On August 9, 2013, President Obama signed into law two pieces of legislation designed to foster the development of new hydropower in the U.S. Both bills, the Hydropower Regulatory Efficiency Act of 2013 (HREA) and the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act (Reclamation Act Amendment), were passed in both houses of Congress with significant bipartisan support.

Key findings in HREA focused on the fact that only about 3 percent of the 80,000 existing dams in the U.S. have hydropower generation, and that the legislation could create 700,000 new jobs over the next 13 years, based on a Navigant study finding that the U.S. could add approximately 60,000 MWs of new hydro capacity by 2025.

The Hydropower Regulatory Efficiency Act

What does the HREA actually do? It removes from FERC jurisdiction certain small conduit hydropower projects and allows slightly larger conduit and conventional hydroelectric projects to qualify for exemptions from licensing. While these reforms are helpful, they do not address 401 water quality certificate issues or environmental and natural resources review issues. However, the projects that will benefit from the reforms are typically not the type of projects where water quality, environmental or natural resource issues are project killers.

Small Hydro at Dams: HREA amends Section 405 of the Public Utility Regulatory Policies Act (PURPA) to double the capacity from 5 MWs to 10 MWs that a proposed project may have in order to be eligible for an exemption from licensing under Part I of the Federal Power Act (FPA). The 10 MWs limit would, at a minimum, apply to projects subject to FERC’s Part I Subpart K regulations governing small hydro projects to be located at non-federal, pre-1977 dams, or using natural water features. If only federal lands are involved, any applicant is eligible. If some federal lands are involved, any applicant who has all the real property interests in the non-federal lands necessary to develop and operate the project or an option to obtain the interests, is eligible. (Holders of exemptions from licensing cannot use the eminent domain powers granted to licensees under FPA Part I.)

Conduit Projects: HREA amends Section 30 of the FPA in two ways:

• It creates a new expedited process to except from FERC jurisdiction qualifying conduit projects under 5 MWs. This new process requires a developer of such a project to file a notice of intent with FERC showing that its project meets “qualifying criteria,” i.e., the facility (i) will use the hydropower potential of a non-federally owned conduit, (ii) will have an installed capacity that does not exceed 5 MWs, and (iii) is not already subject to a FERC license or exemption. HREA also provides for an expedited regulatory process that, absent a contesting party, should be completed within 60 days of submission of the notice of intent.
• It amends FPA Section 30 to increase FERC’s current conduit exemption process limitation from 15 to 40 MWs.

Note that under HREA, qualifying conduit projects under 5 MWs that go through the new notice process will not be subject to FERC licensing jurisdiction – which is different from being exempted from FERC licensing jurisdiction. In the latter case, a project is subject to FERC jurisdiction, but exempted from regulation. Essentially, the lack of FERC jurisdiction over qualifying conduit projects should mean that such projects should not be subject to the types of terms and conditions that FERC applies to exempted projects because FERC will have no authority over such qualifying facilities to begin with.

Extension of Preliminary Permit Terms: HREA also grants FERC the authority to extend the term of a preliminary permit (currently three years under Section 5 of the FPA) once, for a period up to two years, if it finds that the permit holder “has carried out activities under such permit in good faith and with reasonable diligence.” Preliminary permits are essentially placeholders for potential license applicants; they grant a potential license holder a priority over other potential license applicants while it prepares a license application for filing. FERC ‘s new authority to extend a preliminary permit an additional two years should be very helpful to license applicants grappling with FERC’s pre-filing licensing processes.

Study of a Two-year Licensing Process for Existing Dams and Closed-Loop Pumped Storage: HREA also requires FERC to study the feasibility of a two-year license process for closed-loop pumped storage projects and projects at non-power dams. If practicable, FERC is required to develop and implement a pilot project to test a two-year process within 180 days of the effective date of HREA. FERC is also required to report to the House Committee of Energy and Senate Committee on Energy and Natural Resource within 180 days if it cannot implement a pilot program, and within 60 days of a final workshop if a pilot program is implemented.

DOE Pumped Storage Retrofit Study: HREA also requires the Department of Energy to conduct a study of the technical feasibility of retrofitting existing pumped storage facilities for the support of intermittent renewable generation within one year. No appropriations were included for the study. The House Report on HREA, H.R. 113-6, stated that the Congressional Budget Office found that the costs would be negligible because the proposed study is similar to ongoing DOE efforts to analyze the potential for developing hydropower resources.

The Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act (Reclamation Act Amendment)

While HREA deals with conduit projects at non-federal facilities, the Reclamation Act Amendment attempts to “jumpstart” hydropower development on Reclamation conduits by reducing administrative and regulatory costs, while protecting the Congressionally authorized purposes of these facilities from any unmitigated financial or physical impacts as a result of such development, according to the House Report on the legislation, H.R. 113-24.

The Reclamation Act Amendment explicitly grants the Secretary of Reclamation new authority for the "lease of power privilege,’’ which would give a non-federal entity the right to generate hydropower and pay a rental fee to the federal government for such generation at a specific Reclamation facility.

The Reclamation Act Amendment requires Reclamation to offer the “lease of power privilege” first to the entity operating the conduit or the conduit’s direct beneficiaries. Most Reclamation water supply and delivery projects have an arrangement where operation and maintenance activities are transferred to the local water beneficiary as a way to reduce paperwork and other costs. This ‘‘right of first refusal’’ provision would significantly decrease conduit hydropower planning and study time by reducing staffing costs and time affiliated with analyzing competing and multiple conduit development applications. If the water beneficiary refuses development under Reclamation’s terms and conditions, Reclamation could consider other proposals.

The Reclamation Act Amendment attempts to reduce duplicative regulatory costs and paperwork, by exempting ‘‘small conduit hydropower’’ (5 MWs or less) from NEPA, while retaining NEPA application for larger installations and for transmission siting on federal lands.

Each facility would still be subject to environmental laws such as the Clean Water Act and other laws that could require permits – except a FERC license or exemption from licensing. Under the new legislation, the House Committee Report states:

. . . the jurisdiction over small hydropower development by private entities on all bureau irrigation canals and conduits lies solely with the bureau. Under current law, the bureau or the Federal Energy Regulatory Commission (FERC) has jurisdiction over hydropower development at such facilities.

Will They Work?

Both pieces of legislation do streamline certain permitting requirements for small hydro projects, conventional and conduit, but the notion that these reforms could lead to the development of a full 60,000 MWs of new hydro capacity by 2025 is a bit optimistic. Market price realities and other development impediments also will affect the amount of development that actually will take place. Nevertheless, these new statutes do address some long-festering problems for the hydropower industry and should help entice developers to seriously look at new projects at existing dams and at new conduit projects at federal and non-federal facilities.

Client Alert 2013-229