New Laws Promote Development of Small Hydropower Projects

Jennings Strouss Attorneys, Deborah A. Swanstrom and Andrea I. Sarmentero Garzón, author “New Laws Promote Development of Small Hydropower Projects,” published in the December issue of the American Bar Association’s Energy and Natural Resources Litigation Committee Newsletter

New Laws Promote Development of Small Hydropower Projects

Hydropower supplies about seven percent of the U.S. electricity demand and is currently the nation’s largest source of renewable carbon-free energy. The operational flexibility that pumped storage hydropower projects provide to the grid, by responding rapidly to supply and demand imbalances and maintaining power system stability, is particularly beneficial. Yet, reportedly only three percent of the dams in the United States currently generate hydropower. Congress therefore decided to change existing laws to promote more expeditious development of small hydropower projects.

On August 9, 2013, President Obama signed into law two new Acts passed by Congress: (i) the Hydropower Regulatory Efficiency Act, PL 113-23 (August 9, 2013) 127 Stat 493 (“Hydropower Efficiency Act”); and (ii) the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act, PL 113-24 (August 9, 2013) 127 Stat 498 (“Reclamation Act”). Both Acts streamline and expedite the regulatory approval process to facilitate development of small hydropower projects.

The Hydropower Efficiency Act

The Hydropower Efficiency Act: (1) expands the Federal Energy Regulatory Commission (“FERC” or “Commission”) exemptions for small hydropower projects and conduits; (2) establishes a general exemption from Federal Power Act (“FPA”) license requirements for certain hydropower projects (3) allows the term of preliminary permits to extend beyond three years; (4) directs FERC to investigate the feasibility of an expedited two-year licensing process for certain hydropower projects; and (5) directs the Secretary of the Department of Energy (“DOE”) to conduct certain studies.

1. 1.      Expansion of Existing Exemptions

This new law expands the small project exemption, provided in the Public Utility Regulatory Policies Act and codified in 16 U.S.C. § 2705(d), by increasing the capacity of projects eligible for this exemption from 5 megawatts (“MW”) to 10 MW. The new law also expands the existing conduit exemption, provided in the FPA and codified in 16 U.S.C. § 823a, by increasing the capacity of non-municipal projects eligible for this exemption from 15 MW to 40 MW. Municipal hydropower projects keep their prior 40 MW eligibility threshold for conduit exemptions. The new law maintains the FPA definition of “conduit” as any 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.

1. 2.      General Exemption from License Requirements

The new law exempts from the FPA’s license requirements small hydropower projects that meet the following criteria: (1) use for electric power generation only the hydroelectric potential of a non-federally owned conduit, (2) have a maximum installed capacity of 5 MW, and (3) are not currently licensed or exempted from license requirements.

The Hydropower Efficiency Act requires any person, state, or municipality proposing to construct a qualifying conduit hydropower facility to file with FERC a notice of intent. FERC recently posted a template of notice of intent on its website.

The Act also requires FERC to make an initial determination as to whether the facility meets the qualifying criteria within fifteen days after receiving such a notice of intent. If the initial determination finds that the hydropower project meets the criteria for exemption, FERC must publish public notice of the notice of intent. If an entity contests whether the hydropower project meets the criteria for an exemption, FERC must issue a final determination within forty-five days after the date of publication of the public notice. If no entity contests whether the hydropower project meets the criteria for an exemption, then the project will be deemed to meet the criteria for waiver within forty-five days after the date of publication of the public notice without further FERC action.

1. 3.      Extension of Preliminary Permits

FERC is now authorized to extend the preliminary permit term for up to two additional years beyond the three years currently allowed if FERC finds that the permittee has implemented activities under the permit in good faith and with reasonable diligence. In the prior regime, there was no extension of time for expired preliminary permits. The permittee was and still is allowed to file another preliminary permit application for the same location but it is not guaranteed to keep its licensing priority because the second preliminary permit application, like the initial permit application, is open to potential competing applications by other entities.

1. 4.      Expedited Licensing Process

Currently, licensing processes for hydropower projects may take up to five years. To expedite the licensing of low impact hydropower projects, the new law directs FERC to investigate the feasibility of issuing a license for hydropower projects at non-powered dams and closed loop pumped storage projects in a two-year period. Significantly, the new law states that this two-year period shall include any FERC pre-licensing process.

FERC must hold a series of workshops to solicit public comment on how to implement the expedited licensing process and develop the applicable qualification criteria. On October 22, 2013, FERC held its first workshop under Docket No. AD13-9-000. On January 2, 2014 FERC issued a Notice opening a three-month window to file petitions for expedited hydro license under a pilot program starting February 5, 2014 and ending on May 5, 2014. The projects to be filed must comply with the following minimum criteria:

• Must cause little to no change to existing surface and groundwater flows and uses;
• Must not adversely affect federally listed threatened and endangered species;
• If the project is proposed to be located at or use a federal dam, the request to use the two-year process must include a letter from the dam owner saying the plan is feasible;
• If the project would use any public park, recreation area, or wildlife refuge, the request to use the two-year process must include a letter from the managing entity giving its approval to use the site; and
• For a closed-loop pumped storage project, the project must not be continuously connected to a naturally flowing water feature.

FERC will select the projects that best fit within these minimum criteria and initiate the pilot program to test the feasibility of an expedited two-year expedited licensing process. By February 2017, FERC must hold a final workshop to solicit public comment on the effectiveness of the tested two-year licensing process.

1. 5.      DOE Studies

The Hydropower Efficiency Act directs DOE to study: (1) the technical flexibility that existing pumped storage facilities can provide to support intermittent renewable electric energy generation, including the potential for such facilities to be upgraded or retrofitted with advanced commercially available technology; and (2) the technical potential of existing pumped storage facilities and new advanced pumped storage facilities to provide grid reliability benefits.

The Reclamation Act

The Reclamation Act: (1) provides that the Bureau of Reclamation (“Reclamation”) Power Resources Office is the lead office of small conduit hydropower processes; (2) defines “small conduit hydropower” as a facility capable of producing 5 MW or less of electric capacity; (3) excludes small conduit hydropower projects from requirements under the National Environmental Policy Act of 1969 (“NEPA”); and (4) establishes a right of first refusal for the lease of power privilege to irrigation districts or water users associations.

1. 1.      Lead Office

The new Reclamation Act amends the Reclamation Project Act of 1939 to authorize the Secretary of the Interior (acting through Reclamation) to contract for the development of small conduit hydropower projects. Reclamation’s Power Resources Office is established as the lead office of small conduit hydropower policy and procedure setting activities. According to the Congressional Research Service’ summary of the enacted bill, 113th Congress, 2013–2015. H.R. 678, (April 10, 2013) this “lead office” role is intended to exclude such activities from FERC’s jurisdiction.

1. 2.      NEPA Categorical Exclusion

The new law requires the Bureau to apply its categorical exclusion process under NEPA to qualifying small conduit hydropower projects. This exclusion does not include the siting of associated transmission facilities on federal lands. The application of this categorical exclusion under NEPA means that these small conduit hydropower projects in Reclamation’s conduits could be allowed to proceed without preparing NEPA environmental documents, such as an environmental impact statement.

1. 3.      Right of First Refusal

The new law requires that a lease of power privilege be offered first to an irrigation district or water users association operating or receiving water from transferred or reserved conduits. The law defines: (i) “reserved conduit” as any conduit included in project works whose care, operation, and maintenance has been reserved by Reclamation; and (ii) “transferred conduit” as any conduit included in project works whose care, operation, and maintenance has been transferred to a legally organized water users association or irrigation district.

If the irrigation district or water users association elects not to accept a lease of power privilege offer, Reclamation must offer the lease of power privilege to other parties.

Litigation Issues

The use of a categorical NEPA exclusion under the Reclamation Act and the expedited licensing process combined with the new exemption from license requirements under the Hydropower Efficiency Act is expected to reduce costs incurred by small hydropower project developers, including costs associated with long processes and protracted litigation.

These new streamlined processes and reduced bureaucratic and litigation costs should help induce construction of small hydropower projects. However, it remains possible that some environmental groups or third parties attempting to halt construction of specific hydropower projects challenge the implementation of these streamlined processes.

This article was largely published in the ABA Section of Environment, Energy & Natural Resources – Litigation Committee Newsletter, December 2013, Vol. 2, No. 1.