Policy Statement on Hydropower Licensing Settlements

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Suedeen G. Kelly, Marc Spitzer,

Philip D. Moeller, and Jon Wellinghoff.

Settlements in Hydropower Licensing Proceedings

Docket No. PL06-5-000

under Part I of the Federal Power Act

POLICY STATEMENT ON HYDROPOWER LICENSING SETTLEMENTS

(Issued September 21, 2006)

1.

Hydroelectric licensing proceedings under Part I of the Federal Power Act (FPA)

are multi-faceted and complex. These proceedings involve the balancing of many public

interest factors, as well as consideration of the views of all interested groups and

individuals. Moreover, since the physical design, environmental impact, and history of

every project is different, each licensing proceeding is, to at least some extent, unique.

2.

Given this backdrop, the Commission looks with great favor on settlements in

licensing cases. When parties are able to reach settlements, it can save time and money,

avoid the need for protracted litigation, promote the development of positive relationships

among entities who may be working together during the course of a license term, and

give the Commission, as it acts on license and exemption applications, a clear sense as to

the parties’ views on the issues presented in each settled case.

3.

At the same time, the Commission cannot automatically accept all settlements, or

all provisions of settlements. Section 10(a)(1) of the FPA requires that the Commission

determine that any licensed project is

best adapted to a comprehensive plan for improving or developing a waterway

or waterways for the use or benefit of interstate or foreign commerce, for the

improvement and utilization of waterpower development, for the adequate

protection, mitigation, and enhancement of fish and wildlife (including related

)(1) of the FPA requires that the Commission

determine that any licensed project is

best adapted to a comprehensive plan for improving or developing a waterway

or waterways for the use or benefit of interstate or foreign commerce, for the

improvement and utilization of waterpower development, for the adequate

protection, mitigation, and enhancement of fish and wildlife (including related

Docket No. PL06-5-000

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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).[1]

4.

Consequently, in reviewing settlements, the Commission looks not only to the

wishes of the settling parties, but also at the greater public interest, and whether

settlement proposals meet the comprehensive development/equal consideration standard.

Because of the requirements of Part I of the FPA, the Commission’s review of

hydropower licensing settlements is often different from that accorded to other

settlements presented to us, such as those in rate cases. In the latter type of cases, the

Commission may accept settlements as a whole, given that it has authority under section

5 of the Natural Gas Act and section 206 of the FPA to examine at any time whether

rates, charges, rules, regulations, practices, or contracts are unjust, unreasonable, unduly

discriminatory, or preferential. Because section 6 of the FPA precludes revision of

hydropower licenses without the licensee’s consent, it is necessary that the Commission

examine proposed license conditions in detail before approving them. The Commission

does include reopener provisions in hydropower licenses, but these are only exercised

where environmental conditions have significantly changed

iminatory, or preferential. Because section 6 of the FPA precludes revision of

hydropower licenses without the licensee’s consent, it is necessary that the Commission

examine proposed license conditions in detail before approving them. The Commission

does include reopener provisions in hydropower licenses, but these are only exercised

where environmental conditions have significantly changed. Were the Commission to

assert a broad, general authority to reopen any part of a license during its term, equivalent

to the authority provided by sections 5 and 206, this would sharply undercut the certainty

sought by parties to licensing proceedings. As a separate matter, the Commission’s role

in overseeing license compliance makes it important that license conditions be clear and

enforceable.

5.

The Commission must also ensure that its decisions on settlements, like all

decisions under the FPA, are supported by substantial evidence.2 To support a proposed

1 See 16 U.S.C. § 803(a)(1) (2000). FPA section 4(e), 16 U.S.C. § 797(e),

provides, in pertinent part, that

the Commission, in addition to the power and development purposes for

which licenses are issued, shall give equal consideration to the purposes of

energy conservation, the protection, mitigation of damages 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.

in addition to the power and development purposes for

which licenses are issued, shall give equal consideration to the purposes of

energy conservation, the protection, mitigation of damages 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.

Docket No. PL06-5-000

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license condition, then, it is necessary for the parties to develop a factual record that

provides substantial evidence to support the proposed condition, and demonstrates how

the condition is related to project purposes or to project effects. The settling parties

should provide the Commission with record support showing a nexus between the

proposal and the impacts of the project, as well as to project purposes, and also explain

how the proposal will accomplish its stated purpose.

6.

In addition, proposed license conditions must be enforceable. By way of example,

the Commission is precluded by law from assessing damages, so any condition that

would do so would be unenforceable. To the extent that the Commission does not adopt

proposed conditions that it has no jurisdiction to enforce, this does not evidence general

opposition to settlements or to the settlement at hand, but rather recognition that the

Commission can only exercise that authority given it by Congress. Also, the

Commission has jurisdiction over only its licensees, and therefore cannot enforce any

condition to the extent that it purports to place responsibility on a non-licensee. In

addition, conditions that do not clearly outline the licensee’s responsibilities and establish

the parameters governing required actions may be difficult or impossible to enforce.

However, as discussed below, contracts that the Commission cannot enforce may well be

made enforceable by other means, such as binding arbitration, or resort to state or federal

court.

7

y on a non-licensee. In

addition, conditions that do not clearly outline the licensee’s responsibilities and establish

the parameters governing required actions may be difficult or impossible to enforce.

However, as discussed below, contracts that the Commission cannot enforce may well be

made enforceable by other means, such as binding arbitration, or resort to state or federal

court.

7.

It should be noted that the fact that the Commission does not, whether as a matter

of law or policy, include certain provisions in licenses does not mean that they are

precluded from being included in a settlement. Settling parties are free to enter into “off-

license” or “side” agreements with respect to matters that will not be included in a

license. However, the Commission has no jurisdiction over such agreements and their

existence will carry no weight in the Commission’s consideration of a license application

under the FPA.

8.

Based on the foregoing, the logical process for arriving at an acceptable settlement

is for the parties to undertake the following steps:

•

Use existing information and pre-license studies to determine the

environmental effects of the proposed project.

2 See FPA section 313(b), 16 U.S.C. § 825l (2000) (“[t]he finding of the

Commission as to the facts, if supported by substantial evidence, shall be conclusive”)

(emphasis added).

o determine the

environmental effects of the proposed project.

2 See FPA section 313(b), 16 U.S.C. § 825l (2000) (“[t]he finding of the

Commission as to the facts, if supported by substantial evidence, shall be conclusive”)

(emphasis added).

Docket No. PL06-5-000

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•

Based on this record, develop appropriate environmental

measures to address those effects.

•

Craft settlement provisions based on the record and the

proposed measures, taking into account recent Commission

precedent.

•

Prepare an explanation of the settlement that will enable the

Commission to understand the parties’ intent and what in the record

they believe supports their proposals.3

9.

We are aware that settling parties have a strong interest in knowing in advance

which provisions of proposed settlements are likely to be acceptable to the Commission.

Precedent can serve as a very useful guide in this regard. If parties engaged in settlement

discussions wish to obtain additional guidance as to particular concepts or proposed

provisions, it may be useful to seek the advice of Commission staff, by requesting that

staff either participate in an advisory role in settlement discussions or review proposed

settlements before they are filed with the Commission. While Commission staff cannot

speak for the Commission itself, staff will be able to give parties the benefit of its

experience, as well as advice regarding recent Commission actions. Advice from

experienced staff, coupled with careful reading of recent Commission precedent, is the

best way to predict the Commission’s likely reaction to particular provisions proposed in

settlement agreements.

10.

At the same time, we recognize the value of more general guidance

be able to give parties the benefit of its

experience, as well as advice regarding recent Commission actions. Advice from

experienced staff, coupled with careful reading of recent Commission precedent, is the

best way to predict the Commission’s likely reaction to particular provisions proposed in

settlement agreements.

10.

At the same time, we recognize the value of more general guidance. Therefore,

we have prepared this document, in an attempt to elucidate certain principles regarding

settlements. Some of the matters discussed below have been dealt with in Commission

orders; others represent application of the principles enunciated in those orders. While

we hope that this document will be useful to parties engaged in settlement negotiations,

we caution that the Commission will review every case on its facts and make in each

instance the public interest determination required by the FPA. Thus, the statements in

this document represent guidance, but not a guarantee. It may be that the facts of a

particular case dictate a different result from that in a previous proceeding where a

similar issue arose, or that policy changes over time.

3 In its regulations, the Commission has set forth details concerning the content of

settlements, and the procedures relating to their filing. See 18 C.F.R. § 385.602 (2006).

Docket No. PL06-5-000

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11.

Certain general types of issues have arisen with some frequency over the last

several years. The following discussion outlines some principles with respect to these

issues, in the hope of providing general principles that may assist settling parties. In the

last section of this guidance, we list more specific settlement provisions that have been of

concern. While individual cases are cited throughout this document, this guidance is not

intended to be an encyclopedic reference to all cases involving settlements.

12

ome principles with respect to these

issues, in the hope of providing general principles that may assist settling parties. In the

last section of this guidance, we list more specific settlement provisions that have been of

concern. While individual cases are cited throughout this document, this guidance is not

intended to be an encyclopedic reference to all cases involving settlements.

12.

The following basic principles, which are discussed in more detail below, apply to

the consideration of measures proposed to be included as conditions in project licenses:

•

Measures must be based on substantial evidence in the record of the

licensing proceeding

•

Measures must be consistent with the law and enforceable. In particular,

measures must be within the Commission’s jurisdiction

•

A relationship must be established between a proposed measure and project

effects or purposes

•

Measures should be as narrow as possible, with specific measures (e.g.,

installing riprap to prevent erosion) preferred over general measures, such

as creation of an aquatic resource fund

•

Actions required under measures should occur physically/geographically as

close as possible to the project

•

Measures must reserve the Commission’s compliance authority, as well

as its authority to review and modify as necessary proposed resource or

activity plans (for example, a provision that a stakeholder committee can

determine new measures during the license term should also provide that

the proposed measures be filed with the Commission for its review,

modification, and approval)

Substantial Evidence

13.

As noted above, the FPA provides that the Commission’s determinations will be

upheld if they are supported by substantial evidence. In consequence, the Commission

must have substantial evidence to support its licensing decisions. If parties want the

Commission to accept the terms of a settlement, they must provide substantial evidence

dification, and approval)

Substantial Evidence

13.

As noted above, the FPA provides that the Commission’s determinations will be

upheld if they are supported by substantial evidence. In consequence, the Commission

must have substantial evidence to support its licensing decisions. If parties want the

Commission to accept the terms of a settlement, they must provide substantial evidence

Docket No. PL06-5-000

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to support the measures they ask the Commission to impose. Thus, for example, it would

not be sufficient to ask the Commission to set a particular minimum instream flow solely

because the parties have compromised on that number. Rather, the parties would need to

provide a scientific explanation, supported by facts in the record, of how that level of

flows meets the needs of affected resources and how it is consistent with the

comprehensive development of the waterway. Similarly, if there is no showing of harm

of a fishery, the record will not support a measure requiring the mitigation of harm to fish

species. See Allegheny Energy Supply Company, LLC, 109 FERC ¶ 61,028 at P 6 (2004);

see also City of Centralia, WA v. FERC, 213 F.3d 742 (D.C. Cir. 2000).

Lawful And Enforceable

14.

A settlement provision that extends beyond the Commission’s jurisdiction to

require or to enforce cannot become a lawful term in a Commission license. It would

seem axiomatic that proposed settlement provisions and license conditions must be

consistent with law. Yet, in some instances, settlements include provisions that purport

to extend the Commission’s jurisdiction. It is important for parties to bear in mind that

the bounds of the Commission’s jurisdiction are established by law and cannot be

expanded through an order implementing a settlement. Thus, the Commission has

jurisdiction only over its licensees and cannot enforce the provisions of a settlement

against other parties, such as federal and state agencies, or private parties

ssion’s jurisdiction. It is important for parties to bear in mind that

the bounds of the Commission’s jurisdiction are established by law and cannot be

expanded through an order implementing a settlement. Thus, the Commission has

jurisdiction only over its licensees and cannot enforce the provisions of a settlement

against other parties, such as federal and state agencies, or private parties. See, e.g.,

Avista Corporation, 93 FERC ¶ 61,116 at 61,329 (2000). Matters that are beyond the

Commission’s jurisdiction can be resolved by parties in “off-license” agreements that

will not be included in a license, see, e.g., City of Seattle, WA, 75 FERC ¶ 61,319 at

62,014, n.6 (1996). As another example, because the FPA does not allow the

Commission to impose damages, a damages provision may not properly be included in a

license. See, e.g. Consumers Power Company, 68 FERC ¶ 61,077 at 61,378-80 (1994).

In addition, the Commission cannot expand its own jurisdiction. Thus, even if parties

agree that a license should include measures that are outside of the Commission’s

jurisdiction – for example, a requirement that a state agency manage a wildlife refuge –

the Commission could not enforce the measures.

Dispute Resolution/Enforceability

15.

Parties to settlements often agree as to the form of dispute resolution they will use

during the license term. Initially, the Commission declined to include in licenses dispute

resolution provisions that purported to bind parties other than the licensee, on the ground

that those provisions were unenforceable, given that the Commission had jurisdiction

only over its licensees. See, e.g., Avista Corporation, 93 FERC ¶ 61,116 (2000). The

Commission later modified its policy, to the extent of deciding that it would require

ssion declined to include in licenses dispute

resolution provisions that purported to bind parties other than the licensee, on the ground

that those provisions were unenforceable, given that the Commission had jurisdiction

only over its licensees. See, e.g., Avista Corporation, 93 FERC ¶ 61,116 (2000). The

Commission later modified its policy, to the extent of deciding that it would require

Docket No. PL06-5-000

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licensees to comply with settlement provisions of this kind, even though it could only

enforce them against licensees. See Erie Boulevard Hydropower, LP, 100 FERC

¶ 61,321 at 62,502 (2002). Parties who want such provisions in licenses should bear in

mind, however, the limited nature of the Commission’s enforcement authority in such

matters. Thus, for example, the Commission could require a licensee to comply with

notice provisions or to attend meetings required by a dispute resolution provision. It

could not require a federal or state resource agency or a non-governmental entity to do so.

Relationship To The Project

Comprehensive Development

16.

As noted above, pursuant to Part I of the FPA, the Commission is required to

license projects that best result in the comprehensive development of a waterway. In

order to determine whether proposed settlement provisions or license conditions meet this

standard, it is necessary for the Commission to determine to what extent these proposals

relate to project effects or project purposes. This is easier to do if the provisions in

question call for specific measures (rather than a general expenditure of funds), if the

measures call for actions in the project vicinity, and if the settling parties document how

the measures are tied to project effects or purposes. Thus, it may be easy to understand

and explain how construction of a campground or a boat put-in at a project reservoir is

tied to the project purpose of recreation

tion call for specific measures (rather than a general expenditure of funds), if the

measures call for actions in the project vicinity, and if the settling parties document how

the measures are tied to project effects or purposes. Thus, it may be easy to understand

and explain how construction of a campground or a boat put-in at a project reservoir is

tied to the project purpose of recreation. It is harder to draw that connection if, for

example, a settlement measure calls for recreation facilities many miles above or below

the project, or for facilities, such as a snowmobile trail, that may not have an obvious

connection to the project. Similarly, it is more difficult to explain how paying a dollar

amount for future, unspecified enhancements is tied to a project purpose. As the

Commission explained in Virginia Electric Power Company, 110 FERC ¶ 61,241 at P 11

(2005):

We . . . note with approval the fact that the many measures required by the

settlement and the corresponding license articles appear to call for activities

related to project impacts and purposes. It is our strong preference that

measures required in a license be clearly tied to the project at issue. We are

sometimes troubled by settlements which require measures, such as general

funds to be used for unspecified measures, that are not tied to either project

impacts or purposes. In addition, we prefer measures requiring specific

actions (i.e., the licensee shall construct a fish hatchery) to those mandating

general actions whose effects are unclear (i.e., the licensee shall contribute

$100,000 to support fisheries enhancements). It is much easier for us to

conclude that a project proposal based on specific measures is in the public

her project

impacts or purposes. In addition, we prefer measures requiring specific

actions (i.e., the licensee shall construct a fish hatchery) to those mandating

general actions whose effects are unclear (i.e., the licensee shall contribute

$100,000 to support fisheries enhancements). It is much easier for us to

conclude that a project proposal based on specific measures is in the public

Docket No. PL06-5-000

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interest, as opposed to one made up in large part of measures whose

impacts we cannot truly assess. We also note that we have a preference for

mitigation or enhancement measures that are located in the vicinity of the

project unless this is impractical or unless substantially increased overall

project benefits can be realized from adopting off-site measures.

Project Purposes

17.

Instances of orders concluding that settlement measures were not sufficiently tied

to project purposes or project effects include: Portland General Electric Company,

107 FERC ¶ 61,158 at P 21, n.21 (2004) (disposition of non-project lands and of water

rights); PacifiCorp, 105 FERC ¶ 61,237 at P 113, n.27 (2003) (portions of settlement not

relating to project operations or environmental effects not included in license); Pacific

Gas and Electric Company, 97 FERC ¶ 61,084 at 61,409-10 (2001) (monitoring of water

temperature, flows, and meteorological conditions in reservoirs and river reaches within

boundaries of upstream project; investigating feasibility of, and possibly making,

modifications to upstream project); Northern States Power Company, 111 FERC

¶ 62,212 at P 31 (2005) (recreation enhancement measures outside project boundary that

did not provide access to project lands or waters, where adequate access already provided

at project); PacifiCorp, 104 FERC ¶ 62,059 at P 28 (2003) (provisions providing for

recreation enhancements outside project boundary, and for sale of non-project lands);

USGen New England, 99 FERC ¶ 62,025 at 64,060-61 (2002) (par

P 31 (2005) (recreation enhancement measures outside project boundary that

did not provide access to project lands or waters, where adequate access already provided

at project); PacifiCorp, 104 FERC ¶ 62,059 at P 28 (2003) (provisions providing for

recreation enhancements outside project boundary, and for sale of non-project lands);

USGen New England, 99 FERC ¶ 62,025 at 64,060-61 (2002) (partially rejecting

proposal for enhancement fund, to extent fund would cover activities outside project

boundary, with no nexus to project, or, in case of mitigation for tax revenue impacts,

beyond Commission’s jurisdiction).

Recreation

18.

Many settlements contain provisions regarding recreation. As with other

settlement provisions, it is important that parties base proposed recreation provisions on

record evidence supporting the need for the proposed facilities and that they link the

measures in question to the project. Thus, if a settlement proposes enhancements to

campgrounds in the project area, parties should explain how those facilities are used in

connection with the project and demonstrate the need for the facilities. For example, if

data show that existing campgrounds are not greatly used, it may be hard to justify

expanding them or adding new campgrounds.

19.

Given that a project is primarily a water-based facility, it may not be hard to

conclude that construction of a boat ramp, a fishing pier, or a hiking trail along the

reservoir perimeter could be an appropriate environmental measure that serves a project

le, if

data show that existing campgrounds are not greatly used, it may be hard to justify

expanding them or adding new campgrounds.

19.

Given that a project is primarily a water-based facility, it may not be hard to

conclude that construction of a boat ramp, a fishing pier, or a hiking trail along the

reservoir perimeter could be an appropriate environmental measure that serves a project

Docket No. PL06-5-000

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purpose, if the need for that facility is established. These facilities would enable the

public to better use the project lands and waters. It may be more difficult to justify

recreation that is more remote from the project site (as in a campground located 20 miles

away from any project works). Similarly, it may be hard to draw a public interest

connection between a project and a recreation feature that does not appear to be tied to

the nature of the project. For example, a community near a project might consider itself

to be in need of a public auditorium. It would be difficult to justify inclusion of such a

requirement in a license, unless the parties could demonstrate, not just why the proposed

measure is generally worthwhile, but, more specifically, how it is linked to the effects

and purposes of the project. See Wisconsin Public Service Corporation, 104 FERC

¶ 61,295 at P 32-33 (2003) (noting, with respect to decision not to require retention of

certain recreation facilities within project boundary that environmental assessment had

found “these facilities are not directly associated with public recreational access to

project waters or facilities,” and concluding that facilities not included “have

[insufficient] nexus to reservoir-based recreation and [similar facilities] are found

elsewhere in the area.”); Northern States Power Company, 111 FERC ¶ 62,212 at P 31

within project boundary that environmental assessment had

found “these facilities are not directly associated with public recreational access to

project waters or facilities,” and concluding that facilities not included “have

[insufficient] nexus to reservoir-based recreation and [similar facilities] are found

elsewhere in the area.”); Northern States Power Company, 111 FERC ¶ 62,212 at P 31

(2005) (declining to include proposed recreation measures in license where it is unclear

how measures address access to project lands or waters and when adequate recreational

access provided by existing facilities).

20.

Two other matters that can arise in connection with recreation facilities are

inclusion within the project boundary and cost-sharing, both discussed below. If the

licensee is expected to undertake measures throughout the license term, such as ongoing

maintenance with respect to a recreation facility that the Commission has determined is

necessary for project purposes, – and the Commission consequently will have ongoing

responsibility to ensure compliance – the licensee may be required to include the facility

within the project boundary. As noted, this means that the licensee will have to obtain

sufficient rights with respect to the facility to ensure that it can comply with Commission

requirements, but it does not mean that the licensee must obtain fee ownership. With

respect to cost-sharing, settlements occasionally provide that the licensee will share the

costs of maintaining a facility with a state or federal agency (often the entity that owns

the facility, such as a campground owned by the U.S. Forest Service). Again as noted

below, if the Commission requires that a facility be maintained, it can look only to the

licensee to do so. Thus, a license condition must place responsibility for completion of a

measure on the licensee

ill share the

costs of maintaining a facility with a state or federal agency (often the entity that owns

the facility, such as a campground owned by the U.S. Forest Service). Again as noted

below, if the Commission requires that a facility be maintained, it can look only to the

licensee to do so. Thus, a license condition must place responsibility for completion of a

measure on the licensee. As note above, any cost-sharing agreement may have to be a

matter of contract between the licensee and the third party, but will not be something that

Commission staff will recommend including in a license. See Alcoa Power Generating,

Inc., 110 FERC ¶ 61,056 at P 31 (2005) (finding that, although licensee agreed with U.S.

Forest Service and state agencies to share costs of recreation areas and facilities, ultimate

responsibility for performance of license obligations must be borne by licensee).

Docket No. PL06-5-000

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Specific Measures

Cost Caps

21.

In some settlements, parties place financial limits on the licensee’s obligation to

perform certain tasks (for example, “the licensee shall build a campsite at a cost of

$10,000”) or limit the licensee’s obligation to the payment of funds to a third party (for

example, “the licensee shall pay $10,000 to the state to construct a fishing pier), rather

than the performance of a particular measure. As the Commission has made clear, a

licensee cannot satisfy the obligation to perform certain tasks by a simple payment to

another party, nor can the obligation be limited by a particular dollar figure. The

Commission will take an independent look at proposed measures and their costs, to

determine if the proposals are reasonable. If a measure is required, however, it will be

because the Commission has determined that the measure is required to meet the FPA’s

comprehensive development standard

simple payment to

another party, nor can the obligation be limited by a particular dollar figure. The

Commission will take an independent look at proposed measures and their costs, to

determine if the proposals are reasonable. If a measure is required, however, it will be

because the Commission has determined that the measure is required to meet the FPA’s

comprehensive development standard. In consequence, although the Commission

sometimes includes in license articles spending caps that parties have agreed to, it does so

to memorialize the intent of the parties, but not to approve the limit. The Commission

expects the required measure to be performed by the licensee, even if the cost exceeds the

agreed-upon cap. As the Commission stated in Virginia Electric Power Company,

[s]ettlements filed with us often include specific dollar limitations (i.e., the

licensee shall build a fishing pier, at a cost of up to $15,000), and we

sometimes include those limitations in license articles at the parties’

request, in an effort to revise proposed articles as little as possible. It is

important for all entities involved in settlements to know, however, that we

consider the licensee’s obligation to be to complete the measures required

by license articles, in the absence of authorization from the Commission to

the contrary. Dollar figures agreed to by the parties are not absolute

limitations.

110 FERC ¶ 61,241 at P 10 (2005). See also New York Power Authority, 105 FERC

¶ 61,102 at P 66 (2003) (reserving Commission’s right to amend agreed-upon funding

requirements to ensure that project is operated in public interest); Allete, Inc., 107 FERC

¶ 62,036 at P 26 (2004); City of Sturgis, Michigan, 105 FERC ¶ 62,132 at P 37 (2003);

Charter Township of Ypsilanti, Michigan, 105 FERC ¶ 62,019 at P 39 (2003);

PacifiCorp, 105 FERC ¶ 62,207 at P 27 (2005).

FERC

¶ 61,102 at P 66 (2003) (reserving Commission’s right to amend agreed-upon funding

requirements to ensure that project is operated in public interest); Allete, Inc., 107 FERC

¶ 62,036 at P 26 (2004); City of Sturgis, Michigan, 105 FERC ¶ 62,132 at P 37 (2003);

Charter Township of Ypsilanti, Michigan, 105 FERC ¶ 62,019 at P 39 (2003);

PacifiCorp, 105 FERC ¶ 62,207 at P 27 (2005).

Docket No. PL06-5-000

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Cost Sharing

22.

As noted, the Commission has no jurisdiction over any party to a hydroelectric

licensing settlement other than the licensee. Some settlements include agreement that the

licensee and some other party will share the costs of performing certain measures, such as

an agreement that the licensee and a state and federal agency will jointly manage a

recreation area. The Commission cannot enforce such an agreement against a non-

licensee. Another problem can arise if the agreement is premised on the receipt of

matching funds; that is, the licensee won’t be expected to make a payment unless another

entity also does so. As discussed in regard to cost caps, if the Commission requires the

licensee to undertake a particular measure, it will look to the licensee alone for the

performance of that measure. See, e.g., Virginia Electric Power Company, 106 FERC

¶ 62,245 at P 44 (2004) (finding that, while settlement provisions require licensee to

provide funds to agency for construction and maintenance of facilities, licensee is

ultimately responsible for compliance with license conditions); PacifiCorp, 105 FERC

¶ 62,207 at P 28 (2005) (noting, with respect to settlement provision requiring licensee to

designate environmental coordinator, that, while licensee may hire others to perform

required measures, burden of compliance rests with licensee)

nds to agency for construction and maintenance of facilities, licensee is

ultimately responsible for compliance with license conditions); PacifiCorp, 105 FERC

¶ 62,207 at P 28 (2005) (noting, with respect to settlement provision requiring licensee to

designate environmental coordinator, that, while licensee may hire others to perform

required measures, burden of compliance rests with licensee). While licensees and other

parties are free to enter into cost-sharing side agreements, including such provisions in a

license is problematic because the Commission has no ability to enforce them.

23.

Similarly, the parties may agree that a third party will undertake a certain task, and

perhaps be paid by the licensee to do so. For example, it might be agreed that the

licensee will pay a state agency or a tribe to operate a fish hatchery. If the Commission

finds that operation of the fish hatchery is required for the comprehensive development of

the affected waterway, it will not include in the license a provision requiring the licensee

to pay another entity to operate the hatchery, but rather will require the licensee to

operate the hatchery and leave to it how to fulfill that obligation. See Portland General

Electric Company, 114 FERC ¶ 61,137 at P 11, 15 (2006). This is because the

Commission has jurisdiction only over its licensee, and thus cannot ensure that a measure

will be carried out unless ultimate responsibility for doing so rests with the licensee.

24.

Settlement provisions requiring licensees to pay for the salaries of personnel who

work for other entities, such as a state wildlife biologist or a law enforcement officer, also

raise several issues

use the

Commission has jurisdiction only over its licensee, and thus cannot ensure that a measure

will be carried out unless ultimate responsibility for doing so rests with the licensee.

24.

Settlement provisions requiring licensees to pay for the salaries of personnel who

work for other entities, such as a state wildlife biologist or a law enforcement officer, also

raise several issues. First, as noted, the Commission prefers concrete measures with

measurable requirements and impacts such as “construct and operate a fish hatchery” to

more indefinite ones such as “pay the salary of a state fisheries biologist.” In addition,

the Commission has no way of assuring that the hiring of personnel paid for by the

licensee will actually accomplish a project purpose or ameliorate a project effect. Again,

this is why measures that require specific, direct, on-the-ground actions are preferable to

Docket No. PL06-5-000

- 12 -

more general ones. It makes most sense for the license to establish what measures a

licensee must perform, and for any settlement between the licensee and third parties

regarding the performance of those measures to be addressed in off-license agreements.

Funds

25.

As noted above, in order to include a specific environmental measure in a license,

the Commission needs to be able to conclude that the measure relates to project impacts

or project purposes. This is why the Commission has expressed a preference for specific

measures and that, where possible, such measures be implemented within the project

boundary or close to the project and the area that it affects. An increasing number of

settlements include funds intended to cover the costs of measures to be undertaken during

the course of the license term. The principles enunciated above apply to consideration of

such funds.

26

a preference for specific

measures and that, where possible, such measures be implemented within the project

boundary or close to the project and the area that it affects. An increasing number of

settlements include funds intended to cover the costs of measures to be undertaken during

the course of the license term. The principles enunciated above apply to consideration of

such funds.

26.

For example, where the record shows that a project has an impact on certain

aquatic species or could enhance such species, it may be possible to obtain Commission

approval of a fund that is designated for the purpose of enhancing and mitigating impacts

on those species within the project vicinity, such as a fund to pay for a set of specified

fishery habitat enhancements within the project boundary, provided that the licensee

retains sufficient control over the fund that the Commission can ensure compliance with

the related license article and ensure satisfaction of the underlying project purposes

supporting the fund. As the ties between the proposed fund and record evidence and

project effects and purposes become more tenuous, as with a fund to undertake

unspecified fishery measures within the basin where the project is located, the propriety

of the fund may increasingly come into question. Thus, if the record does not show that

the project has an adverse effect on fishery resources or does not demonstrate that

effective enhancement measures can be undertaken in the project vicinity, it may be more

difficult to justify inclusion of a fishery fund in a license. Similarly, a fund that may be

used anywhere in a state or in a broad geographic area may be less likely to be

recommended than one more closely tied to the project

project has an adverse effect on fishery resources or does not demonstrate that

effective enhancement measures can be undertaken in the project vicinity, it may be more

difficult to justify inclusion of a fishery fund in a license. Similarly, a fund that may be

used anywhere in a state or in a broad geographic area may be less likely to be

recommended than one more closely tied to the project. To the extent that parties feel

measures should be undertaken beyond the project vicinity, they should explain in detail

why those measures are related to project purposes, why they cannot be carried out at the

project site, and why their proposals would satisfy the comprehensive development

standard.

Docket No. PL06-5-000

- 13 -

Physical Proximity

Project Boundaries

27.

In the course of Commission action on settlements, issues often arise with respect

to project boundaries. Specifically, parties may be concerned about what facilities need

to be within project boundaries, and what the impact of such inclusion will be.

Therefore, a brief discussion of this issue may be helpful.

28.

Part I of the FPA directs the Commission, when issuing a license for a

hydroelectric project, to require the licensee to undertake appropriate measures on behalf

of both developmental and non-developmental public interest uses of the waterway,

including fish, wildlife, and recreation.4 These requirements, as set forth in a license,

constitute the "project purposes."

29.

The Commission has regulatory authority only over the licensee, and thus can

administer and enforce the terms of the license only through the licensee and the

licensee's property rights

th developmental and non-developmental public interest uses of the waterway,

including fish, wildlife, and recreation.4 These requirements, as set forth in a license,

constitute the "project purposes."

29.

The Commission has regulatory authority only over the licensee, and thus can

administer and enforce the terms of the license only through the licensee and the

licensee's property rights. Standard license Article 5 requires the licensee to acquire and

retain all interests in non-federal lands and other property necessary or appropriate to

carry out project purposes.5 The licensee may obtain these property interests by contract

or, if necessary, by means of federal eminent domain pursuant to FPA section 21.6

4 As discussed earlier, FPA section 10(a)(1) sets forth the standard by which the

Commission acts on hydropower license applications, and incorporates by reference

those public purposes set forth in FPA section 4(e).

5 Standard Article 5 appears in what are called "L-Forms," which are published at

54 FPC 1792-1928 (1975) and are incorporated into project licenses by an ordering

paragraph. See 18 C.F.R. § 2.9 (2006). Article 5 states in pertinent part:

The Licensee, within five years from the date of issuance of the license,

shall acquire title in fee or the right to use in perpetuity all lands, other than

lands of the United States, necessary or appropriate for the construction,

maintenance, and operation of the project. The Licensee or its successors

and assigns shall, during the period of the license, retain the possession of

all project property covered by the license as issued or as later amended,

including the project area, the project works, and all franchises, easements,

water rights, and rights of occupancy and use; and none of such properties

shall be voluntarily sold, leased, transferred, abandoned, or otherwise

(continued…)

e period of the license, retain the possession of

all project property covered by the license as issued or as later amended,

including the project area, the project works, and all franchises, easements,

water rights, and rights of occupancy and use; and none of such properties

shall be voluntarily sold, leased, transferred, abandoned, or otherwise

(continued…)

Docket No. PL06-5-000

- 14 -

30.

A licensee's property interests can range from fee simple to perpetual or renewable

leases, easements, and rights-of-way. Thus, title to lands within the boundary can be

owned by someone other than the licensee, so long as the licensee holds the necessary

property interests (e.g., flowage easements) and permits (e.g., a Forest Service special use

permit) to carry out licensed project purposes. The license covers only those property

interests held by the licensee; each license with a project boundary states (in an ordering

paragraph) that "the project consists [inter alia] of (1) All lands, to the extent of the

licensee's interests in those lands, enclosed by the project boundary shown by [a

designated exhibit] . . . ."

31.

If the Commission requires additional control in order to accomplish a project

purpose, or amends the license to expand or add a project purpose, it can direct its

licensee to obtain any necessary additional property rights, whether inside or outside the

existing project boundary, and amend the boundary as appropriate. See, e.g., Upper

Peninsula Power Company, 104 FERC ¶ 62,135 at P 72 (2003) (finding that,

notwithstanding settlement provision that licensee’s obligation to develop buffer zone

and wildlife and land management plan applied only to license-owned lands within

project boundary, obligation in fact extended to all lands within boundary)

ting project boundary, and amend the boundary as appropriate. See, e.g., Upper

Peninsula Power Company, 104 FERC ¶ 62,135 at P 72 (2003) (finding that,

notwithstanding settlement provision that licensee’s obligation to develop buffer zone

and wildlife and land management plan applied only to license-owned lands within

project boundary, obligation in fact extended to all lands within boundary). Conversely,

if the Commission determines that less land is needed to meet project purposes, or if it

redefines project purposes, it can remove land from the boundary. If the Commission

deletes a parcel of land from the project and its boundary, the Commission is placing that

land outside of its jurisdiction and regulatory reach. See, e.g., Pacific Gas & Electric

Company, 102 FERC ¶ 61,309 at P 21; 56-61 (2003) (rejecting portion of land

management plan agreement that would have removed from project boundaries lands

needed for project purposes). Compare Wisconsin Public Service Corporation,

104 FERC ¶ 61,295 at P 29-38 (2003) (approving in part application to amend project

boundaries).

32.

Project boundaries are used to designate the geographic extent of the lands, waters,

works, and facilities that the license identifies as comprising the licensed project and for

which the licensee must hold the rights necessary to carry out project purposes. The

disposed of without the prior written approval of the Commission, except

that the Licensee may lease or otherwise dispose of interests in project

lands or property without specific written approval of the Commission

pursuant to the then current regulations of the Commission. . . .

6 16 U.S.C. § 814 (2000).

disposed of without the prior written approval of the Commission, except

that the Licensee may lease or otherwise dispose of interests in project

lands or property without specific written approval of the Commission

pursuant to the then current regulations of the Commission. . . .

6 16 U.S.C. § 814 (2000).

Docket No. PL06-5-000

- 15 -

establishment of a project boundary makes it easier for the Commission, the licensee, and

other interested parties to understand the geographic scope of a project. All facilities,

lands, and waters needed to carry out project purposes should be within the project

boundary. A project boundary does not change property rights, nor does the conveyance

of a property right change a project boundary.

33.

To an extent, the Commission has allowed an exception for lands and waters on

which a licensee is to carry out one-time measures. For example, if a licensee is required

once to place material in a stream in order to create fish habitat, but is not required to

undertake other measures in that area during the license term, the Commission may not

include that reach within the project boundary. If, however, the licensee is obligated to

undertake measures throughout the license term, such as implementing an ongoing

habitat restoration plan, the Commission may require that the affected lands be included

in the project boundary. See, e.g., PacifiCorp, 105 FERC ¶ 61,237 at P 114 (2003)

(noting that licensee would have to amend project boundary to include lands previously

outside of project boundaries, on which activities required by license).

34.

Thus, if settling parties have a desire to include or exclude certain lands, waters, or

facilities within project boundaries, they should examine carefully the licensee’s

obligations and how the lands or facilities in question relate to project purposes

uld have to amend project boundary to include lands previously

outside of project boundaries, on which activities required by license).

34.

Thus, if settling parties have a desire to include or exclude certain lands, waters, or

facilities within project boundaries, they should examine carefully the licensee’s

obligations and how the lands or facilities in question relate to project purposes. If lands

or facilities are to be included within the project boundary, there must be a showing of

how they are needed for project purposes; if they are to be excluded there must be a

showing of why they are not needed for those purposes, or that the measures affecting

project lands or facilities are one-time measures that will not require Commission

oversight throughout the life of the license.

Roads

35.

One specific instance in which project boundary issues arise is roads. Some

settlements require licensees to pay for the upkeep of roads leading to the project or to

specific project works, such as recreation areas. Several issues can arise with respect to

such measures. First, in order to decide whether a license should include a requirement

that road activities be funded, the Commission must determine that the road is necessary

for project purposes, as with a road that is needed in order to reach the powerhouse or a

road that is the only way to reach a project recreation site. If the road merely passes near

the project and is used only incidentally for project purposes, it may not be appropriate to

require the licensee to maintain it. The Commission must also be able to determine what

part of the road is needed for project purposes. Thus, it will be appropriate to develop

license conditions covering only the relevant portion of a long road that at some point

provides necessary access to a project, rather than the entire road.

dentally for project purposes, it may not be appropriate to

require the licensee to maintain it. The Commission must also be able to determine what

part of the road is needed for project purposes. Thus, it will be appropriate to develop

license conditions covering only the relevant portion of a long road that at some point

provides necessary access to a project, rather than the entire road.

Docket No. PL06-5-000

- 16 -

36.

Finally, if a road is deemed necessary for project purposes such that the licensee is

required to undertake ongoing activities with respect to the road throughout the license

term, the Commission may require that the road be included within the project boundary,

so that the Commission can exercise its compliance jurisdiction to ensure that the

required activities take place. As indicated above, inclusion of a road or a portion of a

road within a project does not mean that the licensee must obtain fee title to the road,

only that it must obtain sufficient rights, such as an easement, a lease, or a right-of-way,

to ensure that it can implement the required measures. There are instances in which road

owners, such as towns, counties, or the U.S. Forest Service, have been reluctant to have

roads included within project boundaries. Parties should consider this issue carefully

when deciding to what extent they want the Commission to impose ongoing obligations

on licensees with respect to roads.

Reserve Commission Authority

Commission Approval

37.

As the agency charged with the administration of hydropower licenses, the

Commission must approve licensees’ post-licensing plans. That authority cannot be

ceded to other entities

consider this issue carefully

when deciding to what extent they want the Commission to impose ongoing obligations

on licensees with respect to roads.

Reserve Commission Authority

Commission Approval

37.

As the agency charged with the administration of hydropower licenses, the

Commission must approve licensees’ post-licensing plans. That authority cannot be

ceded to other entities. Thus, settlement conditions that provide that the licensee must

file specified plans after obtaining the approval of other parties, such as resource

agencies, tribes, or non-governmental organizations, are acceptable if they provide that

the plans will be filed with the Commission for its approval, and that the Commission

will have the right to revise the plans as it deems necessary. Provisions that envision

plans (or operational changes outside of the parameters approved in the license) being

approved by other entities but not the Commission are not acceptable. In Virginia

Electric Power Company, the Commission stated that:

. . . we are pleased that the settling parties were able to develop means for

carrying out the goals of the settlement in a manner consistent with the

Commission’s responsibilities under the Federal Power Act. For example,

Article 411, which calls for a bypassed reach flow release plan, requires the

licensee to develop the plan in consultation with state and federal resource

agencies, and then to file the plan for Commission approval, with the

explicit understanding that the Commission may require changes in the

plan.

110 FERC ¶ 61,241 at P 35.

responsibilities under the Federal Power Act. For example,

Article 411, which calls for a bypassed reach flow release plan, requires the

licensee to develop the plan in consultation with state and federal resource

agencies, and then to file the plan for Commission approval, with the

explicit understanding that the Commission may require changes in the

plan.

110 FERC ¶ 61,241 at P 35.

Docket No. PL06-5-000

- 17 -

38.

Where, on the other hand, the parties establish a mechanism that purports to give

the licensee and other parties the ability to alter license terms or obligations without first

obtaining the Commission’s approval, the Commission has revised proposed license

articles to include its approval authority. See New York Power Authority, 105 FERC

¶ 61,102 at P 65 (2003) (modifying proposed license articles to require Commission

approval of fishway plans).

Adaptive Management

39.

Settlement provisions often contemplate that adjustments to measures required

during the license term will be based on information gleaned from ongoing monitoring or

other post-license studies. This is sometimes called adaptive management. Settling

parties may agree, for example, that a committee will meet and decide on an annual level

of spring flows for fishery purposes. To the extent that the proposed flows are within

parameters considered in the licensing proceeding and determined to be appropriate, this

does not pose a problem. A license might provide that a licensee be required to release

increased flows of between 100 and 200 cfs for a period, to be determined on an annual

basis, between March 15 and June 15. It would be appropriate for the committee to

decide each year what flows within these parameters should be released, with notification

to the Commission

ined to be appropriate, this

does not pose a problem. A license might provide that a licensee be required to release

increased flows of between 100 and 200 cfs for a period, to be determined on an annual

basis, between March 15 and June 15. It would be appropriate for the committee to

decide each year what flows within these parameters should be released, with notification

to the Commission. However, it would not be appropriate to give the committee

authority to require flows beyond the limits set forth in the license, because the

Commission would not have had a prior opportunity to determine whether those flows

were in the public interest. In order for this to occur, the licensee would have to file an

amendment application with the Commission, seeking authority to alter the terms of the

license. For the same reason, it would not be appropriate to propose that the license not

contain flow parameters at all, and simply leave flow decisions up to an adaptive

management group. As the Commission explained in Virginia Electric Power Company:

We receive many settlements in which parties agree to adaptive

management measures, calling for future studies and possible changes in

project operations based on experience. For the Commission to exercise its

oversight authority, it is necessary that license conditions embodying these

measures provide for Commission review and, where required,

modification of proposed actions that go beyond the limits imposed by the

license.

110 FERC ¶ 61,241 at P 23. See also PacificCorp, 103 FERC ¶ 62,183 at P 35 (2003)

(“The Agreement provides for possible modifications to project structures and operations

during the license term. For example, the proposed articles contain provisions to alter

whitewater flow releases in the event that monitoring attributes to these releases

eyond the limits imposed by the

license.

110 FERC ¶ 61,241 at P 23. See also PacificCorp, 103 FERC ¶ 62,183 at P 35 (2003)

(“The Agreement provides for possible modifications to project structures and operations

during the license term. For example, the proposed articles contain provisions to alter

whitewater flow releases in the event that monitoring attributes to these releases

Docket No. PL06-5-000

- 18 -

deleterious impacts to biological resources. While such adaptive management provisions

are not uncommon in licenses issued in recent years, the proposed articles would put

project modifications under the direction of [a committee]. It is however the

Commission’s role and responsibility to give prior approval, through appropriate license

amendments, for all material amendments to the project and the license”).

Other Issues

40.

In addition to the matters discussed above, there have been a number of other

instances over the last few years in which proposed provisions that do not fit precisely

into the more general categories discussed above were not included in licenses. These

provisions are briefly summarized below, in order to provide additional guidance:

(1) Provisions that would require amending the license for another project.

Section 6 of the FPA precludes the Commission from altering a license without the

licensee’s consent. See Pacific Gas & Electric Company, 97 FERC ¶ 61,084 (2001);

Arizona Public Service Company, 109 FERC ¶ 62,241 (2004); FPL Energy Maine Hydro,

LLC, 106 FERC ¶ 62,021 (2004).

(2) Financial restrictions with respect to future surrender of a project. See

Northern States Power Company, 111 FERC ¶ 62,212 at P 33 (2005) (Commission has

previously declined to impose generic project retirement plans and licensee is anticipated

to have sufficient financial resources to satisfy any conditions on surrender); Northern

States Power Company, 111 FERC ¶ 62,123 at P 34 (2005) (same).

nancial restrictions with respect to future surrender of a project. See

Northern States Power Company, 111 FERC ¶ 62,212 at P 33 (2005) (Commission has

previously declined to impose generic project retirement plans and licensee is anticipated

to have sufficient financial resources to satisfy any conditions on surrender); Northern

States Power Company, 111 FERC ¶ 62,123 at P 34 (2005) (same).

(3) A provision purporting to restrict parties’ statutory right to seek rehearing.

FPL Energy Maine Hydro, LLC, 106 FERC ¶ 62,021 at P 23 (2004).

(4) A proposed license condition stating that the Commission would not object to

“reasonable” fees charged by licensees and operators of recreational facilities within the

project boundaries. See FPL Energy Maine Hydro, LLC, 106 FERC ¶ 62,021 at P 24

(2004) (Commission generally does not review reasonableness of such fees).

(5) Provision tying future actions to the date that the licensee accepts the license,

contrary to general Commission practice of using the more certain date of license

issuance. See Virginia Electric Power Company, 106 FERC ¶ 62,245 at P 46 (2004).

(6) Settlement provision requiring that requesting party pay licensee for

whitewater releases above those set forth in settlement not accepted, because licensee

Docket No. PL06-5-000

- 19 -

must bear cost of any releases required by Commission. See Alcoa Power Generating,

Inc., 110 FERC ¶ 61,056 at P 23, n.14 (2005).

Comment Procedures

41.

We invite interested persons to submit written comments on the Commission’s

policy with regard to settlements in hydropower licensing proceedings. Comments are

due 45 days from the date of publication of the policy statement in the Federal Register.

Comments must refer to Docket No. PL06-5-000, and must include the commenter’s

name, the organization they represent, if applicable, and their address in their comments.

Comments may be filed either in electronic or paper format.

42

rd to settlements in hydropower licensing proceedings. Comments are

due 45 days from the date of publication of the policy statement in the Federal Register.

Comments must refer to Docket No. PL06-5-000, and must include the commenter’s

name, the organization they represent, if applicable, and their address in their comments.

Comments may be filed either in electronic or paper format.

42.

Comments may be filed electronically via the eFiling link on the Commission’s

web site at http://www.ferc.gov. The Commission accepts most standard word

processing formats and requests commenters to submit comments in a text-searchable

format rather than a scanned image format. Commenters filing electronically do not need

to make a paper filing. Commenters that are not able to file comments electronically

must send an original and 14 copies of their comments to: Federal Energy Regulatory

Commission, Secretary of the Commission, 888 First Street, N.E., Washington, D.C.

20426.

43.

All comments will be placed in the Commission’s public files and may be viewed,

printed, or downloaded remotely as described below. Commenters on this policy

statement are not required to serve copies of their comments on other commenters.

44.

In addition to publishing the full text of this document in the Federal Register, the

Commission provides all interested persons an opportunity to view and/or print the

contents of this document via the Internet through FERC’s Home Page

(http://www.ferc.gov) and in FERC Public Reference Room during normal business

hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A,

Washington, D.C. 20426.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.