FERC approves relicense settlement for Tacoma Power’s 131-MW Cushman

The Federal Energy Regulatory Commission has approved a settlement agreement that finalizes the long-awaited relicensing of Tacoma Power’s 131-MW Cushman hydroelectric project, on Washington’s North Fork Skokomish River.

Tacoma Power, Skokomish Tribal Nation, and state and federal agencies signed the settlement in January 2009, resolving a $5.8 billion damage claim and long-standing disputes over relicense terms for Cushman. (HydroWorld 1/14/09) The pact concluded 36 years of relicensing, nearly two years of negotiations, and decades of contention.

Although the settlement agreement was to allow Tacoma Power to continue to operate the project (No. 460) for 40 years, the degree of modifications and new construction, including a new powerhouse, prompted FERC to issue a 50-year relicense. However, the relicense is dated from 1998, when FERC initially issued a relicense order that was challenged by Tacoma Power and other parties.

The July 15 FERC order authorizes Tacoma Power to add a 3.6-MW powerhouse to the 81-MW Cushman No. 2 development, bringing total project installed capacity to 134.6 MW. The U.S. Department of Energy last year allocated up to $4.67 million in economic stimulus funds to the new powerhouse, which will generate 23,500 MWh from flow restoration water released into the river as part of the relicense order. (HydroWorld 11/4/09)

The agreement addresses issues that sparked contention for many years, including river restoration, in-stream flows, fish habitat and fish passage improvements, wildlife habitat, restoration of fish populations, and recreation. For example, the agreement calls for downstream fish passage for juvenile salmonids and upstream passage for adult salmonids.

As part of the settlement, and to resolve a damage claim, filed in 1999, the Skokomish Tribal Nation will receive: a $12.6 million one-time cash payment; 7.25 percent of the value of electricity generated at Cushman No. 2; and transfer of land valued at $23 million.

Cushman case prompted landmark appeals court ruling

The original license expired in 1974. In 1998, FERC issued a relicense order that was broadly appealed. As a result of the appeal, the U.S. Court of Appeals, District of Columbia Circuit, declared in 2006 that FERC has the unilateral power to shut down a hydropower project — either directly or by imposing costly conditions that cause a licensee to reject a new license.

Tacoma had argued that FERC’s original order was so laden with open-ended, experimental, and expensive conditions — with a net benefit of “negative $2.06 million” that it could not accept the license if upheld. The city argued the relicense order violated FERC’s responsibility under the Federal Power Act to issue a license containing “reasonable terms.”

The appeals court disagreed, saying “we find persuasive FERC’s argument that Congress implicitly extended to FERC the power to shut down projects either directly, by denying a new license, or indirectly, by imposing reasonable and necessary conditions that cause the licensee to reject the new license.”

At the same time, the court chastised FERC for improperly rejecting Interior Department mandatory conditions because Interior failed to meet a FERC deadline for submitting them. The case was sent back to FERC with orders to restore Interior’s mandatory conditions under Federal Power Act Section 4(e).

FERC finds modified relicense to be economic

The settlement agreement resolves settlement parties’ disputes by proposing modifications to the 1998 relicense.

In light of the settlement, Interior’s revised 4(e) conditions, and construction of the new powerhouse, FERC’s July 15 order revises its estimates of project economics. It estimated the existing project as relicensed would have a levelized annual operating cost of $12.27 million, or $40.78 per MWh. That would be $2.5 million, or $8.31/MWh, less than the cost of alternative power at $49.09/MWh.

The levelized annual cost of the new powerhouse would be $1.47 million, or $62.60/MWh. That would be $319,000, or $13.60/MWh, more than the cost of alternative power. However, FERC said the combined cost of the overall relicensed project would still be less than the cost of alternative power.

“The acceptance of our licensing agreement by FERC ends years of uncertainty, mistrust, and litigation for Tacoma Power and many others,” Tacoma Public Utilities Director Bill Gaines said. “We can now confidently assure our customers that we will be able to continue to generate clean, renewable power for many years to come, and we can move forward with a new cooperative relationship with the Skokomish Tribe.”

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