In an order on rehearing issued April 18, 2019, the Federal Energy Regulatory Commission (Commission or FERC)—applying the newly minted Section 36 of the Federal Power Act (FPA), 16 U.S.C. § 823g—decided to extend the new license term for Pacific Gas and Electric’s (PG&E) Poe Hydroelectric Project by 10 years.  Pacific Gas and Electric, 167 FERC ¶ 61,047 (2019).  FERC’s initial relicensing order granted a new 40-year license term for the project, but on rehearing, the Commission decided that the new requirements of FPA Section 36 warranted the statutory maximum license term of 50 years.  FERC’s April 18 order on rehearing provides insight into how FERC interprets Section 36, which greatly expands the type of investments made by licensees that FERC must consider when determining the length of a new license term for a hydroelectric project.

Section 15 of the FPA requires FERC to establish a license term between 30 and 50 years when issuing a new hydropower license.  16 U.S.C. 808(e).  Prior to the passage of Section 36 of the FPA in 2018, FERC exercised broad discretion under Section 15 to determine the length of a license term.  The Commission formulated a general approach, developed over time through administrative orders issued to individual licensees, of basing the license term on the investments the licensee would need to make to comply with its new license—the higher the investment, the longer the license term.  Under its prior policy, FERC specifically declined to consider investments that a licensee had already made during the existing license term, even if that investment was related to an obligation that would continue under the new license.

In 2017, FERC adopted its Policy Statement on Establishing License Terms for Hydroelectric Projects, which changed its existing approach to setting license terms in two major ways: 1) by establishing a 40-year default license term, and 2) by considering some types of prior investments in determining whether a longer license term was warranted.  Under the 2017 Policy Statement, FERC would consider investments for significant measures during the prior license terms as long as those measures were not required by the license or any other legal authority, were not already credited by FERC through an extension of the prior license term, and were not “maintenance measures.”

In October 2018, Congress enacted the America’s Water Infrastructure Act of 2018 (AWIA).  Section 3005 of AWIA added a new Section 36 to the FPA, which provided specific instructions to FERC for establishing license terms.  In particular, Section 36 requires FERC to give equal weight to investments made during the existing license term and those to be made under the new license.  The scope of prior investments that FERC must consider under Section 36 encompasses “redevelopment, new construction, new capacity, efficiency, modernization, rehabilitation or replacement of major equipment, safety improvements, or environmental, recreation, or other protection, mitigation, or enhancement measures,” as long as such investments were not expressly considered by FERC in either setting or extending the existing license term.  This statutory requirement overrides the 2017 Policy Statement in two significant ways.  First, it requires FERC to consider some investments that would have been excluded under the Policy Statement as “maintenance measures.”  Secondly, it reverses the Policy Statement’s categorical exclusion of investments required by the license or some “other legal authority.”

FERC’s April 18 order on rehearing in Pacific Gas and Electric is its first order implementing FPA Section 36.  In December 2018, FERC issued a new 40-year license for PG&E’s Poe Project.  PG&E requested rehearing of that order, asking FERC, among other things, to extend the license term to 50 years based on $54 million of investments in significant capital improvements that it had made since originally filing its relicensing application in 2003.  The investments made by PG&E included generator and turbine improvements, replacement of the cooling water system for its turbine generators and transformers, and replacement of gates and gate controls in anticipation of new environmental requirements under the new license.  The California Department of Fish and Wildlife filed comments encouraging FERC to keep the 40-year license term and noting that the improvements did not qualify for a longer license term under FERC’s 2017 Policy Statement.  FERC, however, found that the investments justified a longer license term under FPA section 36, explaining that it did not need to address whether the investments would have qualified under the Policy Statement.  In fact, FERC specifically noted that the list of investments it must consider under Section 36 is broader than the list of activities allowed under the 2017 Policy Statement.

The Pacific Gas and Electric order is promising precedent for licensees who have made significant capital investments under their existing licenses that would not have been considered by FERC in setting a new license term under its more restrictive Policy Statement.  Under the new law, licensees should have a greater opportunity to obtain license terms beyond the prior default of 40 years, allowing them more time to absorb the economic impact of significant capital investments to keep their projects up-to-date and in compliance.

For licensees who are currently investing in their projects and will not be up for relicensing for a number of years, Section 36 also provides that FERC must, at the request of a licensee, issue a determination whether any planned, ongoing, or completed investment meets the criteria for consideration of a longer license term.  In that determination, however, FERC is prohibited from deciding exactly how many years will be added to the license term based on the new investment, as that determination is reserved for the relicensing process.