Long, Strange Trip for FERC and MMS Comes to An End

In the words of the Grateful Dead, what a long, strange trip it’s been for FERC, MMS and the marine renewables industry. With the August 4, 2009 issuance of this Joint FERC-MMS Guidance Document for Hydrokinetic Projects on the OCS , the dramatic jurisdictional smack-down between the FERC and MMS which I covered in blow-by-blow detail, here, here and here has officially ended.

Unfortunately, even with jurisdictional hurdles out of the way, I’m not all that hopeful for expeditious development of marine renewables on the OCS.  While it’s apparent that FERC and MMS tried mightily to avoid any duplication of effort in the guidance document, the reality is that they’re both behemoth federal agencies with their own respective statutory mandates and regulatory obligations to abide.   As a result, the guidance document creates a framework for siting projects on the OCS that even in the best case scenario takes three years, worst case scenario, up to five years.  Below the jump are a couple of quick highlights from the Guidance document:

1. Get the lease first The Guidance document flips the traditional hydroelectric licensing process on its head for competitive projects. With conventional hydro projects, FERC issues a license which includes Standard Article 5 which requires license holders to procure property interests for the project within a certain time frame. Here, in a competitive license proceeding, developers must first obtain a lease and once the lease is in hand, then proceed to licensing.

MMS predicts that it will need 2-2.5 years to complete competitive lease sales, and FERC will require 1-2 years to process a license application. You do the math on the amount of time required.

2. Trade-offs for non-competitive process For non-competitive projects (i.e., where only one applicant expresses interest), the applicant can initiate the lease and license process simultaneously. However, the Guidance Document cautions (at #5) that:

You should be aware that by proceeding with both the lease and licensing processes simultaneously, you risk incurring costs prior to knowing whether you will receive a lease and what conditions will be part of the lease. Nevertheless, by streamlining the two processes, your overall process may be completed more quickly and efficiently. We encourage you to discuss with MMS and FERC early in the process what approach might
be best for your proposed project.

Fortunately, MMS believes that it can process a lease sale for a non-competitive site within 1-2 years (Guidance Doc., #10) so that means that projects which lack competitive interest face a “mere” 2-4 year license process.

3. What happens to the University test facilities? DOE has awarded significant amounts of funding to universities to establish test centers for marine renewables projects, which might include test beds for developers to site demonstration projects and connect them to the grid (somewhat like EMEC in Scotland). But how useful will these test beds be for companies trying to get in the water now if it’s going to take up to four years just to site them? Perhaps MMS and FERC could create special guidance or regulations for test beds so that universities seeking to build them can get the test sites up and running. Test sites can help speed development by providing an opportunity for companies to test projects in real world conditions.

4. How attractive are straddle projects? With uncertainty looming over MMS and FERC jurisdiction, most developers limited the scope of wave energy projects to waters over state submerged lands (i.e., up to 3 miles offshore) to avoid the jurisdictional question entirely. But most developers starting a project on the state-side of the OCS aspired to build it out to the OCS once jurisdiction issue were resolve.

That strategy, however, may prove to be risky business. The Guidance document makes the following clear:

If I have a licensed project in state waters next to the OCS, do I have any priority to
develop the neighboring site within the OCS?

No. The neighboring OCS waters are subject to the competition requirements of the Energy Policy Act of 2005.

In short, a developer who eventually wants to build a project out from state waters to the OCS should embark on the project as a single unit of development, which is what the Guidance document recommends:

Early process planning will be essential for the successful execution of straddle projects. FERC would prefer to license the entire project as a whole, which is feasible if the applicant consults with FERC and MMS early in the planning process.

5. Hybrids subject to FERC and MMS regulation Hybrid projects, such as combined wind and wave projects are subject to FERC and MMS regulation, with FERC taking jurisdiction over the hydroelectric component. I’m not exactly sure how this would work in practice, where, for example, the hydro component is a small aspect – for example, a few small buoys latched on to a wind platform. Given that MMS would be reviewing the larger wind energy component, it doesn’t make sense to involve FERC for such a small piece. However, as a practical matter hybrids are still a bit far down the road; it doesn’t make sense to talk about integrating wave energy into an offshore wind plant design until the wave technology is proven to operate on its own.

6. The Muni Issue Section 7(a) of the Federal Power Act provides that in choosing between two otherwise equal competitive permit or license proposals, FERC is required to favor the one submitted by a municipality or state. However, MMS is not similarly restricted. The Guidance document effectively leaves the choice to MMS, by requiring a municipality in a competitive proceeding to obtain a lease from MMS before applying for a FERC license (as described above in #1, this same procedure applies in all competitive proceedings). Consequently, the decision between the municipality and another applicant is made at the leasing phase (where MMS makes the choice) as opposed to under the FPA process, where FERC would otherwise be required to apply municipal preference to break the tie between two applications.

The long strange trip to resolve the FERC-MMS jurisdictional conflict may be over.  But the end of the song doesn’t mean that the fat lady is singing.  Instead, we’re on to the next tune:  the long and winding road through FERC’s and MMS’ regulatory process is just beginning for marine renewables.

Do you have any thoughts on the MMS/FERC Guidance document, or questions. Feel free to contact me at carolyn@carolynelefant.com .