Complaint over FERC hydro project property transfers

by PretiFlaherty

What happens when the holder of a Federal Energy Regulatory Commission license for a hydropower project buys, sells, or transfers real estate that is part of the project?  A complaint recently filed with the Commission raises this question in relation to a hydropower project located in Montana.

At issue in the complaint is the North Willow Creek project, licensed by the FERC in 1985 as Project No. P-7804.  According to the complaint filed on February 16, 2016, by Pony Ranch, LLC, the run-of-the-river hydroelectric project is located mostly on private lands near the Tobacco Root Mountains in Madison County, Montana.  The complaint describes the project as consisting of a steel intake structure located on North Willow Creek, an 8,180-foot steel penstock, and a powerhouse containing a 400-kW generating unit, and a tailrace discharging project flows back into North Willow Creek.

According to the complainant, Pony Ranch owns much of the land where the project is sited, including the land where the intake structure and upper 2,800 feet of the penstock are located.  But the complaint alleges that the project licensee has "for more than two decades regularly bought and sold real property underlying the Project and within Project boundaries without either informing the Commission or seeking Commission permission for those transactions requiring FERC approval."

The complaint alleges at least six transactions or transfers of the parcel of real estate on which the project powerhouse and tailrace are located.  The complaint alleges that even the licensee's transfer of the Pony Ranch lands to its present owners -- who appear to be substantially the same people as the complainants -- was a license violation because no FERC approval was obtained nor notice given.

According to the complaint, these transfers violate several articles of the project's license which relate to project land rights.  These include Standard Article 5, which provides that "none of such properties shall be voluntarily sold, leased, transferred, abandoned, or otherwise disposed of without the prior written approval of the Commission."

The Commission has required reporting and authorization for outright sales of project lands, but also for divorce-related transfers of joint interests in a project license, other transfers of joint interests in FERC licenses, actions limiting access across property owned by nonlicensees where access is needed to assure access to project works, transfers that occur under the will of a deceased licensee, and involuntary transfers where project property or equipment is foreclosed to satisfy tax or mortgage debt.

The complaint asks the Commission to find that the licensee has abandoned the project and should surrender the license under the doctrine of implied surrender.  Under that doctrine, the Commission can infer a licensee's intent to abandon a project from its action or inaction..

On March 7, 2016, the Commission's Office of Energy Projects sent the licensee a letter describing the complaint as a "non-compliance allegation" and requesting a response.  That letter notes that consistent with Commission practice with respect to allegations of non-compliance by hydropower licensees, the Pony Ranch complaint has been referred to the Commission’s Office of Energy Projects, Division of Hydropower Administration and Compliance.  That division is charged with ensuring compliance.  The letter requests a response from the licensee within 30 days.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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