ALYSSA MOIR, Marten Law Group, January 30, 2008
The Washington Department of Ecology (Ecology) took the unusual step this month of challenging a decision by the Federal Energy Regulatory Commission (FERC) to issue a license for a wave energy project on the grounds that FERC had approved the project prior to having received certification from the State of Washington that the project complies with state environmental laws. The project, to be constructed in the Pacific Ocean just off Washington’s coast, appeared to clear a major hurdle in December, 2007 when FERC granted its first-ever wave project license to Finavera Renewables, Inc. of Vancouver, British Columbia. Ecology is now requesting reconsideration of that decision.
Background
The Finavera project consists of four large wave buoys anchored three miles from shore that would produce one megawatt of electricity (enough to supply about 150 homes each year), transmitted to land by an undersea transmission line. The aquatic portion of the project is within Washington State waters, the federal Olympic Coast National Marine Sanctuary and the Washington State Flattery Rocks National Wildlife Refuge. The land portion of the project is within the Makah Indian Nation’s reservation.
Under the federal Clean Water Act (”CWA”) and the Coastal Zone Management Act (CZMA), any FERC licensing decision must incorporate Ecology’s certification that the project is consistent with state environmental regulations. Specifically, Section 401 of the CWA requires that applicants seeking a license from a federal agency such as FERC, for any activity that may result in a discharge into navigable waters, must first receive a Section 401 water quality certification from the state that the proposed discharge will meet the state’s water quality standards and other aquatic protection regulations. The state may impose conditions on the certification of a project to assure compliance with various provisions of the CWA and with “any other appropriate requirement of State law.” Such conditions become mandatory conditions of the federal license, and cover both the construction and the operation of the proposed project. The state has one year to complete its certification review.
Similarly, under the CZMA, a federal agency cannot issue a license for a project within or affecting a state’s coastal zone without a determination that the project is consistent with the state’s coastal zone management program (CZMP). In Washington, the CZMP covers the state’s 15 coastal counties as well as activities outside those counties that may impact coastal resources. Any federal project within the CZMP must comply with six state laws: The Shoreline Management Act, the State Environmental Policy Act (”SEPA”), the Clean Water Act, the Clean Air Act, the Energy Facility Site Evaluation Council and the Ocean Resources Management Act. In order to receive federal consistency certification for federal licenses, including FERC licenses, a project applicant must prepare a statement that the activity is consistent with the six laws and submit that statement directly to Ecology. Ecology then has six months to approve or deny the certification.
Because the aquatic portion of the Makah Bay project is, in part, within Washington State waters, Finavera filed a Joint Aquatic Resources Permit Application (JARPA) seeking water quality certification from Ecology, and a statement of consistency with the CZMA, seeking Ecology’s agreement. Because the land portion of the project is within the Makah Indian Nation’s reservation, Finavera also requested a Section 401 water quality certification from the Makah Indian Tribe, which was issued in June of 2007. The need for the Makah’s certification arises under the CWA, which authorizes the Environmental Protection Agency (”EPA”) to treat a qualified Indian tribe as a state for purposes of certain sections of the CWA, including Section 401. The Makah Indian Tribe received its “Treatment as State” authorization and adopted surface water quality standards in 2006, which include a process for Section 401 Certification.
Under an agreement between Finavera and Ecology, Ecology’s CZMA decision was stayed until it issued its Section 401 Certification decision, which is due in mid-February 2008. However, before Ecology reached a decision on whether to issue the requested certifications, FERC issued its license to Finavera on December 21, 2007.
FERC’s Fast-Tracked License for the Makah Bay Project
Depending on one’s perspective, obtaining state approval prior to federal licensing is either a clear and efficient process or a burdensome barrier to realizing the potential of new technologies. FERC’s traditional procedure has ensured compliance with state laws designed to protect a state’s water quality and shorelines, but has also resulted in delays in project developers’ non-construction activities, such as obtaining financing or power purchase agreements with utilities. Citing the benefits of hydrokinetic power and the quickly increasing number of hydrokinetic permit applications, FERC is now acting on its announced intent to accelerate the development of the new technology while also monitoring its environmental impacts and collecting information for future projects.
FERC’s commitment to this policy is evidenced by its December 20, 2007 decision to conditionally license the Makah Bay project. Released on November 30, 2007, FERC’s new policy applies to new hydrokinetic projects only, and involves issuing project licenses where FERC has completed processing an application but other authorizations, including state certifications, remain outstanding. The pilot licenses include conditions precluding the licensee from beginning construction until it has received all of the necessary authorizations. This is similar to pilot licenses that FERC has issued under the Natural Gas Act (NGA), which fast-tracked the construction of liquefied natural gas facilities. However, this is the first time that FERC has applied this policy to a hydropower project.
The license for the Makah Bay project grants Finavera a conditional five-year license for the proposed project, and includes measures for monitoring the effects of the project on marine and ocean resources, and a requirement to remove the project at the end of the license term. The license is conditioned on Finavera obtaining all additional federal and state permits before construction may begin. Finavera had already signed a purchase power agreement with PG&E just prior to FERC’s licensing decision. While it finalizes its Section 401 Certification and CZMA consistency certification with Ecology, Finavera is now able to move forward with the portions of the license that do not require construction, such as environmental plans. If any adverse environmental impacts arise, the pilot license contains a provision to shut down or remove the project.
Ecology’s Response
In its request for a rehearing, Ecology argues that FERC ignored Congress’ intent to reserve to the states the responsibility for certifying compliance with water quality standards and coastal management regulations. Ecology’s Director, Jay Manning, has said that although the agency “fully supports renewable energy projects in Washington, especially those designed to reduce or eliminate greenhouse gases and other climate-changing pollutants,” FERC “does not have the authority – by statute or Congressional intent – to set aside existing environmental laws designed to protect our state’s water quality and shorelines.” Gordon White, manager for Ecology’s Shorelands and Environmental Assistance program, said that the agency was set to make a 401 Certification decision for Finavera by mid-February, and was also on course in its determinations that the project was consistent with the state CZMA.
Ecology also disagrees with FERC’s assertion that because it has fast-tracked licenses under the NGA, similar procedures can be used to issue hydrokinetic licenses. Ecology argues that “the fact that the Commission, on more than one occasion, elected to issue licenses under the NGA in advance of compliance with Section 401 of the CWA does not indicate that such an approach is consistent with the legal requirements of Section 401. Nor does it lend support in this case where the Commission is issuing a license under the FPA [Federal Power Act].” The agency also takes FERC to task by arguing that “the mere fact that it may take the applicant some time to obtain a water quality certification does not provide [FERC] with the authority to ignore the clear terms of Section 401(a)(1).” Instead, Ecology proposes, FERC could issue draft licenses notifying developers of the conditions that it intends to impose, or simply issue a license the day after an applicant receives its water quality certification.
In broader terms, Ecology has expressed concern that FERC’s issuance of a temporary license has created uncertainty for other developers and regulators as to whether a project has FERC’s approval. Because FERC has indicated that issuance of a conditioned license will constitute a final agency action, subject to rehearing, developers believing that they can move forward with non-construction elements of a project may still face delays as state agencies request rehearings as a means to clarify FERC’s new policy. Further, Ecology notes that pilot licenses do not give developers assurance that their project will indeed meet all environmental regulations as required, potentially creating difficulties in developing environmental plans or obtaining reliable funding.
Practical Implications
Over a dozen in-water renewable energy projects, in California, Oregon, and Washington, are either in the process of obtaining state environmental permits, or about to begin this process. While FERC’s pilot license policy may facilitate moving renewable energy projects forward more quickly, project developers are now caught between FERC’s policy and the State’s argument that the developer must first demonstrate compliance with state environmental laws. The issue of whether the developer needs to acquire state permits prior to receiving its FERC license has been brought to the forefront by Ecology’s request for reconsideration of FERC’s decision, and both developers and regulators have a substantial stake in the outcome.
