Siting Ocean and Tidal Energy Projects
From Oregon Law Institute's "Going Green: Advising Clients in the New World of Sustainability" conference.
By Cherise M. Oram
Ocean, tidal and other hydrokinetic energy projects have the potential to produce significant amounts of clean and renewable power. If fully developed, new hydrokinetic technologies could double the amount of hydropower production in the United States from just below ten percent to close to twenty percent of the national supply.1 Like many projects in protected coastal and riverine environments, however, these projects require a developer to navigate complex governmental permitting requirements and procedures. Ocean and tidal projects, in particular, will face challenges not raised by traditional hydropower and new in-river technologies.
II. OVERVIEW OF LICENSING AND PERMITTING REQUIREMENTS
The siting of an ocean or tidal energy project will involve numerous federal, state, tribal and non-governmental entities charged with regulating hydropower facilities, water quality and in-water discharges, shipping and navigation, crabbing and fishing, endangered species, marine mammals, migratory birds, and recreation and public safety, among other things. Projects must be licensed by the Federal Energy Regulatory Commission (“FERC”), and FERC’s extensive licensing regime is the framework within which all other state, tribal, and federal environmental approvals must be obtained. In addition, ocean projects on the outer continental shelf (“OCS”), which commences between three and nine nautical miles depending on the state, must obtain a lease from Department of Interior’s Minerals Management Service (“MMS”).
In addition to FERC and MMS, relevant agencies and stakeholders include:
U.S. Army Corps of Engineers
U.S. Coast Guard
National Marine Fisheries Service
U.S. Fish and Wildlife Service
Federal land owner agencies
State agency administering Coastal Zone Management Act (“CZMA”)
State agency administering Clean Water Act (“CWA”) section 401 water quality certification
State lands manage
State fish and wildlife agencies
State water resources manager
State and Tribal historic preservation offices
State energy facility siting council
Non-governmental interest groups (environmental, fishing, recreational)
Public utility districts and Investor-owned utilities
The Federal Power Act (“FPA”), pursuant to which FERC issues hydrokinetic licenses, preempts all state and local laws concerning hydroelectric licensing, with the exception of proprietary water rights and state approvals required by federal law. However, FERC may require a license applicant to comply with state and local requirements that do not make compliance with FERC’s license impossible or unduly difficult. In addition, despite preemption, FERC must consider state and local concerns.
Given the number of stakeholders with potential interest in, and agencies with some regulatory approval over, ocean and tidal energy projects, project proponents should begin stakeholder consultation as early as possible. Moreover, until ocean and tidal projects are deployed and their effects are monitored, proponents should be prepared to engage in robust adaptive management which, combined with the best available data and best professional judgment, can address the uncertainties associated with some of these projects. Project proponents and other stakeholders may choose to enter into settlement agreements, like those frequently entered into in conventional hydropower dam proceedings, setting forth terms and conditions that the parties request FERC include in the project license. These kinds of terms and conditions can provide for specific minimization and mitigation measures, monitoring and adaptive management.
III. FEDERAL ENERGY REGULATORY COMMISSION
A. Licensing Requirements
In 2002, FERC asserted jurisdiction over ocean, tidal and other hydrokinetic projects pursuant to the Federal Power Act ("FPA"), which requires that a non-federal hydroelectric project be licensed by FERC if, among other things, it is located in navigable waters of the U.S. and is connected to an interstate electrical grid.2
The FERC licensing process is complicated, with one default and two optional licensing processes, each requiring applicants to file a variety of pre-licensing documents and to consult with and perform studies requested by various agencies. The hydropower industry’s recent experience is mostly in the context of relicensing existing hydropower dams, where the relicensing process takes at least five years, but may stretch many years beyond that. FERC has issued just one license for a hydrokinetic project (see Section C.2., below). There are no other license applications currently pending, although at least one application is expected this year.
3. Preliminary Permits
Before seeking a license, a project proponent has the option of first applying for a preliminary permit. The purpose of a preliminary permit is to maintain priority for a site during the permit’s three-year term while the permittee determines the project’s feasibility, consults with stakeholders, performs baseline studies and develops a license application. FERC has issued 113 preliminary permits for hydrokinetic projects, of which seven are classified as “wave,” eight as “ocean current,” and thirty-five as “tidal current.” The remainder are classified as “in-river current” technologies, which are likely to encounter permitting issues similar to traditional hydropower projects. An additional seventy-seven preliminary permit applications are currently pending.
4. Verdant Order
Under the 2005 “Verdant Order,” a developer may forego a FERC license only if (a) it is testing an experimental technology for a short period of time for the purpose of conducting studies and (b) any power generated from the test facility is not transmitted into, and does not displace power from, the national energy grid.3 These test projects must still obtain other necessary federal and states approvals, such as CWA section 404 discharge permits, section 401 water quality certifications, Endangered Species Act (“ESA”) section 7 consultations, and Marine Mammal Protection Act (“MMPA”) authorizations, among others.
B. Pilot Project
1. The Policy
On July 19, 2007, FERC announced a new Pilot Project Policy intended to reduce regulatory barriers to hydrokinetic demonstration projects. Pilot project licenses are available for projects that are (1) small (5 megawatts or less), (2) removable or able to be shut down on relatively short notice, (3) not located in waters with “sensitive designations,” and (4) for the purpose of testing new technologies or determining appropriate project sites. Pilot project licenses will generally be issued for short terms, such as five years, and would require that the licensee either apply for a longer term (thirty- to fifty-year) standard license or decommission and restore the site at the end of the pilot project license term.4 At a workshop in October, FERC suggested that it should be able to issue Pilot Project licenses within a six-month licensing period, compared to five or more years for traditional hydropower dam licenses.
While the Pilot Project Policy reduces the steps required for obtaining a FERC license, it does not change other requirements for obtaining a license, namely the satisfaction of other applicable laws like the ESA, MMPA, CZMA, and CWA. FERC has recognized that the success of the Pilot Project Policy will depend on the cooperation of other state and federal agencies, in particular by identifying necessary environmental studies early in the licensing process and issuing permits in due course. In issuing the Pilot Project Policy, FERC indicated that the shorter license term and smaller project size should reduce the scope of the environmental studies necessary to authorize a pilot project license.
2. Additional Guidance Issued
On April 14, 2008, FERC issued a 33-page white paper that updates its August 31, 2007 Pilot Project Policy, describing in further detail FERC’s process for obtaining short-term licenses for demonstration projects. In particular, FERC envisions that most hydrokinetic projects will begin with a short-term pilot project license to test the technology, determine appropriate sites, and gather information on environmental and other effects. However, the Pilot Project Policy does not prevent applicants from seeking long term licenses should they identify other methods of addressing those uncertainties.
At the end of a pilot project license, the white paper explains, a licensee may apply for relicensing, which will involve all of the same permitting and environmental review requirements that an original license requires. However, a licensee will need to submit its Notice of Intent (“NOI”) to relicense and build out the project five years prior to expiration of the pilot project license in accordance with the FPA or, in other words, coincident with obtaining the pilot project license. FERC’s white paper indicates that it may be willing to extend the pilot project license term in order to delay the statutorily-mandated NOI requirement, an action that would still need to be taken fairly early in the pilot project license to be effective.
The additional guidance does not resolve how licensees will protect potential build-out areas from other developers who may file for preliminary permits, pilot project licenses or traditional licenses in the same area. However, it indicates that FERC will entertain requests for project boundaries around pilot projects that are large enough to accommodate future build out.
C. Conditioned Licenses
1. The Policy
On November 30, 2007, FERC issued a Policy Statement providing that FERC would issue conditioned licenses, in appropriate cases, for hydrokinetic projects before it received other authorizations required by law. A conditioned license authorizes construction and operation of a project only after the licensee obtains any outstanding federal, state or tribal approvals. A conditioned license could be issued for a pilot project or traditional license.
The Policy Statement emphasizes that issuing conditioned licenses would enable licensees to begin development of plans and consultations not requiring construction and improve the ability of developers to secure financing without diminishing the importance of other authorizations required by law.
FERC has been criticized in the past for taking years to issue conventional hydroelectric dam licenses. In many cases, FERC’s licenses have been delayed pending issuance of CWA section 401 water quality certifications (“401 Certifications”), ESA biological opinions, or other authorizations required by federal law. But while hydropower dam licensees continue generating during any such delays, in the case of hydrokinetic projects, timely issuance of licenses and movement toward generation is critical to their economic success. FERC’s conditioned license policy is intended to alleviate that concern.
2. Rehearing Requested Over First Conditioned License
FERC issued its first conditioned license – and first hydrokinetic license – to Finavera Renewables Ocean Energy, Ltd. (“Finavera”) on December 21, 2007, for the Makah Bay Offshore Wave Pilot Project (“Makah Bay Project”).5 FERC’s license provided that no on-site project construction or installation could begin until Finavera submitted copies of all other authorizations required under federal law.
The Washington Department of Ecology (“Ecology”) petitioned FERC to rescind the Makah Bay Project license because FERC had not first obtained a CWA section 401 water quality certification (“401 Certification”). Section 401 provides that “[n]o license or permit shall be granted until the certification required by this section has been obtained or has been waived.” Ecology also alleged that FERC violated a similar limitation established by section 307 of the CZMA by issuing the license before Ecology had concurred that the Makah Bay Project is consistent with the State’s coastal zone program. Shortly thereafter, Ecology issued its 401 Certification and CZMA consistency determination, but did not withdraw its rehearing request.
On March 20, 2008, FERC issued an Order on Rehearing and Clarification and Amending License (“Rehearing Order”) amending the Makah Bay Project’s conditioned license to incorporate Ecology’s 401 Certification and CZMA consistency determination.6 As amended, the license authorizes Finavera to commence construction. While stating that Ecology’s arguments on rehearing were mooted by the agency’s approvals, the Rehearing Order nevertheless explained that its conditioned license did not violate sections 401 and 307 of the CWA and CZMA, respectively, because it did not authorize construction activities and therefore did not authorize activities for which a water quality certification or CZMA consistency concurrence were required.
3. License Applicant Concerns
FERC’s policy on issuing conditioned licenses, as clarified by the Rehearing Order, may benefit some license applicants by allowing them to commence construction planning. However, the policy leaves at least two issues of concern for license applicants. First, FERC characterized both its conditioned original license order and its order amending Finavera’s conditioned license as “final unless a [timely] request for rehearing is filed.” Under the FPA, strict time limits apply to requests for rehearing. FERC’s policy of issuing conditioned licenses and amendments authorizing construction as final orders subject to rehearing may create confusion for licensees (and intervenors) regarding when to request rehearing, and may lead to the filing of duplicative rehearing requests to avoid an unintended waiver of the right to seek rehearing and judicial review of FERC’s orders.
Second, because conditioned licenses for pilot projects will generally be issued for five years, significant delays by state and federal agencies in issuing their required authorizations could jeopardize the effective terms of these licenses. In addition, the FPA requires a licensee to commence project construction within two years of receiving a license, so permitting delays – particularly where approvals may contain important new conditions – may frustrate construction planning. Virtually acknowledging this issue, several FERC Commissioners issued statements thanking Ecology for expediting its review of the Makah Bay Project, expressing hope for a better working relationship with the State of Washington, and indicating that FERC staff and Washington are discussing a Memorandum of Understanding (“MOU”) that would facilitate development of hydrokinetic projects (see Section C., below, for discussion of recent MOU with State of Oregon).
4. Conditioned License “Frequently Asked Questions” Issued
On April 14, 2008, FERC issued a “Frequently Asked Questions” paper on conditioned licenses (“FAQ”). In it, FERC emphasized that its preference is to have all federal authorizations completed prior to licensing, but the agency shed no new light on when it would deem a conditioned license “appropriate.” In response to an inquiry on that subject, the FAQ states: “Commission staff interprets the use of the word ‘appropriate’ in the Policy Statement to mean that the decision to issue a conditioned license will be made on a case-by-case basis after considering the specific circumstances of the case.” The FAQ acknowledges that license applicants may request a non-conditioned license, but states that the final decision to issue a conditioned license rests with FERC.
The FAQ also explains that, as with the Makah Bay Project license, FERC will issue a new order authorizing on-site construction once it receives all necessary approvals. The order will incorporate any additional conditions received with the federal and state authorizations. FERC states without discussion that it does not anticipate the need to suspend or extend the period for rehearing requests (which, in any case, is statutory), and does not address the question of when licensees and intervenors should request rehearing given its policy of issuing two “final” orders. Until this question is settled, licensees are wise to request rehearing of conditioned licenses to avoid waiving their right to later seek rehearing and judicial review of associated approvals.
D. Memorandum of Understanding with Oregon
FERC recently signed a Memorandum of Understanding (“MOU”) with the State of Oregon regarding development of wave energy projects in Oregon’s Territorial Sea. The MOU, effective March 26, 2008, is intended to coordinate FERC and Oregon’s procedures and schedules during the licensing process. In addition to notification, scheduling, and general coordination provisions, the MOU indicates that Oregon intends to prepare a comprehensive plan for siting wave energy projects in its Territorial Sea. FERC, in turn, agrees that, if Oregon prepares such a plan, it will consider the extent to which proposed projects are consistent with the plan when issuing preliminary permits and licenses. FERC has expressed an interest in reaching similar MOUs with other states that have hydrokinetic project opportunities.
IV. MINERALS MANAGEMENT SERVICE
A. Jurisdiction and Dispute with FERC
Department of Interior’s MMS asserts jurisdiction over ocean, tidal, current, solar and wind projects on the OCS pursuant to the Outer Continental Shelf Lands Act and the Energy Policy Act of 2005.7 The OCS is defined as the area of ocean beyond three nautical miles from coastal shorelines, or nine nautical miles off the coasts of Texas and Florida, and extending to about 200 nautical miles.
MMS and FERC have been engaged in a jurisdictional dispute over FERC’s ability to license projects on the OCS, but recently ended (or at least suspended) their attempt to reach an MOU delineating each agency’s jurisdiction. Therefore, project proponents should expect to obtain both a FERC license and MMS lease for projects fully or partially on the OCS, at least until the agencies, Congress or a court clarifies otherwise.
B. Alternative Energy and Alternative Use Program
On November 6, 2007, MMS announced plans for an Alternative Energy and Alternative Use (“AEAU”) program governing the sale of leases for ocean, tidal, and wind projects on the OCS. In support of its proposal, MMS released a Programmatic Environmental Impact Statement (“PEIS”) examining potential environmental effects of such a program. The PEIS focuses on wind and wave technologies in water less than 100 meters deep, and ocean current technologies in water less than 500 meters deep. MMS will use the PEIS to guide further development of the AEAU program.
MMS expects to issue a Notice of Proposed Rulemaking (“NOPR”) later this year concerning its adoption of lease sale rules for the AEAU program. The draft NOPR is reportedly 1800 pages long already. As of November, MMS was optimistic that its rulemaking process would be complete by late 2008, but this date may slip.
C. Interim Policy
Until adoption of an AEAU program, MMS is using interim guidelines established in November 2007 to identify priority sites for alternative energy research and testing on the OCS. On April 17, 2008, MMS designated five priority areas offshore of New Jersey, Delaware, Georgia, Florida and California. MMS is proposing limited, temporary leases for up to sixteen projects in these areas for data collection and technology testing only; commercial energy production will not be authorized. Lease blocks are for nine square miles for terms of five years, and will govern the construction, operation and removal of testing facilities.
Prior to granting leases, MMS must determine if competitive interest exists in an area. If so, MMS is required by existing law to hold a competitive sale. In addition, the leases will be subject to the National Environmental Policy Act, CZMA, ESA, MMPA, CWA, and the Rivers and Harbors Act, as well as applicable Coast Guard and other agency requirements.
MMS chose the sixteen projects from over forty nominations received for alternative energy research projects. It expects to move forward on the remaining leases not covered by the recent announcement when it has the resources to do so.
Virtually every component of the regulatory framework governing ocean and tidal energy projects is still developing. While well intended, some of the recent policies and procedures developed for new hydrokinetic technologies may do more to complicate than streamline project permitting. Nevertheless, those developers who take a leading role will be in a position to help shape these regulatory policies as they develop, and ensure they fit this new and exciting industry.
1 See Hydroelectric Infrastructure Technical Conference, Docket No. AD06-13-000 (Dec. 6, 2006), transcript 12; 22 (testimony of George Hagerman).
2 AquaEnergy Group, Ltd., 101 FERC ¶ 62,009 (Oct. 3, 2002), on reh’g, 102 FERC ¶ 61,242 (Feb. 28, 2003) (citing 16 U.S.C. §§ 796(8), (11), 817(1)).
3 Verdant Power LLC, 111 FERC ¶ 61,024 (Apr. 14, 2005).
4 See FERC Supplemental Notice of Technical Conference With Agenda and Soliciting Comments (Aug. 31, 2007) (FERC No. AD07-14-000).
5 Finavera Renewables Ocean Energy Ltd., 121 FERC ¶ 61,288 (Dec. 21, 2007).
6 Finavera Renewables Ocean Energy Ltd., 122 FERC ¶ 61,248 (Mar. 20, 2008).
7 43 U.S.C. § 1337(p); 43 U.S.C. § 1337(p).