Hydro license transfers and fitness

Thursday, June 30, 2016

U.S. hydropower regulators have approved the transfer of the license for an Idaho hydroelectric project, despite an argument that the transferee is not fit to operate the project. At issue is the Smith Creek Project, No. 8436, located on Smith Creek in the Panhandle National Forest in Idaho.

The Federal Energy Regulatory Commission issued a 50-year license for the project in 1987, which was transferred to Eugene Water & Electric Board in 2000. Earlier this year, EWEB applied to the Commission for a transfer of the Smith Creek project license to Smith Creek Hydro, LLCAmerican Whitewater opposed the transfer, raising arguments including that Smith Creek did not meet the Commission's "fitness standard".

On June 23, 2016, the Commission issued an order approving the Smith Creek license transfer.  In that order, the Commission noted that while Section 8 of the Federal Power Act governs license transfers, it does not articulate a standard for approving a transfer application.  Under Commission precedent, a transfer may be approved on a showing that the transferee is qualified to hold the license and operate the project, and that a transfer is in the public interest.  According to the Commission, an applicant's fitness, including its prior performance as licensee, is a relevant factor to be considered in a licensing decision.  In performing a fitness inquiry, the Commission typically takes a broad look at conduct by affiliated entities: "The Commission does not separate the identities of partners and partnerships where matters of fitness to receive a license are concerned. In fact, the Commission has consistently examined the conduct of the persons controlling and directing licensees and exemptees in this context."

In the Smith Creek case, American Whitewater argued that "Smith Creek is unfit to hold a license based on compliance issues at the Power Creek Project No. 11243, the Cascade Creek Project No. 12495, and the unlicensed Electron Hydroelectric Project."  The group pointed to a fatality by avalanche during the Power Creek project construction, the fact that the Cascade Creek project was issued preliminary permits but was never licensed, and that litigation was pending relating to the alleged Endangered Species Act violations at the Electron project.

While the Commission does not list Smith Creek as a licensee on any of these projects, it did consider these allegations relating to entities now or formerly affiliated with Smith Creek.  But the Commission declined to find a lack of fitness of the transferee.  It distinguished the issues raised by American Whitewater, noted the transferee's responsiveness to Commission staff inquiries, and overall compliance with the Commission.  The Commission described denial of a license application on the ground of lack of fitness as "a strong sanction, particularly since the Commission has the means to secure license compliance, including civil penalties."  It therefore approved the Smith Creek license transfer.

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