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Like the ocean waves themselves, interest in ocean energy development within the United States has ebbed and flowed over the past twenty five years. During the mid-1970's, oil embargos and inflationary conditions lead Congress to enact the Ocean Thermal Energy Conversion Act (OTEC) to promote development of OTEC projects in the hopes of reducing dependence on foreign oil so as to avert further energy crises. Technology lagged behind ideology, however, and no OTEC projects ever materialized on the grand scale originally conceived in the OTEC Act.
By 1990's, many new innovations in ocean energy technologies had emerged. But now, the timing was not right: the 1990's brought an onslaught of activity in deregulation of the utility industry which, at least for a time, produced bargain basement prices for electricity which ocean technologies (or many other renewables for that matter) simply could not match. As a result, interest in commercialization of ocean technology stalled in the United States even as it flourished abroad.
But with the start of the new century, interest in developing ocean energy, wave power technology and relatedly, offshore wind power, has once again resurged. Recent examples of this trend include:
- In November 2001, an application for a permit to develop and operate a 420 MW wind project five mile off the shore of Cape Cod, Massachusetts was filed with the United States Army Corps of Engineers. As of April 2002, the Corps continues to conduct public hearings and scoping meetings to assist with preparation of an environmental impact statement (EIS) regarding the project. See http://www.nae.usace.army.mil/ (List of Press Releases).
- In December 2001, a bill, S.1766 was introduced in the Senate which would allow ocean power to qualify for production incentive payments and directs the Department of Energy to study the potential for ocean power development.
- In February 2002, the California Energy Commission issued a grant to professors at San Diego University to study ocean energy potential along the California coast. See http//www.energy.ca.gov/releases/2002_releases/2002-02-28_sea_waves_nr.html
- In March 2002, the Federal Energy Regulatory Commission issued three preliminary permits to investigate development of wave power projects at Army Corps of Engineer jetties off the coast of Washington State. See Quantum Energy, FERC Orders 98 FERC para. 62,168 (2002), 98 FERC para. 62,169 (2002); 98 FERC para. 62,170 (2002).
II. THE REGULATORY BARRIERS TO OCEAN ENERGY DEVELOPERS
A. Overview of Regulatory Uncertainty
The foregoing events suggest that presently, there is sufficient confidence in the functionality of ocean energy technology to warrant further investigation of its potential for commercialization. However, even if these pilot projects and investigative programs resolve all of the feasibility and economic concerns about ocean energy, one substantial barrier to commercialization of ocean energy would still remain: regulatory uncertainty. Regulatory uncertainty refers to those risks inherent in the obtaining any necessary licenses or permits to construct and operate the project from the appropriate regulatory authority. Risks exist in the regulatory process because both federal and state licensing or permitting authorities typically have the option of rejecting a permit application or alternatively, issuing a permit but including limits on operation or required enhancement measures to mitigate environmental impacts which can increase the overall cost of the project. In deciding
whether to fund an energy project, investors must factor in the risks associated with licensing a project and will decline investment where there is considerable uncertainty that a project can or will be licensed on favorable terms. Indeed, regulatory uncertainty explains why nuclear power plants have long been regarded as an unappealing investment: given strong public opposition and stringent licensing requirements, the chances of a nuclear project obtaining a license which does not include onerous operating and mitigating conditions are slim.
B. Why Ocean Energy Projects Carry Regulatory Uncertainty
For a variety of reasons, ocean energy projects carry with them a higher degree of regulatory uncertainty than conventional energy projects. These reasons include:
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Overlapping or unknown jurisdictional issues and requirements
- Projects which will be sited up to three miles from shore are technically on state lands per the Submerged Lands Act which vests states with control and title over those lands. 43 U.S.C. sec. 1301(a)(2). Arguably then, states would have primary regulatory jurisdiction through state power plant siting and coastal development statutes At the same time, even for projects located on state lands, federal interests in navigation are implicated and as a result, even projects regulated by the state would likely still require various permits from the Army Corps of Engineers.
- To throw another wrench into the equation, the Federal Energy Regulatory Commission has jurisdiction over hydro power projects located on navigable and commerce clause waterways. 16 U.S.C. sec. 817. Several statutes define navigable waters as including waters within the three mile limit from shore while ocean projects could be classified as hydro power since they utilize water to generate electricity. Thus, FERC is another possible candidate for permitting or licensing ocean projects and indeed, has issued preliminary permits to study wave power projects. See Passamadquoddy Tribal Council, 11 FERC para. 62,236 (1980)(permit for tidal project near Cobscook Bay); Quantum Energy orders supra.
- For projects beyond the three mile limit from shore, i.e., on the Outer Continental Shelf, the Corps of Engineers retains permitting authority under Section 10 of the Rivers and Harbors Act, as extended by Section 4(d) of the Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C.A. sec 1331-56. Indeed, as discussed earlier, the Corps is currently processing a permit for an offshore windfarm located five miles off the coast of Cape Cod, Massachusetts. However, the Secretary of Interior, through the Mineral Management Service (MMS) has long had administered the oil and gas leasing and production program on the Outer Continental Shelf and arguably, has more expertise over ocean based energy projects than the Corps of Engineers.
- Lack of Information as to Regulatory Standards
Even after resolving which agency has regulatory responsibility over ocean energy projects, another unknown is what types of regulatory standards these agencies will apply to evaluate ocean energy projects? These agencies may decide that existing permitting regulations (which may either apply a broad public interest standard or establish specific criteria for reviewing environmental impacts, economic feasibility, etc...) suffice to evaluate ocean energy projects. Or the agencies may determine that ocean energy development, with an unproven track record, unknown impacts and questionable permanence (e.g., how long will the projects last in a harsh ocean environment?) could require additional regulations which would require more extensive studies on environmental impacts or the implementation of a decommissioning plan.C. Why Regulatory Uncertainty, if Left Unresolved, Will Present Problems
The problem of regulatory uncertainty, if left unresolved, will stand as a major impediment to ocean energy development and commercialization for the reasons listed below:- Questions about which agency has authority to license ocean energy projects can contribute to turf wars amongst agencies and lead to a duplicative and confusing application process where a developer must submit several permit applications and possibly be subject to competing conditions for operation and mitigating impacts. Overlap between agencies thus leads to increased development costs and delay.
- Opponents of ocean energy projects can use regulatory uncertainty to their advantage to oppose a project by arguing that a particular regulatory agency lacks jurisdiction over the project. Jurisdictional questions can be taken all the way to the courts which could agree with project opponents and conclude that an agency lacked jurisdiction, thereby rendering the entire permit process a waste.
- Lack of regulatory standards makes it impossible to predict whether and on what terms a permit will issue which complicates the estimation of project costs. Such unpredictability may also deter future private investors from funding projects.
III. PROPOSALS TO RESOLVE REGULATORY UNCERTAINTY IN OCEAN ENERGY DEVELOPMENT
There are several strategies that can be pursued to minimize and possibly eliminate regulatory uncertainty. They are as follows:- In the short run, an ocean energy developer can consult with an agency as part of a pre-application process to determine the agencys position on permitting. The developer can also request a more formal Declaratory Ruling or letter of counsel in which the agency would commit its position on jurisdiction to writing.
- Agencies with competing jurisdictional claims could be encouraged to enter into Memoranda of Understanding in which one agency assumes the lead for processing a permit application for an ocean energy project.
- Developers should engage in public outreach and education on the project and perhaps even attempt a collaborative licensing process whereby those entities with an interest in the project could provide input. Obtaining public cooperation and support will not directly resolve regulatory uncertainty, but it increases the chances of a project obtaining a license on favorable terms and deters opponents from taking a hardline and raising challenges to the projects on jurisdictional grounds.
- Developers should be prepared to assess the degree of regulatory uncertainty involved in permitting their particular project and disclose these possibilities to potential investors (who after all, will discover them anyway through their own due diligence). Developers might want to offer investors more favorable rates of returns or make other concessions so as to attract capital but allocate the risk of regulatory uncertainty between the parties.
- In the long run, congressional action and legislation might be necessary to more explicitly give the power to regulate ocean energy projects to either a particular federal agency or to the states. To this end, studies might be undertaken to determine which agencies are best equipped to handle licensing of ocean energy projects.
IV. CONCLUSION
Even as ocean energy projects become technologically feasible and economically viable, regulatory uncertainty will still hamper successful commercialization unless this problem is recognized and addressed.
Most conventional energy projects such as fossil fuel, natural gas and even wind farms are subject to well established state siting and/or zoning laws applied by state regulatory bodies while development of most hydro power plants has been regulated by the Federal Energy Regulatory Commission ( FERC) for the past seventy five years. By contrast, it is unclear which regulatory agencies will have primary jurisdiction over ocean energy projects (with the exception of OTEC projects which are regulated by NOAA, pursuant to the OTEC Act).
Consider the following myriad of possibilities:
In contrast to conventional technologies which can fall into more definite categories, e.g., coal, gas, hydro, there are a huge variety of projects which fall roughly within the rubric of ocean energy. These include OTEC, tidal power, wave energy systems employing pneumatic devices such as the Wells turbine; current energy which might employ slow moving turbines designed to operate in low head rivers and even offshore wave projects or hybrid wind-wave projects. The location of an ocean energy project - i.e., at shoreline, within three miles from shore or beyond three miles, depends upon the technology employed and thus, it might be impossible for one regulatory body to have jurisdiction over all ocean projects based on the existing parameters just discussed.
