FERC reaffirms geographic limits on municipal preference

Faced with challenges from major public power organizations, the Federal Energy Regulatory Commission has upheld its ruling establishing geographic limits on the granting of municipal preference in the issuance of preliminary permits to study developing hydroelectric projects.

In an order on rehearing, FERC upheld its Dec. 19 order that, for the first time, limited municipal preference by requiring that a municipality must be “in the vicinity” of a hydro project site for the municipality to have preference in the issuance of a competing preliminary permit.

Assuming two applications for a preliminary permit are substantially equal, the Federal Power Act requires FERC to grant preference to municipalities when they compete with non-municipalities for the same hydropower project site. The FPA defines “municipality” as a “city, county, irrigation district, drainage district or other political subdivision or agency of a state competent under the laws thereof to carry on the business of developing, transmitting, utilizing or distributing power.”

In its original order, FERC limited municipal preference based on the fact the municipality, Western Minnesota Municipal Power Agency, is located in Ortonville, Minn., almost 400 miles from the project site.

Western Minnesota and FFP Qualified Hydro 14 LLC, a unit of Free Flow Power, filed competing applications on the same day, Feb. 1, 2013, to study developing a hydro project at the Corps of Engineers’ Saylorville Dam on the Des Moines River in Polk County, Iowa.

FFP’s filing was to renew an expiring preliminary permit it already held for the project, 14.4-MW Saylorville Dam Water Power project (No. 13579). Western Minnesota filed for the 15-MW Saylorville Hydroelectric project (No. 14491) and claimed it was entitled to the project by municipal preference.

FERC rejected Western Minnesota’s claim, saying the FPA provides it no guidance as to the scope of municipal preference, leaving FERC to develop a reasonable construction of the statute. FERC concluded the best reading of the statute is that municipalities should be accorded preference only with respect to the development of water resources that are located in their vicinity.

APPA, Public Power Council granted permission to intervene

The American Public Power Association and the Public Power Council joined Western Minnesota in seeking rehearing of the order. APPA and PPC had to request permission to intervene late in the proceeding because they had no prior indication that FERC would announce a new generally applicable interpretation of the municipal preference section of the FPA. FERC allowed their participation, noting they questioned for the first time the reasonableness of FERC’s statutory interpretation.

In its June 19 order on rehearing, FERC said the FPA section in question was originally enacted in the Federal Water Power Act of 1920 when the nation’s grid was relatively undeveloped and access to hydropower was at a premium for municipalities seeking to power their communities.

“Therefore, it seems reasonable to conclude that Congress intended only to give a preference to states and municipalities with respect to water resources in proximity to those public entities, to facilitate the development of those resources for the benefit of local consumers,” the commission said. “Conversely, it seems reasonable also to conclude that Congress did not intend to give states or their municipalities preference with respect to the development of remotely located resources to the exclusion of other developers.”

FERC noted that APPA and PPC argued that Congress “deliberately” chose not to adopt geographic limitations on the scope of municipal preference, adding “this argument is misplaced.” Citing legislative history, FERC said, “The debate demonstrates that Congress was primarily interested in local municipalities using local water resources for municipal purposes…”

APPA and PPC also argued that remote ownership is not inconsistent with the public interest, saying private entities regularly own and operate distant FERC-licensed hydro projects.

“APPA and PPC miss the point,” FERC responded. “The commission does not interpret the FPA to prohibit municipalities from owning or operating distant projects; we simply believe Congress did not intend for municipalities to be entitled to municipal preference for distant projects.”

FERC also rejected the appellants’ argument that FERC’s terms “nearby” and “in the vicinity” were impermissibly vague.

“In any event, it is not necessary to define these terms more precisely here,” the commission said. “The proposed site in this case is clearly not ‘in the vicinity’ or ‘nearby’ Western Minnesota’s registered office located in a different state almost 400 miles away or any of its members, all of which are located in Minnesota.”

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