Adding micro-hydro to licensed hydropower project

Wednesday, November 16, 2016

What happens when a FERC hydropower licensee applies for a preliminary permit to study the feasibility of developing a micro-hydro project, where the new project will be sited at an existing project's dam?  In a recent case involving the city of Aspen, Colorado, Commission staff dismissed the preliminary permit application, instead suggesting that the licensee apply to amend its existing license to include the proposed new capacity and facilities.  Because many other existing dams may be candidates for the installation of new hydropower facilities, the Aspen Micro Hydro Project case illustrates important dynamics of hydropower licensing under the Federal Power Act.

The case centers on a March 4, 2015 application by the City of Aspen for a preliminary permit, pursuant to section 4(f) of the Federal Power Act, to study the feasibility of developing the Aspen Micro Hydro Project.  Most grid-connected hydropower in the U.S. is regulated under the Federal Power Act, and requires approvals by the Federal Energy Regulatory Commission.  As described in Commission documents, the proposed Aspen project would include an existing concrete diversion dam and intake structure, plus proposed new equipment including a draft tube, 10- to 20-kilowatt turbine-generator unit, and associated facilities interconnected to an existing utility transmission line.  The application describes project values including energy production, protection of the city's water rights, and instream flow protection for environmental benefit.  As noted in the application, "Renewable projects such as the Aspen Micro Hydro Project will permit the City of Aspen to reduce its reliance on coal-fired energy and comports with the City’s goal of reducing its energy-related greenhouse gas emissions. A local facility also will provide tangible evidence to residents and visitors of Aspen’s commitment to renewable energy."

Crucially, as noted by the Commission, the dam proposed for use in the Aspen micro-hydro project is currently licensed as part of another hydropower project: the City of Aspen's Maroon Creek Project.   Commission staff have noted that "for licensed projects, such as the Maroon Creek Project, section 6 of the [Federal Power Act] prohibits the alteration of licensed project works without the mutual consent of the licensee and the Commission."  On April 16, 2015, Commission staff sent the city a letter explaining that because the proposed micro-hydro project would be sited within the existing project boundary of the city’s Maroon Creek Project, any application for a permit or license within the project boundary would be denied.  For this reason, Commission staff concluded that "a preliminary permit for the Aspen Project would serve no purpose."  Instead, Commission staff informed the city "that it could instead file an application to amend its existing license to add the Aspen Project’s proposed capacity and related facilities to the Maroon Creek Project." 

Over a year later, the city filed a status report describing its intention to "enter into a business relationship with T-Lazy Seven Ranch (T-Lazy), a Colorado ranching company, for joint development of the Aspen Project."  The status report describes plans to form a new limited liability company, and ultimately to amend the permit application to replace the city as applicant with the new company.

In a November 15, 2016 Order Dismissing Preliminary Permit Application, Commission staff noted that the purpose of a preliminary permit is "to encourage hydroelectric development by affording its holder priority of application (i.e., guaranteed first-to-file status) with respect to the filing of development applications for the affected site."  The order also notes that the prohibition in section 6 of the Federal Power Act against the alteration of licensed project works without the mutual consent of the licensee and the Commission applies, no matter whether it is the existing licensee or the new entity who seeks to pursue additional development within the project boundary of the Maroon Creek Project.  The Commission's consent to alter licensed project works would presumably come in the form of an order amending the Maroon Creek Project's license -- a consent not formally requested int the Aspen Project's docket.

Continuing to find that a preliminary permit for the Aspen Project would serve no purpose for these reasons, the order dismissed the city's permit application.  The order leaves the door open for the licensee to seek to amend the Maroon Creek Project's license, potentially in concert with an application to transfer the licensee to a new licensee or co-licensee.

Beyond the City of Aspen's interests in hydropower, the case has regulatory implications for other proposals to develop micro-hydro or new generating capacity at dams or other structures already part of FERC-licensed projects.  A Department of Energy report released earlier this year found significant national potential to increase hydropower capacity, including by adding power at existing dams and canals.  Where the existing assets are part of a FERC-licensed project, developers will be wise to be mindful of how the Commission interprets the Federal Power Act.

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