Good morning, Mr. Chairman and Commissioners.
H-1 is a notice of inquiry (or NOI) that invites comment on whether, and if so, how, the Commission should require financial assurance measures in licenses and other authorizations for hydroelectric projects to ensure that licensees have the capability to carry out license requirements and, particularly, to maintain their projects in safe condition.
Project economics is one of many factors the Commission considers when deciding whether, and under what conditions, to issue a license. However, the Commission’s economic analysis is intended only to provide a rough estimate of the cost of project power compared to that of alternative energy sources. It is not intended to show whether and to what degree a project will have a positive cashflow over the life of a license. Ultimately, it is up to the applicant to decide whether to accept a license as conditioned.
The Commission has taken steps to protect against the failure of a licensee’s financial planning. For example, to reduce the risk that a project under construction could be abandoned before completion of construction because of inadequate funds, the Commission has included a financing plan article in licenses that authorize new construction, requiring licensees to show that they have the necessary funds to complete project construction and to operate and maintain the project. However, the vast majority of existing hydropower licenses were issued before the Commission began this practice and so do not include financing plan requirements. Further, to date the financing plan requirement has focused on licenses’ ability to meet normal project expenses, not unexpected major costs such as those required to ensure the facility can meet future dam safety requirements.
As demonstrated by the dam failures near Midland, Michigan, in May of 2020, non- operational or non-compliant projects can pose public safety and environmental hazards in the event of a dam failure or breach. While significant dam failures have fortunately been very rare, Commission staff is aware of a number of projects that are non-operational or out of compliance with their license conditions and where licensees have stated that they cannot afford to operate or maintain the projects or implement the required environmental or safety measures.
Based on the concern that inadequate financing may result in threats to public safety and environmental resources, the draft NOI seeks comment on whether, and if so how, additional measures should be taken to ensure licensees have the financial resources to operate and maintain their projects for the life of the project, including under unforeseen circumstances.
The draft NOI first seeks comment regarding when the Commission should require financial assurance from licensees. For example, should the Commission include a financial assurance requirement in original licenses, on relicense, or in other authorizations, such as exemptions, amendment requests, and transfers? The NOI also seeks comment on whether and how often the Commission should require licensees to reaffirm or recertify that they have adequate financial assurance instruments in place.
The draft NOI also outlines three potential options that Commission staff has identified for establishing financial assurance mechanisms in hydroelectric licenses:
(1) requiring licensees to obtain bonds to cover the costs of safety measures and project operation and maintenance; (2) establishing an industry-wide trust or remediation fund or requiring licensees to maintain an individual trust, escrow, or remediation fund; or (3) requiring licensees to obtain insurance policies for unforeseen safety hazards or dam failures.
The draft NOI seeks comment on each option generally, and in response to posed questions. Further, the NOI encourages the suggestion of any other alternatives. While the NOI solicits comments for the Commission’s consideration, the Commission is not obligated to take further action.
This concludes our presentation. We are happy to answer any questions you may have.