FERC Issues Policy Statement on Hydropower Licensing Settlements

On September 21, the Federal Energy Regulatory Commission (FERC) issued a Policy Statement on Hydropower Licensing Settlements (Policy Statement), which contains important guidelines for FERC’s consideration of licensing settlement agreements. The Policy Statement emphasizes FERC’s support for settlements in hydropower licensing proceedings. FERC notes, however, that in evaluating a proposed settlement, it must determine whether the settlement fulfills the comprehensive development standard of the Federal Power Act (FPA), and modify or reject those settlement provisions which do not meet the standard or are otherwise beyond FERC’s authority to enforce. Accordingly, the Policy Statement explains FERC precedent and sets forth general principles for hydropower licensing settlements to provide guidance, certainty, and clarity to parties crafting such settlements, to enable them to reach a settlement that does not require FERC’s subsequent modification.

General Principles for Crafting Settlements

• Measures must be based on substantial evidence. Under the FPA, FERC’s rulings will be upheld if they are supported by substantial evidence. Accordingly, to allow FERC to accept the terms of a settlement, the settling parties must provide substantial evidence – that is, explanations supported by facts in the record – to support the measures they seek to include in the license. To illustrate, the Policy Statement notes that, “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.”
• Measures must be lawful and enforceable. The bounds of FERC’s jurisdiction are established by law and cannot be expanded through a settlement. For example, FERC has jurisdiction only over its licensees, and cannot enforce the provisions of a settlement against other parties, such as federal and state agencies. Parties may enter into side agreements outside the license for matters beyond FERC’s jurisdiction, although a settlement provision that seeks to extend FERC’s jurisdiction cannot become a lawful term of a license.
• Measures must bear a nexus to project effects or purposes. In order to determine whether settlement provisions meet the comprehensive development standard of the FPA, FERC must determine the extent to which such provisions relate to project effects or project purposes. To allow FERC to do so, settlement provisions should: be based on record evidence supporting their need; call for specific measures; relate to issues in the project vicinity; and document how they are tied to project effects or purposes.
• Measures should be specific rather than general. FERC must be able to determine whether proposed measures are reasonable, relate to project impacts, and are closely tied to the project. Accordingly, settlement measures should be drafted as narrowly as possible. Generally, FERC prefers a specific measure over a general measure; e.g., a requirement that a licensee install fencing to prevent erosion, rather than create a fund for aquatic resources.
• Measures should bear a physical/geographical proximity to the project. Project boundaries designate the geographic extent of lands, waters, works, and facilities that comprise the licensed project, and which are subject to FERC’s jurisdiction. Generally, all lands needed to carry out project purposes should be within the project boundary. If settling parties seek to include certain lands within the project boundary, they must show how such lands are needed for project purposes. Similarly, if settling parties seek to exclude certain lands from the project boundary, they must show why such lands are not needed for project purposes.
• Measures must reserve FERC’s compliance authority. As the agency charged with administering hydropower licenses, FERC must approve the licensee’s post-licensing plans. Accordingly, settlement provisions that require a licensee to file specified plans after obtaining approval of other parties, such as federal or state agencies, are acceptable only if they provide that the plans will be filed with FERC for approval, and that FERC will have the right to revise the plans as it deems necessary.

In addition to the general principles discussed above, FERC provided some specific examples of settlement provisions that are not acceptable for inclusion in a license. These include provisions that: require an amendment to the license of another project; place financial restrictions on the future surrender of a project; restrict parties’ statutory right to seek rehearing; and tie future actions to the date the licensee accepts the license, rather than the date of license issuance.

Suggested Procedure for the Settlement Process

While FERC recognizes the importance of general guidance to participants in hydropower licensing settlements, FERC cautions that it will review every case on its facts, and that the facts of a particular case may dictate a different result than a previous proceeding involving a similar issue. Despite potential differences in one proceeding to the next, FERC set forth the following suggested procedure for parties to arrive at an acceptable settlement:

• Use existing information and pre-license studies to determine the environmental effects of the proposed project.
• Develop appropriate environmental measures to address environmental effects of the proposed project, based on the record.
• Craft settlement provisions based on the record and the environmental measures proposed, while taking into account recent Commission precedent.
• Explain the terms of the settlement in a manner that will enable FERC to understand the parties’ intent and how the record supports the parties’ proposals.

Possible Areas of Concern for Hydropower Licensees

Although generally helpful, the Policy Statement raises some concerns for hydropower licensees. First, the Policy Statement goes out of its way to state that a licensee’s obligations cannot be limited by a cost cap, even though FERC recently honored cost caps agreed to in a settlement in Virginia Electric Power Company, 110 FERC ¶ 61,241 (2005). In that case, FERC left cost caps in a license while simply reserving its own authority to require the licensee to exceed cost caps if necessary to accomplish project purposes. In contrast, the Policy Statement states that although FERC “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.” By appearing to downplay the effect of cost caps, the Policy Statement raises a question as to why, if settling parties (including responsible resource agencies) agree on an appropriate level of environmental or recreation enhancement, that agreement should not suffice for FERC. Second, while the Policy Statement makes clear that licensees are free to make “off-license” contractual arrangements for project enhancements and other measures, FERC also states that the existence of such agreements will carry no weight in its consideration of a license application under the FPA. FERC does not explain, however, why such agreements should not be treated as indirect benefits of the license, or otherwise considered in FERC’s economic analysis of the project.