Power & Pipes

FERC, CFTC, and State Energy Law Developments

FERC recently issued an order to show cause and notice of proposed penalty to Ampersand Cranberry Lake Hydro LLC for a violation of Ampersand’s hydro license for the Cranberry Lake Project No. 9658 (Cranberry Lake Project). FERC ordered Ampersand to show cause as to why it should not be found to have violated Article 5 of the project license by failing to retain possession of all project property covered by the license, and to show cause as to why it should not be assessed a civil penalty of $600,000 for that violation.

Orders to show cause for hydro license violations are not common. However, this order is likely driven by the high hazard potential rating of the Cranberry Lake Project’s dam, which means that a failure of the Cranberry Lake Project would result in probable loss of human life. FERC noted in a press release, “Licensees of FERC-jurisdictional hydroelectric projects must comply with all safety requirements of their licenses, as public safety is a top priority at these facilities.” The order also aligns with FERC’s increased focus on hydro licensees’ financial ability to safely maintain hydro projects.

The Cranberry Lake Project is located on the Oswegatchie River in St. Lawrence County, New York. Ampersand’s license covers project property that includes: (1) rights to certain lands; (2) project works, including (a) a dam that is approximately 195 feet long and 19 feet high; (b) an earthen embankment having a fuse plug spillway; (c) a 57,400-acre-foot reservoir; (d) a power channel; (e) a powerhouse with a 595-kilowatt (kW) generator; (f) a tailrace; and (3) additional supporting facilities. Ampersand acquired the Cranberry Lake Project’s license in 2015, after the project had fallen into disrepair. Oswegatchie River-Cranberry Reservoir Regulating District Corporation (OR-CRRDC), a state municipal corporation, owns the Cranberry Lake Project’s dam, which Ampersand had maintained pursuant to a lease agreement with OR-CRRDC.

In support of that transfer application, Ampersand gave assurances that, if granted the transferred license, it “will be positioned to access funding necessary to operate and maintain the Project safely and in accordance with its respective license.” Further in connection with the transfer application, Ampersand committed to complete certain dam safety work involving the project’s fuse plug spillway in the dam’s embankment and to raise the earthen embankment crest by the second calendar quarter of 2017. However, Ampersand failed to do so and has filed multiple extension requests for most of the time it has held the license.

In 2019, OR-CRRDC filed a complaint in New York state court alleging that Ampersand had failed to pay minimum rent (for two years), water tax, and interest as required by the lease agreement. In 2020, OR-CRRDC filed a complaint seeking termination of the project’s lease and an order directing Ampersand to vacate the project premises. In 2021, Ampersand and OR-CRRDC executed a Settlement and Release agreement resolving the New York State litigation. Pursuant to that settlement agreement, OR-CRRDC relinquished claims to, among other things, outstanding rental and water tax payments in exchange for Ampersand’s agreement to terminate the lease and convey by quitclaim sale to OR-CRRDC “all equipment, furniture, fixtures, and assets currently used by Lessee to operate the Project.” After the lease was terminated, Ampersand surrendered the keys and access equipment for the dam and powerhouse. Ampersand has not performed any work on the outstanding fuse plug and embankment work since it lost possession of the project works.

Article 5 of the Ampersand Project license states, “The Licensee or its successors and assigns shall, during the period of the license, retain the possession of all project property covered by the license as issued or as later amended, including the project area, the project works, and all franchises, easements, water rights, and rights of occupancy and use . . . .” Thus, by losing possession of the project property covered by the license as issued, Ampersand appears to have violated Article 5 of its license by voluntarily agreeing to terminate its lease and sell Ampersand Project equipment to OR-CRRDC in a settlement.

A violation of a hydro project’s license can subject a licensee to a civil penalty of up to $10,000 a day under the Federal Power Act, which equates to $23,607 per day when adjusted for inflation. As of the time of FERC’s order, 88 days had elapsed since Ampersand lost possession of the Cranberry Lake Project property, subjecting Ampersand to a maximum civil penalty for violation of Article 5 of $2,077,416. FERC proposed that a $600,000 civil penalty is appropriate for this violation. However, FERC stated that if Ampersand can negotiate access to the Cranberry Lake Project to complete the fuse plug and embankment work, FERC may allow Ampersand to offset the costs of such work against any civil penalty that it assesses.

FERC noted the financial guarantees Ampersand made in its license transfer application, and emphasized that Ampersand represented itself as part of a “diversified business group.” As such, FERC stated that if it does issue a civil penalty, it may additionally list Ampersand’s corporate parent(s) as defendants in any federal court enforcement action if Ampersand fails to make timely payment of any civil penalty that is assessed.