FERC sets geographic limits on municipal preference

The Federal Energy Regulatory Commission has for the first time established geographic limits on the granting of municipal preference in the issuance of preliminary permits to study developing hydroelectric projects.

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 a Dec. 19 order, FERC for the first time 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.

“…it is difficult to discern what public interest is served by giving a municipality a preference with respect to a project that is far from the site of the municipality,” the order said. “To do so would effectively make municipalities super-competitors with respect to all new hydropower developments, regardless of their location.”

If municipal preference were viewed as absolute, FERC said, a municipal entity located on the east coast could claim preference over a private entity seeking to develop a project in Hawaii.

It added that its interpretation is supported by FPA Section 4(f) that requires the commission to give notice of a permit application “to any state or municipality likely to be interested in or affected by such application.”

“The statute distinguishes between municipalities in general and those likely to be interested in a potential project, and it would be administratively impossible for the commission to determine which municipalities were likely to be interested other than on the basis of propinquity,” FERC said. “Thus, consistent with our holding here, the FPA does not extend the same treatment to all municipalities, and in fact favors municipalities located near a project site.”

FERC also found that the Western Minnesota and FFP applications were substantially equal and were filed at the same time, so neither applicant received filing priority. As a result, it held a drawing for a “first-in-time tiebreaker.”

FFP won the drawing and was granted a successive permit for the project, which FERC also concluded it had pursued in good faith and with due diligence during its original preliminary permit.

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