Troubled Waters for FERC and MMS

The Federal Energy Regulatory Commission (FERC) is getting aggressive.

I posted previously how the FERC, seemingly impatient over endless negotiations with the Minerals Managment Service (MMS) went ahead and unilaterally asserted their jurisdiction over the OCS.

My co-founder at The Grays Harbor Ocean Energy Company, Burt Hamner, recognized the importance of this and the opportunity created, and quickly filed applications for 7 marine energy projects in 6 states. The FERC published and opened the applications for comment with surprising speed. At the end of January, just before the comment period closed, the MMS filed a protest to all the applications, arguing that the FERC lacks jurisdiction on the OCS.

Now the FERC has issued its first preliminary permit entirely outside state waters to a subsidiary of Ocean Power Technologies (OPT) in a move clearly in further defiance of the MMS. The FERC order [pdf] permits Oregon Wave Energy Partners II, LLC to study the feasibility of installing 200-400 PowerBuoys producing up to 100MW. The proposed project site is "located in the Pacific Ocean about 3 to 6 miles off the coast of Lincoln County, Oregon."

The MMS filed a protest against the issuance of this permit which the FERC evidently rejected early in its order:

The portion of the proposed project beyond 3 nautical miles from shore would be located on the Outer Continental Shelf (OCS). In its comments, MMS questioned the Commission’s jurisdiction over hydropower projects located on the OCS.

Section 4(f) of the FPA authorizes the Commission to issue preliminary permits for the purpose of enabling prospective applicants for a hydropower license to secure data and perform acts required by FPA section 9 which in turn sets forth the material that must accompany an application for license. The purpose of a preliminary permit is to preserve the right of the permit holder to have first priority in applying for a license for the project that is being studied. Because a permit is issued only to allow the permit holder to investigate the feasibility of a project while the permittee conducts investigations and secures necessary data to determine the feasibility of the proposed project and to prepare a license application, it grants no land-disturbing or other property rights.

Regarding the specific MMS objections to its claim of OCS jurisdiction, the FERC was terse, believing that the MMS had raised no new issues or avenues of argument not previously addressed:

As to the comments from MMS questioning the Commission’s jurisdiction to issue permits for hydropower projects on the OCS, the Commission explained in detail why its jurisdiction extends to projects located on the OCS in Pacific Gas & Electric Company. [125 FERC ¶ 61,045 (2008) [pdf]]

The PG&E decision cited above by the FERC rejected reconsideration of the earlier issuance of preliminary permits March 13, 2008 for two substantially similar projects in California off Humboldt and Mendocino counties. These wave projects were a collaborative effort by PG&E and Finavera and the sites encompassed both state and federal waters, straddling the 3-mile territorial sea boundary. (Both projects are now in question due to decisions by regulators and by Finavera.)

The FERC appears to be leaving the door open to the preliminary permit not necessarily trumping the MMS claim to preside over the issuance of leases. In the PG&E decision the FERC states:

Although the Commission’s authority to issue preliminary permits derives from its licensing authority, Interior’s rehearing request is at least arguably not ripe for review. The PG&E preliminary permits, themselves, do not affect the OCS. As discussed earlier, the issuance of the preliminary permits to PG&E does not authorize the placement of any test devices on the Pacific Ocean, including on the waters above the OCS.

It will be interesting to see whether the FERC uses similar reasoning in considering the issuance of pilot or operating permits (which would generally entail "land-disturbing rights") and whether their issuance will be conditioned on any approval by the MMS.

As they have now done in several applications before the FERC, the MMS responded to the Grays Harbor Ocean Energy Company applications with a protest. The protest appears to rehash many of the arguments made earlier and reiterates as strongly as a lawyer's treatise can do, that the MMS really really disagrees with the FERC on the latter's interpretation of key parts of the Federal Power Act and the Energy Policy Act of 2005. Trying to follow all the back-and-forth makes my head hurt, in part because it's starting to sound like a shouting match over what Congress meant when it left something out, and why it used broad rather than specific language, and whether something should be interpreted inclusively or more narrowly, and the precise definition of terms defined variously not in the laws at issue but in other laws to which they (more or less) allude.

There's plenty of scope for interpretation and litigation, and there seems little likelihood of the FERC and the MMS coming to agreement on their own.

Irrespective of the legal merits of the FERC and MMS positions a few things appear unarguably true:

1. FERC has a permitting process and is using it to issue permits; MMS on the other hand has been promising to issues rules allowing applicants to start the permitting process on the OCS, and yet, 5 months after the close of public comment on the proposed rules, has yet to either issue any or give any guidance on which one might rely as to when they will do so.
   
2. The standard MMS leasing approach puts everything to competitive auction, which fits the needs of marine energy project developers very poorly. Having undergone the time and expense of identifying a promising site and technological approach, others can swoop in and outbid for the site, leaving those who have pioneered the opportunity no compensation and no recourse.
   
3. MMS leases are ill-suited also because lease payments start immediately rather than at commissioning, when a project starts producing power, hence revenue, to pay the rent. Where years of studies, analysis, stakeholder engagement (and quite likely lawsuits) await, such a fee structure is punitive, especially to a nascent industry, and will have the effect of arming opponents with a financial cudgel wielded by the tactics of delay.
   
4. The ongoing spat between these two federal agencies serves no purpose beyond titillating the insatiable urge of the bureaucrat to aggregate authority. Meanwhile, the regulatory uncertainty creates confusion and further freezes any funding to advance renewable marine energy projects, in contradiction to President Obama's vision, policy and reasonable common sense.

It's worth also asking the question: exactly what minerals are the Minerals Management Service managing when it comes to marine renewable energy? The original purpose of MMS was to ensure that the public, through the government, received royalties for the extraction of mineral wealth from public lands, i.e. to compensate the public for the depletion of a finite and non-renewable resource for private gain. There's no meaningful way in which wind or waves are depleted. Charging rent for the exclusive use of some bit of ocean may make sense, but there's no compelling reason to task the MMS as landlord merely because they know how to cash the rent checks.

There needs to be one lead agency for marine renewable energy and it makes the most sense to have that be the agency that regulates and understands energy, not one that is concerned with mining and drilling. The FERC should be the lead agency on the OCS and the MMS should mind/mine their other business.

Since much of the current argument between the agencies is over differing interpretations of the statutes and the Congressional intent the best solution would be to replace those statutes with an updated Energy Policy Act. Our new energy economy and Obama's policies demand that such an Act be crafted anyway. In what may be an extended meantime, however, the Administration should take charge, at least by getting Secretaries Stephen Chu at Energy and Ken Salazar at Interior to talk to each other and make their staffs play nice. Both men clearly grasp the need for renewable energy and Salazar's comments today struck the right tone when he rejected the flawed Bush midnight regulations emphasizing a "headlong rush" to "drill, drill, drill" on the OCS in favor of a policy that would incorporate

...the great potential for wind, wave, and ocean current energy [in] our offshore energy strategy... [The Bush approach] was a process rigged to force hurried decisions based on bad information. It was a process tilted toward the usual energy players while renewable energy companies and the interests of American consumers and taxpayers were overlooked.

Resolving the turf battle between the FERC and the MMS is also a national interest which cannot be overlooked a moment longer.