New legislation to streamline small-scale hydropower development

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By David A. Fitzgerald and Monica M. Berry

On August 9, 2013, President Obama signed into law HR 267, the Hydropower Regulatory Efficiency Act, and HR 678, the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act.  The newly enacted laws will relieve some of the regulatory constraints that have impeded the development of small scale hydropower production in recent years. 

In short, HR 267 changes select Federal Energy Regulatory Commission (FERC) regulations to make it easier to develop smaller output hydropower stations.  HR 678 authorizes Bureau of Reclamation conduit facilities for hydropower development under Federal Reclamation law.  Each new law will facilitate the development of small hydropower production. 

HR 267:  The Hydropower Regulatory Efficiency Act

HR 267 facilitates the development of smaller output hydropower stations by changing certain FERC regulations governing project licensing.  FERC issues licenses and regulates hydroelectric facilities under the Federal Power Act.  HR 267 amended current law to provide for adjustments in three classes of small hydropower facilities. 

First, HR 267 changed current law to allow FERC in its discretion to exempt small hydroelectric facilities with a generating capacity of 10 MW or less from FERC's licensing requirements.  Under the prior law, only projects of up to 5 MW were exempt. 

Second, the new law provides a process by which FERC shall grant an exemption for "qualifying conduit hydropower facilities" (i.e., manmade water conveyances such as tunnels or canals operated for the distribution of water for agricultural or other purposes) with an installed capacity of 5 MW. 

Third, the bill amends current law to increase the scope of the Commission's discretionary exemption from 15 MW to 40 MW for small conduit hydropower facilities.  Notably, these projects will still be subject to state and federal fish and wildlife terms and conditions pursuant to section 30(c) of the Federal Power Act. In contrast, the "qualifying conduit hydropower facilities" will not be subject to fish and wildlife terms and conditions pursuant to section 30(c).

Importantly, the Hydropower Regulatory Efficiency Act also allows FERC to extend the period of a preliminary permit once for not more than two additional years beyond the three years currently permitted, for a total of five years, to allow a permit holder enough time to develop and file a license application.  Under current law, a permittee may file for an extension of its permit so long as the extension would not cause the total term to exceed three years.  However, because FERC for decades has routinely issued preliminary licenses for the full three-year statutory period allowed, extending the initial term under the Commission's regulations in most cases was previously not possible.  

Utilities must exercise diligence in determining what obligations remain given each project type and scope, and ensure that all application requirements are met under the new regulatory landscape.

In early October, as directed by the newly enacted law, FERC will convene a technical conference to examine the feasibility of a two-year licensing process for hydropower development at non-powered dams and closed-loop pumped storage projects. The newly enacted law further requires FERC to consider pilot projects to test a two-year licensing process, if practicable.  FERC has set a deadline of November 1 for comments on the feasibility of the two-year process.

HR 678:  The Small Conduit Hydropower Development and Rural Jobs Act 

HR 678 authorizes Bureau of Reclamation conduit facilities for hydropower development under Federal Reclamation law.  It changes federal regulations to foster the development of small conduit hydropower projects.  Notably, HR 678 allows the Bureau of Reclamation to apply its categorical exclusion process under the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) to certain small conduit hydropower development, excluding siting of associated transmission facilities on Federal lands.  In addition, it calls for first offering leases of power privilege to an irrigation district or water users association that operates the applicable transferred conduit or that receives water from the applicable reserved conduit.  If the irrigation district or water users association declines a lease of power privilege, the lease of power privilege will be offered to other parties.  Thus, the newly passed legislation requires that preference is offered to water user organizations for the development of canal and conduit hydropower under the lease of power privilege process.  HR 678 also designates the Power Resources Office of the Bureau of Reclamation as the lead office of small conduit hydropower permitting. 

Financial and Regulatory Implications

Hydropower plant located on the Potomac River near Marlowe, West Virginia and Williamsport, Maryland. Credit: Acroterion/Wikimedia Commons

With the changes noted above, both HR 267 and HR 678 will have a positive impact on the development of small-scale hydropower projects, allowing project developers to obtain more favorable permitting timelines and avoid some of the regulatory burdens that applicants faced under the prior regulatory regime. 

However, project developers must exercise diligence in determining what obligations remain given each project type and scope, and ensure that all application requirements are met under the new regulatory landscape. 

For example, will hydropower project developers face any obstacles in successfully marketing the power and securing purchasers for the off-take generated at these plans?  How will these small hydropower projects address grid interconnection requirements?  These are only a couple of considerations that utility executives should be mindful of in the course of dealing with small hydropower projects under the new regulatory regime.

About the Authors
David A. Fitzgerald, partner at Schiff Hardin, counsels electric utilities clients on regulatory, transactional, litigation and legislative matters, including hydropower licensing issues.

Monica M. Berry is counsel at Schiff Hardin and concentrates her practice on energy, energy regulation and litigation. Berry's representative matters include FERC hydropower licensing and relicensing proceedings.