FERC Licensing Process for In-Stream Hydrokinetic Projects


In-stream hydrokinetic projects have the potential to produce significant amounts of clean and renewable power. These technologies produce energy by harnessing the kinetic energy of free-flowing water in rivers or constructed waterways without the use of dams or impoundments. Initial estimates indicate that in-stream hydrokinetics in the United States could provide an additional 12,500 megawatts of energy.[1] Like many projects in protected riverine environments, however, these projects require a developer to navigate complex governmental permitting requirements and procedures.

The siting of in-stream hydrokinetic projects will involve numerous federal and state agencies and in some cases Indian tribes charged with regulating water rights, water quality and in-water discharges, fish and wildlife (including endangered and threatened species), historic properties, recreation and public safety, among other things. Federal and state agencies managing river beds and other public land on which in-stream hydrokinetic projects frequently will be sited also will play key roles in authorizations for construction and operation of these projects. Non-governmental entities also can be expected to play a role in licensing processes for in-stream hydrokinetic projects. In-stream hydrokinetic projects must be licensed or exempted from licensing by the Federal Energy Regulatory Commission ("FERC"). FERC's extensive licensing regime is the framework within which all other state, tribal, and federal environmental approvals must be obtained.[2]

I. FERC Licensing Requirements.

In 2002, FERC asserted jurisdiction over hydrokinetic projects, including in-stream, ocean and tidal energy 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 the interstate electrical grid.[3]

        A. Licensing. 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 and non-governmental entities. The FPA 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.

The hydropower industry's recent FERC regulatory 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. Projects 5 megawatts (MW) or less may be eligible for an exemption from the licensing requirements, but FERC's exemption decision process requires consideration of most of the same environmental issues as a license.[4] FERC has issued one license for a hydrokinetic project, in the ocean energy field (see Section IIV.B., below). There is at least one license application currently pending, with more expected in the second half of 2008 and thereafter.

        B. 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 studies the project site, determines the project's feasibility, consults with stakeholders, performs baseline studies and develops a license application. FERC has issued over 70 preliminary permits for "in-river current" technologies.[5]

FERC has adopted a "strict scrutiny" policy with regard to issuance and oversight of preliminary permits for hydrokinetic projects. FERC's "strict scrutiny" policy limits the size of preliminary permit areas to encourage competition and to prevent "site banking." In addition, to ensure that permit holders are actively pursuing project exploration, FERC requires permittees to file semi-annual reports and where sufficient progress is not being shown, FERC may cancel the permit in order to make the site available to other potential developers.

        C. Verdant Order. Under the 2005 "Verdant Order," a developer does not need a FERC license for a project 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.[6] These test projects must still obtain other federal and states approvals, as necessary, such as CWA section 404 discharge permits, section 401 water quality certifications, and Endangered Species Act ("ESA") section 7 consultations, among others.

II. Pilot Project.

        A. 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.[7] At a workshop in October 2007, 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 CWA and ESA. 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.

        B. 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.[8] 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 any 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 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.

III.  Conditioned Licenses.

        A. 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.[9] 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 seeking original licenses, timely issuance of licenses and movement toward generation is critical to their economic success. FERC's Policy Statement is intended to alleviate that concern in part.

        B. 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").[10] 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, among other things, FERC had not first obtained a 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." Shortly thereafter, Ecology issued its 401 Certification, 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 other agency approvals.[11] 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 section 401 of the CWA because it did not authorize construction activities and therefore did not authorize activities for which a water quality certification was required. Ecology has filed a petition for review of FERC's conditioned license order and decision on rehearing in the District of Columbia Court of Appeals.

        C. 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.

        D. Conditioned License "Frequently Asked Questions" Issued. On April 14, 2008, FERC issued a "Frequently Asked Questions" paper on conditioned licenses ("FAQ").[12] 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.

IV. State and Federal Government Roles in Licensing Process.

Under the FPA licensing process, regional offices of federal agencies other than FERC and state agencies will play key roles in licensing in-stream hydrokinetic projects. Project developers will need to work closely with regional offices of federal agencies and state agencies in order to develop license terms and conditions that will be incorporated into a license or license exemption issued by FERC.

Without being exhaustive, examples of federal and state agency authorizations that will affect many in-stream projects include the following:

Endangered Species Act (ESA), section 7, requires FERC to consult with the U.S. Fish and Wildlife and in some cases the National Marine Fisheries Services where applicable if construction, operation and management of a project "may affect" any listed endangered or threatened species of fish, wildlife and plants in the vicinity of the proposed project.

Clean Water Act (CWA), section 401, requires the applicant for a FERC license that may involve a discharge to waters of the United States to provide to FERC a water quality certification issued by the applicable state or tribal government having jurisdiction over waters at the point of the discharge that the discharge will comply with applicable water quality standards; the water quality certification may include conditions that FERC must include in any license it issues.

CWA, section 404, requires a permit from the U.S. Army Corps of Engineers for any discharge of dredged or fill material into waters of the United States.

National Historic Preservation Act (NHPA) section 106 of the NHPA requires federal agencies, including FERC, to take into account the effects of a project on properties listed on the National Register of Historic Properties. Regulations governing the section 106 process require consultation with the State Historic Preservation Officer, affected Indian tribes and other members of the public with interests in historic properties that may be affected by a project.

  • FPA, section 10, requires FERC to consider recommendations of federal and state agencies exercising administration over flood control, navigation, irrigation, recreation, cultural and other relevant resources of the State in which the project will be located and fish and wildlife recommendations of Indian tribes affected by the project, in addition to federal and state recommendations to adequately protect, mitigate damages to, and enhance fish and wildlife (and spawning grounds and habitat).
  • For projects sited on the bed of rivers and other lands owned by a state, the project developer must obtain a state lease, easement or other consent to siting of the project on state lands.
  • For projects sited in whole or in part on federal reservations, such as Forest Service, Bureau of Land Management, or Indian reservations, section 4(e) of the FPA provides that the Secretary of the federal department with jurisdiction over such land may issue conditions which the secretary deems necessary for the adequate protection of the reservation which FERC must include in the project license.
  • Under section 27 of the FPA, the applicant for any in-stream hydrokinetic project must obtain any water rights necessary for a project in accordance with applicable state law, which may include conditions for drought protection, fish habitat, timing on use of water.

Because regional staff of federal agencies and state agencies dominate the process for these federal and state permits, certifications, and consultations, project developers must work closely with regional federal agency staff and state agency staff.

This material is intended for general informational purposes only and should not be construed as legal advice or a legal opinion on specific facts or circumstances. You are urged to consult an experienced lawyer concerning your particular factual situation and any specific legal questions you may have.


[1] Electric Power Research Institute, Assessment of Waterpower Potential and Development Needs, at Table 3-2 (Mar. 2007).

[2] In addition to FERC, relevant agencies and stakeholders include federal and state fish and wildlife agencies, federal and state land owner agencies, state water quality certification and water resources agencies, state and Tribal historic preservation offices, state energy facility siting councils, county commissions, local governments, non-governmental interest groups, public utility districts and investor-owned utilities, and private landowners.

[3] 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)).

[4] FERC must include in an order exempting a 5 MW or less project from licensing any terms and conditions requested by federal and state fish and wildlife agencies to protect fish and wildlife from loss, or damage to, fish and wildlife resources.

[5] See http://www.ferc.gov/industries/hydropower/indus-act/hydrokinetics/permits-issued.asp (listing issued preliminary permits); http://www.ferc.gov/industries/hydropower/indus-act/hydrokinetics/permits-pending.asp (listing pending preliminary permits).

[6] Verdant Power LLC, 111 FERC ¶ 61,024 (Apr. 14, 2005).

[7] See FERC Supplemental Notice of Technical Conference With Agenda and Soliciting Comments (Aug. 31, 2007) (FERC No. AD07-14-000).

[8] Federal Energy Regulatory Commission, "Licensing Hydrokinetic Pilot Projects" (Apr. 14, 2008) (available at: http://www.ferc.gov/industries/hydropower/indus-act/hydrokinetics/pdf/white_paper.pdf); see also Federal Energy Regulatory Commission, "Supplemental Notice of Technical Conference with Agenda and Soliciting Comments" (Aug. 31, 2007) (FERC Docket No. AD07-14-00) (available at: http://www.ferc.gov/EventCalendar/Files/20070904090518-supplemental.pdf).

[9] Federal Energy Regulatory Commission, "Policy Statement on Conditioned Licenses for Hydrokinetic Projects," 121 FERC & 61,221 (Nov. 30, 2007).

[10] Finavera Renewables Ocean Energy Ltd., 121 FERC ¶ 61,288 (Dec. 21, 2007).

[11] Finavera Renewables Ocean Energy Ltd., 122 FERC ¶ 61,248 (Mar. 20, 2008).

[12] Federal Energy Regulatory Commission, "Conditioned Licenses" (Apr. 14, 2008) (available at: http://www.ferc.gov/industries/hydropower/indus-act/hydrokinetics/pdf/faq.pdf).

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