Ocean Law Alert: Implications for FERC Conditioned License Authority from Liquid Natural Gas Case
3/18/2009

FERC's Policy Statement on Conditioned Licenses for Hydrokinetic Projects (Nov. 30, 2007) finds implied support in a March 13, 2009 court of appeals decision dismissing Delaware's challenge of FERC's order conditionally authorizing the Crown Landing LLC liquefied natural gas import terminal. Delaware Department of Natural Resources and Environmental Control v. Federal Energy Regulatory Commission (D.C. Cir. 2009). FERC's order did not authorize construction. Final FERC approval of construction was conditioned on its receipt of Delaware's concurrence that the project is consistent with Delaware's Coastal Management Program.

Delaware challenged FERC's conditioned approval order based on the Coastal Zone Management Act (CZMA), which provides that "[n]o license or permit shall be granted by the Federal agency until the state or its designated agency has concurred with the application." 16 U.S.C. § 1456(c)(3)(A). The court of appeals held Delaware had not suffered any injury-in-fact to give it standing (a jurisdictional basis) to challenge FERC's conditional order because FERC's order acknowledged Delaware's power to block the project.

FERC's Policy Statement on use of conditioned licenses for hydrokinetic projects expressly relies on FERC's practice under the Natural Gas Act of issuing conditioned pipeline certificates and authorizations while other governmental approvals are pending, providing that construction may not commence until all necessary authorizations have been received. FERC relied upon its Policy Statement when it issued a conditioned license for Finavera's Makah Bay project on December 20, 2007 and in rejecting Washington's request for rehearing of that conditioned license. Although Washington later issued its CZMA consistency decision, it also filed a petition seeking judicial review of FERC's conditioned license. Since then, Finavera submitted a petition to surrender its conditioned license, citing economic reasons.

As explained by FERC, a conditioned license allows a hydrokinetic licensee to begin development of plans and drawings in consultation with federal and state agencies, Indian tribes, and others, and fabrication of generation and other project-related equipment. A conditioned license may also help secure financing. A conditioned license does not allow a licensee to begin any on-site construction and installation activities, including construction and equipment staging. Final FERC approval authorizing construction is not issued unless and until all necessary governmental approvals have been obtained.

As suggested by the D.C. Circuit Court of Appeals, conditioned licenses put the spotlight on federal and state agencies that have not taken action on necessary project authorizations by the time FERC issues its conditioned licenses. From that point forward, political and other pressure for action on necessary project authorizations falls on other agencies.

While it is too early to tell whether Delaware will seek rehearing in the court of appeals or Supreme Court review, this recent decision provides practical support for FERC's use of conditioned licenses. For the reasons cited by FERC, conditioned licenses for hydrokinetic projects can jump-start project development and financing efforts, pending receipt of final FERC authorization to commence construction.

For further information about this decision or hydrokinetic project development, contact: