STEVEN JONES, Marten Law Group, December 12, 2007
The Federal Energy Regulatory Commission (FERC) recently announced a new policy to promote “hydrokinetic” electricity generation projects — projects which produce electrical power from currents, waves and tides. Under the new policy, hydrokinetic projects may be granted conditional licenses from FERC prior to obtaining other necessary environmental permits. These “conditioned licenses” are expected to facilitate financing for wave and tidal energy projects. The new licensing process is a departure from FERC’s traditional process for hydropower projects, which mandated that approvals under the Clean Water Act, the Endangered Species Act and the Coastal Zone Management Act be obtained before FERC commenced its permit review. Notwithstanding this change in the order of review, construction on hydrokinetic projects cannot commence until all necessary environmental permits have been issued. FERC has already been using a similar system for natural gas pipelines and liquefied natural gas facilities.
The new policy is one of several steps FERC is taking to encourage the development of hydrokinetic projects. On February 15, 2007, FERC issued an interim statement of policy proposing to implement a “strict scrutiny” test in analyzing hydrokinetic preliminary permit applications to prevent site banking and to promote competition. In addition, FERC staff has issued a “White Paper” proposing a pilot program that would expedite the licensing process for hydrokinetic projects that could be completed in as few as six months. The pilot program would be available only for proposed kinetic projects that are small (five megawatts or less), are removable or able to be shut down quickly, are not located in sensitive areas, and are for the purpose of testing new technologies or locating appropriate sites.
Background of FERC’s New Policy
In recent years, there has been significant growth in efforts to test and develop projects that harness water resources to produce electric power. According to FERC, if fully developed, hydrokinetic projects could double the amount of hydropower production in the United States, bringing it from just under 10 percent to close to 20 percent of the national electric energy supply.
FERC’s traditional hydropower licensing procedure requires applicants to obtain necessary environmental permits prior to receiving a license from FERC. In such cases, FERC typically would not provide official authorization to begin pre-construction activities, let alone construction, until an applicant obtained these authorizations. This process often resulted in substantial delays in a developer’s commencement of non-construction activities. This permitting regime frequently had an adverse impact on a developer’s ability to move forward with construction since FERC would not commence its review and development of final license terms until after it had received the necessary authorizations from relevant state and federal agencies.
FERC has taken a different approach with respect to authorizations issued under the Natural Gas Act. In those cases, FERC has issued pipeline certificates and authorizations to construct liquefied natural gas facilities while action by other entities was still pending, though these authorizations were conditioned on the applicant obtaining the remaining authorizations before construction of any new pipeline could be commenced.
FERC’s Policy Statement
On November 30, 2007, FERC announced that it will take this same approach with respect to hydrokinetic projects. FERC summarized its new policy as follows:
[F]or new hydrokinetic projects only, [FERC] will … issue project licenses where the [FERC] has completed processing an application but other authorizations remain outstanding. In such cases, the license will include conditions precluding the licensee from commencing construction until it has obtained all necessary authorizations.
As its basis for issuing the policy, FERC stated its interest in “establishing a regulatory climate that supports the development of innovative hydropower projects that use the forces of currents, waves, and tides . . . . The goal of this action is to shorten the regulatory process and speed the development of meritorious hydrokinetic projects.”
FERC also provided several “policy reasons” for following “the gas pipeline practice rather than the conventional hydropower practice” in the context of hydrokinetic projects. These include:
- There will be no new environmental impact from the new policy, since licensees will not be able to commence construction until all necessary additional authorizations have been obtained, filed with FERC, and incorporated into the FERC license.
- The authority of state or federal agencies will not be diminished.
- FERC’s increased ability to respond quickly to innovative project proposals should help encourage relevant state and federal agencies to do the same.
- The prompt issuance of a conditioned license will facilitate project proponent’s securing financing and completing other non-construction elements of a project.
Finally, FERC noted that issuance of a conditioned license will constitute a final agency action, subject to rehearing. Accordingly, once finalized, the terms of a conditioned license will be binding on licensees.
Proponents of hydrokinetic energy hope this new FERC policy will further invigorate what is becoming a burgeoning electrical energy development industry. Hydrokinetic pilot projects are already underway in various parts of the United States, particularly along the northwestern coast. By streamlining what used to be a time-consuming licensing process, FERC’s new policy should facilitate moving projects out of the feasibility stages and into the formal, long-term licensing process, as well as generally encourage further hydrokinetic development. Increasing the number of wave and tidal energy projects obtaining licenses should also enhance competition in the industry. In addition to providing some certainty which should aid in financing, FERC’s new policy will allow applicants to commence “non-construction” activity upon the issuance of a conditional license, which previously would have had to await final license approval by FERC at the conclusion of the process.
Receiving a conditioned license, however, does not mean that a licensee does not have to satisfy FERC requirements ordinarily imposed in hydropower licenses. Accordingly, recipients of conditioned licenses need to be aware of their obligations to comply with all (non-construction) license terms contained in their authorizations while awaiting pending permits from other agencies. Such terms could include requirements to conduct stakeholder consultation and to develop certain pre-construction plans. Furthermore, as noted above, while the new policy allows FERC to proceed with issuance of conditioned licenses prior to an applicant obtaining other environmental authorizations, it does not alleviate the necessity of obtaining those permits prior to the commencement of construction.
In light of FERC’s new policy directive, utilities and other entities considering developing a wave or tidal energy project should evaluate whether this new policy provides incentive to enter into the FERC licensing process sooner than originally anticipated. In addition, those who have already filed applications should contact FERC to assure that their applications are being processed in a way that is consistent with this newly-announced policy.