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Hydro Review

Big Progress for Small Hydro Permitting Reform

Pending federal hydro permitting reform legislation promises to provide a big boost to small hydro development. Past experiences in Colorado illustrate the significance of the opportunity.

By Kurt Johnson

Small hydropower development in the U.S. promises to become easier, cheaper and faster if hydro permitting reform legislation pending before the U.S. Senate gets signed into law.

On Feb. 13, 2013, the U.S. House of Representatives unanimously passed HR 267, the Hydropower Regulatory Efficiency Act, in a rare example of bipartisan cooperation. On March 13, 2013, Senator Lisa Murkowski (R-AK) introduced companion legislation in the Senate, S. 545, the Hydropower Improvement Act.

The bill eliminates a regulatory barrier that has been hindering small hydro development: federal requirements to secure a permit from the Federal Energy Regulatory Commission (FERC) before building a grid-connected small hydro system.

According to nationwide summary data released by FERC, in 2012, only 18 small hydro projects received a FERC conduit exemption, and two projects received a 5-MW exemption. Conduit exemptions are available for projects utilizing conduits such as pipelines and irrigation canals. The 5-MW exemption is available for projects with a generating capacity below 5 MW.

These low numbers reflect the fact that federal permitting requirements for small hydro are time-consuming and costly, which has been stifling development for decades. For systems with a capacity of less than 25 kW, the cost of federal permitting can exceed the cost of the equipment needed for the facility, and the process can take six to 12 months, including the time required to compile an application for submission to FERC.

The pending legislation solves this problem by creating a "regulatory off-ramp" from FERC permitting requirements for non-controversial hydro projects on existing conduits, such as pipelines and canals, that are less than 5 MW in capacity.

More specifically, the bill's provisions:

- Remove conduit projects less than 5 MW in capacity from FERC jurisdiction pending no objections during a 45-day public notice period regarding the project. If there is an objection to the project, permitting would revert to the current FERC process;

- Increase the small hydro exemption from 5 MW to 10 MW;

- Increase the conduit exemption to 40 MW;

- Allow FERC to extend preliminary permits for an additional two years beyond the initial three years provided; and

- Require FERC to examine development of a two-year licensing process for non-powered dams and closed-loop pumped-storage facilities.

Through creation of a FERC 45-day public notice process for small hydro, the bill provides an opportunity for public involvement as well as a way to make sure a proposed small hydro project is non-controversial and consistent with existing federal environmental protection requirements. This process reform also frees FERC staff to focus on hydro projects for which there may be potential issues of concern, instead of processing paperwork for non-controversial projects on existing conduits.

On the House side, the bill was developed through a bipartisan partnership between Representatives Diana DeGette (D-CO) and Cathy McMorris Rodgers (R-WA). During a congressional hearing regarding the bill in May 2012, witnesses testifying in its support included representatives of the National Hydropower Association, Colorado Small Hydro Association, American Rivers and FERC. The companion Senate bill also has received bipartisan support.

Regulatory red tape

Pursuant to the Federal Power Act, grid- connected small hydropower projects, regardless of size, are subject to FERC permitting.

Under current FERC requirements, small hydro projects can receive either a 5-MW exemption or a conduit exemption. But the term "exemption" can be misleading. It means exemption from FERC licensing requirements, not from FERC permitting requirements.

Hiring a consultant to complete a FERC permit application for a small hydro project may cost $30,000 or substantially more.

A typical FERC exemption application for a small hydro system may be on the order of 100 pages, including all the necessary explanatory text, diagrams, maps, letters and appendixes. Gathering all the necessary information and compiling it can take months and require consulting assistance from engineers, attorneys, architects, professionally licensed surveyors and environmental consultants. It can also take months to receive concurrence letters from federal and state environmental agencies.

FERC streamlining efforts

FERC has previously sought to use its rulemaking authority to pursue similar reform by seeking to create a categorical exemption from licensing for projects less than 100 kW in capacity (considered micro hydro) that utilize an existing dam. Ultimately, however, that reform was not adopted by FERC in light of questions raised by the environmental community regarding the appropriateness of using a simple capacity threshold as a proxy for evaluating potential environmental impacts of hydro development.

Micro-hydro development using new diversions can be easily designed and installed with de minimus impacts, utilizing no impoundment or stream alteration and causing no measurable impact to aquatic life or other environmental impacts. What's less simple, however, is determining the criteria and process to use in deciding what qualifies as de minimus for a project utilizing a new diversion.

In December 2009, FERC held a public conference in Washington, D.C., to solicit input from developers about how to make the small hydro permitting process easier. FERC then improved the accessibility of information regarding small hydro permitting requirements. FERC published updated small hydro permitting information on its website at www.ferc.gov, including templates to simplify the process. In addition, FERC has held permitting process webinars to explain permitting requirements.

Judging by the low number of small hydro permits issued by FERC during 2012, the process remains burdensome enough that few projects complete it.

State streamlining efforts

Some states have developed efforts to simplify small hydro permitting in response to developers highlighting the challenges associated with complying with current requirements.

In Vermont, legislative and regulatory reform efforts are under way to accelerate development of hydro projects with a capacity of less than 10 kW in what is expected will be the nation's first state legislation focused specifically on micro-hydropower. The Pennsylvania Environmental Council has been investigating simplification of small hydro permitting, and the Energy Trust of Oregon has developed publications to assist with small hydro permitting.

Colorado had the most visible FERC streamlining efforts. In August 2010, the Colorado Energy Office signed a memorandum of understanding with FERC to create a streamlining program for small hydro projects. The state's Small Hydro Permitting Program was designed to assist developers of small, low-impact hydropower projects in applying for a FERC permit. Projects that qualified for the program were required to use existing infrastructure and have low potential impacts on the environment.

The program pre-screened 26 applications for acceptance. Nine projects completed the Colorado program and were submitted to FERC for review. To date, five of these projects have received exemptions. One additional project is still under FERC review, with pending U.S. Forest Service concerns. Two others are no longer in the FERC process but working to resolve issues uncovered in the FERC review process.

The first hydro project approved by FERC under the Colorado program was announced in September 2011: a 23-kW irrigation pipeline project near Meeker, Colo. (For more information on this project, see the sidebar on page 38.) Colorado's project assistance facilitated FERC exemptions for hydro on small irrigation dams, water delivery structures and a municipal water system for a total of 700 kW of small hydro FERC exemptions.

Colorado's pioneering FERC program was successful in raising awareness and coordination among federal and state environmental agency officials regarding federal hydro permitting processes. This coordination was essential in accelerating support letters from federal and state environmental agencies for inclusion in a FERC application. Despite the successes of Colorado's program, challenges remain in the FERC permitting requirements for small hydro, indicating the need for comprehensive reform at a federal level.

Proponents of pending hydro reform legislation hope that the bill will unleash development of small hydro, similar to the way that interconnection and net metering reforms over the past 30 years have accelerated development of distributed rooftop solar.

Small hydro developers will still be faced with typical interconnection barriers and financing challenges, but eliminating the added time and expense of securing a FERC permit will put small hydro on a more level playing field with other small distributed energy sources.

New clean energy

Reducing permitting barriers should provide a big boost for development of new small hydro.

Oak Ridge National Laboratory recently estimated the U.S. has about 12,000 MW of untapped hydro capacity at existing non-powered dams. Nationwide, only about 3% of the nation's 80,000 existing dams impound water for hydroelectric generation.

There is also substantial opportunity for hydro development at existing irrigation canals. In 2012, the U.S. Department of the Interior's Bureau of Reclamation completed a study, "Site Inventory and Hydropower Energy Assessment of Reclamation Owned Conduits," evaluating potential hydropower sites at Reclamation canals. Looking at sites across the west, the study identified existing canal sites and conduits that would yield about 365,000 MWh annually. This is only a small percentage of the overall number of irrigation ditches nationwide.

In 2011, for example, researchers at Colorado State University conducted a field study in which 36 different canals were investigated. The research documented 233 structures, including weirs and drops, of which 70 were identified as potential hydropower sites.

There are also opportunities for small hydro development using existing pipelines. For many communities, the municipal water system consists of a pipeline up a mountainside that carries water to a treatment plant. Such systems typically include a pressure-reducing valve (PRV) to consume express pressure before piping into a membrane filtration system. Industry estimates have suggested there are as many as 400,000 PRVs installed in water systems nationwide, some of which can be economically retrofitted with hydro generation.

The potential of hydropower development to create jobs is enormous. A study commissioned by NHA estimates that for every megawatt of new hydropower installed at existing non-powered dams, 5.3 jobs are created (including direct, indirect and induced). Jobs in hydro development include equipment manufacturing; project managers, engineers, lawyers, financiers and environmental analysts; and concrete workers, welders, plumbers, electricians and carpenters.

All eyes on the Senate

Given the overwhelming bipartisan support for the bill in the House, small hydro proponents are hopeful that the Murkowski bill will reach the Senate floor for a vote. Senator Murkowski introduced a related bill in 2011, S. 629, during the last session of Congress. The bill cleared the Senate Energy and Natural Resources Committee with bipartisan support in 2011, but it was never taken up on the Senate floor.

The non-partisan Congressional Budget Office scored the 2013 bill as having "zero cost," which should aid in its passage in an era of fiscal austerity. Climate change and energy featured prominently in President Barack Obama's State of the Union address, so it is expected he will swiftly sign the bill once it reaches his desk.

NHA has issued an "Action Alert" regarding the Senate version bill. To contact your Senator, visit http://capwiz.com/hydro/home and click on "Take Action," which will automatically send a letter to the Senate. It is important to emphasize to elected officials that the non-controversial, zero-cost, bipartisan bill provides long overdue, commonsense regulatory reform that is widely supported by both industry and the environmental community.

If the hydropower industry can speak loudly and convincingly enough, the bill will complete the legislative process and be signed into law this year, sweeping away regulatory barriers that have been hindering the small hydro industry for decades and leading to new clean energy and thousands of new jobs.

Agricultural Small Hydro Case Study: Meeker, Colo.

George Wenschhof, a rancher in Meeker, Colo., and owner and operator of the Wenschhof Cattle Company, received a Federal Energy Regulatory Commission conduit exemption with assistance from Colorado's FERC streamlining program. It took about six months to prepare all of the documentation that was needed for the final application that was submitted to FERC. The permit was awarded by FERC in about two months after the final application was submitted. Mr. Wenschhof installed a large center pivot sprinkler system for watering crops, as well as a 23-kW hydroelectric generating facility that is producing enough power to offset the electrical demands of the sprinkler system and all ranch operations.

The project included the following components:

- Improved intake and screen at the Miller Creek Ditch;

- Pipeline that feeds both the center pivot sprinkler and hydroelectric turbine;

- Double nozzle 23-kW Pelton turbine and induction generator with all associated controls;

- Extension of three phase power to the powerhouse;

- Powerhouse to house the turbine, generator and controls; and

- Discharge basin below the powerhouse, with a small pump that can be used to irrigate fields lower on the ranch and an overflow pipe.

Wenschhof was able to use the infrastructure for the sprinkler system to also benefit the hydropower facility. By only producing enough electricity to offset the demands of the ranch, the value of the electricity produced is the retail rate of close to 11 cents/kWh. This project will save the ranch $10,000 to $13,000 per year in avoided electric bills.

Kurt Johnson is chief executive officer of Telluride Energy, a small hydro development firm with offices in Colorado and California. Johnson also is president of the Colorado Small Hydro Association.

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