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.

Exporting compressed natural gas from the US

In a divided opinion, the Federal Energy Regulatory Commission has found that it does not have jurisdiction over facilities proposed by Emera CNG, LLC to compress natural gas for export to the Bahamas by ship.

Natural gas is an important fuel used globally for electric power generation, heating, and industry.  Throughout most of the U.S., an abundant supply of natural gas means domestic pricing for gas is lower than overseas.  This creates a potentially profitable opportunity to export natural gas from the U.S., if regulatory conditions allow.

Natural gas can be exported by pipeline as a gas, or by truck or ship as either compressed natural gas (CNG) or liquefied natural gas (LNG). Liquefying natural gas enables massive quantities of gas to be transported anywhere in the world, but requires the construction of expensive facilities to liquefy and regasify the fuel.  The federal Natural Gas Act gives the Federal Energy Regulatory Commission jurisdiction over the siting and construction of most LNG facilities in the U.S., and authorizes FERC to issue certificates of public convenience and necessity for LNG facilities engaged in interstate natural gas transportation by pipeline.  For example, Dominion Cove Point LNG, LP recently secured the FERC's approval for its Cove Point LNG export facility.

By comparison, compressing natural gas to high pressures is a relatively lower-cost way to improve the energy density of the fuel and reduce its transportation costs, albeit not to the degree of LNG.  CNG exports are already happening, and may soon increase.

Emera recently proposed to construct a CNG compression and truck-loading facility at the existing Port of Palm Beach in Riviera Beach, Florida, in order to export CNG to the Commonwealth of the Bahamas.  At the site, Emera would draw natural gas from the Riviera Lateral, a pipeline owned and operated by Peninsula Pipeline Company.  Emera would then dehydrate and compress the gas to fill containers that would be loaded onto trucks.  The proposed CNG facility would initially be capable of loading 6 million cubic feet per day (MMcf/d) of CNG, with expansion capabilities up to 25 MMcf/d.  Once loaded onto trucks, Emera will haul the containers to a berth about a quarter mile away at the Port of Palm Beach.  At the port, the containers will be loaded onto a roll-on/roll-off ocean-going carrier and shipped to Freeport, Grand Bahama Island, where the containers would be unloaded, the CNG decompressed and injected into a pipeline for transport to electric generation plants owned and operated by Emera affiliate Grand Bahama Power Company and other customers on Grand Bahama Island.

To reduce regulatory uncertainty, Emera petitioned the Federal Energy Regulatory Commission for a declaratory order that its project will not be subject to the Commission’s jurisdiction under the Natural Gas Act.  Last month, a majority of the FERC Commissioners found that the construction and operation of the CNG facility described by Emera would not be subject to FERC's authority over natural gas exports under the Natural Gas Act.  In particular, the majority opinion held that Emera’s facilities to compress and load CNG onto trucks are not jurisdictional export facilities.

In reaching this conclusion, the majority found that the proposed CNG facilities were unlike the border-crossing pipelines and coastal LNG terminals that the Commission traditionally has regulated under section 3 as import/export facilities, and more like existing, unregulated facilities that deliver LNG into trucks which are subsequently driven across the border into Canada or Mexico.  Indeed, the opinion cites the example of Xpress Natural Gas, which has a CNG plant in Maine that receives gas from an interstate pipeline and loads CNG containers onto trucks for delivery to customers in Canada and in New England.  The Commission does not regulate the CNG facility under either section 3 or 7, nor does it exercise jurisdiction over the trucks’ passage across the border under section 3.

The majority opinion similarly found that because Emera said that all of the natural gas to be compressed at Emera’s planned facility will be exported in foreign commerce to the Commonwealth of the Bahamas, the Commission’s section 7 jurisdiction over transportation and sales of gas for resale in interstate commerce would not be implicated by Emera’s proposal.

Notably, new Commissioner Norman Bay dissented from the majority opinion.  Noting language in section 3 of the Natural Gas Act giving FERC jurisdiction over natural gas exports, Commissioner Bay's dissent describes the majority’s argument as that because the CNG will leave Emera’s facility by truck and travel a quarter of mile before being loaded onto ocean-going carriers for export – rather than by a pipeline running across a border or to a tanker – the facility is not an “export facility” under section 3 of the Natural Gas Act. In Commissioner Bay's words, "It cannot be that the Commission’s jurisdiction turns on this 440-yard truck journey."

With FERC regulation under the Natural Gas Act behind it, Emera will still need other approvals to export CNG; for example, Emera has filed an application with the U.S. Department of Energy's Office of Fossil Energy for authorization under Section 3 of the Natural Gas Act for export of natural gas.

What role will CNG exports play in the U.S.'s energy future?