Crypto miner seeks to export US electricity for Canadian servers

In what has been called "a maiden effort by an energy-hungry cryptocurrency-mining industry to import electricity from the United States to Canada to meet its significant power demands", a Canadian company has applied to the U.S. Department of Energy for authority to export power from the U.S. into Canada to power blockchain-related computer servers -- but a nonprofit advocacy group has warned that federal approval of this "first-ever application to export power by a cryptocurrency miner" may result in a rush of similar applications.

Under U.S. federal law, the Department of Energy regulates exports of electricity from the United States to a foreign country, which require authorization under section 202(e) of the Federal Power Act. On May 21, 2020, DMG Blockchain Solutions Inc. filed an application with the U.S. Department of Energy, seeking authority under the Federal Power Act to transmit electric energy from the United States to Canada for a term of five years.

According to the website dmgblockchain.com, "DMG is a diversified cryptocurrency and blockchain platform company that is focused on the two primary opportunities in the sector – mining public blockchains and applying permissioned blockchain technology. DMG focuses on mining bitcoin, providing hosting services for industrial mining clients, earning revenues from block rewards and transaction fees, developing data analytics and forensic software products, working with auditors, law firms, and law enforcement to provide technical expertise, DMG’s permissioned blockchain technology is focused on developing enterprise software for the supply chain management of controlled products."

DMG's application to the Department of Energy describes the company as "a consumer of power, whose primary business is to host servers whose primary function is to ensure the security of public blockchains as well as other high-performance computing applications." DMG's application notes, "This business requires large amounts of power, which DMG is currently consuming approximately 15 megawatts on a steady load basis and has plans to grow to up to 60 megawatts in the next year with potentially larger amounts in the future as DMG may add new facilities." The application requests DOE export authorization over any of a long list of cross-border transmission facilities with Presidential Permits, in states including Maine, Vermont, New York, Pennsylvania, Michigan, Minnesota, North Dakota, Montana, and Washington.

But at least one entity has weighed in to urge the Department of Energy to proceed with caution, as it considers this request to export electricity to power foreign blockchain servers and computers. A Motion to Intervene and Comment filed with the Department of Energy on June 25, 2020, by watchdog organization Public Citizen, Inc. frames that organization's concern:

Despite cryptocurrency mining’s status as a relatively immature industry, its alarming power consumption footprint raises concerns about its sustainability and suitability in localized power markets, resulting in moratoria on new cryptocurrency mining operations issued by select U.S. utility districts and government agencies.

Citing language in Section 202(e) of the Federal Power Act requiring applications to export electricity to neither “impair the sufficiency of electric supply within the United States” nor “impede the coordination in the public interest of facilities subject to the jurisdiction of the Commission", Public Citizen commented:

Cryptocurrency mining is extraordinarily energy-intensive and can lead to major strains on local U.S. power supplies. At the same time, the process of mining is designed in a manner that wastes the overwhelming majority of the energy it consumes. U.S. cryptocurrency miners are struggling to meet their own power demands. This appears to be the first-ever application to export power by a cryptocurrency miner, and approval may result in a rush of similar applications.

Public Citizen's comments assert that this "maiden effort by an energy-hungry cryptocurrency-mining industry to import electricity from the United States to Canada to meet its significant power demands... raises serious, potentially fatal concerns under section 202(e)." Public Citizen concludes that the Department should proceed with extreme caution and "likely should deny the application or, if granting it, place conditions on it."

The pending export authorization proceeding before the U.S. Department of Energy is OE Docket No. EA-482, DMG Blockchain Solutions Inc. Application To Export Electric Energy.

FERC upholds Block Island offshore wind PPA

Federal energy regulators have denied a complaint by a Newport, Rhode Island city councilor against state regulators' approval of a power purchase agreement for an offshore wind project off Block Island.

At issue is Deepwater Wind Block Island, LLC's small-scale 30-megawatt offshore wind project located near Rhode Island's Block Island. The project sells its output to utility Narragansett Electric Company, Inc. d/b/a National Grid (National Grid), pursuant to a power purchase agreement approved by the Rhode Island Public Utilities Commission on August 16, 2010.

On June 7, 2018, Ms. Kathryn E. Leonard filed a complaint to the Federal Energy Regulatory Commission, alleging that the implementation of the power purchase agreement violated various federal laws, including the Federal Power Act, Public Utility Regulatory Policies Act of 1978 (PURPA), and the Supremacy and Interstate Commerce Clauses of the U.S. Constitution.

On April 24, 2019, the Commission issued its order denying Ms. Leonard's complaint. In the seventeen-page order, the Commission noted that the complainant provided no evidence in support of her assertion that the power purchase agreement was entered into pursuant to Rhode Island's implementation of PURPA. Instead, the Commission found that the Rhode Island Public Utilities Commission's approval of the contract was pursuant to state law, not pursuant to its PURPA regulations -- but that even if it were pursuant to PURPA, federal regulations governing sales by qualifying facilities to electric utilities explicitly permit negotiated rates.

The Commission similarly found that the complainant failed to show that the contract or its pricing was unjust and unreasonable under the Federal Power Act, and to provide sufficient support for its constitutional claims. The Commission also distinguished the Block Island PPA from contracts it previously invalidated in another case, Hughes v. Talen, which involved contracts for differences and an explicit requirement of participation in the capacity market. For these reasons, the Commission denied the complaint.

The Block Island project is the first commercially-operating offshore wind project in the United States. A number of other projects are currently under development, and several states in the Northeast have enacted laws requiring utility procurement of offshore wind energy. According to a 2016 analysis by the U.S. Department of Energy, U.S. offshore wind has a technical resource potential of more than 2,000 gigawatts of capacity, or 7,200 terawatt-hours of generation per year -- nearly twice the nation’s current electricity use.

2017 FERC Report on Enforcement

Federal regulators of U.S. energy markets and infrastructure described an increase in litigation activities in the most recent fiscal year. According to the eleventh annual Report on Enforcement issued by the Federal Energy Regulatory Commission’s Office of Enforcement, the office has five cases pending in various federal district courts.

The Commission is responsible for enforcing various laws and regulations affecting energy markets and infrastructure. On November 16, 2017, staff from its Office of Enforcement presented to the Commission on the office's activities in Fiscal Year 2017 (October 1, 2016 through September 30, 2017).

According to the 2017 Report on Enforcement, the office has maintained the previous year's enforcement priorities: (1) fraud and market manipulation; (2) serious violations of reliability standards; (3) anticompetitive conduct; and (4) conduct that threatens transparency in regulated markets.

As noted in the Commission press release announcing the 2017 enforcement report, "Conduct involving fraud and market manipulation poses a significant threat to the wholesale energy markets because it undermines FERC’s goal of ensuring efficient energy services at reasonable cost, and it erodes confidence in those markets to the detriment of consumers and competitors." The report notes that conduct which is anticompetitive or which threatens market transparency "undermine confidence in the energy markets and harm consumers and competitors." It also emphasizes the importance of compliance with reliability standards established by Electric Reliability Organization NERC.

The report describes activities by each division of the Office of Enforcement, including staff negotiation of five settlements that resulted in more than $51 million in civil penalties and disgorgement of more than $42 million in unjust profits. These settlements are in addition to the Commission’s November 7, 2017, settlement with Barclays Bank and three traders that requires Barclays to pay a $70 million penalty and disgorge $35 million in unjust profits.

While noting that at least one litigation matter has settled since the close of the fiscal year, the report states that Enforcement staff continues litigating five Federal Power Act matters in United States District Courts, along with two Order to Show Cause proceedings under the Natural Gas Act. According to the report, "In total, as of the end of FY2017, counting all pending federal court matters and the two NGA OSC proceedings before the Commission, staff sought to recover $806,865,000 in civil penalties and $53,987,678 in unjust profits through seven litigation proceedings."

Looking forward, the report emphasizes that in FY2018 the Office of Enforcement will continue to pursue these priorities.

Dominion affiliate proposes Tazewell pumped storage project

A Virginia-based utility company has applied to federal regulators for a preliminary permit to study the feasibility of a pumped hydroelectric storage facility in the coalfield region of Southwest Virginia. If built, Dominion Energy Services, Inc.'s Tazewell Hybrid Energy Center Project could use mine water sources for the initial fill and makeup water. 

On September 6, 2017, Dominion Energy Services, Inc. filed an application to the Federal Energy Regulatory Commission for a preliminary permit, pursuant to section 4(f) of the Federal Power Act, proposing to study the feasibility of the Tazewell Hybrid Energy Center Project. As described in Dominion’s application, a September 7 press release, and a September 29 notice by the Commission, the Tazewell project would be a pumped hydroelectric storage facility. According to Dominion, the project would “be operated by Dominion Energy Virginia for hydropower generation during peak energy demand periods and pumping during off-peak energy demand periods.” Dominion points to grid benefits from pumped storage including integration of intermittent power generation sources, enhancement of grid stability and supply of other ancillary benefits. The applicant notes that the site “could support multiple configurations, including different-sized pumped-storage facilities,” a flexibility which Dominion said enables it to determine the best environmental, technical and economic solution.

The project would not use any existing dams or hydroelectric facilities, but would involve new dams and other facilities constructed for the proposed project. In its application, Dominion described two alternative configurations — a smaller Alternative 1 and a larger-capacity Alternative 2 – featuring an upper reservoir and a lower reservoir. Under either alternative, Dominion described potential water sources “for the initial fill and makeup water” as

(1) Mine ID P03_903 and (2) Mine ID P03_017. The initial fill water for the Project's reservoirs will be supplied by one or more of these water sources via a proposed pump and water conveyance system… Although the upper reservoir would be located on Oneida Branch and the lower reservoir would be located in West Fork Cove Creek, it is anticipated that the proposed Project will use mine water sources for the initial fill and makeup water.

Dominion says it will evaluate the feasibility of relying on mine water sources under the preliminary permit.

Dominion’s press release mentioned that it is also conducting in-depth studies of another potential site for a pumped hydroelectric storage facility, the former Bullitt Mine near Appalachia, Virginia. That mine has been closed since 1997 and is currently flooded.

In its application, Dominion cited 2017 Virginia legislation that it said “encourages one or more pumped storage stations and includes a requirement that all or a portion of it be powered by renewable energy produced in the coalfield region.”  That legislation amended existing law to allow a utility to petition the State Corporation Commission for approval of a rate adjustment clause to recover from customers the costs of “one or more pumped hydroelectricity generation and storage facilities that utilize on-site or off-site renewable energy resources as all or a portion of their power source and such facilities and associated resources are located in the coalfield region of the Commonwealth ... regardless of whether such facility is located within or without the utility's service territory.” The coalfield region is defined as including seven counties and one city: Lee, Wise, Scott, Buchanan, Russell, Tazewell and Dickenson Counties and the City of Norton.

Adding micro-hydro to licensed hydropower project

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.

Kauai small conduit hydro exemption terminated

U.S. hydropower regulators have terminated an exemption from licensing for a small conduit hydroelectric facility proposed for development in Hawaii.

The case concerns the 5.3-megawatt Puu Lua Hydropower Project No. 14069.  Proposed  by Konohiki Hydro Power, LLC, the project would have been located on the Kōkeʻe Ditch Irrigation System on state-owned land on the island of Kauai.  As authorized by the Federal Energy Regulatory Commission in its 2012 order granting the Puu Lua project an exemption from the licensing requirements of Part I of the Federal Power Act, the project would have included two developments with powerhouses.

In granting the Puu Lua project's exemption, the Commission included provisions allowing it to terminate the exemption if certain conditions are not satisfied.  Article 8 of the exemption states the Commission may terminate the exemption if actual construction of any project works has not begun within two years or has not been completed within four years from the issuance date of the exemption.  In 2014, the exemptee successfully won a two-year extension to commence project construction, until April 12, 2016.  But according to the Commission's August 31, 2016 Order Terminating Exemption (Conduit), the developer failed to commence construction of the Puu Lua Hydropower Project prior to the deadline.

In addition to the construction deadlines, the exemption also included an article providing that the Commission may terminate the exemption "if, at any time, the exemptee does not hold sufficient property rights in the land or project works necessary to develop, maintain, and operate the project." This too proved problematic, as in November 2015 the State of Hawaii notified the Commission that the exemptee’s rights to use the property were cancelled effective January 1, 2015.  After the exemptee did not respond to a Commission request for documentation of its rights, Commission staff issued a notice of probable termination of the exemption for failure to commence project construction by the April 12, 2016 deadline, and for failure to possess sufficient property rights.

Ultimately, on August 31, 2016, the Commission issued its order terminating the project's exemption, "for failure to commence construction and maintain sufficient property rights."

Federal dams, nonfederal hydro, and preliminary permits

Can a hydropower developer obtain a preliminary permit from the Federal Energy Regulatory Commission for a project to be located at a federal dam, where the federal entity owning the dam says it opposes the project?  In a series of recent decisions, the Commission has denied preliminary permits in these circumstances, saying there is no purpose in issuing a preliminary permit.

U.S. federal law generally encourages the development of hydropower at existing dams.  Under sections 4(e) and 4(f) of the Federal Power Act, the Commission has general authority to issue preliminary permits and licenses for hydropower projects located at federal dams and facilities.  There are limits on this jurisdiction, such as if federal development of hydropower generation at the site is authorized, or if Congress otherwise unambiguously withdraws the Commission’s jurisdiction over its development.

The Commission also has discretion to deny a preliminary permit application, so long as it articulates a rational basis for its decision.  Through recent precedent, one basis the Commission has developed for denying applications is if the project would rely on modifications to federal facilities, but the federal entity says it would not approve those modifications or opposes the project.

For example, on April 25, 2016, Loxbridge Partners, LLC applied to the Commission for a preliminary permit to study the feasibility of the proposed McNary Second Powerhouse Project No. 14777. The project would be located at the U.S. Army Corps of Engineers’ McNary Lock and Dam facility on the Columbia River in Oregon.  On May 16, 2016, Commission staff asked the Corps for its opinion on whether non-federal development is authorized at McNary Dam, and if so, whether Loxbridge’s proposal would interfere with existing dam operations or improvement plans.  The Corps responded that it believed the Commission does not have jurisdiction to issue a preliminary permit or license for the site, and that the Corps opposed Loxbridge's proposed project on the ground that it would interfere with the Corps’ operation of McNary Dam.  The Corps asked the Commission to reject the permit application.

On September 2, 2016, the Commission denied Loxbridge's preliminary permit application.  It cited recent decisions in which "the Commission has denied preliminary permits for projects at federal facilities after the federal entities indicated that no purpose would be served in issuing a permit because the federal entity would not approve modifications to its federal facilities."  One of these decisions cited, Advanced Hydropower, Inc., 155 FERC ¶ 61,007 (2016), even relates to a different proposal for non-federal hydropower development at the McNary Dam.  The Commission also noted that "because the Corps, which owns the McNary Lock and Dam facility and whose permission would be needed for the development of any project at that facility, has stated that it opposes the project, there is no purpose in issuing a preliminary permit."

The Commission has issued similar denials with respect to Rivertec Partners LLC's proposed Clearwater Hydroelectric Project No. 14753 to be located at the Corps' Dworshak Dam in Idaho, Owyhee Hydro, LLC's proposed Anderson Ranch Pumped Storage Hydroelectric Project No. 14648 to be located at a Bureau of Reclamation dam in Idaho, and Symphony Hydro LLC's proposed Project No. 14627 to be located at the Corps' Upper St. Anthony Falls Lock and Dam on the Mississippi River near Minneapolis.

The policy highlights the importance for project developers of cultivating good relations with federal agencies owning dams and other facilities with hydropower development potential.

Alta, snowmaking pipes and conduit hydro power

Federal energy regulators have issued Alta Ski Area a written determination that its proposed micro-hydropower project will not be required to be licensed under the Federal Power Act.  If developed, Alta's project would be one of the first to generate electricity from a snowmaking water supply pipeline.

Most grid-connected hydropower projects in the U.S. fall under the Federal Power Act, and generally require a license or exemption from the Federal Energy Regulatory Commission.  The process of securing an original license or exemption for a new project can take years and have high costs.  But under a 2013 law, some so-called "conduit" hydro projects -- using pipelines and other existing manmade water conveyances -- can be developed and operated without a license or exemption.  The Hydropower Regulatory Efficiency Act of 2013 defined criteria for the Commission to declare a project to be a "qualifying conduit hydropower facility," and provided that such facilities are not required to be licensed or exempted from licensing under the Federal Power Act.  Key factors include the use of a non-federally owned, manmade water conveyance that is operated for the distribution of water for agricultural, municipal, or industrial consumption and not primarily for the generation of electricity.  If the Commission determines that a project qualifies, it can be built and maintained without a FERC license or exemption.

Under the Commission's process for evaluating conduit hydro projects, the developer must file a notice of intent to construct a qualifying conduit hydropower facility.  If the developer's filing demonstrates that the project meets the statutory criteria, the Commission will issue a notice of its preliminary decision that the project qualifies.  Following a 45-day period within which others may contest the determination, assuming no adverse facts are uncovered, the Commission issues a letter constituting its written determination that the proposed project meets the qualifying conduit hydropower facility criteria.

Alta's course before the Federal Energy Regulatory Commission followed this trail.  In May 2016, Alta filed its notice of intent to construct the Alta Micro-Hydro Project.  That notice and a supplemental filing described a project to tap the existing underground 6-inch-diameter snowmaking water supply pipeline delivering water from Cecret Lake to the Wildcat Pump House.  Parallel to that pipeline, Alta would add a new powerhouse with a 75-kilowatt turbine/generating unit.  Later that month, Commission staff issued a public notice that preliminarily determined that the project met the statutory criteria.  After the 45-day contest period, during which no interventions or comments were filed, in July the Commission issued Alta a written determination that the Alta Micro-Hydro Project meets the qualifying criteria under section 30(a) of the Federal Power Act, and is not required to be licensed under Part I of that law.

The Commission's letter reminds Alta that qualifying conduit hydropower facilities remain subject to other applicable federal, state, and local laws and regulations.  But the ability to develop a conduit hydropower project without requiring a license from the FERC will ease the project's regulatory path.  So far, most projects that have qualified for the conduit hydropower program have been proposed by water districts.  But as ski areas seek to align their operations with sustainability goals, adding low-impact renewable electricity generation may make sense for some.  If Alta's micro-hydro project is successful, other ski areas with existing snowmaking or other water infrastructure over a sufficient vertical drop may follow suit by developing their own conduit hydropower projects.

Maine tidal project preliminary permit issued

A tidal energy developer has been granted a preliminary permit to study a proposed project in Western Passage, near the city of Eastport, Maine.

Under the Federal Power Act, most grid-connected tidal power projects require licensing by the Federal Energy Regulatory Commission.  Section 4(f) of the Federal Power Act authorizes the Commission  to issue preliminary permits to allow prospective applicants for a hydropower license time to secure the data and perform the acts required to prepare a license application.  A preliminary permit preserves the holder's right to have first priority in applying for a license for the project being studied.

On December 4, 2015, ORPC Maine, LLC applied for a preliminary permit to study the feasibility of the proposed Western Passage Tidal Energy Project No. 14743.  As described in that application, the project would include fifteen of ORPC's proprietary 500-kilowatt hydrokinetic marine turbine-generator units for a combined capacity of 7.5 megawatts, along with anchoring and mooring systems, and transmission lines running ashore to an existing distribution line.  The materials describe an estimated average annual generation of 2.6 to 3.53 gigawatt-hours.

The Commission granted that preliminary permit by an order dated July 13, 2016.  In that order, the Commission addressed comments filed by the Maine Department of Environmental Protection, the U.S. Department of the Interior, the Passamaquoddy Tribe, and an individual.

In its comments, the tribe raised concerns over what the Commission calls "site banking".  As described by the Commission, the essence of its policy against site banking is that "an entity that is unwilling or unable to develop a site should not be permitted to maintain the exclusive right to develop it."  In some cases, the Commission invokes its policy against site banking to deny applications for successive preliminary permits.

The tribe questioned whether ORPC Maine should be granted a new preliminary permit when it has held two prior preliminary permits for the site of the proposed Western Passage Project -- the first issued in 2007, and a successive permit in 2011 -- without ever filing a development application. 

But in ORPC's case, the Commission noted that the project site has been unencumbered by a permit since ORPC's most recent permit expired in 2013, and that no other entity has filed a preliminary permit or development application for the site.  The Commission concluded that "a sufficient amount of time has passed for any other entity interested in developing the Western Passage Project site to have filed a preliminary permit or development application for the site and none has done so. Consequently, issuing a permit at this time to ORPC Maine for this site would not contribute to site banking."

Nicatous Lodge proposes off-grid micro-hydro project

A Maine sporting camp has proposed developing an off-grid micro-hydropower project to provide it electricity.  Nicatous Lake Lodge and Cabins LLC proposes to develop the micro-hydro project at its remote property near Burlington, Maine.  A filing made by the camp earlier this spring has triggered a federal review process to evaluate whether the project will require a license or exemption under the Federal Power Act.

Under federal law, most hydropower projects cannot be constructed, operated, or maintained without licensing under the Federal Power Act.  But some projects -- typically off-grid or remote ones -- fall outside the Federal Power Act's jurisdiction.  To reduce uncertainty about what regulations might apply, Section 23(b)(1) of the Federal Power Act requires an entity proposing a new project to file with the Federal Energy Regulatory Commission either a hydropower license application, or a Declaration of Intention to determine if the proposed project requires a license.

When a developer files a Declaration of Intention with the Commission, the Federal Power Act requires the Commission to investigate and determine if the project would affect the interests of interstate or foreign commerce. The Commission also determines whether or not the project: (1) would be located on a navigable waterway; (2) would occupy public lands or reservations of the United States; (3) would utilize surplus water or water power from a government dam; or (4) would be located on a non-navigable stream over which Congress has Commerce Clause jurisdiction and would be constructed or enlarged after 1935.  Each of these evaluations supports a key jurisdictional finding under the Federal Power Act; collectively, they can determine whether or not licensing is required.

Other recently proposed micro-hydro projects illustrate how the Commission evaluates whether or not a license or exemption will be required.  For example, the Commission found that licensing or exemption was required for the Patton Colorado Hydropower Project, which would be grid-tied -- but that no license is required for the Egnaczak Net Zero Hydro Project in Massachusetts, which would have no connection to the interstate electric grid.

This jurisdictional determination is now underway for the Nicatous micro-hydro project.  On March 15, 2016, the sporting camp owner submitted a Declaration of Intention to the Federal Energy Regulatory Commission.  That Declaration of Intent describes the project site as about 15 miles away from the nearest electric utility grid, where Nicatous Stream leaves Nicatous Lake.  The project does not rely on a dam, although the remains of a former dam are located nearby.  Instead, an intake in the lake would supply water to a low head (60 inches or less) PowerPal micro-hydroelectric generator, rated at 1,000 watts power.  Power from the generator would be fed into the lodge's electric system, not which is not connected to any utility grid.

On May 10, 2016, the Commission issued its notice of the filing, setting a 30-day deadline for filing comments, protests, and motions to intervene.  Commission action on the filing could follow later this year.

Alta Ski Area conduit micro-hydro project

Alta Ski Area has proposed developing a micro-hydropower project along an existing pipeline, and hopes to benefit from a streamlined regulatory process.  Federal regulators have made a preliminary determination that the proposed Alta Micro-Hydro Project, in Alta, Utah, satisfies the requirements to be treated as a "qualifying conduit hydropower facility," which would not require licensing under the Federal Power Act.

Alta's proposed project would include a new powerhouse to be built along the existing underground 6-inch-diameter snowmaking water supply pipeline delivering water from Cecret Lake to the Wildcat Pump House, a new turbine/generating unit with an installed capacity of 75 kilowatts, intake and discharge pipes, and appurtenant facilities.  The unit is estimated to generate between 115 and 225 megawatt-hours annually.  There is no dam associated with the project.  Alta presented its micro-hydro project as part of a 2012 request to update its master plan, which the U.S. Forest Service accepted.

Ski areas with snowmaking capacity typically have existing pipelines and water infrastructure, coupled with significant vertical relief.  This can create opportunities to generate electricity using energy harvested from water flowing downhill through a pipeline, particularly if reducing system pressure (like a pressure relief valve) is otherwise needed. 

A 2013 law was designed to help small conduit-based hydropower projects by eliminating their need for a license or exemption from licensing issued by the Federal Energy Regulatory Commission.  Section 4 of the Hydropower Regulatory Efficiency Act of 2013 amended Section 30 of the Federal Power Act.  Section 30 now provides that a "qualifying conduit hydropower facility" -- one that is determined or deemed to meet defined criteria -- is not required to be licensed or exempted from licensing under the Federal Power Act.  These criteria include:

• The conduit the facility uses a tunnel, canal, pipeline, aqueduct, flume, ditch, or similar manmade water conveyance that is operated for the distribution of water for agricultural, municipal, or industrial consumption and not primarily for the generation of electricity.
• The facility is constructed, operated, or maintained for the generation of electric power and uses for such generation only the hydroelectric potential of a non-federally owned conduit.
• The facility has an installed capacity that does not exceed 5 megawatts. 
• On or before August 9, 2013, the facility is not licensed, or exempted from the licensing requirements of Part I of the FPA.

The Federal Energy Regulatory Commission administers this statute.  To start the regulatory process, on May 16, 2016, Alta filed a notice of intent to construct a qualifying conduit hydropower facility.  Alta supplemented its notice on May 20 to clarify that the project "will only operate when there is excess capacity available in the pipeline and when water is hydrologically available", generally after the winter snowmaking season, during spring runoff.  Alta also restated that the pipeline's main purpose will continue to be snowmaking.

Yesterday the FERC issued its notice of preliminary determination of a qualifying conduit hydropower facility for Alta's project.  That notice examines the project relative to each of the four statutory criteria, and then provides the Commission's preliminary determination:

The proposed addition of the hydroelectric project along the existing water supply pipeline will not alter its primary consumptive purpose. Therefore, based upon the above criteria, Commission staff preliminarily determines that the proposal satisfies the requirements for a qualifying conduit hydropower facility, which is not required to be licensed or exempted from licensing.

The notice also sets a 30-day deadline for filing motions to intervene, and a 45-day deadline for filing comments contesting whether the facility meets the qualifying criteria and providing an evidentiary basis.

Other recently proposed conduit hydro projects have been determined to be qualifying conduit hydropower facilities, including a Colorado project using an existing "ditch drop," a Castle Valley, Utah water treatment project, a California wholesale water agency conduit project, and a New Hampshire water works.

FERC and microhydro licensing

Federal energy regulators have ruled that a micro-hydroelectric project proposed in New York cannot be constructed or operated without a license.

The proposed Henson Micro Hydroelectric Project would be located on the West Branch of Onondaga Creek, near Onondaga, New York.  It would include an existing 14-foot-high concrete dam, plus new construction including a penstock, a powerhouse, and a 10 kilowatt generating unit.  The dam was rebuilt in 2002, and had previously been used to power a grist mill.  The project developer, an individual, proposed to use the project power to provide electricity to his home and barn.
 
In his declaration of intention, the developer described himself and his approach to project development and compliance:

I would like to point out that I am not a corporation, or a rich man just a simple middle class Joe. I am an hourly employee at AT&T. Although blessed beyond what I actually deserve, I do not have a bunch of money that I could spend. In fact I am using funds recently obtained from a loss of use settlement from the NYS Workers Compensation Board to fund this. I am trying to do the right thing for the environment and save some money on my power bill. I am hoping that we can work this out to everyone’s satisfaction based upon the material and information that I currently have available. Of course, if additional information is required by you folks I will do everything to comply.

Identifying what approvals are necessary is a core step in developing any project.  Under section 23(b)(1) of the Federal Power Act, a non-federal hydroelectric project must be licensed by the Federal Energy Regulatory Commission (unless it has a still-valid pre-1920 federal permit) if it:

(a) is located on a navigable water of the United States;
(b) occupies lands or reservations of the United States;
(c) utilizes surplus water or waterpower from a government dam; or
(d) is located on a stream over which Congress has Commerce clause jurisdiction, is constructed or modified on or after August 26, 1935, and affects the interests of interstate or foreign commerce.

To reduce uncertainty over whether a project will require licensing, a developer may file a Declaration of Intention with the FERC describing the project.  Following public notice and an opportunity for protests, comments, and motions to intervene, FERC will rule on the jurisdictional questions raised by the declaration.

In the Henson project's case, the developer filed a Declaration of Intention on December 18, 2015.  That declaration was supplemented; after the second supplement, FERC issued its public notice of the declaration.  No protests, comments, or motions to intervene were filed.

On May 10, FERC issued its ruling on the declaration, finding that licensing is required.  FERC easily found that the project would not occupy any public lands or reservations of the United States or use surplus water or waterpower from a Federal government dam.  It found "insufficient evidence" to determine whether the West Branch of the Onondaga Creek is navigable.

However, FERC found that the West Branch of Onondaga Creek is a headwater or tributary of the Oswego River, a navigable water of the United States.  As a result, FERC concluded the project would be located on a "Commerce Clause stream."  FERC noted the project would be constructed after 1935.

FERC also concluded that the project would affect interstate commerce through its connection to the interstate grid, relying on precedent that "small hydroelectric projects that are connected to the interstate grid affect interstate commerce by displacing power from the grid, and the cumulative effect of the national class of these small projects is significant."  Thus even though the Hanson project's developer proposed using project power for the onsite home and barn, the fact that those buildings were grid-tied drove FERC to conclude that licensing was required. 

On this reasoning, FERC concluded that construction, operation, and maintenance would require a license.  As an alternative, FERC suggested the developer consider applying for an exemption from licensing as a small hydroelectric power project.


By contrast, another recent FERC decision concluded that a micro-hydro system proposed in Massachusetts did not require licensing, because (among other reasons) neither the project nor the structures it would serve would be grid-tied.  Thus whether or not the project and the facilities it serves are grid-tied or off-grid can be an important factor in whether a FERC hydropower license is required.

FERC relicensing and annual licenses

What happens when the holder of a hydropower license applies to the Federal Energy Regulatory Commission for a new license, but the original license expires before the relicensing case is resolved?  Depending on which federal laws and regulations apply, possible outcomes can include the Commission issuing an annual license, or continued operation under the license terms, until a new license is issued or other disposition is ordered.

A recent FERC case illustrates this dynamic, involving the Don Pedro Hydroelectric Project, Project No. 2299, located on the Tuolumne River in California.  Turlock Irrigation District and Modesto Irrigation District are the licensees for Project No. 2299, under a license issued for a period ending April 30, 2016.

Just over 2 years before the Don Pedro project's license expired, on April 28, 2014 the licensees filed an Application for a New License pursuant to the Federal Power Act (FPA) and the Commission's regulations thereunder.  That relicensing application remains pending.

Section 15(a)(1) of the FPA, 16 U.S.C. 808(a)(1), requires the Commission, at the expiration of a license term, to issue from year-to-year an annual license to the then licensee under the terms and conditions of the prior license until a new license is issued, or the project is otherwise disposed of as provided in section 15 or any other applicable section of the FPA.  But some projects operate pursuant to licenses which include waivers of the applicability of Section 15 of the FPA.

In the Don Pedro project's case, on May 5, 2016, the Commission issued a Notice of Authorization for Continued Project Operation, including language covering both the scenario under which Section 15 applies, as well as the scenario under which the prior license waived Section 15's applicability.

If the project is subject to section 15 of the FPA, the Commission gave notice that an annual license for Project No. 2299 is issued to the licensee for a period effective May 1, 2016 through April 30, 2017 or until the issuance of a new license for the project or other disposition under the FPA, whichever comes first.  If issuance of a new license (or other disposition) has not occurred by April 30, 2017, the Commission gave notice that, pursuant to 18 CFR 16.18(c), an annual license under section 15(a)(1) of the FPA is renewed automatically without further order or notice by the Commission, unless the Commission orders otherwise.

If Section 15 does not apply, the Commission gave notice that based on section 9(b) of the Administrative Procedure Act, 5 U.S.C. 558(c), and as set forth at 18 CFR 16.21(a), if the licensee of such project has filed an application for a subsequent license, the licensee may continue to operate the project in accordance with the terms and conditions of the license after the minor or minor part license expires, until the Commission acts on its application. If the licensee of such a project has not filed an application for a subsequent license, then it may be required, pursuant to 18 CFR 16.21(b), to continue project operations until the Commission issues someone else a license for the project or otherwise orders disposition of the project.

The irrigation districts' relicensing case remains pending.

Supreme Court rules on state energy incentives

The U.S. Supreme Court has released its ruling on a case affecting how states may provide incentives for electric power generation.  In Hughes v. Talen Energy Marketing, LLC, the Court upheld a lower court's ruling invalidating a Maryland program to subsidize construction of new power plants.  The ruling provides important insight into how the Court views the boundary between federal and state jurisdiction over energy matters.

The Supreme Court of the United States.

The Hughes case involved a new Maryland program to encourage in-state generation capacity, and its relationship to federally blessed capacity market.  Under the Federal Power Act, the Federal Energy Regulatory Commission has exclusive jurisdiction over wholesale sales of electricity in the interstate market, while States regulate retail electricity sales. 

For years,  Mid-Atlantic regional grid operator PJM Interconnection has held capacity auctions to identify need for new generation and compensate generators for development.  PJM's auctions have been approved by the Federal Energy Regulatory Commission under the Federal Power Act.  But due to concern that the PJM auction was failing to encourage development of sufficient new in-state generation, Maryland enacted its own regulatory program.  Under that state program, Maryland held a competitive process to select a developer for a new power plant, and required load-serving entities to enter into a 20-year pricing contract (called a "contract for differences") with the developer.  The developer would still sell its capacity to PJM, but would receive extra money under the state program to make up the difference between the PJM market price and the contract price.

But incumbent generators challenged the new Maryland program; a federal district court issued a declaratory judgment holding that Maryland's program improperly sets the rate the developer receives for interstate wholesale capacity sales to PJM.  On appeal, the Fourth Circuit affirmed, finding that Maryland's program was preempted because it impermissibly conflicts with FERC policies.  The case then came to the Supreme Court of the United States.

The Supreme Court's April 19, 2016 decision affirms the lower courts' rulings.  The Court agreed with the Fourth Circuit's judgment "that Maryland's program sets an interstate wholesale rate, contravening the FPA's division of authority between state and federal regulators."  In the majority opinion's words, "States may not seek to achieve ends, however legitimate, through regulatory means that intrude on FERC's authority over interstate wholesale rates, as Maryland has done here."

The Hughes ruling sheds light on how the Court might view other state programs to incentivize new or clean generation.  That said, the Court emphasized that its holding in Hughes is limited -- that it rejected Maryland's program "only because it disregards an interstate wholesale rate required by FERC."  The Court explicitly said it would not address "the permissibility of various other measures States might employ to encourage development of new or clean generation," such as tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector.

The majority opinion concludes with a reminder that "[s]o long as a State does not condition payment of funds on capacity clearing the auction, the State's program would not suffer from the fatal defect that renders Maryland's program unacceptable."  This suggests one potential path for permissible state incentives for electric power generation.

Utah conduit hydropower project qualifies

Federal energy regulators have issued a letter determining that a proposed Utah hydropower project meets criteria for development without needing a hydropower license.  Castle Valley Special Service District's proposed Ferron Water Treatment Plant Project would generate electricity using the pressure of water in an existing conduit entering a drinking water treatment plant.  As a result of a determination by the Federal Energy Regulatory Commission, the project can be developed without a FERC hydropower license.

On January 27, 2016, the Castle Valley Special Service District filed with the Federal Energy Regulatory Commission a notice of intent to construct a 6-kilowatt in-conduit hydroelectric net metered system.  The District is a tax exempt municipal government entity that, among other services, provides drinking water to the residents of Ferron City and Clawson Town.

That notice of intent described plans to harness or recover water pressure lost at the inlet to the District's proposed new Ferron Water Treatment Plant.  Water from the Millsite Reservoir would be transmitted to the treatment plant in a conduit owned by Ferron City and the District.  Excess pressure in the incoming untreated water would flow through a pressure reducing valve and turbine hydropower generator.

Under section 30 of the Federal Power Act (FPA), as amended by section 4 of the Hydropower Regulatory Efficiency Act of 2013 (HREA), a qualifying conduit hydropower facility -- one that is determined or deemed to meet defined criteria -- is not required to be licensed or exempted from licensing under the Federal Power Act.  These criteria include:

• The conduit the facility uses a tunnel, canal, pipeline, aqueduct, flume, ditch, or similar manmade water conveyance that is operated for the distribution of water for agricultural, municipal, or industrial consumption and not primarily for the generation of electricity.
• The facility is constructed, operated, or maintained for the generation of electric power and uses for such generation only the hydroelectric potential of a non-federally owned conduit.
• The facility has an installed capacity that does not exceed 5 megawatts. 
• On or before August 9, 2013, the facility is not licensed, or exempted from the licensing requirements of Part I of the FPA.

On February 2, 2016, the Federal Energy Regulatory Commission issued its notice of a preliminary determination that "the proposal satisfies the requirements for a qualifying conduit hydropower facility, which is not required to be licensed or exempted from licensing."

Following the expiration of comment and intervention deadlines, on March 28 the Commission issued its "written determination that the Ferron Water Treatment Plant Project meets the qualifying criteria under FPA section 30(a), and is not required to be licensed under Part I of the FPA."

As the FERC determination on the Ferron project notes, "Qualifying conduit hydropower facilities remain subject to other applicable federal, state, and local laws and regulations."  But the ability to develop an in-conduit hydropower project without needing a FERC license can give a significant boost to projects with suitable conduit water resources.

West Branch storage project relicensed

Earlier this month U.S. hydropower regulators issued a new license for the West Branch Project, which includes water storage facilities on the West Branch of the St. Croix River in Maine.

The Federal Energy Regulatory Commission first issued an original license for the West Branch Project on September 4, 1980.  The project includes two developments, Sysladobsis and West Grand, that operate as water storage facilities to provide flood storage and flow releases for downstream hydroelectric generation.  The Sysladobsis Development uses Sysladobsis Lake as its impoundment.  The license describes the West Grand Development as composed of several natural lakes including Scraggly Lake, Keg Lake, Bottle Lake, Junior Lake, Junior Bay, Norway Lake, Pug Lake, Pocumcus Lake, Horseshoe Lake, and West Grand Lake. 

Dikes and dams are used to control and release water, first from Sysladobsis Lake into the downstream West Grand impoundment, then into either Grand Lake Stream or Grand Lake Brook.  Many of the dams and dikes at these sites are old -- the Sysladobsis dam, West Grand dam, and Farm Cove dike were constructed in 1861, 1836, and 1879, respectively, although all three have since been rebuilt.

Each of these developments operates in a seasonal store-and-release mode whereby water is stored to reduce downstream flooding during periods of high flow and released during periods of low flow to augment generation at the downstream hydroelectric projects.

The West Branch Project also operates as part of the larger St. Croix River headwater storage system.  This network of dams includes Woodland Pulp LLC’s Forest City Project No. 2660 and the recently relicensed Vanceboro Project No. 2492. Generation associated with these projects occurs at the Grand Falls and Woodland hydroelectric projects downstream on the St. Croix River.

The West Branch Project's original 1980 license was amended in 1987 to include the existing Farm Cove dike, but the original license expired on September 30, 2000.  Since then, the licensee has operated the project under an annual license pending the disposition of a new license application.

On March 19, 2009, the licensee filed, pursuant to sections 4(e) and 15 of the Federal Power Act (FPA), an application for a new license to continue operating and maintaining the West Branch Project. The licensee proposed to continue store-and-release operation with some changes, continue operating fishways and take other measures to promote fish populations, enhance a land use plan, and develop a historic properties management plan.

Fishery issues have been contentious in the St. Croix River system.  After opportunity for public comment, agency consultation, and preparation of an Environmental Assessment, the Maine Department of Inland Fisheries and Wildlife asked the Commission to delay its licensing decision until fishery management talks concluded.  After being notified by the Department that those talks had concluded, on March 15, 2016 the Commission issued Woodland Pulp a new license to continue operating and maintaining the West Branch Project. 

The new license requires a number of measures to protect and enhance water quality, aquatic habitat, fisheries resources, terrestrial resources, and recreation opportunities at the project. These include a requirement to operate the developments in store-and-release mode between defined pond elevations, to provide certain minimum flows of water, to develop an Operation Compliance Monitoring Plan, and to provide and enhance fish passage.

A list maintained by the Federal Energy Regulatory Commission shows over 1,000 active hydropower licenses.  Many of these licenses will expire in the near future, so relicensing activity for FERC-licensed hydroelectric projects is expected to increase. 

Colorado conduit hydropower project

A proposed hydroelectric project in Colorado has received a federal determination that it qualifies as a "qualifying conduit hydroelectric facility" and thus is not required to be licensed under Part I of the Federal Power Act.  The Park Farm Hydro Project illustrates the rapid pace with which the Federal Energy Regulatory Commission can act on conduit hydropower projects under a 2013 amendment to its law.

The Federal Power Act requires most hydropower projects to be licensed by the Federal Energy Regulatory Commission.  But Section 4 of the Hydropower Regulatory Efficiency Act of 2013 amended the Federal Power Act to facilitate "conduit hydropower" projects -- those generating electricity using only the hydroelectric potential of a non-federally owned conduit, such as a tunnel, canal, pipeline, aqueduct, flume, ditch, or similar manmade water conveyance that is operated for the distribution of water for agricultural, municipal, or industrial consumption, and is not primarily for the generation of electricity.  Reforms in 2013 exempted qualifying conduit hydropower facilities from needing a license, and established a fast process for to solicit public comment and confirm whether the new exemption applies.  In the ensuing years, a number of projects have qualified for this treatment.

On January 27, 2016, an applicant filed a notice of intent, pursuant to section 30(a) of the Federal Power Act, as amended by Section 4 of the Hydropower Regulatory Efficiency Act of 2013, to construct a qualifying conduit hydropower facility, the Park Farm Hydro Project, to be located near the Town of Kersey, in Weld County, Colorado.  The notice described a proposal to add ten 1-kilowatt Crossflow turbines alongside an existing "ditch drop" or conduit in the Lower Latham Ditch.

On February 2, 2016, the Commission issued its notice of preliminary determination that the proposal satisfies the requirements for a qualifying conduit hydropower facility, which is not required to be licensed or exempted from licensing.  The notice set a 30-day deadline for filing motions to intervene, and a 45-day deadline for filing comments contesting whether the facility meets the qualifying criteria.  No such comments or motions were received.

On March 22, 2016 -- less than 2 months after the applicant first filed its notice of intent -- the Commission issued a letter constituting its written determination that the Park Farm Hydro Project meets the qualifying criteria under Federal Power Act section 30(a), and is not required to be licensed under Part I of the FPA, although other federal, state, and local laws do apply.

This quick timing on the Park Farm project is consistent with other recent FERC action on proposed conduit hydropower projects.

FERC rules off-grid micro-hydro needs no license

Federal hydropower regulators have granted reconsideration of a 2015 order finding licensing required for an off-grid micro-hydropower project proposed in Massachusetts.  Based on newly submitted evidence that the proposed project would not be connected to an interstate grid, the order granting reconsideration finds that Section 23(b)(1) of the Federal Power Act does not require licensing of the proposed Egnaczak Net Zero Hydro Project.

The case involves a project proposed by Kenneth and Susan Egnaczak, to be located at an existing water-powered mill complex on the Hoosic River in Cheshire, Massachusetts.  The so-called "Egnaczak Net Zero Hydro Project" would have a total generating capacity of 10.7 kilowatts.  The power would be used at a home and workshop proposed for construction along the river.

Under Section 23(b)(1) of the Federal Power Act, an entity proposing a hydropower project must generally file with the Federal Energy Regulatory Commission either a hydropower license application, or a Declaration of Intention to determine if the proposed project requires a license.  The Egnaczaks filed a Declaration of Intention for the project in February 2015.  On September 11, 2015, Commission staff issued an order finding that the Federal Power Act requires a license to be issued for the project's construction, maintenance, and operation.

Section 23(b)(1) of the Federal Power Act requires a non-federal hydroelectric project to be licensed if it falls into any of four categories: (1) is located on “navigable waters of the United States;” (2) occupies lands or reservations of the United States; (3) uses surplus water or water power from a federal dam; or (4) is located on a non-navigable stream which is subject to the authority of Congress under the Commerce Clause, affects the interests of interstate or foreign commerce, and is constructed or enlarged after August 26, 1935.

In its September 2015 order on the Egnaczak project, Commission staff analyzed the facts as applied to these facts.  On category 1, staff found that there is insufficient evidence to determine whether the Hoosic River is navigable at the project site.  Staff readily dispensed with categories 2 and 3, finding that the project would neither occupy any public lands or reservations of the United States nor use surplus water or waterpower from a Federal government dam.

In September, staff found that the project fell into the fourth category.  In the order, staff noted that it would be located on a non-navigable Commerce Clause stream, would be constructed after 1935, and would affect the interests of interstate commerce because the project would offset both electrical and heating needs for the applicants’ home and workshop that would have been otherwise supplied by the interstate grid.  The order cited judicial precedent, noting, "It is well settled that small hydroelectric projects that are connected to the interstate grid affect interstate commerce by displacing power from the grid, and the cumulative effect of the national class of these small projects is significant for purposes of FPA section 23(b)(1)." Staff therefore determined that the project requires licensing under FPA section 23(b)(1).

But on January 6, 2016, the applicants filed a request for reconsideration and additional evidence in support of their argument that the project does not require licensing.  This evidence focused on the fact that the project would not be connected to the interstate grid and thus would not affect interstate commerce.  As later described by the Commission:

They state that, because neither their home nor workshop has been constructed, they have no existing grid connection. Further, they explain that the project alone will power their home and workshop. The applicants state that the project would produce hydro-mechanical power using a waterwheel, Archimedes Screw, or turbine. The mechanical power would be connected to the hydro generator units to produce electricity or to power rotating equipment, such as a sawmill. In addition, the applicants state that they will use backup power from a fossil fuel electric generator and storage batteries, which would be charged by the hydro generators or the fossil fuel electric generator.

In a March 24, 2016 order, the Commission staff found that the applicants had demonstrated that the Net Zero Project would not be connected to an interstate grid.  That order finds that the micro-hydro project would not displace power that would otherwise be supplied by the grid and thus would not affect interstate commerce.  As a result, it concludes that "section 23(b)(1) of the FPA does not require licensing of the proposed Net Zero Project."

The March 24 order does include a warning: "if the project or the applicants’ unconstructed home or workshop are connected to the interstate grid in the future, section 23(b)(1) of the FPA would require licensing and the Commission could require the applicants to apply for a license under section 4(g) of the FPA."

Thus in at least this one case, the off-grid nature of the micro-hydro project was a critical factor in the order finding that Section 23(b)(1) of the Federal Power Act does not require licensing of the proposed Egnaczak Net Zero Hydro Project.  The key to the revised finding that the project would have no effect on interstate commerce appears to be the fact that power would be consumed in buildings not yet built, with no existing grid tie.

FERC holds CO microhydro needs license

In an order issued earlier this month, the Federal Energy Regulatory Commission found that the developer of a micro-hydropower project proposed in Colorado must obtain a license for the Patton Colorado Hydropower Project's construction, maintenance, and operation.  The order illustrates one challenge facing small, distributed hydroelectric projects in the U.S.: a federal regulatory process that at times can treat microhydro projects much like traditional large dams, despite interest in a streamlined permitting process for small projects.

At issue is Section 23(b) of the Federal Power Act.  It provides that any person intending to construct project works on a non-navigable commerce clause water must file a declaration of their intention to do so with the Commission. Section 23(b) further provides that upon the filing of a Declaration of Intent, the Commission will investigate the proposed project, and, if it finds that the “interests of interstate or foreign commerce would be affected” by the proposed project, then the person intending to construct the project must obtain a Commission license before starting construction.

Under section 23(b)(1) of the Federal Power Act, 16 U.S.C. § 817(1), a non-federal hydroelectric project must be licensed (unless it has a still-valid pre-1920 federal permit) if it:

(a) is located on a navigable water of the United States;
(b) occupies lands or reservations of the United States;
(c) utilizes surplus water or waterpower from a government dam; or
(d) is located on a stream over which Congress has Commerce clause jurisdiction, is constructed or modified on or after August 26, 1935, and affects the interests of interstate or foreign commerce.

On May 11, 2015, as supplemented on November 10, 2015, Steve Patton filed a Declaration of Intention with the Commission concerning the proposed Patton Colorado Hydropower Project.  The project would be located on Colombine Creek, a feeder stream to the South Fork of the Rio Grande, near the town of South Fork, Mineral County, Colorado.  It would consist of an intake and pipes feeding a gravitation water vortex-type generating unit rated between 2 and 10 kilowatts with 2.5 feet of head, transmission line, and appurtenant facilities. The proposed project would be connected to the interstate electric grid.

In the case of the Patton Colorado Hydropower Project, the Commission found that licensure is required under the fourth prong of Section 23(b)(1) of the Federal Power Act, which itself has three components.

First, the Commission found that the Patton project would be located on a "Commerce Clause stream."  Specifically, the Commission found that Colombine Creek is a headwater or tributary of the South Fork of the Rio Grande, which is a tributary of the Rio Grande River, a navigable water of the United States.  Under a 1965 Supreme Court precedent, for purposes of FPA section 23(b)(1), the headwaters and tributaries of navigable rivers are Commerce Clause streams.

Second, the project would be constructed after August 26, 1935. 

Third, citing a 1992 opinion from the 11th Circuit Court of Appeals, the Commission noted, "It is well settled that small hydroelectric projects that are connected to the interstate grid affect interstate commerce by displacing power from the grid, and the cumulative effect of the national class of these small projects is significant for purposes of the FPA section 23(b)(1)."  Thus the Commission concluded that the Patton Colorado Hydropower Project would affect interstate commerce through its connection to the interstate grid.

Based on these conclusions, the Commission found that in accordance with section 23(b)(1) of the Federal Power Act, the applicant must obtain a license for the construction, maintenance, and operation of the Patton Colorado Hydropower Project.  The Commission also ruled that no construction or operation of the project may commence until a license has been obtained.

Notably, the Commission was able to reach this conclusion without making a navigability finding for Colombine Creek itself.  In particular, the order notes "insufficient evidence to determine whether Colombine Creek is navigable." But because the Commission found licensing to be required on other grounds -- grounds derived from the ultimate navigability of a downstream river -- it did not make a navigability finding for the river reach where the project would be located.

The Commission's order did suggest that an easier path may be available for the Patton Colorado Hydropower Project.  In particular, the order notes that the project may be eligible for an exemption from licensing.  It suggests that the applicant consider applying for a small hydroelectric power project exemption of 10 megawatts (MW) or less.  This more limited approval could enable project development and operation through a more streamlined regulatory processes than that required for a full project license.

Incentives and policy support for microhydro projects are growing.  But as the Patton Colorado Hydropower Project case before the FERC illustrates, even small hydropower projects may be subject to federal regulation.  For some projects, an exemption may be available, but others may not be able to be developed without a FERC license.  Even an exemption can take time and expense to secure, and it can be hard to preduct the outcome of an application for an exemption.  How does this dynamic affect the rate of development of U.S. micro-hydropower projects?

FERC requires licensure of Alaska hydropower project

What happens when federal hydropower regulators discover an unlicensed project subject to their jurisdiction?  A recent case involving a dam at a remote Alaskan fish hatchery ended with an order requiring the project owner to pursue licensure.

At issue is the Hidden Falls Lake Project, located within the Tongass National Forest on Kasnyku Bay on the eastern shore of Baranof Island near Sitka, Alaska.  The project is owned by the Alaska Department of Fish and Game, who installed a 250-kilowatt generator and related equipment in 1982 to power its Hidden Falls fish hatchery.  (A nearby larger Kasnyku Lake project contemplated by the federal government in 1969 never came to fruition.)

Most non-federal hydropower projects in the U.S. must be licensed by the Federal Energy Regulatory Commission.  Under section 23(b)(1) of the Federal Power Act, a non-federal hydroelectric project without a still-valid pre-1920 federal permit must be licensed if it:

(a) is located on a navigable water of the United States;
(b) occupies lands or reservations of the United States;
(c) utilizes surplus water or waterpower from a government dam; or
(d) is located on a stream over which Congress has Commerce Clause jurisdiction, is constructed or modified on or after August 26, 1935, and affects the interests of interstate or foreign commerce.

Part of the Hidden Falls Lake project -- the intake, penstock, 250-kW hydroelectric generator, powerhouse, and distribution lines -- are located on U.S. Forest Service lands. The Forest Service’s documentation states that a minor license application for the Hidden Falls Lake Project was filed with the Commission in 1981, but the Commission said it did not have any records of this application or of any subsequent Commission jurisdictional determination for this project.

But FERC did apparently know about the project.  In 1989, seven years after the project's generator was installed, the Commission initiated an investigation into the jurisdictional status of the project, suggesting it was "unlicensed" or "unauthorized."  Yet that unlicensed hydropower project investigation docket then went dormant until 2015.  Last year, the Forest Service informed the Commission that it had identified the project while conducting environmental reviews in support of a renewal of the Alaska agency's special use permit for the hatchery.  Thus the investigation resumed.

The Commission issued its final order in the case on January 28, 2016.  Because the project intake, penstock, hydroelectric generator, powerhouse, and distribution lines occupy public lands of the United States, the Commission concluded that the Alaska agency must obtain a license for construction, maintenance, and continued operation of the Hidden Falls Lake Project.  The Commission ordered the Alaska agency to file within 90 days a schedule for submitting a license application within 36 months.

If a small hydropower project on a remote Alaskan island is subject to FERC licensure, how many other unlicensed hydropower projects might be out there?  How many other unlicensed hydropower projects might there be on Forest Service or other federal lands?  While FERC investigations of unlicensed hydropower projects are relatively rare, with most years seeing only a handful of public active investigations, could there be other existing projects like the Hidden Falls Lake Project?