Power & Pipes

FERC, CFTC, and State Energy Law Developments

For the first time, FERC has found that significant investments in an existing licensed hydroelectric facility by a licensee will be considered when establishing the license term in a relicensing proceeding, potentially aiding the licensee in obtaining a longer license term.

Section 15(e) of the Federal Power Act (FPA) provides that any license issued shall be for a term that FERC determines to be in the public interest, but no less than 30 years or more than 50 years. Under its 2017 Policy Statement on Establishing License Terms for Hydroelectric Projects, FERC established a 40-year default license term policy for original and new licenses. The Policy Statement included exceptions to the 40-year license term under certain circumstances, including establishing a longer license term upon a showing by the license applicant that substantial voluntary measures were either previously implemented during the prior license term, or substantial new measures are expected to be implemented under the new license.

America’s Water Infrastructure Act of 2018 recently added provisions to the FPA that offer licensees a means of creating certainty regarding longer (40-plus years) license terms. However, licensees must provide sufficient information about project-related investments to allow FERC to reach its determination. In determining the term of a new hydro project license that is issued when the existing license expires, FERC must take into consideration project-related investments by the licensee under the term of the existing license. Licensees may request that FERC make a determination as to whether any planned, ongoing, or completed investment meets the criteria set forth under FPA Section 36(b)(2). However, in its determination FERC may not assess the incremental number of years that the investment may add to the new license term.

Section 36(b)(2) requires the Commission to consider investments by the licensee over the term of the existing license (including any terms under annual licenses) that “(A) resulted in redevelopment, new construction, new capacity, efficiency, modernization, rehabilitation or replacement of major equipment, safety improvements, or environmental, recreation, or other protection, mitigation, or enhancement measures conducted over the term of the existing license; and (B) were not expressly considered by the Commission as contributing to the length of the existing license term in any order establishing or extending the existing license term.”

On August 9, FERC issued a determination on project developments undertaken by Public Utility District No. 1 of Chelan County (Chelan PUD), the licensee for the Rock Island Hydro Project No. 943. Chelan PUD had filed a request on June 10 for a determination under FPA Section 36(c) that certain project investments over the term of the existing license meet the criteria set forth in Subsection 36(b)(2), so that the investments will be considered when the Commission sets the term for the next license for the project. FERC determined that some of the project developments meet the criteria set forth in Section 36(b)(2) of the FPA.

The Rock Island Project is a 412.41 MW hydroelectric dam located on the Columbia River, near the City of Wenatchee, in Chelan and Douglas counties in Washington. FERC issued Chelan County PUD a 40-year license to continue to operate and maintain the Rock Island Project on January 18, 1989, which is set to expire on December 31, 2028. Chelan PUD asserted that it invested heavily in the Rock Island Project, and forecasted that by 2029 it will spend a total investment during the current license term of more than $710 million. Chelan PUD requested that FERC determine whether the following project investments met the criteria under FPA Section 36(b)(2):

  • Rehabilitation of Powerhouses 1 and 2
  • Design and construction of new office, warehouse, and storage facilities
  • Replacement of two spillway gate hoists
  • Implementation of an Anadromous Fish Agreement and Habitat Conservation Plan (HCP)

FERC determined that the investments Chelan PUD made to rehabilitate the two Rock Island powerhouses, improve the project spillway, and implement its HCP appear to meet the criteria set forth in FPA Section 36(b)(2). Chelan PUD estimated that it will cost approximately $270 million to rehabilitate Powerhouse 1, and approximately $352 million to rehabilitate Powerhouse 2. Chelan PUD’s turbine and generator improvements will enhance the efficiency and reliability of the Rock Island Project. Chelan PUD also plans to replace two spillway bay gate hoists with auto hoists, for an estimated $4 million, to improve the safety and reliability of the spillway. Finally, Chelan PUD spent more than $44 million on fish passage survival studies, hatchery construction, operation and maintenance, annual funding for tributary protection and restoration projects, fish predator control programs, and ongoing passage facilities operations and maintenance as part of its Anadromous Fish Agreement and HCP.

FERC was unable to determine whether Chelan PUD’s construction investments in new office, warehouse, and storage facilities meet the criteria set forth in Section 36(b)(2). FERC stated that Chelan PUD’s request for a determination contained only limited information on this investment, such that it was unclear whether it would qualify as a “project related” investment. FERC also stated it was uncertain if Congress intended for it to consider ancillary facilities, such as office buildings, that do not have a demonstrated direct hydropower purpose, may not be necessary for project operation, and may have other uses.

The final effect of these findings will be determined when the facility undergoes relicensing, but having this order in hand should increase the chances that the relicensing will result in a longer license term than it would have otherwise.