Hydropower Development Guidelines

Central Utah Project
Guidelines for Hydropower Development under a
Lease of Power Privilege
June 15,2007
Lease of Power Privilege
Establishes direction for non-Federal hydropower development under a
lease of power privilege at Central Utah Project (CUP) facilities under the
jurisdiction of the Department of the Interior (Interior).
A Lease of Power Privilege (Lease) is a contractual right given to a non-Federal entity to
use a Reclamation facility for electric power generation consistent with Reclamation
project purposes (including project power). A Lease is an alternative to Federal power
development and is used where Reclamation has authority to develop power on any or all
features of a Federal project. On the CUP, this authority has been delegated to the Central
Utah Project Completion Act (CUPCA) Office of Interior. The Town Sites and Power
Development Act of 1906 authorizes the Secretary of the Interior to lease surplus power
or power privileges. The Reclamation Project Act of 1939 extended the contract term to a
maximum of 40 years for the sale of power or lease of power privileges, giving
preference to municipalities and other public corporations or agencies, and also to
cooperatives and other nonprofit organizations financed in whole or in part by loans
made pursuant to the Rural Electrification Act of 1936 and any amendments thereof.
2. Jurisdiction for Hydropower Development
Interior would have jurisdiction for non-federal hydropower development on CUP
facilities under the purview of the CUPCA, consistent with project purposes as defined
by CUPCA. Where the CUPCA Office elects to pursue hydropower at a site for project
power, then the opportunity for development of hydropower under a Lease may be
limited.
Requests to develop hydropower at CUP facilities under a Lease must be processed under
the November 6, 1992, Memorandum of Understanding (MOU) between Reclamation
and the Federal Energy Regulatory Commission (FERC) (see attachment). Consistent
with the terms contained in the MOU and prior to initiating a Lease process, Interior will
coordinate with FERC.
Requests to develop hydropower at CUP facilities must be consistent with CUPCA,
Reclamation Law, environmental legislation, and other applicable legislation. Existing
contracts and documents pertaining to the CUP, including the 2004 Definite Plan Report
(DPR), must be reviewed to determine if there are any conditions that might preclude
power development or affect the feasibility of a proposed hydropower project. Interior 
will not consider Lease requests or proposals that would impair the construction,
operation and maintenance (O&M), or future development of the CUP (including the
development of project power). Prior to leasing, Interior will consult with Reclamation
and Western Area Power Administration (Western) on the proposed hydropower
development.
3. Lease of Power Privilege Factors
For hydropower development on CUP facilities under a Lease, the following major
factors should be addressed. Other factors may by added depending on the nature of the
hydroelectric power proposal.
a. Representation - [n any work involving a Lease on CUP facilities, the United
States is represented by Interior. The CUP sponsor and O&M entity is the Central Utah
Water Conservancy District (CUWCD). Under circumstances where the CUWCD is not a
participant in the hydropower development, coordination with CUWCD is required as
CUWCD will be a party to all Lease contracts.
b. Water Delivery Priority - All powerplant operations must be consistent with
operations of the CUP. Use of CUP water diverted out of the Colorado River Basin for
power purposes shall be incidental to the use of CUP water for project purposes. [n other
words, Interior or the CUWCD wil l not alter deliveries of water for the sole purpose of
hydropower generation.
c. Lease of Power Payments to the United States
i. Features with Power Repayment Allocation - The Lessee will be expected to
bear an appropri ate share of the full cost of CUP facil ities that provide for delivery of
water to the hydropower development. In the 2004 DPR, Interior applied a
marketability concept to the allocation of costs to power. Under this concept, the
allocation to power was capped at an amount equal to the expected net revenue from
power, thereby ensuring the feasibility of power. The amount in excess of the cap was
then allocated to the other project purposes. Under this approach, CUWCD and
Interior agreed to absorb additional costs in order to ensure power's feasibility.
Because potential lessees have no mechanism for repaying the amount in excess
of the cap, where power is developed under a Lease on a project feature where
Interior planning documents have identified Federal hydropower development as an
authorized project purpose and project costs have been allocated to power, the Lessee
shall assume responsibility for the full costs allocated to power (without the benefit of
the marketability concept) as its Lease payment to the United States.
ii. Features without Power Repayment Obligation - If a Lease is awarded for
power generation using features on which Interior planning documents have not
identified Federal hydropower development as a project purpose, no project costs will
have been allocated (0 power. At these sites where there is no cost allocation to
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power, the Lessee must pay an equitable amount for the use of the CUP facility as
negotiated in the Lease.
All Lease payments paid by the Lessee to the United States shall be deposited in the
Upper Colorado River Basin Fund.
d. Operation and Maintenance of CUP Facilities - The structural and operational
integrity of existing CUP facilities must not be impaired by construction, operation, or
maintenance of the powerplant and/or transmission facilities. Powerplant and
transmission facilities construction and operation must not interfere with existing
operations, jeopardize existing water rights, water quality, or create any safety problems.
The Lessee will be expected to share in the cost of operation, maintenance, replacement,
and security of any existing Federal facilities that benefit the Lessee's power facility.
e. Security - The security of the CUP facilities must not be compromised by
investigation, construction, operation, or maintenance of the powerplant and transmission
facilities. Physical security of existing facilities shall be maintained by Reclamation, or
its designee, during O&M activities. The Lessee shall not interfere with Reclamation
security activities and will be subject to search and background checks, as deemed
necessary by Reclamation, to maintain the physical security of Reclamation facilities.
The Lessee will be responsible for any incremental security costs incurred by
Reclamation as a result of the Lessee's hydropower development. The Lessee shall be
required to have security practices commensurate with Reclamation security practices.
f. Access - Access to the existing CUP facilities for regular O&M as well as
emergency operation and repair must be maintained during construction and operation of
the powerplant and transmission facilities.
g. Environmental Commitments - The investigations, planning, and O&M of
powerplant and transmission facilities must not impair the ability of Interior or CUWCD
to meet its environmental commitments under existing environmental documents and
must be in compliance with any and all environmental legislation (including the National
Environmental Policy Act (NEPA), the Endangered Species Act (ESA), the Clean Water
Act, etc.
h. Water Rights - Neither the Lease nor the construction and operation of the Lease
powerplant and associated facilities may require any change in the ownership, use, place
of use, degree of consumptive use or any other aspect of existing project water rights.
The only exception is the addition of power generation as a non-consumptive project
purpose.
i. Safety - The investigations, construction, and O&M of the Lease powerplant and
transmission facilities should be planned and conducted in a safe manner. Further, the
investigations, construction, and O&M of any Lease powerplant and transmission
facilities shall not compromise the O&M of CUP facilities.
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j. Review of Plans - The purpose ofInterior's review of designs, plans, and
specifications for the proposed development and related materials will be to ensure the
continued safe operation of CUP facilities, the integrity of CUP structures, and
compliance with environmental commitments.
k. Design, Construction, O&M - The Lessee will be responsible for the design,
construction, O&M of the powerplant facilities unless contracted otherwise.
1. Inspection - Interior will inspect powerplant and related fac ilities to the extent
necessary to ensure the continued safe operation and structural integrity of CUP facilities
and to ensure compliance with environmental commitments.
m. Denial of Lease - Interior may deny the issuance of a Lease at any time based on
inadequate design information, unsatisfactory environmental impacts, detrimental impact
to the CUP, or any other legitimate reason.
n. Ex penses - The Lessee shall be responsible for all hydropower development,
construction, operation, and maintenance costs. Interior shall receive advance payment
for all costs of its activiti es related to the development, operation, and maintenance of the
powerplant and transmission fac ilities as well as any related administrative costs. Details
of the advance payment wi ll be outlined in a contract between the United States and the
Lessee.
o. Title - Title to CUP facilities will remain with the United States. Title to the
proposed installed powerplant facilities is with the Lessee unless legislated or contracted
otherwise. Title to any modifications to the Federal faci lity shall remain with the United
States. The Lease shall include language giving the United States the first right to
purchase or take over the Lease should the Lessee fail or need to sell the facilities to
which they have title . Leases may not be transferred or fac ilities sold without written
approval ofInterior. It is likely that the development will be constructed on land owned
by Reclamation. Land easements will be addressed in the Lease.
p. Power Marketing - Western will be given the first opportunity to purchase the
generation from the fac ility developed under a Lease at a cost based rate. Such cost based
rate may include a reasonabl e rate of return on investment to the Lessee. Prior to leasing
the potential lessee must coordinate with Interior and Western to determine its interest in
purchasing the power generated under the Lease.
4. Application. Selection, and Negotiati ng Process
The following paragraphs describe major steps assoc iated with the development of
hydroelectri c powerplants under a Lease with Interior. These steps are generall y in
sequence but may require preparation we ll in advance to ensure completion in a timely
manner. Additional requirements may be necessary, depending upon the nature and
impacts of the proposed hydroelectric project. If CUWCD is involved with the
hydropower development as a lessee, the following paragraphs would be modified as
appropriate to accommodate their involvement. IfInterior has received a request and, in
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response, elected to initiate a Lease process, it wi ll accept applications for Lease
development only through an open, competitive, public process.
a. Interior will consider initiating the Lease process upon written request from a
qualified entity. A qualified entity is any public or private organization with sufficient
experience and resources to initiate and complete the investigation, planning, design,
construction, and O&M of a Lease hydroelectric powerplant.
b. Interior will consult with Reclamation to determine if a process should be
undertaken and for assistance to prepare a notice of intent initiating the process for
accepting proposals.
c. If Interior determines a Lease process should be initiated, Interior will establish
selection criteria and publish a notice of intent to accept proposals for a Lease through the
Federal Register, local newspapers, and mailings to known interested parties. It is
expected that proposals would include, but not be limited to, the following:
• Site characteristics and existing fac ilities;
• Land acquisition and easements;
• Hydrauli cs and hydrology;
• Water rights;
• Project features and design;
• Power production and transmission, including proposed wheeling
arrangements;
• Project costs;
• Financial alternatives and energy costs;
• Power value and marketing;
• Benefit/cost evaluation (Reclamation B/C procedure not
applicable );
• Environmental analysis suitable for Interior's use fo r NEPA
compliance;
• Safety assessment;
• Project development plan and construction schedule; and
• Operation and maintenance plan.
d. Prior to receiving proposals, Interior will organize a multi-agency technical
evaluation team and develop ranking criteria. Preference will be given to municipalities
and other public corporations or agencies as provided in the Reclamation Act of 1939.
After proposals are received, the evaluation team will evaluate and provide a
recommendation to Interior of the best suited proposal for hydropower development.
e. In consultation with Reclamation and Western, Interior will select the best qualified
appli cant (Potential Lessee). Interior wi ll notify the Potential Lessee and all other
applicants of the decision.
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f. The Potential Lessee must notify Interior when it is prepared to enter into
negotiations for a Lease. Interior will determine a negotiation schedule, in consultation
with the Potential Lessee, and will advertise the intent to hold public negotiations by
notice through the Federal Register, local newspapers, and mailings to known interested
parties.
g. Interior will establish a trust account by letter agreement with the Potential Lessee
for the purpose covering Interior and Reclamation expenses assoc iated with developing a
Lease. The Potential Lessee must make an initial deposit to cover Interior and
Reclamation expenses. Interior will monitor the account and will request additional
deposits from the Potential Lessee as necessary.
h. The Potential Lessee will have up to 5 years from the date of written notification to
have NEPA compliance completed by Interior, and enter into a Lease. The Lessee will
then have up to 2 years from the date of execution of the lease to complete the designs
and specifications and I additional year to begin construction. Such timeframes may be
adjusted for just cause resulting from actions and/or circumstances that are beyond the
control of the Lessee.
i. Interior, in consultation with the Potential Lessee, will prepare NEPA
documentation, including final decision documents prior to executing the Lease. Such
NEPA compliance must include:
• Compliance with ESA.
• Coordination of project planning with the U.S. Fish and Wildlife Service in
compli ance with the Fish and Wi ldlife Coordination Act.
• Cultural resources survey approval by Interior
j. The Lease will require compliance with an Environmental Commitment Plan
and Environmental Commitment Checklist. After completion ofNEPA compliance and
the associated decision document and the negotiations are concluded, the parties will
execute the Lease. The Potential Lessee is now considered the Lessee.
5. Development
a. Lessee must prepare technical specifications and drawings, Interior will review and
comment. Proposed modifications to existing CUP fac ilities must be described in detail.
Examples include changes in penstock transient pressures, risk of failure or flood,
drainage, increased noise or heat, operator safety, effects on discharge capacity, etc.
Structural changes must be shown in detail. Examples include new pipe alignments,
flanging details, pressure ratings, thrust blocking plans, clearance problems, dewatering
plans, venting requirement, concrete removal, etc. The need for electrical and hydraulic
surge protection must be evaluated. The Lessee must conduct a Value Engineering study
(with participation by Interior) and submit a report to Interior at the 30 percent design
level.
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b. Lessee must finalize technical specifications and drawings for submittal to Interior.
Interior approves technical specifications and drawings to the extent necessary to ensure
the structural and operational integrity of the Reclamation project.
c. Lessee must submit a certificate of liability insurance to Interior. Project size will
determine the need for extended (property damage) coverage. Interior will determine the
insurance, bonding limits, and other related requirements.
d. Lessee must submit a performance bond to Interior or evidence of equivalent
security.
e. The Lessee, Interior, and construction contractor will hold a preconstruction
meeting.
f. Lessee must obtain any and all required Federal, State, and local permits.
g. Interior will approve the start of construction by the Lessee, subject to approval of
submittals required in the Lease. Lessee is then responsible for initiating the start of
construction to the contractor.
h. Lessee must notify Interior of construction start date in advance of onsite
construction and provide a copy of the construction schedul e.
i. Lessee must prepare and submit an Operation and Maintenance Plan and an
Emergency Preparedness Plan to Interior.
j. Lessee and Interior will conduct interim and final construction inspections to the
extent necessary to ensure the integrity of the Reclamation project.
k. Lessee must submit a start-up testing plan to Interior. Interior may require the
Lessee to perform additional testing to ensure the integrity of the CUP facility.
I. Contractor must conduct powerplant testing. Interior personnel will witness the
testing.
m. Lessee must submit testing documentation and results to Interior. Interior will
provide its approval which wi ll be required on any and all results that are pertinent to the
CUP facilities. Lessee must furnish as-b uilt drawings to Interior.
n. Interior will give permission for commercial operation subject to acceptability of
powerplant test results. Lessee must submit its first annual lease payment to Interior I
year from date of approval for commercial operation. Interior will coordinate with the
Lessee to update the CUP facilities' Standing Operating Procedures.