Fee Relief: FERC Agrees to No Longer Assess Annual Charges to Projects Subject to Power Site Reservations

On March 21, 2013, the Federal Energy Regulatory Commission ("FERC") granted the petition of a group of hydroelectric licensees, calling themselves the Power Site Reservation Fee Group, declaring that FERC will not assess annual land use charges pursuant to Section 10(e)(1) of the Federal Power Act ("FPA"), 16 U.S.C. § 803(e)(1), for lands owned by licensees but still subject to a power site reservation in accordance with Section 24 of the FPA, 16 U.S.C. § 818.

FPA Section 10(e)(1) requires licensees to pay to the United States reasonable annual charges, as set by FERC, for, among other things, the use, occupancy, and enjoyment, of federal lands. FPA Section 24 provides that federal lands included in any proposed project are reserved from disposal unless FERC or Congress directs otherwise. If FERC determines that the power development value of such lands (known as power sites) will not be destroyed by disposal, the lands may be disposed of under the public land laws. In such cases, however, the United States must include in any contract regarding the lands a reservation of the right of the United States or its permitees or licensees to enter and use the lands for any hydropower purpose determined by FERC. These reservations are generally known as power site reservations.

FERC's practice has been to assess the same annual charges for lands subject to power site reservation as for lands to which the U.S. holds the full fee title. FERC reasoned that the charges are the same because the right for which the licensee is reimbursing the U.S. in the same, namely, the right to use the land for power purposes. 

The Power Site Reservation Fee Group sought to change that practice, arguing that Section 10(e)(1) authorizes only the collection of charges for the use of federal lands, and contends that lands of which the United State has disposed, subject to a power site reservation, are not federal lands. The group also claimed that a licensee's right to enter lands subject to a power site reservation is conferred by Section 24, not by a FERC license, and so should not be subject to annual land use charges. 

FERC rejected this argument, holding that "[n]othing in Section 24 requires us to treat a clear federal interest in land - a power site reservation - as though it has no meaning." Asserting that a power site reservation clearly is an exercisable and valuable land interest and that an entity becomes a licensee only if and when FERC issues it a licensee, FERC stated that is sees nothing unlawful in its past practice. Nevertheless, FERC granted the petition on equitable grounds, agreeing with the petitioners that no Section 10(e)(1) annual charges should be assessed on lands subject to power site reservation because the "licensees have given valuable consideration to obtain fee ownership of federal lands, and have done so for the development of hydropower, the very purpose for which the power site reservation was created."

This order is a noteworthy success for hydroelectric licensees subject to power site reservations. Annual charges can be significant and FERC's order relieves them from that obligation. FERC declined to establish special procedures for such licensees to timely submit the information necessary to document the extent of such lands within the boundaries of their projects. Licensees can submit that information whenever they see fit and may consult with FERC staff before doing so.