1. GKRSE law offices of GKRSE 1 Federal Regulatory Issues Affecting the Development of Hydro in the Northeast Nancy J. Skancke Law Offices of GKRSE Washington, D.C. 20005 202/408-5400 njskancke@gkrse-law.com June 25, 2009 Waltham, MA

2. GKRSE law offices of GKRSE 2 Primary Federal Statutes and FERC Regulations Relating to Hydro Projects Federal Power Act, Sections 4, 10, 14, 15, 18 16 U.S.C. §§ 797, 803, 807, 808 and 811 Clean Water Act, Section 401 (potentially applicable) 33 U.S.C. § 1341 Endangered Species Act, Section 7 16 U.S.C. § 1536 Coastal Zone Management Act 16 U.S.C. § 1451-65 National Historic Preservation Act 16 U.S.C. § 470-470w-6 FERC Regulations – 18 CFR Parts 4, 5 and 16

3. GKRSE law offices of GKRSE 3 FERC Preliminary Permit Process Preliminary Permit – FPA §5; FERC Regs. §4.80 et seq.  Priority in licensing process  Maximum 3-year term; not transferable.  Need to coordinate with the ILP timeframes.  No operations permitted; testing permitted (no grid generation). “Strict Scrutiny” Policy – FERC Docket No. RM07-8 (2007)  Limiting boundaries of permits to prevent site banking.  Careful scrutiny of periodic reports under preliminary permit.  Requirement in permit order of additional 45-day filing: schedule of activities for three-year term (including within 1 year of permit – filing of NOI, PAD and request to use TLP/ALP if applicable).

4. GKRSE law offices of GKRSE 4 FERC’s Hydro Licensing Processes Integrated Licensing Process (“ILP”) – FERC Regs. Part 5  Default process as of July 2005.  Pre-application: Extensive issue identification with resource agencies, tribes, all stakeholders and FERC. Early study identification and study dispute resolution. Traditional Licensing Process (“TLP”) – FERC Regs. Parts 4 and 16  Requires prior approval by FERC; FERC Staff not involved until application filed.  Pre-application: Three-stage consultation process. Alternative Licensing Process (“ALP”) – FERC Regs. §4.34(i)  Requires prior approval by FERC; FERC Staff participates in pre-application process.  Pre-application: Collaborative process with agencies, tribes, stakeholders. New Hydrokinetic Pilot Project process (Guidance document 2008).

5. GKRSE law offices of GKRSE 5 FERC’s Exemption Processes Small Hydro Exemption – FERC Regs. § 4.101, et seq.  Per PURPA §§ 405 and 408 (1980, per Energy Security Act, §408)  Pre-1977 existing dams or natural water features.  No new construction or enlargement (only repair/reconstruction). Conduit Exemption – FERC Regs. § 4.90, et seq.  FPA §30 (added by PURPA §210, 1978)  Not more than 15 MW; or not more than 40 MW for municipal-operated solely for municipal water supply.  Using water not operated primarily for hydro development. Conditions on Both types of exemptions –  Conditions from Federal/State fish/wildlife agencies.  No eminent domain authority.  No term limit. Authority of FERC to waive its requirements.

6. GKRSE law offices of GKRSE 6 FERC Jurisdictional Criteria Per FPA 23(b)(1), non-Federal hydro project must be licensed ( unless has valid pre-1920 permit), if:  is located on navigable water of the U.S.;  Occupies lands of the U.S.;  Utilizes surplus water or waterpower from government dam; or  Is located on “Commerce Clause” body of water, project construction has occurred on or after August 26, 1935, and project affects the interests of interstate/foreign commerce. Declaration/Jurisdictional Finding – FERC Regs. §24.1 Considerations –  Public lands/reservations involved?  Use of water from Federal dam?  Navigability at site or near?  Connection of power to grid?

7. GKRSE law offices of GKRSE 7 OCS Development Energy Policy Act of 2005 – MMS to regulate renewable energy development on OCS. MOU between MMS and FERC, April 9, 2009  MMS – exclusive jurisdiction on production from non-hydrokinetic renewable projects and to issue leases/easements/rights-of-way on OCS.  FERC – exclusive jurisdiction for licenses/exemptions for projects on OCS; not issue until lease/easements/ROW obtained.  Need for coordination between MMS and OCS.  Further guidance on MOU expected. MMS OCS Regulations – 30 CFR Parts 250, 285 and 290 (April 29, 2009) [Fed. Reg. 19637]

8. GKRSE law offices of GKRSE 8 Small Hydro Potential for small hydro development –  2004 DOE Report: 21,000 MW available at low head/low power; 26,000 MW at high head/low power.  Update analysis of hydro potential.  Existing dams without generation; upgrades to existing power generation facilities. Issues/Barriers to development –  Regulatory  Environmental  Cost/Financing  Operational/Engineering NHA’s new Small Hydro Council

9. GKRSE law offices of GKRSE 9 Current “Hot” Issues under FERC Licenses Capacity/non-capacity amendments Endangered species Fish resources/fish passage Land use Shoreline management Recreation/permitting programs Security Annual charges (OFA/FERC)

10. GKRSE law offices of GKRSE 10 Other Hydro Issues Financing Projects –  Production Tax Credits or Investment Tax Credit; FERC certification process; convertible to grant.  Clean Renewable Energy Bonds; IRS allocation. DOE Funding –  R&D Funds – “Stimulus Funds”; Annual funding.  National Hydropower Asset Assessment Project – to be issued December 2009. Potential Federal Legislation –  Status of hydro under RPS/RES Standard  Potential need for certification

11. GKRSE law offices of GKRSE 11 Case Study: Holyoke, Mass.

12. GKRSE law offices of GKRSE 12 Case Study (cont.) Background –  Three-level canal system on Connecticut River.  Hydro installed at Hadley Falls originally in 1849; expanded in 1950’s. Holyoke Project, FERC Project No. 2004  Originally licensed in 1949 to Holyoke Water Power Company.  Competitive license proceeding – New License issued in August 1999.  BO on SNS – jeopardy finding in 2000.  HG&E acquisition in 2001; license transferred.  Six hydropower stations and Canal System; approx. 43 MW. Comprehensive Settlement –  Filed in 2004; approved by FERC in 2005.  Adaptive management on Downstream Fish Passage (SNS)  Resolved all pending rehearing applications; mandatory conditions withdrawn.  New BO on SNS, based on Settlement, with no jeopardy finding.

13. GKRSE law offices of GKRSE 13 Case Study (cont.) Implementation of Settlement – Downstream fish passage:  Studies/Analyses 2001-2009  Ongoing agency/stakeholder consultation  Schedule for implementing solution. Canal Projects  Holyoke City 1, 2, 3, 4 (constructed in 1922, 1938 and 1940, respectively); licensed in late 1980’s.  Holyoke City 4 (constructed in 1900, relicensed in 2006).  Valley Hydro/Holyoke City 5 (constructed 1994, licensed in 1990).  Eight Harris Projects acquired by HG&E in 2004. CREB for Boatlock Station (Project No. 2004) based on IRS Allocation of $2.5 million.

14. GKRSE law offices of GKRSE 14 Potential New Technologies for Hydro