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The Federal Energy Regulatory Commission (FERC) has terminated three hydropower project licenses based on the licensee’s implied surrender after repeated failures to comply with the license conditions.  FERC’s order, issued May 20 in Boyce Hydro Power, LLC regarding three contiguous projects in Michigan, follows its April 15 Order in the same case imposing a $15 million fine on the licensee for failure to maintain the licenses.  The May 20 Order makes clear that the $15 million fine still applies, though it is subordinate to creditors’ claims in bankruptcy court.

The May 20 Order expresses FERC’s displeasure with the licensee, and goes to great lengths to emphasize that it is accepting the surrender only in the unique circumstances presented, namely the egregious conduct of the licensee and the willingness of state agencies to assume responsibility for the project dams and consequential environmental effects.  Severe flooding of the rivers on which the projects were located caused the project dams to breach in 2020, resulting in extensive damage to communities and the evacuation of 10,000 residents.  Consequently, FERC’s hydropower staff issued several directives to Boyce Hydro to implement dam safety and environmental protection measures, which were ignored by the licensee.  In December 2020, the Commission issued an Order to Show Cause, proposing the $15 million fine and directing Boyce Hydro to respond within thirty days.   Boyce Hydro responded to the Show Cause Order by asking that FERC terminate the licenses by implied surrender, and subsequently filed an application asking the Commission to do so.  The April 15 Order assessed the fine proposed in the Show Cause Order.  The May 20 Order followed.

FERC stressed at the outset of the May 20 Order, “We look with great disfavor on Boyce Hydro’s deliberate abandonment of these projects following extensive harm being caused to the public.”   The Commission ordered the implied surrender based on “the unique facts of this case,” in which another entity had acquired the project properties and is remedying the harm caused, and the surrender was supported by the Michigan Department of Natural Resources, two counties where the projects are located, and a coalition of conservation groups.  The Commission also noted that the new owner will not use the dams for hydropower operations.  Further, Boyce Hydro had filed a voluntary petition for bankruptcy, and the bankruptcy court had approved Boyce Hydro’s liquidation plan, which includes a settlement fund and subordinates FERC’s fine to all other claims in the fund.

FERC’s May 20 Order concluded by emphasizing that “The financial viability of hydropower licensees, which can have significant impacts on the public and the environment, is a matter of great concern to us . . . . We caution licensees that we are terminating Boyce Hydro’s licenses by implied surrender with some reluctance and only under the unique circumstances presented here, where a local entity, with the support of state regulators, has stepped in to remedy the licensee’s malfeasance. There is no guarantee that we will agree to a similar resolution in future cases.” 

In its conclusion, FERC also noted that it recently issued a Notice of Inquiry (NOI) in Docket No. RM21-9, Financial Assurance Measures for Hydroelectric Projects, seeking public comments on steps it could take to better ensure licensees’ financial stability.  As explained in DWGP’s previous Regulatory Update discussing that docket, “The breadth of the NOI raises serious concerns as to the potential financial burdens that could be imposed on licensees.”  The Boyce Hydro case, and especially its reference to the NOI proceeding, heightens this concern.  We anticipate a forthcoming formal rulemaking proceeding in the Financial Assurance Measures docket proposing specific, potentially onerous, financial measures, which may warrant comment.

For further information, please contact: Peter KisselLisa GastPeter ScanlonSean NealKristen Connolly McCullough, or Ellen Hill.

June 2, 2021