PG&E withdraws Potter Valley hydro relicensing, FERC opens orphan project solicitation

California electric utility Pacific Gas and Electric Company has withdrawn its expression of intent to seek a new license for the Potter Valley Hydroelectric Project, saying its relicensing would be contrary to the interests of its electric ratepayers. The withdrawal has prompted federal hydropower regulators to institute an "orphan project" process to find interest from other entities in seeking a license for the project. If no other entity seeks and obtains a new license for the project, PG&E would be responsible for surrendering the existing project license.

The Potter Valley Project is located on the Eel and East Fork Russian Rivers in northern California, about 15 miles northeast of the city of Ukiah. Originally licensed by the Federal Power Commission in 1922, and owned by PG&E since 1930, the project includes Lake Pillsbury, impounded by Scott Dam; the Van Arsdale Reservoir, impounded by the Cape Horn Diversion Dam; and a tunnel, penstock and powerhouse located in the headwaters of the Russian River Basin. PG&E estimates the average annual generation of the project to be 19,900 megawatt-hours, with an installed capacity of 9.4 megawatts. The current license issued by the Federal Energy Regulatory Commission expires on April 14, 2022, requiring PG&E to submit a new license application by April 14, 2020.

On April 6, 2017, PG&E filed a pre-application document (PAD) and notice of its intent (NOI) to file an application for a new license. But on January 25, 2019, PG&E filed notice of the withdrawal of its NOI and PAD, indicating it is no longer seeking a new license for the project and is terminating its efforts to transfer and sell the project.

In that notice, PG&E said it has "determined that it would be contrary to the interests of its electric ratepayers to continue relicensing the Potter Valley project." PG&E said it had long recognized hte project as "uneconomic for PG&E's ratepayers (i.e. the cost of production exceeding the cost of alternative sources of renewable power on the open market)." PG&E cited "continued declining energy markets, potential increased costs associated with anticipated new license conditions, and challenging financial circumstances" as leading the company to conclude it cannot justify to its ratepayers further expenditures associated with the project.

PG&E noted its anticipation that the Commission would institute its "orphan project" process under the Commission's rules to solicit license applications for Potter Valley from other entities, and expressed its understanding that PG&E would be responsible for surrendering the existing license if no other entity seeks and obtains a new license for the project. PG&E closed by saying it "recognizes the value of Potter Valley to local communities because it provides for the protection of important environmental resources, consumptive water uses, public recreation, and other economic values" which the utility said should be appropriately considered if it is required to file a surrender application.

In response, on March 1, 2019, the Commission issued a Notice Soliciting Applications for a new license for the Potter Valley project within 120 days. The Commission noted that if no other applicant files an application for a license by April 14, 2020, PG&E would be provided with written notice that no timely application for the project has been filed, and would then have 90 days within which to file a schedule for the filing of a surrender application for the project.

Licensee seeks West Branch and Sysladobsis Dam amendment

A Maine dam owner has applied to federal regulators seeking to exclude from its hydropower license one of two dam-based developments which comprise the project.

At issue is the January 31, 2017 application of Woodland Pulp LLC to the Federal Energy Regulatory Commission for an amendment to the license for the West Branch Storage Dam Project.  The West Branch project was first licensed in 1980, and currently operates under a license issued by the Commission in 2016.  It includes two developments -- Sysladobsis and West Grand -- each of which operates as a water storage facility to provide flood storage and flow releases for downstream hydroelectric generation. 

As described in the license amendment application, the Sysladobsis development includes Sysladobsis Dam.  This dam is about 250 feet long and 9 feet high, consisting of three earth embankment sections, a small timber gate structure, and a fish passage facility.  The dam impounds the 5,400-acre Sysladobsis Lake; water released from the dam flows Sysladobsis Lake into the downstream West Grand impoundment, then into either Grand Lake Stream or Grand Lake Brook.  The project does not include any electricity generating facilities, but rather operates as part of a 112-year-old system of headwater storage dams in the St. Croix River watershed including Woodland Pulp LLC’s Forest City Project No. 2660 which the licensee has applied 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 licensee has requested FERC approval to remove the Sysladobsis development from the West Branch Project as a legal matter, and proposes "to remove the two wooden gates at the Sysladobsis Dam," but says it "does not propose to remove the Sysladobsis Dam as part of the amendment, and such removal is not necessary or appropriate."  Rather, the applicant asserts, "There will be no structural alteration of the dam, and there will be no discharge into the water. Once the gates are removed, the dam will no longer act as a water control structure for Sysladobsis Lake. Instead, impoundment levels and outflow will be determined by the natural precipitation cycle."

According to the licensee's application, "This change is necessary since operation of the Project as-is will no longer be economic under the new license issued March 15, 2016."  The licensee cited license terms and conditions including specific water level requirements and operating plans, reporting, and consultation requirements, "some with unreasonable time constraints."  The application notes, "As such Woodland cannot continue to fund and support the Sysladobsis development and incur increased losses on non-economically viable facility components."

In a separate docket, the Commission is considering an application by the same licensee to surrender its Forest City project license.

Fate of U.S.-Canada dam license in question

The holder of the U.S. federal hydropower license for a dam spanning the international border with Canada border has petitioned for approval to surrender that license, citing economic considerations.

At issue is the Forest City Project, located on the East Branch of the St. Croix River which forms the international boundary between the United States and Canada.  The Project operates under conditions set by the International Joint Commission (IJC) in accordance with the Boundary Waters Treaty of 1909, as well as a license issued by the U.S. Federal Energy Regulatory Commission.  The project currently operates under a license issued on November 23, 2015.  That 30-year license expires on October 31, 2045.

Licensed by the Commission as Project No. 2660, the project includes the U.S. portions of a 540-foot-long, 12-foot-high earth dam, an impoundment spanning several lakes, and appurtenant facilities. There are no generating facilities located at the project; rather, the Forest City Project operates as part of a headwater storage system along with two other projects licensed to Woodland Pulp -- West Branch Project No. 2618 and Vanceboro Project No. 2492.  Two hydroelectric generation projects are located downstream on the St. Croix River from these storage facilities, the unlicensed Grand Falls and Woodland hydroelectric projects.

On December 23, 2016, Forest City Project licensee Woodland Pulp LLC applied to the Commission to surrender its license.  A cover letter attached to that application states, "Woodland Pulp has determined that the high cost of operating the Project pursuant to the new FERC license renders the Project uneconomical." In the surrender application itself, the company cited license provisions including new operating restrictions on reservoir pool elevation, a reservation of the Commission’s authority to require additional fishways if so prescribed by the Secretary of the Interior, and a requirement to develop a Historic Properties Management Plan (HPMP), as adding risk or cost.  As noted in the surrender application, "After a comprehensive review of the conditions in the License, the minimal contribution to downstream power generation, and the significant added cost and increased complexity of the License, coupled with the loss of flexibility required to comply with the License, Woodland Pulp has concluded that it is not economic for the company to continue to operate the project.

As described by the Commission in an April 6, 2017 public notice of the surrender application, the licensee proposes to remove the gates on the west side of the spillway.  According to the licensee, removing these gates will return water flow to natural flow conditions, and the Forest City Dam will no longer act as the water control structure for East Grand Lake, nor will it use, obstruct, or divert international boundary waters.

The Commission has docketed the surrender application as P-2660-028, and set deadlines for comments, protests, and interventions in the case.

New Jersey FERC license surrender and dam removal

U.S. energy regulators have accepted an application to surrender the licensee for a New Jersey hydropower project.  Earlier this month, the Federal Energy Regulatory Commission accepted Great Bear Hydropower Inc.'s application to surrender its license for the Columbia Dam Project, located on the Paulins Kill.  While the Commission decision to accept license surrender does not necessarily mean the dam will be removed, it represents a significant step toward letting the dam owner pursue dam removal if it wishes.  The case also illustrates tensions between hydropower development and dam removal, which remain active in U.S. policy discussions, and the consequences of state jurisdiction following FERC license surrender.

On January 15, 1986, the Commission issued a 40-year license for the construction, operation, and maintenance of hydroelectric facilities at the existing Columbia Dam.  The project includes a 20-foot-high, 330-foot-long concrete dam, originally built by a utility in 1909.  The site was sold to the state in 1955, after which the original electric generation was discontinued.  Following the project's 1986 licensing by FERC, the licensee added a powerhouse containing two generating units with a total installed generating capacity of 530 kilowatts.

The dam remains owned by the state of New Jersey as part of the Columbia Wildlife Management Area, and the licensee has been operating the project under a long-term lease with the state. But significant efforts are under way to improve water quality in the Delaware River basin.  The Nature Conservancy has described a strategy for watershed restoration that features the Columbia Dam's removal as a key component.  After the state and The Nature Conservancy entered into an agreement to remove the dam, the licensee ultimately agreed to surrender its license and remove only its hydroelectric facilities originally added to the dam, leaving the state to perform any future dam removal.

Because the Columbia Dam Project is subject to Part 1 of the Federal Power Act, its license could not be surrendered without approval of the Federal Energy Regulatory Commission.  The licensee applied for surrender in October 2015.  The Commission granted that approval on August 10, 2016.

The FERC license surrender does not necessarily mean that the dam itself will be removed, although it does provide for decommissioning of the hydropower equipment.  The Commission accepted the licensee's proposal to remove the generating equipment, transformers from the powerhouse, and disconnect the electric connection to the local utility.  The license surrender will not be effective until the Commission agrees that the project’s facilities have been decommissioned in accordance with this surrender order.

As for the dam, the Commission noted, "It will be up to the state of New Jersey, the dam owner, to decide whether to remove the Columbia Dam, once the hydroelectric facilities have been decommissioned.  Dam removal would have some ecological, social, and economic benefits for the Paulins Kill watershed."  Following the effectiveness of license surrender, safety matters would primarily be state jurisdictional, and any dam removal would proceed primarily under state law.

While hydropower continues to play a significant role in the overall U.S. energy mix, with new and ongoing federal initiatives to increase hydropower generation, in some cases economics and environmental considerations may lead to the surrender of some project licenses.  This may be particularly true for some relatively small dams with fish passage issues facing relicensing in coming years.

Whitestone hydrokinetic license surrendered

Despite efforts to offer a streamlined regulatory path for some demonstration hydropower projects, earlier this year the holder of a hydrokinetic pilot project license for a project proposed for the Tanana River in Alaska surrendered its license due to an inability to find financing. The case of the Whitestone Poncelet River-In-Stream-Energy-Conversion (RISEC) Pilot Project No. 13305 illustrates the Federal Energy Regulatory Commission’s hydrokinetic pilot project licensing process, the difficulties of testing and developing new hydropower technologies, and how the Commission handles pilot license surrender.

Whitestone Power and Communications, an assumed name of the Whitestone Community Association, had proposed the project as a 100-kilowatt demonstration of its proprietary hydrokinetic prototype technology. It was to be located on the Tanana River at its confluence with the Delta River, about 90 miles southeast of Fairbanks. A Poncelet undershot waterwheel and generator unit mounted on a floating platform, seasonally installed and moored to a cliff. Power produced would be supplied to the Golden Valley Electric Association grid.

The Federal Energy Regulatory Commission granted WPC a five-year pilot project license on October 19, 2012. In processing WPC’s application, the Commission used a hydrokinetic pilot project licensing process derived from from its Integrated Licensing Process. According to the Commission, the hydrokinetic pilot project licensing process was designed “to meet the needs of entities, such as Whitestone, who are interested in testing new hydropower technologies while minimizing the risk of adverse environmental impacts.” The Commission describes the goal of the pilot licensing process as “to allow developers to test new hydrokinetic technologies, to determine appropriate sites for these technologies, and to confirm the technology’s environmental and other effects without compromising the Commission’s oversight of the projects and limiting agency and stakeholder input.”

As outlined in a white paper prepared by Commission staff, a hydrokinetic pilot project should be: (1) small; (2) short term; (3) located in environmentally nonsensitive areas; (4) removable and able to be shut down on short notice; (5) removed, with the site restored, before the end of the license term (unless a new license is granted); and (6) initiated by a draft application in a form sufficient to support environmental analysis. After finding the WPC project met these standards, the Commission issued it a license in 2012. Article 301 of the license required the licensee to commence construction of the project works within two years from license issuance, i.e., by October 19, 2014.

Despite winning a license, the project was never built. In 2014, WPC asked for and received a two-year extension of the start-of-construction deadline, “due to unforeseen setbacks in obtaining the necessary financing to begin construction.” But in that order, the Commission reminded the licensee that, pursuant to section 13 of the Federal Power Act, the deadline for starting construction may only be extended once, for a period not exceeding two additional years. Therefore, the Commission noted its inability to grant any further extensions of time for the commencement of project construction.

But in September 2015 WPC applied to the Commission for surrender of its license. In its surrender application, WPC stated that it was unable to obtain the funding necessary to construct the project and had not constructed any project facilities.

In April 2016, the Commission granted WPC's surrender application without condition, citing the facts that the licensee had not commenced construction and that the project site remained unaltered.

The Whitestone project was among the first to use the Commission’s hydrokinetic pilot project licensing process. But despite receiving expedited regulatory treatment in licensing, financing challenges led the licensee to surrender its license before the project could be constructed. Some other proposed hydrokinetic projects have been canceled or put on hold, following licensure; earlier this year, the Commission accepted license surrender for a Washington tidal power project licensed as a 10-year pilot project, after the public utility district proposing it found it economically infeasible. Another project -- an ocean wave energy farm off the Oregon coast -- surrendered its pilot license
 in 2014.

Wisconsin municipal hydro project license extended

Federal energy regulators have granted a Wisconsin city's request to extend its hydropower project license for five years to allow time for comprehensive river corridor planning.  The March 17 order was the result of a rehearing following a denial by agency staff.  It relies on a finding of "relatively unique facts," which include a stakeholder process that will inform the licensee's upcoming decision whether to continue an effort to seek a new license for the project, or to surrender the license.

At issue is the Federal Energy Regulatory Commission license held by the City of River Falls, Wisconsin, for the 375-kilowatt River Falls Project on the Kinnickinnic River.  The municipal hydro project's current 30-year license expires on August 31, 2018, and a relicensing process is already underway -- but the city is also considering alternatives including surrendering the license.  As a result, last year the City filed a request to extend the expiration date of its license by five years, until August 31, 2023.  The City asked for more time to work with stakeholders and the community to complete a comprehensive river corridor plan, and determine whether to relicense the project or surrender the license.

But on December 9, 2015, Commission staff issued an order denying the City’s request. The order noted that the Commission has granted extensions of license terms only in a few specific instances and under limited circumstances.  For example, the Commission has extended license terms to amortize the cost of substantial new improvements or substantial new environmental measures, to coordinate the expiration dates of licenses in the same river basin, or because of unique circumstances or circumstances beyond a licensee’s control -- factors it did not originally find applicable to this proceeding. 

The City filed a timely request for rehearing of this denial, which the Commission recently granted.  In its March 17, 2016 order extending the license term five years, the Commission noted that it "generally does not favor actions that delay the completion of licensing proceedings," and historically "has extended license terms only in very narrow circumstances."  But "given the relatively unique facts of this case", the Commission found that an extension of the license term was in the public interest.

The Commission cited a list of specific factors making this proceeding unique:

We find that the unique circumstances of this proceeding – the combination of unanimous stakeholder support for the extension, the tying of the extension to the development of a comprehensive river plan, and the fact that the licensee is a small municipality – demonstrate that a five year extension of the project license is in the public interest. All resource agencies and stakeholders support the City’s proposal to extend the license term in order to complete the corridor plan and decide whether to seek a subsequent license or surrender the project. This strong support and lack of any adverse comments demonstrates that the City is not requesting an extension of the license term merely to delay the preparation of a relicense application and to continue generating under more favorable terms.

It also noted an efficiency benefit from extending the license term, given the pending question: whether to relicense the project, or surrender the license:

Last, allowing the City time to determine if it should relicense or surrender prior to having to file a relicensing application is the most efficient use of resources. As a small municipality, the City may incur significant costs in preparing and processing a relicensing application despite the fact that it may later surrender its license.

The Commission's order extended the license term for the River Falls Hydroelectric Project to August 31, 2023.  Meanwhile, the comprehensive Kinnickinnic River corridor planning process will continue.  That process may inform the City's decision whether to relicense the River Falls project, surrender its license, or pursue some other alternative.

Washington tidal power license surrendered

U.S. hydropower regulators have accepted a Washington public utility district's application to surrender its license for an unconstructed tidal power project.

Public Utility District No. 1 of Snohomish County, Washington was the licensee for the Admiralty Inlet Pilot Tidal Project No. 12690.  The hydrokinetic energy project was to be located on the east side of Admiralty Inlet in Puget Sound, about 0.6 mile west of Whidbey Island. Project works were to consist of two 300-kilowatt OpenHydro tidal turbines, each mounted on a triangular subsea base, adaptable monitoring devices, trunk cables extending from each turbine to an onshore cable termination vault, and transformers and other facilities connecting to Puget Sound Energy’s electrical distribution system.

The Federal Energy Regulatory Commission issued a minor, pilot project license for the Admiralty Island project on March 20, 2014, enabling construction, operation, and maintenance of the project for a period of ten years.

But in September 2014, the licensee was notified that it would not receive additional funding to proceed with the development of the project. Unable to locate alternative funding sources, the licensee determined that the project was no longer financially feasible. The licensee therefore requested to surrender its license.

On December 4, 2015, the licensee filed an application to surrender its license. Two entities filed motions to intervene in support of the license surrender.

On March 21, 2016, the Commission issued its order accepting the Admiralty Inlet tidal project's license surrender. In that order, the Commission noted that no construction or ground-disturbing activity has occurred, that the project site remains unaltered, and that surrendering the license would not affect any environmental resources.  The Commission therefore approved the licensee’s application to surrender its license without condition.

As a result of the order, the license for the proposed Admiralty Inlet Pilot Tidal Project No. 12690 is surrendered, effective at the close of business on March 21, 2016.  The site could still be developed as a tidal power resource, if a future application for development is granted.

FERC hydro dam relicensing, timing and options

Under U.S. law, the Federal Energy Regulatory Commission has jurisdiction over most hydropower dams and projects.  The Federal Power Act directs the Commission to issue licenses for hydropower projects for a defined term of years, and provides the basis for the FERC hydro relicensing process.  The relicensing process can take years, and often must be started before a licensee has made final long-term plans for the project's fate.  For example, what if a FERC licensee is considering surrendering the license and removing the dam, at the same time that its existing license approaches expiration and a relicensing application is due?

A recent order by FERC staff under its delegated authority in City of River Falls, Wisconsin, P-10489-014, illustrates this dynamic.  The City of River Falls, Wisconsin, holds the license for the River Falls Project on the Kinnickinnic River, in Pierce County, Wisconsin.  When the license for the River Falls Project was issued, the Commission determined that a 30-year term was appropriate and in the public interest.  That current license expires on August 31, 2018.

Because the FERC hydropower relicensing process can take years -- or longer -- licensees who wish to retain licensure are required to start the planning, stakeholder, and application filing processes early.  In the River Falls case, a relicense application will be due by August 31, 2016.  To get the ball rolling, in 2013 the City filed a Notice of Intent (NOI) to relicense the project and Pre-Application Document (PAD) and elected the Commission’s Traditional Licensing Process (TLP).

Meanwhile, the City of River Falls is trying to evaluate the project's future.  The City is considering surrendering the license instead of continuing with relicensing, and to draft and adopt a Kinnickinnic River Corridor Planning Strategy to "reflect a single community vision for the river, with or without the hydroelectric project."

But the studies and deliberation required to evaluate dam relicensing, surrender, or alternatives take time.  Meanwhile, the clock ticks toward license expiration.  The City tried to buy 5 more years, by asking FERC to extend the termination date of its existing license, so that it expires on August 31, 2023.  As described by FERC:

The City states the additional time is needed so that it does not spend time and money relicensing the project only to determine through its Corridor Plan that the license should be surrendered and the project decommissioned. The City believes that a lengthy and expensive licensing process is the wrong process for making such a determination. The City explains that a decision about the future of the project would be made by the fall of 2017, and a notice of intent to relicense the project or a surrender application would be filed no later than August 31, 2018.

The City's request was supported by public commenters, mostly on the theory that an extension would allow time to explore license surrender and dam removal.

But as expressed in the order, the Commission saw "no reason why the City cannot evaluate both license surrender and relicensing in the remaining time it has to file a relicense application (due August 31, 2016). In fact, analysis of studies and feedback from agencies would help inform its decision of whether or not to continue to pursue the project."  In particular, the Commission did not view the simultaneous City's Corridor Plan process as "unique circumstances or circumstances beyond the City’s control that prevent it from making a determination by August 31, 2016... as to whether to relicense or to surrender the project."

The Commission also distinguished the River Falls case from precedent where it has extended other license terms, either to enable a licensee to amortize the cost of substantial improvements to project facilities or substantial new environmental measures, or to coordinate the license expiration date with the expiration dates of other licenses in the same river basin.

Ultimately, the Commission denied the City of River Falls, Wisconsin’s application to extend the license term for the River Falls Project from August 31, 2018, to August 31, 2023.  As noted in the Commission's order, the "City remains able to work on both a relicensing option and a surrender option while it develops its Corridor Plan should the City wish to do so."

The City has filed its Notice of Intent and Pre-Application Document, and has received Commission approval to use the Traditional Licensing Process.  Any relicense application will be due 2 years before the current license expires, or on August 31, 2016.  In the meantime, the City will presumably continue to explore its options, including license surrender and dam removal, or relicensing the project.

Texas small hydro project loses exemption

What happens to a proposed hydroelectric project takes longer than anticipated to be built, due to difficulties with project financing and severe flooding?  As the developer of a proposed project in Texas recently found out, federal regulators can be lenient up to a point -- but under some circumstances the developer can lose its federal authorization to develop and operate the project.

The A.H. Smith Dam on the San Marcos River in Martindale, Texas was originally constructed in about 1894 to provide mechanical power a cotton gin; later, electric generation was installed, but power production ceased in the 1940s when low wholesale energy prices made operation uneconomic.  Modern hydropower facilities rated at 150 kilowatts were installed in 1984, but were ultimately abandoned.

In 2005, developer Hydraco Power, Inc. applied to the Federal Energy Regulatory Commission for an exemption from the licensing requirements of Part I of the Federal Power Act for its proposed A.H. Smith Dam Project.  Hydraco's project included refurbishing and restoring the operation of the existing turbine located at the dam's powerhouse, installing a new buried transmission line and a water surface elevation gate in the headpond.

On June 2, 2006, the Commission granted Hydraco an exemption for the project.  As a standard condition of exemptions, the Commission retained the right to revoke the exemption if any term or condition was violated.  Among the terms was a requirement that Hydraco file within 120 days a
plan and schedule to install the new transmission line and restore the powerhouse, turbine, and trash racks to operating condition, as well as notice that the Commission could terminate the exemption if actual construction of any proposed or required facility had not begun within two years or had not been completed within four years of the date of issuance of the exemption.

Over the next 8 years, Hydraco filed a series of construction plans and schedules, but never completed the project despite obtaining repeated extensions of key deadlines.  After multiple prompts by Commission staff to file a revised plan and schedule for restoring project operation or an application to surrender the exemption, the Commission noted that Hydraco either failed to respond or responded by stating that it could not estimate a schedule for restoring project operation because project construction, including major component repairs, was on hold due to lack of funds.

After the Commission issued a public notice in August 2014 stating its intent to terminate the project exemption "due to Hydraco’s longstanding violation of exemption Article 10 and its failure to provide a timeframe for restoring project generation", on November 20, 2014, the Commission issued an Order Terminating Exemption. That order found that "Hydraco has only performed minimal work at the project since obtaining its exemption in 2006 and that it lacks the funding to proceed with the necessary component repairs, including construction of the powerhouse interior and generating unit."

Hydraco filed a request for rehearing of the Order Terminating Exemption.  On rehearing, Hydraco asserted that it had reached a financing agreement with a new investor and, consequently, it is ready to perform the work needed to comply with its exemption. Hydraco also objected to the findings that project construction was at a standstill and that Hydraco intended to abandon the project, noting that the Commission should excuse construction delays caused by severe flooding.

Last week, the Commission issued an Order Denying Rehearing in the case.  It first noted that Hydraco had not demonstrated that it now has the money needed to bring the project on line.  Not only did Hydraco not show evidence of a final financing agreement, but the documents showed a source of only half of the funding needed for project restoration.  Second, the Commission noted that Hydraco's recent activities -- regularly inspecting the dam and removing debris from its spillway, trashracks, and grates, securing the site against vandalism and installing lighting, and repairing damage caused by a flood -- are "either maintenance or repair, not project development."  Finally, the Commission articulated its "doctrine of implied surrender", which it applies where the entity responsible for the project has, by action or inaction, clearly indicated its intent to abandon the project, but has not filed a surrender application.

With the exemption terminated and Hydraco's request for rehearing denied, the A.H. Smith Dam project faces an uncertain future.  On the one hand, the site presumably still offers many of the same values that Hydraco hoped to capture -- use an existing dam, with existing generation facilities, to generate renewable electricity.  However, the loss of the FERC exemption means that Hydraco (or any other developer) will have to start the federal hydropower process over if it hopes to redevelop the dam as a hydroelectric generating site.

The case of the A.H. Smith Dam project illustrates a number of themes: interest in restoring existing hydropower infrastructure to generate renewable energy with relatively less environmental impact than newly-built dams, the challenge of securing financing for small hydropower projects -- and perhaps most importantly the value of compliance with FERC hydropower rules.

Setting fees for use of federal dams

Federally owned dams and other structures can create opportunities for private development of hydropower facilities, in exchange for a fee.  While fees charged to hydropower developers for using federally owned dams will likely remain stable in the near term, a look at the history of government dam use charges illustrates the process and dynamics involved in setting these fees.

Under federal law, many aspects of hydropower projects are regulated by the Federal Energy Regulatory Commission.  Section 10(e)(1) of the Federal Power Act (FPA) authorizes the Commission to collect annual charges from hydropower licensees whose projects make use of government dams or other structures owned by the United States.

Before 1984, the Commission assessed charges for the use of government dams and other United States structures on a case- by-case basis.  Typically, the Commission charged licensees half of the project's shared net benefit.  That net benefit was defined as the difference between the value of the power (taken as the least expensive alternative power) and the cost of project power (computed from the costs of building and operating the project). 

In 1984, the Commission issued Order No. 379, replacing its government dam use charges with graduated flat rates.  In that order, the Commission concluded that this method "best balances the statutory goals of providing a reasonable return to the Federal government, encouraging hydropower development, especially small projects, and minimizing costs to consumers."

Congress enacted the Electric Consumers Protection Act (ECPA) in 1986, which amended those portions of Section 10(e) of the FPA that authorize the Commission to collect government dam use charges.  ECPA adopted the method and rate levels of the Commission's new graduated flat rate structure as both the maximum allowable and the only federal dam use charges assessed by any U.S. agency. The Commission currently levies these maximum values, as it has since adopting them in 1984.

Section 10(e)(4) of the FPA requires the Commission to report to Congress every five years on whether the government dam use charges are appropriate.  The Commission's fifth and most recent report, dated October 17, 2013, concluded that the fees continue to provide reasonable compensation to the government.  The report noted that in the last five years some licenses for both constructed and unconstructed projects at government dams have been surrendered or terminated, but that there had been no indication that the dam-use fees played a role in such outcomes.  In addition, the Commission noted that it had issued 18 new licenses to projects located on government dams in the last five years that will be subject to these fees when they begin to generate power.

With a no-action recommendation by the Commission, Congress may choose not to amend Section 10(e) of the Federal Power Act in the near term.  However, the ECPA requires a periodic reassessment of the level of government dam use charges; the next mandatory report will come in 2018.  Moreover, Congress is interested in promoting new hydropower development, as is evidenced by its enactment of the Hydropower Regulatory Efficiency Act of 2013; Congress could, on its own, modify government dam use charges.  Nevertheless, for the near term, U.S. government dam use charges assessed under the Federal Power Act will likely remain stable.

Oregon wave energy project surrenders license

Ocean waves contain tremendous amounts of energy that could be harnessed by humans -- but difficulties have led a pilot project proposed off the Oregon coast to surrender a key federal license.

Calm waters along the shore of Penobscot Bay, Maine.

Ocean Power Technologies subsidiary Reedsport OPT Wave Park, LLC had proposed a wave energy project in the Pacific Ocean off the central Oregon coast.  In 2012, the Federal Energy Regulatory Commission issued a license for the project.  That license authorized the developer to install a single "PowerBuoy" wave energy converter for testing, followed by additional grid-connected buoys.  The developer also envisioned a third phase that could bring the project's capacity to 50 megawatts, and secured a preliminary permit from the Commission to study the site.

Despite securing these key regulatory approvals, the Reedsport project quickly ran into technical difficulties.  Reedsport began construction of the project in September 2012, by installing a single floating gravity based anchor and auxiliary subsurface buoy.  However, this first phase of the project was unsuccessful and the auxiliary buoy sank.  Reedsport removed the buoy and associated tendon and outer mooring lines from the project area on October 17, 2013.  On February 28, 2014, Ocean Power Technologies notified the Federal Energy Regulatory Commission that it intended to surrender its preliminary permit for the 50 megawatt third phase, but left the first phase's license in place for the moment.

On May 30, 2014, Reedsport filed an application to surrender its license for project, stating that financial and regulatory challenges in developing the project have forced it to conclude that it cannot proceed with the development of the project.  The Commission accepted that license surrender by order dated August 14, to be effective following confirmation of the project's decommissioning.

With the Reedsport project shelved, no wave energy project currently holds a FERC license.  Several tidal projects have been licensed, one wave-based hydrokinetic project has secured a preliminary permit, and two other wave energy projects have pending applications for preliminary permits.  The ocean remains a demanding environment, and the economics of most wave energy projects are challenging.  Will others succeed where Reedsport OPT has not?

Cape Cod canal tidal energy project

A tidal energy project proposed for the Cape Cod Canal appears not to be moving forward, as ocean energy developer Free Flow Power's affiliate FFP Mass 1, LLC has surrendered its preliminary permit to investigate the site and its priority to seek a license for the project.

The project was proposed for the Cape Cod Canal and part of the Hog Island Channel, between Cape Cod Bay and Buzzards Bay.  The strong tidal currents and coastal geography combine to make the area near the south end of the canal attractive for energy projects.

As early as 2007, tidal energy developer Natural Currents Energy Services, LLC secured a preliminary permit to investigate stake a claim to the waters around the canal.  NCES's preliminary permit was canceled in May 2010 after it missed key deadlines for filing a draft license application and formal notice of intent documents.  At that point, the site went back up for grabs.

Three months later, another developer stepped forward, as FFP Mass 1 filed its application for a preliminary permit for the Cape Cod Tidal Energy Project. As described in the application, FFP's project would consist of up to 2,000 hydrokinetic generation units configured in a series of turbine arrays and turbine fields.  These turbines would be installed from the end of the Cape Cod Canal out southward into Buzzard's Bay, between Taylor Point (home to Mass Maritime Academy) and Hog Neck in Wareham.  FERC granted a preliminary permit later that year.

One year later, in October 2011, Free Flow Power asked FERC to accept its surrender of the preliminary permit for the Cape Cod Tidal Project.  FFP stated that it had completed initial diligence on the project, and that based on the results of that diligence, "FFP has decided not to pursue the licensing of this project".

FERC has now issued an order accepting the surrender of the permit.  FFP Mass 1's preliminary permit will remain in effect until the close of business on March 4, 2012.  Only after that permit expires will the Commission consider new applications for this site, at which point the rights to the site will again be up for grabs.  Given the site's potential, another developer may materialize, or either previous permittee could seek to claim the site in the future. 

Who will be next to try the Cape Cod Tidal Energy Project?