Some would argue that the

license term is the proper period. However, it may be possible to

anticipate that there is a substantial likelihood that a project will

close down before the end of a license period. Poor physical condition,

marginal economics, and similar factors may mark this potential

situation. On the other hand, the prospect of a project closing down at

the end of the license term cannot be assumed to reflect the general

pattern, since physically, a hydropower project, with proper

maintenance and replacement, may last far beyond the new term.

Secondly, there is the problem of measuring how much funding should

be provided. This will depend, inter alia, on the scope of the

decommissioning that is to occur. As discussed earlier, there are

different possible decommissioning scenarios, for which the costs may

vary markedly. Only at the time of decommissioning will the costs of

that program actually be known.

The Commission's primary concern is that the licensee have the

money available to carry out whatever decommissioning steps the

Commission decides are appropriate if the project ceases to be

licensed. In light of the practical problems involved in trying to deal

with events far in the future, and because in many cases the time

horizon and general financial strength of the licensee may be such that

there is no substantial need for a pre-retirement funding program, the

Commission will not act generically to impose such programs on all

licensees. Accordingly, where the Commission has not required pre-

retirement funding in a license, the licensee has no ongoing obligation

to create a decommissioning fund as a contingency for the event that

the project is required to be decommissioned at a later date.

There may be particular facts on the record in individual cases,

however, that will justify license conditions requiring the

establishment of decommissioning cost trust funds in order to assure

the availability of funding when decommissioning occurs. The Commission

would consider, for example, whether there are factors suggesting that

the life of the project may end within the next 30 years, and would

also look at the financial viability of the licensee for indications

that it would be unable to meet likely levels of expenditure without

some form of advance planning.

In other cases, licensees and others may wish to reach an agreement

in the context of individual licensing cases concerning procedures for

pre-retirement planning and funding. The [[Page 347]] Commission

encourages creative solutions in this regard.52

\52\See Consumers Power Company, 68 FERC  61,077 at pp. 61,380-

83 (1994).

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Without advance planning, the financing of decommissioning costs

may well cause problems at the time of decommissioning. Licensees have

argued that the Commission should impose no funding requirements in its

licenses. While the Commission has decided not to adopt any generic

funding requirements, licensees should not view the Commission's

decision as an impediment to ordering whatever decommissioning steps it

deems appropriate when the time for decommissioning a particular

project arrives.53 The licensee has the responsibility for project

retirement. In those situations where a licensee has not been required

to undertake pre-retirement funding, and it determines on its own that

decommissioning is probable and the costs can reasonably be estimated,

a public utility licensee can file to recover such costs in rates.

\53\By the same token, the establishment of a fund does not

necessarily mean that a project will ultimately be decommissioned.

Likewise, any planning and funding that does occur will not control

the scope of the ultimate decommissioning, should that prove

necessary. If funds prove inadequate, more will have to be supplied.

There may also be more funds than are ultimately needed.

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If funding requirements have been established in a license issued

by the Commission, licensees subject to the Commission's ratemaking

jurisdiction can recover an appropriate share of funding amounts in

subsequent wholesale rate filings.54 In situations where the

Commission has not required pre-retirement funding in a license, and it

is subsequently determined that decommissioning is necessary, a

licensee that is a public utility may file to recover an appropriate

share of decommissioning costs through wholesale rates, on a

prospective basis.

\54\If it turns out that costs actually incurred for

decommissioning are greater than the funding amounts, the licensee

may seek to recover the additional costs through rates. However, if

it turns out that the costs actually incurred at the time of

decommissioning are less than the funding amounts, the licensee and

its shareholders may not keep those amounts; rather, the licensee

will be required to refund them to ratepayers.

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The foregoing discussion is directed to project-specific funding.

The NOI also raised the possibility of establishing some type of

industry-wide fund, financed by annual charges imposed by the

Commission. In this instance, the licensee would not be pre-funding its

own decommissioning costs but rather would be helping underwrite the

costs of other licensees (presumably those lacking the resources to

meet their own obligations). The Commission has concluded at the

present time that such a fund is inappropriate. There is little

specific evidence concerning the need for such a fund,55 while the

practical problems of implementing the program fairly and administering

it soundly would be formidable. Should later experience with

decommissioning demonstrate a stronger need, the Commission can

reassess the issue at that time.

\55\For example, the main support seems to come from those

government authorities who otherwise fear they might have to absorb

costs associated with abandoned projects owned by those without

significant financial resources. However, those authorities have not

shown that they have broadly implemented such a program for

permittees within their jurisdictions, as might be expected if major

problems had developed on this score.

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List of Subjects in 18 CFR Part 2

Administrative practice and procedure, Electric Power, Natural gas,

Pipelines, Reporting and recordkeeping requirements.

By the Commission.

Commissioner Bailey dissented with a separate statement

attached.

Lois D. Cashell,

Secretary.

In consideration of the foregoing, the Commission amends Part 2,

Chapter I, Title 18 of the Code of Federal Regulations as set forth

below.

PART 2--GENERAL POLICY AND INTERPRETATIONS

1. The authority citation for part 2 continues to read as follows:

Authority: 15 U.S.C. 717-717w, 3301-3432; 16 U.S.C. 792-825y,

2601-2645; 42 U.S.C. 4321-4361, 7101-7352.

2. Part 2 is amended by adding Sec. 2.24, to read as follows:

Sec. 2.24 Project Decommissioning at Relicensing.

The Commission issued a statement of policy on project

decommissioning at relicensing in Docket No. RM93-23-000 on December

14, 1994.

Note: This Appendix will not be published in the Code of Federal

Regulations.

Appendix A--Comment Summary

In response to the NOPR, the Commission received comments and reply

comments from a great many commenters, including municipal and non-

municipal licensees; federal, state, and local governmental

organizations; national, regional, and local environmental, trade, or

other organizations and associations; and private citizens. The more

substantial comments are identified at the end of this comment summary,

grouped by category and showing the shortened names or acronyms used in

this summary. In addition, there was a large volume of comments in the

nature of one to three-page letters. Many were from individuals

(including operators of small hydro projects) and many were from local

or regional organizations or local branches of national organizations.

In general, the commenters fall into two distinct groups of roughly

equal size. One group takes what might be loosely characterized as a

``strict construction'' approach to the legal issues, contending that

the Commission's organic statutes do not authorize it to compel the

decommissioning of a project except under narrowly prescribed

procedures that entail reimbursement of the licensee. The advocates of

this position include the licensees and their organizations.

The second group might be loosely characterized as taking a broader

approach to statutory interpretation, contending that the Commission

has considerable inherent authority to decline to relicense a project

whose license has expired, and to compel the licensee to decommission

the project (including, if appropriate, removal of a dam or other

project facilities) at the licensee's expense. The advocates of this

position include a broad array of national, regional, and local

environmental groups, as well as federal and state agencies.

Many commenters addressed the specific questions posed in the NOPR.

Other commenters expressed more general views. Some commenters

expressed their legal analysis in broad terms, with their answers to

the questions being framed as cross-references to their broader

discussion.56 Many commenters endorsed the more extensive comments

of an association to which they belong, adding supplemental views or

emphasizing particular points. Many of the shorter letters referred to

the views expressed by organizations that filed lengthier comments. A

limited number of commenters filed reply comments.

\56\EEI, for instance, discussed the issues in one broad

narrative; APPA divided its comments into separate responses to the

specific questions; and NHA commented broadly in the first half of

its submission and then responded to specific questions in the

second half. Reform and Kennebec also split their comments between a

general discussion and specific responses to questions.

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This summary discusses first the comments on the broader issues and

then the comments in response to the specific questions posed by the

NOPR. [[Page 348]]

A. Broader Issues

As a preliminary matter, a number of commenters note the range of

activities potentially includable within the scope of the word

``decommissioning.'' Depending on the circumstances, it could mean

simply ceasing to operate a project, without physically removing any

project facilities. At the opposite end of the spectrum would be

removing a dam and dredging out the accumulated silt in the reservoir,

a potentially complex and costly process that could involve serious

environmental impacts of its own. Environmental commenters find legal

authority for the Commission to mandate physical removal of project

works.57 Licensees, on the other hand, contend that once a

project's license ends and the project ceases to generate electrical

power (and, perhaps, the generator is disconnected and removed), the

Commission lacks jurisdiction to mandate anything further.58

\57\See discussion and citations below; a variety of legal

theories was advanced.

\58\See, e.g., EEI at 12; APPA reply comments at 4-7.

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Licensees suggest that hydroelectric projects, if properly

maintained, may be physically and economically viable ``indefinitely,''

such that decommissioning would be a rare occurrence.59 These

commenters stress the formidable structural integrity of dams, designed

to last for ``thousands'' of years.60 Environmental commenters, on

the other hand, analogizing to mines, forests, nuclear plants, and

landfills, etc., suggest that all hydropower projects have a finite

``life-cycle''; that they all silt up in the end; and that plans for

their decommissioning should be routinely considered from the outset of

their operation.61 Commenters of all persuasions agree that

project facilities that become unsafe should be removed (if they can't

be repaired) to alleviate the hazard.62 Some licensees suggest

that when projects become uneconomic the licensee will itself take the

initiative of proposing decommissioning and surrender of the license.

\59\EEI reply comments at 13.

\60\Id. at 5.

\61\See, e.g., Reform at 5-6, 11-13.

\62\See, e.g., NHA at 28; APPA at 9.

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Commenters who believe that the decommissioning of a hydropower

project will be a comparatively rare event urge case-by-case analysis

of the issues as they may arise, in the peculiar factual context

presented by the case at hand.63 Commenters who believe that

decommissioning is part of the inevitable life cycle of all hydropower

projects prefer a more generic approach to determining the Commission's

policy and practice.64 These commenters advocate advance planning

for decommissioning, contending that, absent a decommissioning policy

by the Commission, the inevitable costs of decommissioning will be

borne by taxpayers.65

\63\See, e.g., NHA at 5; EEI at 4; PG&E reply comments. (Reply

comments are specifically identified as such; all other citations

are to initial comments.) See also New England at 4-5.

\64\See, e.g., Reform at 5-6, 11-13.

\65\Reform at 13-14.

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As a preliminary matter, a number of commenters draw a distinction

between shutting down project operations and removing project

facilities, and, along with this, a distinction between the power to

cause a project to cease operating and the power to cause someone

(i.e., the licensee) to incur the expense of removing its project's

facilities. Licensees concede the Commission's authority to terminate a

project at relicensing as long as the licensee is compensated for its

investment. The compensation could come from either a government or a

private purchaser.66

\66\See discussion and citation below.

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In this regard, several commenters suggest (but without legal

discussion or citation) that an involuntary decommissioning of a

project would constitute a taking of property without due process of

law in violation of the U.S. Constitution.67 Other commenters

dispute that assertion, with extended discussion of legal precedent in

support of their position. In general, they contend that a license is

not a property right, and that the termination of a license does not

constitute a taking of property even if the termination results in an

economic loss.68 They go on to contend that the FPA also does not

provide an absolute right to compensation.69

\67\See e.g., Pacificorp at 3.

\68\Kennebec at 12-18; Walton at 7-8.

\69\Kennebec at 18-20.

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Citing extensively to the legislative history of the FPA, including

its amendments and precursors, licensees argue that Congress sought to

encourage investment in hydro power projects by assuring investors that

they would be able to recover the value of their project at the

expiration of the license.70 Also citing to that legislative

history, environmental groups and government agencies respond that

Congress sought to protect the investors' financial interests in the

event that the project was taken over and operated by the government,

or by another group of investors, after the license expired, but did

not intend to reimburse the investors if the project was decommissioned

at the expiration of the license term; at that point, the investors

would already have fully recovered their investment.71

\70\NHA at 11-16; EEI at 18, 20-33; Duke at 9-13; Mt. Hope at 4-

5.

\71\See, e.g., Wisconsin Department at 3-13; Washington

Department at 1-2.

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The crux of the licensees' position72 is that sections 14 and

15 of the FPA give the Commission four choices at relicensing, and only

four choices.73 EEI expresses it as follows:74

\72\See, e.g., EEI at 16-20.

\73\Section 14 of the FPA, 16 USC 807, authorizes federal

takeover of hydropower projects at the expiration of the license,

pursuant to prescribed procedures, and provided that the United

States pays the licensee its ``net investment'' in the project, not

to exceed its ``fair value.'' Section 15, 16 USC 808, prescribes the

relicensing procedures in the event that there is no federal

takeover under section 14. These procedures include issuance of a

new license (to either the existing licensee or a new licensee), an

annual license, or a nonpower license.

The compensation to be paid by the new owner to the prior owner

is defined in section 14 to be ``the net investment of the licensee

in the project or projects taken, not to exceed the fair value of

the property taken, plus such reasonable damages, if any, to

property of the licensee valuable, serviceable, and dependent as

above set forth but not taken, as may be caused by the severance

therefrom of property taken.''

\74\EEI at 3-4. See also NHA at 7-8. EEI further contends (at

13-14) that nonpower licenses can only be used as the transitional

authority pending assumption of jurisdiction by another agency, and

cannot be used as a vehicle to implant an involuntary

decommissioning.

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In a relicensing proceeding, FERC has authority to:

issue a new license to the existing licensee or a new

licensee;

recommend a federal takeover in accordance with the

provision of the FPA applicable to such action;

issue a nonpower license to an applicant for such a

license, or

issue annual licenses to the existing licensee until a

final decision is made.

A unilateral order of surrender to be followed by

decommissioning or project removal at the licensee's expense are not

options available to FERC under the FPA.

A corollary argument to this view is that the FPA section 15

authority to issue an annual license is mandatory and not

discretionary. Thus, the Commission is compelled to issue annual

licenses (in perpetuity if necessary) until such time as it either

issues a new license or a nonpower license or recommends federal

takeover; the FPA does not afford the Commission the option of issuing

no license at all.75

\75\See e.g., EEI at 25, 29; Chelan at 15-16.

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Environmental groups and government agencies characterize this

result as ``absurd.''76 Discussing the standards in sections 4 and

10 of the [[Page 349]] FPA,77 as amended by the Electric Consumers

Protection Act of 1986 (ECPA), they note that the Commission is

required to conduct an extensive inquiry into the alternative, non-

power uses of the water, and to consider those uses in deciding whether

to issue a new license. They argue from this that Congress surely

intended for the Commission to have the authority to conclude that

issuance of any form of license (whether new, annual, or nonpower)

would be inconsistent with the public interest, and to implement that

conclusion by not issuing any license.78 Citing the legislative

history of the FPA and its predecessor, the Federal Water Power Act,

these commenters contend that Congress intended licenses to be for a

finite term with a definite end, implying that they need not be renewed

or reissued.79 They construe the provision for annual licenses as

applying solely during the pendency of the relicense proceedings; if

those proceedings conclude with a determination to not issue a license,

then there is no further obligation to issue annual licenses.80

\76\See, e.g., Kennebec at 30-34; Kennebec reply comments at 6-

7; Michigan at 8.

\77\16 USC 797 and 803.

\78\See, e.g., Reform at 20-24; Kennebec at 8-12; Kennebec reply

comments at 5-8; Interior at 3-4; S'Klallam at 3-4.

\79\See, e.g., Kennebec at 5-7; Interior at 3.

\80\See, e.g., Reform at 24-25.

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Reform points out that licensees are required to obtain a water

quality certification under section 401(a) of the Clean Water

Act81 as a prerequisite to receiving a new license. Reform

contends that it would be absurd to construe the FPA as requiring

issuance of an annual license in perpetuity in the event that the water

quality certification was denied.82

\81\33 USC 1341(a).

\82\Reform reply comments at 15-16.

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Commerce contends that the authority to withhold permission is

basic to and inherent in the concept of a license. Commerce construes

the FPA, as amended, and its legislative history, as reserving

``paramount rights'' in the United States over navigable waters, and

refers to ``the generic powers and authority of the Commission set

forth in section 4(e) to exercise discretion in determining whether or

not to issue a licensee.''83 Commerce construes the nonissuance of

a license as the ``no action'' alternative under the National

Environmental Policy Act (NEPA), and seems to construe NEPA itself as

supporting adoption of a decommissioning alternative.84

\83\Commerce at 1-3.

\84\Id. at 4.

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Licensees also contend that section 6 of the FPA85 requires

mutual agreement between the licensee and the Commission as a

prerequisite to any Commission order requiring removal of project

facilities.86 Other commenters respond that section 6 applies only

during the term of the license, and does not preclude unilateral

Commission action to compel removal of facilities after the license has

expired.87

\85\16 USC 799. Section 6 provides that licenses ``may be

altered only upon mutual agreement between the licensee and the

Commission * * *''

\86\EEI at 33-38; NHA at 21-22; APPA at 5.

\87\See, e.g., Interior at 6; Reform reply comments at 12.

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Municipal licensees also emphasize the Act of August 15,

1953,88 which made certain provisions of the FPA inapplicable to

states and municipalities, including the section 14 authorization of

federal takeover upon payment of the ``net investment'' in the project.

Municipal licensees emphasize that the purpose of the 1953 legislation

was ``to provide greater certainty to state and municipal licensees

that the public uses and benefits conferred by such projects will not

be disrupted,''89 and to assist state and municipal agencies in

financing their projects through the sale of revenue bonds with

amortization schedules beyond the term of the license. These commenters

contend that Congress deliberately eliminated the possibility of

federal takeover of municipal projects so as to encourage investment in

them, and that requiring decommissioning at the end of the license term

would be inconsistent with the purpose of the 1953 legislation.90

\88\Pub. L. 83-278, 67 Stat. 587, codified at 16 USC 828-828b.

\89\Water at 9.

\90\Chelan at 7-10; Centralia at 4-5; Grant at 2-3.

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Environmental groups and government agencies suggest a variety of

sources of legal authority to compel licensees to remove project

facilities at the expiration of a license if a new license isn't

issued. Some commenters suggest that the Rivers and Harbors Act of 1899

provides a source of authority with respect to the removal of project

works on navigable waters.91 Some commenters cite section 23(b) of

the FPA,92 which requires a Commission license as a prerequisite

to construction, operation, or maintenance of hydropower facilities;

they contend that the power to order removal of existing unauthorized

facilities is inherent in the power to decline to authorize those

facilities.93 Some commenters cite sections 4(g), 10(c), and 309

of the FPA.94 Others point to historical precedent.95

Kennebec suggests that the Commission can compel removal of facilities

either by a direct order under FPA section 23(b) or by a ``forced

surrender.''96

\91\See, e.g., Reform at 27.

\92\16 USC 817.

\93\Kennebec at 21-25, 27; Reform at 25-27; Walton at 11.

Licensees disagree. NHA reply comments at 5-6; EEI reply comments at

26; Duke reply comments at 3.

\94\Interior at 1; Reform at 16, 25-27; Kennebec at 22-23, 25-

26. Section 4(g) of the FPA, 16 USC 797(g), authorizes the

Commission to conduct investigations. Section 10(c) of the FPA, 16

USC 803(c), requires the licensee to maintain and repair the

project. Section 309 of the FPA, 16 USC 825h, confers general

authority on the Commission to implement the FPA. Licensees

disagree. APPA reply comments at 2; EEI reply comments at 12.

\95\See, e.g., Kennebec at 20-21.

\96\Id. at 27-28.

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Licensees contend that their construction of the FPA is consistent

with court and Commission decisions.97 Environmental groups and

government agencies cite judicial precedents supporting their more

expansive interpretation of the statutory scheme.98

\97\See, e.g., NHA at 9-11, 16; EEI at 39-43.

\98\See, e.g., Reform at 16-19, 22-24; Interior at 2. Licensees

disagree. See, e.g., EEI reply comments at 30-31.

---------------------------------------------------------------------------

Licensees refer to the enactment by Congress in 1992 of the Elwha

River Ecosystem and Fisheries Act,99 which provides a scheme for

compensation in the event of the decommissioning of projects on the

Elwha River in Washington. Licensees contend that this legislation

further confirms that the overall intent of Congress, and the overall

scheme of hydro legislation, is that decommissioning and dam removal is

a federal responsibility to be implemented through federal takeover

with full reimbursement of the licensee.100 Environmental groups

respond that the Elwha River legislation is unique to the peculiar

facts and circumstances of that river and its projects and has no

dispositive or precedential value with respect to the rest of the

legislative scheme.

\99\Pub. L. No. 102-495.

\100\NHA at 18-20; EEI at 43-48; APPA at 14-15; James at 5-7.

---------------------------------------------------------------------------

Licensees stress that hydropower projects provide clean, renewable

energy, and contend that the FPA was enacted to foster development of

those resources. Licensees also emphasize the environmental and

recreational benefits of their projects. Environmental groups,

emphasizing the more recent amendments to the FPA that require

consideration of fish and wildlife resources and other alternative uses

of water, contend that hydropower projects inevitably alter the

physical environment to its detriment, by blocking rivers and flooding

land, etc. [[Page 350]]

B. Specific Questions

The NOPR posed 15 specific questions. For convenience each question

is reprinted here, followed by a summary of the comments received on

it.

1. Does the Commission have the authority to determine that no

project should be operated or maintained at the site of a project

whose original license has expired? May the Commission decline to

issue a new license for the project without issuing an annual

license or a nonpower license or recommending federal takeover?

The comments on these issues were summarized above. With respect to

the first sentence, licensees contend that the Commission's authority

is limited to recommending federal takeover with full compensation to

the original licensee. Environmental groups and government agencies

disagree, finding implicit authority to decline to issue any license at

all, neither a new license, nor a nonpower license, nor an annual

license. Licensees contend that if the Commission does not issue a new

license it must issue either an annual license or a nonpower license or

recommend federal takeover. Environmental groups contend that once the

relicense proceeding has ended there is no further requirement to issue

annual licenses (or anything else in lieu thereof).

2. Does the Commission have the authority to require the holder

of an annual license to file an application to surrender it?

Assuming no new application has been filed, can the Commission

require the holder of an annual license to decommission the project

and cease operating it?

NHA contends that FPA section 6 precludes involuntary

decommissioning unless no application for a new license has been filed

or the original licensee refuses to accept the terms of the new license

tendered to it.101 NHA believes the Commission could construe a

refusal to accept a ``reasonable'' new license, or a cessation of

project operations, as constituting an implied surrender, but with

substantial legal restraints on the Commission's ability to compel

particular actions (e.g., removal of facilities) after surrender has

occurred.102

\101\NHA at 22-25.

\102\Id. at 25-27.

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In addition to other statutory provisions discussed above, Reform

contends that the Commission could issue a nonpower license, ``on its

own motion'' under FPA section 15(f), that compelled a licensee to

decommission its project, remove project facilities, and restore the

project site.103 Kennebec finds such authority inherent in FPA

section 309, and would use an annual license as the vehicle to compel

decommissioning and site restoration.104 Interior suggests that

the Commission can use either a nonpower license or an annual license

as a vehicle for mandating decommissioning.105

\103\Reform at 25-28. EEI, at 26-27, disagrees.

\104\Kennebec at 38.

\105\Interior at 1.

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Commerce believes that the Commission can reasonably conclude that

Congress left a gap in the statutory scheme, and that the Commission

can utilize its ``policymaking authority and expertise'' to fill that

gap by construing the FPA to authorize the Commission ``to order the

surrender of an expired license and require the decommissioning of the

project by the license holder.'' Commerce ``encourages the Commission

to take further regulatory or interpretive action to provide a better

foundation'' for this position.106

\106\Commerce at 5-7.

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3. Should the licensee's conduct and/or the particular

circumstances of the case affect in any way the Commission's

authority regarding decommissioning? For example, should it make any

difference if the licensee requests or consents to project

decommissioning? Should it make any difference if the

decommissioning issue affects only part of a project (such as a

reservoir, dam, or some other project facility)?

Interior and Commerce regard these factors as irrelevant to the

Commission's authority to mandate decommissioning.107 Kennebec

suggests that the Commission's analysis under FPA sections 4 and 10

could result in a determination to omit authority at relicensing for

some previously-licensed project facilities.108 APPA agrees,

provided that the new license as a whole is ``reasonable.''109

Reform suggests use of FPA section 23(b) to remove those portions of a

project that are located in navigable waters.110

\107\Interior at 6; Commerce at 8.

\108\Kennebec at 40.

\109\APPA at 6-7.

\110\Reform at 29.

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4. Does question No. 1 pose an implicit choice between licensee

responsibility and federal takeover, i.e., an implicit choice as to

who is responsible for removing project works and who should bear

that cost? If the Commission required the holder of an annual

license to file an application to surrender it, would the Commission

be required to ensure that the annual licensee received its ``net

investment'' in the project and reasonable severance damages?

NHA contends that the choice is explicit, and is determined by the

FPA.111 APPA distinguishes the federal takeover process under FPA

section 14 from a voluntary ``surrender'' within the mutual agreement

parameters of FPA section 6; notes that municipal license projects

``are not subject to recapture or relicensing at the Section 14

price''; and contends that FPA section 15 requires issuance of annual

licenses ``until it receives the compensation to which it would be

entitled in a federal takeover, paid either by the United States or a

new licensee, or until it is offered a new license on reasonable

terms'' defined as ``terms which yield a license that would be valued

at no less than the takeover compensation.''112

\111\NHA at 30.

\112\APPA at 7-9.

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Reform distinguishes between the transfer of a project and the

decommissioning of a project, contending that under FPA sections 14 and

15 the licensee is entitled to recover its net investment and

reasonable severance costs only in the event of a federal takeover,

third party takeover, or grant of a nonpower license, all of which

involve a transfer of ownership of a project. In Reform's view, in the

event of decommissioning of the project--either voluntary or

involuntary--there is no change of ownership and, therefore, the

``licensee does not qualify for the return of its net

investment.''113

\113\Reform at 30-31; see also Kennebec at 42.

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Kennebec contends that the Commission has the legal authority to

determine, in effect, who should most appropriately bear the cost of

decommissioning: the ``taxpayer'' through federal takeover or the

licensee. Kennebec believes those costs are most efficiently and

appropriately borne by the licensee.114

\114\Kennebec at 41.

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Interior and Commerce agree that compensation of the licensee's net

investment is required if the project is taken over, but not if it is

decommissioned.115

\115\Interior at 6; Commerce at 8-9.

5. Barring federal takeover or issuance of a non-power license

or of a new license to a third party applicant, must an existing

licensee be given a new license with whatever conditions are

necessary for mitigation, enhancement, and protection of natural

resources regardless of the effect of the conditions on the economic

viability of the project? If such a new license were issued and the

applicant declined the license, refused to comply with its terms, or

indicated an intent to abandon the project, could the Commission

construe the applicant/existing licensee's position as a de facto

application to surrender the license? Could the Commission then

order the decommissioning of part or all of the project (with or

---------------------------------------------------------------------------

without removal of project facilities)?

[[Page 351]] NHA contends that FPA section 15 requires that new

licenses must be issued ``upon reasonable terms,'' and that this

precludes issuance of a new license containing environmental mitigation

measures whose costs render the project uneconomic.116 NHA would

also regard such a result as an impermissible balancing of

developmental and nondevelopmental values under the ECPA amendments to

the FPA.117

\116\NHA at 31.

\117\NHA at 31-33.

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APPA contends that if the Commission does not recommend federal

takeover, issue a nonpower license, or issue a new license ``on

reasonable terms,'' then it must continue issuing annual licenses; it

cannot terminate the proceeding and stop issuing annual licenses if a

licensee rejects an ``unreasonable'' new license. APPA then goes on to

explore the potential applicability of the Rivers and Harbors Act, and

sections 4(g) and 23(b) of the FPA, with respect to removal of

facilities after a license has expired, and also explores the related

ramifications of sections 26 and 31 of the FPA.118

\118\APPA at 9-12. Sections 26 and 31 of the FPA, 16 U.S.C. 820

and 823b, generally pertain to violation of the terms of a license

and Commission remedies in response thereto. See also EEI at 27.

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Reform suggests a variety of legal authority to which the

Commission might resort if a licensee declines to accept a new license,

or accepts it but declines to implement the mitigatory measures that

render it uneconomic.119 Kennebec contends that sections 10 and 15

of the FPA provide adequate authority to impose reasonable

environmental conditions on a new license even if those conditions

render the project uneconomic. Kennebec further contends that the

Commission has authority to compel the licensee to ``remove the

project'' if the licensee declines to accept a new license so

conditioned.120

\119\Reform at 32.

\120\Kennebec at 44-46.

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Interior contends that the Commission must deny the relicense

application if continued operation of the project is not in the

national interest. Under the circumstances posited in the latter part

of the question, Interior would have the Commission pursue the matter

as a de facto license surrender or as an enforcement case under section

31 of the FPA.121 Commerce, New York, and Michigan, would treat it

as a de facto surrender.122

\121\Interior at 7.

\122\Commerce at 9-10; New York at 2; Michigan at 9.

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6. If the Commission has the authority to require the holder of

an annual license to file an application to surrender it, and if the

Commission requires that the project be decommissioned, may the

Commission require an existing licensee to install new project

facilities to protect the environment, such as fish screens or fish

passage facilities, as part of the decommissioning process? May the

Commission require the existing licensee to remove any project

facilities as part of the decommissioning process or, alternatively,

to maintain certain project facilities in perpetuity as part of that

process? In particular, does the Commission have the legal authority

to require removal of a dam as part of the relicensing process?

Would the answers to any of the above be different if only part of

the project were decommissioned?

NHA contends that, in a surrender or decommissioning situation, the

Commission's jurisdiction terminates and passes on to relevant federal

or state authorities once the license has been surrendered and the

project has ceased generating electricity.123 APPA notes that many

licensees lease their dams but do not own them, and that the leases are

not likely to permit removal of the dam.124 APPA contends that the

Commission's statutory responsibility is to regulate functioning

hydropower projects, and that ``ecosystem restoration'' after

decommissioning is the province of other governmental agencies.125

Montana Power contends that the licensee's obligations are limited to

making certain that the project is no longer capable of generating

electricity and ensuring that the dam is left in a safe

condition.126

\123\NHA at 34; see also Central Maine at 4.

\124\APPA at 13.

\125\Id. at 15.

\126\Montana Power at 10.

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Reform contends that the Commission has inherent authority to

attach environmental mitigatory conditions at any stage, including

decommissioning. Reform suggests that, in the long run, removal of a

dam would be less costly than ``perpetual'' maintenance and rebuilding

of it.127

\127\Reform at 33-34.

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Citing section 23(b) of the FPA, Kennebec also finds inherent

authority to mandate environmental mitigation at decommissioning.

Kennebec construes such measures as less costly than removal of the

project, and therefore inherent in the authority it perceives for the

Commission to mandate project removal.128 Kennebec also contends

that the Commission has authority to compel a licensee to remove its

dam at the expiration of its license.129

\128\Kennebec at 45-46.

\129\Kennebec reply comments at 8-11.

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Interior and Commerce believe that the Commission has inherent

authority to mandate either partial or total decommissioning, with or

without environmental mitigatory measures.130 Commerce contends

that the Commission should require installation of new fish passage

facilities as part of a surrender or decommissioning process if the

Commission deems such fishways necessary or if such facilities are

prescribed by the Secretary of Commerce or the Secretary of Interior

pursuant to section 18 of the FPA.131

\130\Interior at 7-8; Commerce at 11.

\131\Commerce at 10. Section 18 of the FPA, 16 USC 811, requires

the Commission to include the Secretaries' fishway prescriptions in

any license it issues.

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7. May the Commission issue a new license to an existing

licensee that prefers to continue operating a project that is no

longer economical, rather that incur the one-time cost of

decommissioning the project?

NHA points out that the cost of decommissioning a project must be

factored into the determination of which alternative is the most

economical. In other words, it may be less costly to operate the

project than to shut it down or remove it. NHA encourages the

Commission to defer to market forces to determine the future economic

viability of existing, operating projects.132

\132\NHA at 35-37.

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Reform contends that since all projects have a finite life, the

one-time cost of decommissioning is inevitable and does not justify

operation of an otherwise uneconomic project.133 Several

commenters point out that a project may have beneficial flood control

or recreational purposes that justify continuation of its operations

even if its electric generating functions are not, by themselves,

economic.134

\133\Reform at 34-35.

\134\Kennebec at 47; Nebraska at 3-4; New York at 2; Brazos.

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The Western Urban Water Coalition stresses the importance of not

decommissioning hydropower projects that serve municipal water supply

purposes, which is often a vital primary or secondary purpose of

projects that also generate electricity. In this regard, it refers to

FPA section 15(f) as providing a mechanism for municipal licensees,

through the use of nonpower licenses, to temporarily ensure the

continued operation of projects that are needed for water supply

purposes.135 It also recommends preparation of an environmental

impact statement that analyzes the impact, of any proposed

decommissioning of a project, on water supply and existing water supply

[[Page 352]] facilities and the feasibility and costs of alternative

water supply facilities.136

\135\Water at 3-5, 10.

\136\Id. at 12-13.

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Mines urges the Commission to consider the socioeconomic impact of

decommissioning hydropower projects, pointing out that electricity can

account for as much as one third of the cost of smelting aluminum.

Thus, the loss of a source of affordable electricity could lead to a

loss of jobs and social dislocation.

New York suggests that if a decision is made to continue operation

of an uneconomic project because of its other benefits, then long-term

maintenance costs could be shared by government agencies or financed

out of a decommissioning trust fund.137

\137\New York at 3.

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Central Maine states that, because the cost of applying to

surrender a license is the same as the cost of applying for a new

license, under certain circumstances there is a financial incentive to

seek a new license for an uneconomic project.138

\138\Central Maine at 3.

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8. What are the existing licensee's responsibilities with

respect to decommissioning, if the existing licensee does not apply

for a new license and wants to abandon the project? In such a

situation, is a licensee responsible for decommissioning the

project, with or without removal of facilities, at the end of the

term of the license or of the project's useful life? If so, how

should ``useful life'' be defined?

NHA states that there is no means of predicting a project's useful

life; it can only be determined after the fact on a case-by-case basis.

NHA refers to U.S. projects that have been in operation since the

previous century, and dams in India and Ceylon that have stored water

for irrigation for over 2000 years. NHA states that projects can be

damaged or destroyed by natural events (e.g., earthquakes, landslides,

or floods), or can be rendered obsolete by improper or outmoded design

or construction, or by improper maintenance or operation. A project's

useful life could also be affected by economic circumstances, or by the

conditions imposed in a license and their related costs.139

\139\NHA at 37-40.

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Reform states that ``useful life'' has been defined as ``the number

of years as a baseload facility plus the number of years as an

indeterminate load facility.''140 Wisconsin Electric suggests a

definition based on ``useful economic life'' measured in terms of the

project's capacity, the value of its energy, and its projected future

costs.141 Walton defines ``useful life'' as the length of time

during which the project is profitable, but with profitability adjusted

to include ``social and environmental costs'' including the costs of

dam removal and associated sediment control.142

\140\Reform at 35-36.

\141\Wisconsin Electric at 8.

\142\Walton at 13.

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Interior believes that it is reasonable to require the licensee to

bear the cost of decommissioning after it has enjoyed the economic

benefits of the license.143 Commerce urges the Commission to

require prompt removal of project facilities within a ``reasonable

period'' after expiration of the license ``rather than allowing

projects to remain abandoned until the end of a `useful life'

threshold.''144

\143\Interior at 8.

\144\Commerce at 11-12.

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New York notes that the ``useful life'' of a hydropower project

could run much longer than that of a nuclear plant, and that the

project could be abandoned well before it reaches the end of that

useful life. Therefore, New York would require that decommissioning

planning take place at the midpoint of the term of the license.145

\145\New York at 3.

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Susquehanna recommends that ``the Commission should commission a

comprehensive study to develop guidelines to determine the useful life

and projected cost of decommissioning a `typical' or generic project.''

Susquehanna recommends that licensees submit decommissioning studies 20

years in advance of license expiration; Susquehanna believes this would

provide adequate time for planning.\146\

\146\Susquehanna at 1-3.

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Oregon advises that the Oregon Public Utility Commission has the

authority to allow rate recovery for project decommissioning for

regulated utilities. Oregon suggests that unregulated project owners

could treat decommissioning as a cost of doing business.\147\

\147\Oregon at 4.

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Alabama Power points out that if the Commission determines that the

public interest mandates relicensing a project after a trust fund has

been accumulated to decommission it, then the trust will have increased

the operating cost of the project for no useful purpose.\148\

\148\Alabama Power at 8-9.

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9. Assuming that project facilities removal/decommissioning is

the project owner's responsibility, how should the appropriate time

to begin recognition of this liability be determined in light of the

fact that most projects continue to be economic when the original

license expires? Would it be appropriate to impose such a

requirement at the time the first new license is issued?

NHA reiterates its view that the useful life of a project cannot be

determined in advance, and that licensees cannot be compelled to

decommission their projects without their consent. Therefore, it

rejects any generic rule on this subject.\149\

\149\NHA at 40-41.

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APPA points out that decommissioning in the sense of shutting down

project operations without removing the dam is relatively inexpensive,

and contends that removing a dam is too speculative to warrant

collection of funds in advance. APPA would allow licensees flexibility

to determine when and how to accumulate funding for decommissioning,

noting that project costs are frequently front-loaded in the earlier

years of the project.\150\

\150\APPA at 17.

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Interior and Reform advocate inclusion in all licenses of a

condition reserving the Commission's right to mandate decommissioning

of the project if it ceases to be in the public interest to continue

operating it.\151\ Commerce would review the propriety of

decommissioning at license expiration.\152\

\151\Interior at 8-9; Reform at 36-37.

\152\Commerce at 12.

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10. Can the Commission condition new licenses (if so requested)

to require a reserve or trust fund that could be used to finance the

cost of decommissioning and/or the removal of project facilities

when the new license expires? If so, under what circumstances should

it do so?

NHA contends that, since in its view the Commission lacks statutory

authority to compel decommissioning, it also lacks legal authority to

mandate a trust fund for that purpose.\153\ APPA finds legal authority

for a trust fund only with respect to minor licenses when sections 14

and 15 of the FPA are waived.\154\

\153\NHA at 42.

\154\APPA at 18-19.

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Reform finds legal authority for mandating trust funds in section

10(c) of the FPA, and would have the Commission issue regulations

requiring the creation of trust funds. Reform would also require

licensees to submit decommissioning plans.\155\

\155\Reform at 38-39.

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Referring to regulations governing the decommissioning of nuclear

facilities, Susquehanna believes that a decommissioning trust fund

requirement would fall within the scope of the Commission's authority,

but does not elaborate on the source of that legal authority.\156\

\156\Susquehanna at 2-3. [[Page 353]]

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Oregon notes that its Energy Facility Siting Council has adopted

regulations that require site certificate applicants to demonstrate

their ability to pay for decommissioning.\157\

\157\Oregon at 8-9.

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Michigan contends that ``by requiring the establishment of funding

mechanisms, FERC will ensure that a marginally-funded prospective

licensee is only issued a license if it has the funds to eventually

retire the project.''\158\

\158\Michigan at 12.

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Public Pool contends that the Commission cannot mandate involuntary

decommissioning, but states that in the event of voluntary surrender or

abandonment the licensee would be responsible for ensuring public

health and safety, including removal of facilities if necessary, and

that a funding mechanism may be appropriate for this purpose.\159\

\159\Public Pool at 8-9.

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Consolidated contends that establishing mandated reserve funds for

decommissioning places a disproportionate burden on independent non-

utility licensees and industrial owners because investor-owned

utilities and municipalities can recover the additional cost of

decommissioning from their respective ratepayers and taxpayers.\160\

Washington Water believes that, as an investor-owned utility, it would

be required to pay income taxes on the revenues collected for such a

fund, and would therefore have to charge its customers more than the

direct cost of the fund.\161\

\160\Consolidated at 6.

\161\Washington Water at 10-11.

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Wisconsin Electric suggests that the revenues allocated to a trust

fund for decommissioning might otherwise be used to finance ``upgrades,

replacement, repair and redevelopment'' of a project, suggesting that

the requirement for a trust fund would shorten the useful life of the

project by reducing its level of maintenance. Wisconsin Electric

further suggests that, if the Commission mandates a trust fund, it

should reduce its maintenance standards commensurately.\162\

\162\Wisconsin Electric at 9-10.

11. There are licensees over which the Commission does not have

ratemaking jurisdiction. Should the Commission establish accounting

or other requirements and undertake to audit these entities to

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ensure the availability of funds for decommissioning?

NHA contends that, since in NHA's view the Commission lacks

authority to mandate decommissioning, it also lacks authority to

establish accounting requirements to implement decommissioning.\163\

Several commenters state that under the Act of August 15, 1953, 16 USC

828b, states and municipalities cannot be required to comply with the

Commission's records and accounting procedures.\164\ Reform would find

legal authority under section 10(c) of the FPA to impose accounting

requirements regardless of the status of the licensee, and would have

the Commission impose such requirements.\165\ Walton distinguishes

between ratemaking regulatory functions, on the one hand, and

accounting requirements that implement trust fund or other license

requirements that are designed to protect ``the public's interest in

health, safety, navigability, and environmental quality.''\166\

\163\NHA at 43.

\164\APPA at 20; Chelan at 10, 20-21; Centralia at 6-7.

Centralia goes on to contend that the lack of legal authority to

prescribe accounting requirements means that the Commission also

lacks legal authority to audit municipal licensees' books.

\165\Reform at 39-40.

\166\Walton at 15.

12. Can and should the Commission include, in either a new or an

original license, a requirement that the licensee accumulate a fund

or reserve that can be used to retire or decommission the project,

including removal of project facilities, at the termination of the

license? Would the propriety of such a condition depend either (1)

on whether there is some particular threshold of evidence in the

present record indicating that project decommissioning may or would

be appropriate in the future, or (2) on the agreement of the license

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applicant to accept such a condition in a new license?

APPA would impose a trust fund requirement only on minor licensees

whose licenses require removal of the dam at the expiration of the

license.\167\ Reform would impose a trust fund requirement in all

licenses, with the cost of the project's decommissioning to be

determined in the environmental assessment or environmental impact

statement at the time of licensing.\168\

\167\APPA at 20-21.

\168\Reform at 41-42.

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EPA states that decommissioning is a reasonable alternative that

should be explored in the environmental analysis associated with the

relicensing process. This exploration should include the potential

impact of decommissioning on water quality because the release of

stored sediments could adversely affect aquatic resources.\169\

\169\EPA at 2.

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Michigan contends that if there is evidence in the record that

decommissioning is likely to occur within 50 years it would be

``arbitrary and capricious'' for the Commission not to require a

decommissioning fund.\170\

\170\Michigan at 12.

13. What alternatives would there be to requiring individual

licensees to contribute to a project-specific fund? Would it be

feasible and appropriate to have a program-wide fund, funded through

---------------------------------------------------------------------------

a collection of charges for that purpose from all licensees?

APPA contends that there is no legal authority for compelling

licensees to contribute to a program-wide fund, and that such a fund

would be quite impractical to establish. APPA contends that such a fund

would inevitably be inequitable, penalizing either small or large

projects, and raising a host of complex accounting questions, some of

which APPA poses back to the Commission.171

\171\APPA at 21-23.

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Reform proposes a two-tiered system under which each licensee would

be responsible for its own decommissioning costs but would also make

modest contributions to a program-wide ``insurance fund'' to finance

decommissioning of projects whose licensees lack the necessary

funds.172

\172\Reform at 43.

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Kentucky suggests that the Commission consider ``the need for a

national decommissioning fund, supported by annual fees paid by

licensees, to address abandoned projects.'' It believes that these

costs should be borne by ``those who build the dam and reap the

benefits of it.''173

\173\Kentucky at 1.

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EPA suggests that ``the Commission consider the approaches to site

restoration responsibility in mining operations as possible models for

developer funding of dam removal and site restoration.''174

\174\EPA at 2.

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Interior encourages the Commission to explore the bonding formulae

used by the mining and nuclear energy industries to calculate and

administer decommissioning and site restoration funds. Interior

recommends that the Commission ``consider pooling funds within certain

geographical units, perhaps by watershed or geographical regions. A

reserve or trust fund supported by a single project or a group of

projects in a river basin could receive annual monies based on a

percentage of construction or removal costs, profit margins, generating

capacity, or other project features.''175

\175\Interior at 9.

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Commerce suggests consideration of a program-wide fund administered

by either the Commission or an independent authority analogous to a

[[Page 354]] public utility commission, but believes project-specific

funds would be preferable.176

\176\Commerce at 13-15.

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New York suggests that new projects be required to establish a

trust fund, but that existing projects contribute to a statewide or

regional pool of funds. New York expresses concern that a nationwide

pool of funds might lead to inequitable use of the funds by different

regions.177

\177\New York at 3.

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Oregon notes that a program-wide fund would finance decommissioning

of ``orphaned'' projects, but believes the problems inherent in

administering it would outweigh the benefits in that it would likely be

contentious, burdensome, and inequitable. Oregon also suggests that

part of a fund could be used ``as an endowment'' to help finance

maintenance. Oregon states that it might ``be willing to assume

responsibility for some projects that no longer generate

power.''178

\178\Oregon at 5-6.

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Walton proposes a ``multi-faceted approach'' that includes project-

specific funds, regional funds, watershed funds, and multi-project

single owner funds, as appropriate.179 S'Klallam suggests

individual performance bonds backed up by an industry-wide

fund.180 Seattle suggests a national decommissioning insurance

fund financed through fees assessed on all licensees.181

\179\Walton at 17.

\180\S'Klallam at 16.

\181\Seattle reply comments.

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14. With respect to both a project-specific fund and a program-

wide fund, what mechanisms would be used for collecting and

administering the money? Would such a fund be administered by the

licensees (jointly or severally), by State government agencies, or

by the Commission? Who would determine how much money to collect,

and pursuant to what guidelines? Who would determine how and when to

allow monies from the fund to be dispersed, and what findings would

be needed to make those determinations? What accounting standards

would be utilized?

APPA suggests that there are no good answers to these questions,

and that a program-wide fund would be inconsistent with sound

regulatory policy.182

\182\APPA at 23.

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Reform would require each licensee to establish a segregated fund

for each of its projects, administered by a corporate trustee appointed

by the licensee, and subject to periodic audit by the Commission. The

Commission would determine the amount of money to be collected in the

fund, based on its environmental analysis at relicensing of the cost of

restoring preproject conditions at the project site. The money would be

accumulated either through prepayment and appreciation or through

periodic payments into an external sinking fund. The Commission would

oversee the fund's investment strategy through promulgation of

regulations. The Commission would determine when to decommission the

project, and would require periodic financial accounting.183

\183\Reform at 43-47; see also Walton at 17-19.

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Vermont contends that ``[l]icensees should be required to project

the cost of decommissioning and create a decommissioning fund through

an annual set aside that would enable decommissioning by the end of the

license term.''184 The estimated cost could be based on either dam

retention or dam removal, with due consideration to any flood control

purposes served by the dam. Vermont would also include a national fund

to cover license surrenders by project owners who can't afford

decommissioning costs. Vermont suggests use of a standard license

article to implement whatever policies are adopted.

\184\Vermont at 1-2.

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Commerce suggests that project-specific trust funds could be

administered by the licensee under strict guidelines established by the

Commission, either in the license or generically, including minimum

funding requirements and restrictions on investment interests, with

Commission monitoring during the course of the license.185

\185\Commerce at 14; see also Walton at 17-19.

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New York prefers that decommissioning funds ``be controlled at the

state level. FERC could ultimately determine the amount of money to

collect, based on the recommendations of consulting agencies and based

on estimates provided as part of decommissioning plans submitted by the

licensee''.186

\186\New York at 4.

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Michigan believes that the licensees should administer project-

specific trust funds, and that the states, ``on behalf of the

ratepayers, as appropriate, and as guardians of the public trust, as

well as their citizens' health, welfare, and safety, should be the

beneficiaries.''187 Washington Department advocates control of the

fund by the Commission, to best assure that the money will be available

when needed.188

\187\Michigan at 13.

\188\Washington Department at 2.

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New England suggests a case-by-case approach, fine tuning the trust

fund mechanism to the peculiar facts and circumstances of each

project.189 PG&E also emphasizes the project-specific nature of

decommissioning procedures and costs, ranging from removal of

generating equipment to removal of a dam.190

\189\New England at 7-9.

\190\PG&E at 7.

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Northern proposes, as an alternative to trust funds, that licensees

incorporate estimated dam removal costs into depreciation for each

specific project, so that the project owner would ``carry a negative

value for each project.'' Northern also suggests use of an internal

account similar to an amortization reserve. A further alternative would

be allowing the licensee to demonstrate that ``the current net worth of

all company assets'' is large enough to cover any estimated project

removal costs. All of these alternatives would be subject to

verification through periodic Commission audit.191

\191\Northern at 4-5.

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Peninsula suggests that some licensees might want to cooperate on a

funding pool for a trust fund, perhaps with an insurance company, while

others may prefer to self-finance through project-specific

funds.192

\192\Peninsula at 13.

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15. Would it be appropriate for the Commission to propose new

regulations, license articles, or a policy statement that address

any of the above matters? If so, what new regulations, license

articles, or policy clarification should the Commission consider?

As noted above, licensees and their associations generally favor a

case-by-case approach to decommissioning issues as they arise. APPA

proposes elimination of certain existing regulations that it believes

to be inconsistent with the FPA.193 A number of commenters

recommend that the Commission establish a decommissioning policy

through the adoption of new regulations and standard license

articles.194 Interior suggests that the articles set forth the

Commission's policy on decommissioning including requirements for

advance planning and for funding mechanisms.195

\193\APPA at 24.

\194\Reform at 48; Interior at 10; Michigan at 13-14; Washington

Department at 3; New York at 4; see also Walton at 19-20.

\195\Interior at 10.

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Commerce urges the Commission to promulgate decommissioning

standards in a policy statement, with implementing regulations to

clarify that the Commission will mandate decommissioning when it finds

that it would best serve the public interest. Commerce also suggests

adding license [[Page 355]] articles to establish a decommissioning

reserve fund.196

\196\Commerce at 15.

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Kennebec recommends issuance of a policy statement clarifying the

Commission's authority to mandate decommissioning, removal of project

works, and ``returning the site to its natural state.'' Kennebec also

suggests the possibility of new regulations, or of new license

articles, but in such a manner as to avoid restricting the Commission's

flexibility to mandate decommissioning even absent such articles in the

license.197

\197\Kennebec at 48-49.

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The U.S. Forest Service supports adoption of regulations on

decommissioning, but believes that new legislation may be needed to

clarify the Commission's legal authority. In particular, the Forest

Service seeks clarification as to its own responsibilities, and that of

other federal land management agencies, in the event that a licensee

``abandons'' a project but can't afford to remove project facilities.

The Forest Service suggests that the Commission ascertain, during the

licensing process, what it will cost to decommission such projects;

require a trust fund for that purpose; and clarify these procedures and

requirements in new regulations.

Commenters

Federal Agencies

National Marine Fisheries Service (NMFS)

U.S. Department of the Interior (Interior)

U.S. Department of the Interior, Bureau of Mines, Western Field

Operations Center (Mines)

U.S. Environmental Protection Agency (EPA)

U.S. Forest Service

State Agencies

Kentucky Department for Environmental Protection (Kentucky)

Michigan Department of Natural Resources (Michigan)

New York Department of Environmental Conservation (New York)

State of Oregon (Oregon)

State of Vermont (Vermont)

Washington Department of Wildlife (Washington Department)

Wisconsin Department of Natural Resources (Wisconsin Department)

Associations

American Forest and Paper Association (Paper)

American Public Power Association and Certain Public Systems

(APPA)\198\

\198\All of the commenters filed initial comments. Commenters

identified by this footnote also filed reply comments.

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American Whitewater Affiliation (Whitewater)

Appalachian Mountain Club (Appalachian)

Edison Electric Institute (EEI)\143\

Elwha S'Klallam Tribe (S'Klallam)

Friends of the Earth (Earth)

Hydropower Reform Coalition (Reform)\143\

Industrial Licensee Group (Industrial)

Izaak Walton League (Walton)

Kennebec Coalition (Kennebec)

Natural Hydropower Association (NHA)\143\

Northwest Hydroelectric Association (Northwest)

Pacific Rivers Council (Pacific)

Public Generating Pool (Public Pool)

Public Power Council (Public Power)

Trout Unlimited (Trout)

Western Urban Water Coalition (Water)

Municipal Licensees

Brazos River Authority (Brazos)

City of Centralia, Washington (Centralia)

City of New Martinsville, West Virginia (New Martinsville)

City of Saint Cloud, Minnesota (Saint Cloud)

City of Seattle, Washington (Seattle)\143\

Nebraska Public Power District (Nebraska)

Ketchikan Public Utilities (Ketchikan)

Oroville-Wyandotte Irrigation District, Friant Power Authority, and

Tri-Dam Project (Oroville-Wyandotte)

Public Utility District No. 1 of Chelan County, Washington (Chelan)

Public Utility District No. 2 of Grant County, Washington (Grant)

Non-Municipal Licensees

Alabama Power Company and Georgia Power Company (Alabama Power)\143\

Allegheny Power System (Allegheny)

Bangor Hydroelectric Company (Bangor)

Central Maine Power Company (Central Maine)

Consolidated Hydro, Inc. (Consolidated)

Duke Power Company (Duke)\143\

Idaho Power Company (Idaho Power)

James River Corporation (James)\143\

Montana Power Company (Montana Power)

Mt. Hope Hydro Inc., United Energy Corporation, and Liberty Power

Corporation (Mt. Hope)

New England Power Company (New England)

Northern States Power Company (Northern)

Pacific Gas and Electric Company (PG&E)\143\

Pacificorp

Pennsylvania Electric Company and York Haven Power Company (Penelec)

Public Service Company of Colorado (Colorado Company)

Puget Sound Power & Light Company (Puget)

Simpson Paper (Vermont) Company (Simpson)

Southern California Edison Company (California Edison)

Susquehanna Electric Company (Susquehanna)

Union Electric Company (Union)

Upper Peninsula Power Company (Peninsula)

Washington Water Power Company (Washington Water)

Wisconsin Electric Company (Wisconsin Electric)

Wisconsin Valley Improvement Company, Wisconsin Public Service

Corporation, Weyerhaeuser Company, Consolidated Water Power Company,

Neekosa Papers Inc., and Wisconsin River Power Company (Wisconsin

Companies)

Other Organizations and Individuals

A great number of local organizations and private citizens,

including many local and regional environmental groups and many

licensees of small hydropower projects, submitted comments in letter

form of one to several pages in length.

BAILEY, Commissioner, dissenting

I respectfully dissent from the views expressed in this policy

statement. I will admit that as a regulator, both here and formerly

as a State Commissioner, I am sympathetic to the analysis that an

agency that has been vested with the authority to implement a

particular statute must, of necessity, fill in certain specifics as

changing circumstances warrant. In this case, an argument can be

made that inherent in the authority to grant a relicense application

is the ability to deny that application and to oversee the process

of decommissioning the project.

But I pull away from the majority after a review of the record

in this proceeding. I cannot concur in the decision that the Federal

Power Act authorizes this Commission to require the decommissioning

of a hydroelectric project. While someone drafting the Federal Power

Act today may very well write it differently, the provisions of the

statute as they currently stand, read together with the legislative

history, do not support, in my view, the conclusion that the

Commission has the authority to order dam removal.

The whole tone of the legislative history is the encouragement

of development. And in order to encourage development, the drafters

strove to give investors certain assurances that their investments

would be secure. Thus, they set out the specific scenario that would

occur at the time of license renewal.

That scenario is reflected today in sections 14 and 15 of the

Federal Power Act: the Commission may issue a new license, either to

the original licensee or a third party, issue a license for the

nonpower use of the project, or recommend Federal takeover. The

extensive legal analysis supporting this conclusion is articulated

in detail in numerous comments filed in response to the Notice of

Inquiry, and I will not begin to repeat those arguments here.

In addition, I find the passage of Public Law No. 83-278 in 1953

to be a strong indicator that, even 30 years after passage of the

Federal Water Power Act, no one envisioned dam decommissioning as

being part of the Commission's authority. By enacting that law,

Congress exempted municipal licensees from the possibility of

Federal takeover at the end of the license term. This legislation

was intended to facilitate the financing of project expansions

through the sale of revenue bonds with amortization schedules

extending well beyond the term of the initial license.

Clearly, the legislation anticipated that these municipally-

owned projects would continue to operate and provide sufficient

revenue to meet debt service obligations. The threat that a

municipal licensee might not only lose its license at the end of the

term, but also have to fund the project's decommissioning or

removal, would [[Page 356]] obviously be a much larger obstacle to

financing than the Federal takeover possibility that Congress

eliminated in 1953. Thus, as argued in the comments, the imposition

of a decommissioning requirement would directly undermine and be

contrary to the specific intent of Public Law No. 83-278.

Although the policy statement indicates that the Commission

rarely expects to mandate project decommissioning, the decision to

imply such authority has significant consequences. While this

Commission may exercise that authority narrowly, parties and

intervenors will continue to call for its broad application,

including the imposition of trust funds at each project, as well as

contributions to regional funds. Indeed, the policy statement

concludes that, should later experience with decommissioning

demonstrate a stronger need, the Commission can reassess the issue

of establishing some type of industry-wide fund.

I question whether the Federal Power Act contemplates such a

scheme. In addition, there will be social and economic consequences

that flow from such decisions. Decommissioning funds, should they be

required, are traditionally included in rates. The likely increase

in electric rates for consumers in potentially large regions of the

country and the possible negative impact on the financial viability

of certain projects are issues not addressed by the policy

statement.

In sum, there are major social consequences, in the broadest

sense, that derive from the decision to imply authority here, and I

am unwilling to assume lightly that authority. Sections 14 and 15 of

the Federal Power Act outline the relicensing process to be

implemented by the Commission. Many of the issues raised by the

decommissioning debate are not solely FERC's to decide and I believe

should be addressed in a broader forum.

Vicky A. Bailey,

Commissioner.

[FR Doc. 95-63 Filed 1-3-95; 8:45 am]

BILLING CODE 6717-01-P