United States: BOEM And FERC Issue Revised Guidelines For Offshore Hydrokinetic Energy Development

On July 19, 2012, the U.S. Bureau of Ocean Energy Management ("BOEM") and the Federal Energy Regulatory Commission ("FERC") issued revised guidelines for the development of marine and hydrokinetic energy ("hydrokinetic") projects, which include wave, tidal and ocean current projects on the Outer Continental Shelf ("OCS").  These guidelines replace the existing guidelines issued jointly by BOEM and FERC in 2009 as part of the Memorandum of Understanding ("MOU") to clarify the agencies' potentially conflicting and overlapping jurisdictional responsibilities.  As established in the 2009 MOU, BOEM has jurisdiction to issue leases for hydrokinetic projects, while FERC has jurisdiction to issue licenses for those projects.

Who can hold a lease and license for a hydrokinetic project on the OCS?

Under the Federal Power Act and the Outer Continental Shelf Lands Act, a U.S. citizen or association of U.S. citizens, a corporation organized under the laws of the U.S. or any state, or a state or municipality may seek a lease or license to develop a hydrokinetic project.  A lease is required if the project will be located on the OCS, will support the production, transportation or transmission of energy, and will involve attaching a structure or device to the seabed.  All nonfederal hydrokinetic projects also require a FERC license, except for those projects that receive a limited testing lease from BOEM and are short-term, experimental or educational, or projects that will not transmit electricity to the grid.  FERC may also grant certain waivers or modifications to allow for the expedited processing of a pilot project license if the project is small, short term, or not located in sensitive areas, among other factors.  Pilot project licenses may be transitioned to standard licenses.

What are the types of leases issued by BOEM?

BOEM issues three types of leases: (i) commercial leases; (ii) limited leases; and (iii) research leases.  Commercial leases have a term of 25 years, although longer terms may be negotiated with BOEM.  Leases are issued on a competitive basis pursuant to BOEM's regulations, 30 C.F.R. §§ 585.210-.225.  Limited leases are valid for 5 years and are issued on a case-by-case basis for projects with a limited scope or duration.  Research leases are also issued on a case-by-case basis and will only be issued to a federal or state entity for renewable energy research activities that support the future production, transportation or transmission of renewable energy after a determination of no competitive interest.  Terms for research leases are negotiated by BOEM and the applicant.  BOEM may issue a limited or research lease for a test or pilot project, but these types of leases cannot be converted into a commercial lease, which would require a new application.  Leases include the right to one or more project easements for the purpose of installing transmission cables.  Additionally, with BOEM's approval, leases are transferable.

How does an applicant obtain a lease or license?

The threshold questions involve the type of lease at issue and whether the leasing process is competitive.  The issuance of competitive leases may take 2 years or longer and noncompetitive leases are likely to take closer to 1 to 2 years.  FERC anticipates issuing licenses within 1 year for most projects, and within 6 months for pilot projects.

Leases

Applicants can apply for a lease by either responding to a BOEM notice for a specific area or submitting an unsolicited application.  If BOEM initiates the leasing process, it will issue a Request for Interest or Call for Information and Nominations in the Federal Register to solicit interest.  In the case of unsolicited applications for leases, BOEM may publish a notice in the Federal Register to determine the interest of others in the lease area.  If there is no competitive interest, BOEM will issue a determination to that effect, at which point the applicant must submit a Site Assessment Plan within 60 days, although applicants may request a waiver of this requirement. 

The applicant's proposal must comply with all relevant laws, including the National Environmental Policy Act, the Endangered Species Act and the National Historic Preservation Act.  If there is a competitive interest in the lease area, BOEM will publish a proposed sale notice, followed by a Final Sale Notice after the necessary reviews are completed.  The applicant must then submit its bid pursuant to the Final Sale Notice and BOEM will issue a lease to the successful bidder. 

License

A FERC license for hydrokinetic projects will be issued using one of three different licensing processes: (i) the Integrated Licensing Process ("ILP"); (ii) the Traditional Licensing Process ("TLP"); or (iii) the Alternative Licensing Process ("ALP").  The ILP is the default licensing process, unless FERC approves using the TLP or ALP.  The applicant begins the licensing process by filing a Pre-Application Document, which includes all existing and relevant information gained through consultation with federal, state and local agencies, stakeholders and other parties.  The Pre-Application document is similar to the BOEM Site Assessment Plan and requires that an applicant identify the study needs for the proposed project and a plan or schedule for upcoming licensing activities.  Subsequently, the applicant files a final license application with FERC, which contains a thorough project description.  At all steps of the licensing process, applicants should seek input from FERC staff and stakeholders.  In cases of competitive leases, FERC will only process a license application if a lease has already been issued.  For noncompetitive leases, the application process may be started once BOEM issues its determination of no competitive interest.  FERC licenses are initially issued for a term of 50 years, with the option for a relicense term of 30 to 50 years.

What financial assurances and fees are required?

Applicants will need to provide a series of bonds, including a decommissioning bond, over the life of the commercial lease and license.  The amount depends on the types of activities involved.  BOEM further requires applicants to provide a minimum of $100,000 before a lease is issued.  For limited leases, the applicant must provide a bond or other form of financial assurance in the amount of $300,000.  For BOEM leases, parties are required to make an initial one-time payment to obtain the lease and ongoing annual payments once the lease commences.  Lessees will also pay FERC annual administrative charges either when project construction begins (for non-municipal entities) or when the project becomes operational (for municipal entities).

Applicants for hydrokinetic leases and licenses should communicate with BOEM and FERC as early in the process as possible regarding the proposed project and the requisite environmental review.  Early consultation will facilitate BOEM and FERC's consideration of the best approach for review and approval of the project and encourage a more efficient process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.