FERC Hardens Stance on Overdue Hydro Progress Reports

On January 20, 2011, the Federal Energy Regulatory Commission (Commission or FERC) denied rehearing of FERC staff’s decision to cancel a preliminary permit in a case where the permit holder failed to file a progress report that was required under the permit.  Given the large number of FERC hydropower preliminary permits currently in effect, FERC’s ruling is significant because it sends a strong signal that the Commission and its staff will rigorously enforce preliminary permit requirements by canceling permits where permittees fail to meet deadlines without adequate justification.

BACKGROUND

Although a FERC-issued preliminary permit—typically issued for a three-year term—does not authorize the holder to construct, develop, or operate the proposed project, it does provide a significant competitive advantage to the future development of the site.  Under the Federal Power Act, the permittee has the exclusive right to file a development application during the permit term.  The permittee also enjoys the right to preference if the development application is as good or better than that of competitors and the right to amend its application to accomplish that.  Thus, permittees almost never face a competing development application.

In this case, in April 2010 FERC staff issued a preliminary permit for the proposed Claverack Creek Project, which would be located at an existing dam in New York.  As is the case with all preliminary permits, the permit required the permittee to file semi-annual progress reports with FERC during the permit term.  These reports are required to explain what activities the permittee has undertaken to study the feasibility of a project and, if warranted, to prepare a development application.

In this case, the permittee failed to file its initial semi-annual progress report on time.  Until recently in such cases of non-compliance FERC staff typically sent a standard letter to the permittee with notice of the non-compliance and warning the permittee that the permit would be cancelled if the overdue report was not filed within 30 days.  Recently, however, FERC staff modified the standard letter to eliminate the warning.  The revised letter, which the permittee in Claverack Creek received, now simply states that the permittee’s “failure to timely file the first progress report warrants cancellation of the permit” and provides notice of FERC’s probable cancellation of the permit.  The permittee did not respond to the notice letter, and FERC staff subsequently cancelled the permit.

FERC’S REHEARING ORDER

On rehearing before the Commission, the permittee argued that it promptly mailed a progress report in response to staff’s notice letter (although FERC never received it, and the licensee could not provide any

documentation supporting this claim).  FERC rejected that argument as irrelevant because the licensee’s failure was “in doing nothing before receiving a letter indicating that its permit was subject to cancellation.”  In addition to failing to meet the deadline imposed by the preliminary permit, FERC found that the permittee failed to provide any justification or explanation for such failure:  “If, as in this case, Commission staff alerts an entity that its authorization is subject to cancellation for failure to make a filing, it is not sufficient for the entity to simply belatedly file.  It must also demonstrate good cause for having failed to meet the requirement in the first place.”

“It is the responsibility of regulated entities,” FERC concluded, “to ensure that filings are timely made with the Commission.”  Because the permittee failed to timely file its progress report, or to provide any explanation demonstrating good cause for this failure, FERC denied the permittee’s request for rehearing.

IMPLICATIONS

FERC has recently experienced a surge in preliminary permit applications, many of them competitive.  Over 430 permits are currently in effect and another 160 are proposed.  FERC’s rehearing order sends a very clear message to holders of preliminary permits that it expects them to timely meet the semi-annual progress report requirement.  Failure to demonstrate good cause for an untimely progress report is likely to result in FERC cancelling a preliminary permit.  In light of the high level of interest in and competition for new projects, permittees who lose a permit may find it difficult to obtain a subsequent permit for the same site.