Kentucky town loses Meldahl license, faces competing applicant

Faced with the loss of its license to build the 68.775-MW Meldahl hydroelectric project, the city of Augusta, Ky., restarted the licensing process March 3 by filing a new preliminary permit application. However, that same day, an affiliate of Augusta’s potential power customer, Louisville Gas &Electric Co., filed a competing application for the project that Augusta has pursued for 19 years.

On March 1, the Federal Energy Regulatory Commission rescinded the license for Meldahl (No. 10395) that had been held since 1995 by the Electric Plant Board of the city of Augusta. In spite of repeated extensions of time, FERC ruled the licensee failed to meet a July 31, 2005, deadline to begin construction.

Donald Clarke of GKRSE, the lawyer for Augusta’s licensing agent, AJS Hydro Corp., said the licensee decided legal challenges of FERC’s decision to terminate the license would not be productive. Instead, it chose to file for a new preliminary permit, in effect, starting the licensing process over again.

LG&E challenges Augusta for FERC permit

“A prompt licensing of the project will best secure the licensee’s investment and existing development arrangements,” Clarke said. “Therefore, the licensee will follow FERC’s standard regulatory processes and has applied for a preliminary permit.”

However, Augusta wasn’t the only one headed to FERC’s permit window.

“Ultimately, the licensee’s most likely partner and power purchaser, LG&E, abruptly terminated negotiations one day before the commission’s license termination order and then itself filed for a preliminary permit for the project,” Clarke said. “Ironically, LG&E’s action underscores the feasibility and desirability of this new capacity development.”

FERC must decide if municipal preference is a factor

A preliminary permit reserves an applicant’s priority to develop a site while licensing studies are performed. In choosing among competing applicants, FERC rules give preference to municipal applicants — in this case the city of Augusta — if the competing development proposals are otherwise equal. Whether the applications are equal must be decided by FERC.

In its new permit application (No. 12657), Augusta proposes a 77-MW Meldahl project on the Ohio River at the Corps of Engineers’ Captain Anthony Meldahl Locks and Dam, near Foster, Ky. The project would include three turbine-generators producing 400 GWh a year. Augusta said it intends to sell all power to a nearby utility, such as Kentucky Utilities Co., for about 4 cents per kWh in the first year.

The competing permit application (No. 12658) was filed by E.ON U.S. Hydro 1 LLC, a subsidiary of E.ON U.S. LLC, the owner and operator of Louisville Gas &Electric Co. and of Kentucky Utilities. E.ON proposes a 93-MW Meldahl project with three or more units producing 443 GWh a year.

FERC rejected additional powerhouse design change

Augusta’s original 1995 FERC license called for a 105-MW project with a conventional powerhouse design. In 2003, Augusta received an amendment to revise the design to utilize 105 Hydromatrix microturbines within the dam.

Augusta subsequently concluded the microturbine design would be more costly than it anticipated and, in 2005, filed an application to amend the license to return to the original configuration. FERC dismissed that application, rejected a revised financing plan, and refused Augusta’s request for more time.

Clarke said regulatory uncertainty and time pressure created by the commission’s posture in the case had seriously encumbered the licensee’s ability to finalize development arrangements.

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