Central Utah ProjectGuidelines for Hydropower Development under aLease of Power PrivilegeJune 15,2007Lease of Power PrivilegeEstablishes direction for non-Federal hydropower development under alease of power privilege at Central Utah Project (CUP) facilities under thejurisdiction of the Department of the Interior (Interior).A Lease of Power Privilege (Lease) is a contractual right given to a non-Federal entity touse a Reclamation facility for electric power generation consistent with Reclamationproject purposes (including project power). A Lease is an alternative to Federal powerdevelopment and is used where Reclamation has authority to develop power on any or allfeatures of a Federal project. On the CUP, this authority has been delegated to the CentralUtah Project Completion Act (CUPCA) Office of Interior. The Town Sites and PowerDevelopment Act of 1906 authorizes the Secretary of the Interior to lease surplus poweror power privileges. The Reclamation Project Act of 1939 extended the contract term to amaximum of 40 years for the sale of power or lease of power privileges, givingpreference to municipalities and other public corporations or agencies, and also tocooperatives and other nonprofit organizations financed in whole or in part by loansmade pursuant to the Rural Electrification Act of 1936 and any amendments thereof.2. Jurisdiction for Hydropower DevelopmentInterior would have jurisdiction for non-federal hydropower development on CUPfacilities under the purview of the CUPCA, consistent with project purposes as definedby CUPCA. Where the CUPCA Office elects to pursue hydropower at a site for projectpower, then the opportunity for development of hydropower under a Lease may belimited.Requests to develop hydropower at CUP facilities under a Lease must be processed underthe November 6, 1992, Memorandum of Understanding (MOU) between Reclamationand the Federal Energy Regulatory Commission (FERC) (see attachment). Consistentwith the terms contained in the MOU and prior to initiating a Lease process, Interior willcoordinate with FERC.Requests to develop hydropower at CUP facilities must be consistent with CUPCA,Reclamation Law, environmental legislation, and other applicable legislation. Existingcontracts 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 precludepower 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 thedevelopment of project power). Prior to leasing, Interior will consult with Reclamationand Western Area Power Administration (Western) on the proposed hydropowerdevelopment.3. Lease of Power Privilege FactorsFor hydropower development on CUP facilities under a Lease, the following majorfactors should be addressed. Other factors may by added depending on the nature of thehydroelectric power proposal.a. Representation - [n any work involving a Lease on CUP facilities, the UnitedStates is represented by Interior. The CUP sponsor and O&M entity is the Central UtahWater Conservancy District (CUWCD). Under circumstances where the CUWCD is not aparticipant in the hydropower development, coordination with CUWCD is required asCUWCD will be a party to all Lease contracts.b. Water Delivery Priority - All powerplant operations must be consistent withoperations of the CUP. Use of CUP water diverted out of the Colorado River Basin forpower purposes shall be incidental to the use of CUP water for project purposes. [n otherwords, Interior or the CUWCD wil l not alter deliveries of water for the sole purpose ofhydropower generation.c. Lease of Power Payments to the United Statesi. Features with Power Repayment Allocation - The Lessee will be expected tobear an appropri ate share of the full cost of CUP facil ities that provide for delivery ofwater to the hydropower development. In the 2004 DPR, Interior applied amarketability concept to the allocation of costs to power. Under this concept, theallocation to power was capped at an amount equal to the expected net revenue frompower, thereby ensuring the feasibility of power. The amount in excess of the cap wasthen allocated to the other project purposes. Under this approach, CUWCD andInterior agreed to absorb additional costs in order to ensure power's feasibility.Because potential lessees have no mechanism for repaying the amount in excessof the cap, where power is developed under a Lease on a project feature whereInterior planning documents have identified Federal hydropower development as anauthorized project purpose and project costs have been allocated to power, the Lesseeshall assume responsibility for the full costs allocated to power (without the benefit ofthe marketability concept) as its Lease payment to the United States.ii. Features without Power Repayment Obligation - If a Lease is awarded forpower generation using features on which Interior planning documents have notidentified Federal hydropower development as a project purpose, no project costs willhave been allocated (0 power. At these sites where there is no cost allocation to2 power, the Lessee must pay an equitable amount for the use of the CUP facility asnegotiated in the Lease.All Lease payments paid by the Lessee to the United States shall be deposited in theUpper Colorado River Basin Fund.d. Operation and Maintenance of CUP Facilities - The structural and operationalintegrity of existing CUP facilities must not be impaired by construction, operation, ormaintenance of the powerplant and/or transmission facilities. Powerplant andtransmission facilities construction and operation must not interfere with existingoperations, 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 byinvestigation, construction, operation, or maintenance of the powerplant and transmissionfacilities. Physical security of existing facilities shall be maintained by Reclamation, orits designee, during O&M activities. The Lessee shall not interfere with Reclamationsecurity activities and will be subject to search and background checks, as deemednecessary by Reclamation, to maintain the physical security of Reclamation facilities.The Lessee will be responsible for any incremental security costs incurred byReclamation as a result of the Lessee's hydropower development. The Lessee shall berequired to have security practices commensurate with Reclamation security practices.f. Access - Access to the existing CUP facilities for regular O&M as well asemergency operation and repair must be maintained during construction and operation ofthe powerplant and transmission facilities.g. Environmental Commitments - The investigations, planning, and O&M ofpowerplant and transmission facilities must not impair the ability of Interior or CUWCDto meet its environmental commitments under existing environmental documents andmust be in compliance with any and all environmental legislation (including the NationalEnvironmental Policy Act (NEPA), the Endangered Species Act (ESA), the Clean WaterAct, etc.h. Water Rights - Neither the Lease nor the construction and operation of the Leasepowerplant and associated facilities may require any change in the ownership, use, placeof 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 projectpurpose.i. Safety - The investigations, construction, and O&M of the Lease powerplant andtransmission facilities should be planned and conducted in a safe manner. Further, theinvestigations, construction, and O&M of any Lease powerplant and transmissionfacilities shall not compromise the O&M of CUP facilities.3 j. Review of Plans - The purpose ofInterior's review of designs, plans, andspecifications for the proposed development and related materials will be to ensure thecontinued safe operation of CUP facilities, the integrity of CUP structures, andcompliance 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 extentnecessary to ensure the continued safe operation and structural integrity of CUP facilitiesand to ensure compliance with environmental commitments.m. Denial of Lease - Interior may deny the issuance of a Lease at any time based oninadequate design information, unsatisfactory environmental impacts, detrimental impactto 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 paymentfor all costs of its activiti es related to the development, operation, and maintenance of thepowerplant and transmission fac ilities as well as any related administrative costs. Detailsof the advance payment wi ll be outlined in a contract between the United States and theLessee.o. Title - Title to CUP facilities will remain with the United States. Title to theproposed installed powerplant facilities is with the Lessee unless legislated or contractedotherwise. Title to any modifications to the Federal faci lity shall remain with the UnitedStates. The Lease shall include language giving the United States the first right topurchase or take over the Lease should the Lessee fail or need to sell the facilities towhich they have title . Leases may not be transferred or fac ilities sold without writtenapproval ofInterior. It is likely that the development will be constructed on land ownedby Reclamation. Land easements will be addressed in the Lease.p. Power Marketing - Western will be given the first opportunity to purchase thegeneration from the fac ility developed under a Lease at a cost based rate. Such cost basedrate may include a reasonabl e rate of return on investment to the Lessee. Prior to leasingthe potential lessee must coordinate with Interior and Western to determine its interest inpurchasing the power generated under the Lease.4. Application. Selection, and Negotiati ng ProcessThe following paragraphs describe major steps assoc iated with the development ofhydroelectri c powerplants under a Lease with Interior. These steps are generall y insequence but may require preparation we ll in advance to ensure completion in a timelymanner. Additional requirements may be necessary, depending upon the nature andimpacts of the proposed hydroelectric project. If CUWCD is involved with thehydropower development as a lessee, the following paragraphs would be modified asappropriate to accommodate their involvement. IfInterior has received a request and, in4 response, elected to initiate a Lease process, it wi ll accept applications for Leasedevelopment only through an open, competitive, public process.a. Interior will consider initiating the Lease process upon written request from aqualified entity. A qualified entity is any public or private organization with sufficientexperience 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 beundertaken and for assistance to prepare a notice of intent initiating the process foraccepting proposals.c. If Interior determines a Lease process should be initiated, Interior will establishselection criteria and publish a notice of intent to accept proposals for a Lease through theFederal Register, local newspapers, and mailings to known interested parties. It isexpected 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 wheelingarrangements;• Project costs;• Financial alternatives and energy costs;• Power value and marketing;• Benefit/cost evaluation (Reclamation B/C procedure notapplicable );• Environmental analysis suitable for Interior's use fo r NEPAcompliance;• Safety assessment;• Project development plan and construction schedule; and• Operation and maintenance plan.d. Prior to receiving proposals, Interior will organize a multi-agency technicalevaluation team and develop ranking criteria. Preference will be given to municipalitiesand other public corporations or agencies as provided in the Reclamation Act of 1939.After proposals are received, the evaluation team will evaluate and provide arecommendation to Interior of the best suited proposal for hydropower development.e. In consultation with Reclamation and Western, Interior will select the best qualifiedappli cant (Potential Lessee). Interior wi ll notify the Potential Lessee and all otherapplicants of the decision.5 f. The Potential Lessee must notify Interior when it is prepared to enter intonegotiations for a Lease. Interior will determine a negotiation schedule, in consultationwith the Potential Lessee, and will advertise the intent to hold public negotiations bynotice through the Federal Register, local newspapers, and mailings to known interestedparties.g. Interior will establish a trust account by letter agreement with the Potential Lesseefor the purpose covering Interior and Reclamation expenses assoc iated with developing aLease. The Potential Lessee must make an initial deposit to cover Interior andReclamation expenses. Interior will monitor the account and will request additionaldeposits from the Potential Lessee as necessary.h. The Potential Lessee will have up to 5 years from the date of written notification tohave NEPA compliance completed by Interior, and enter into a Lease. The Lessee willthen have up to 2 years from the date of execution of the lease to complete the designsand specifications and I additional year to begin construction. Such timeframes may beadjusted for just cause resulting from actions and/or circumstances that are beyond thecontrol of the Lessee.i. Interior, in consultation with the Potential Lessee, will prepare NEPAdocumentation, including final decision documents prior to executing the Lease. SuchNEPA compliance must include:• Compliance with ESA.• Coordination of project planning with the U.S. Fish and Wildlife Service incompli ance with the Fish and Wi ldlife Coordination Act.• Cultural resources survey approval by Interiorj. The Lease will require compliance with an Environmental Commitment Planand Environmental Commitment Checklist. After completion ofNEPA compliance andthe associated decision document and the negotiations are concluded, the parties willexecute the Lease. The Potential Lessee is now considered the Lessee.5. Developmenta. Lessee must prepare technical specifications and drawings, Interior will review andcomment. 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, dewateringplans, venting requirement, concrete removal, etc. The need for electrical and hydraulicsurge 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 designlevel.6 b. Lessee must finalize technical specifications and drawings for submittal to Interior.Interior approves technical specifications and drawings to the extent necessary to ensurethe structural and operational integrity of the Reclamation project.c. Lessee must submit a certificate of liability insurance to Interior. Project size willdetermine the need for extended (property damage) coverage. Interior will determine theinsurance, bonding limits, and other related requirements.d. Lessee must submit a performance bond to Interior or evidence of equivalentsecurity.e. The Lessee, Interior, and construction contractor will hold a preconstructionmeeting.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 ofsubmittals required in the Lease. Lessee is then responsible for initiating the start ofconstruction to the contractor.h. Lessee must notify Interior of construction start date in advance of onsiteconstruction and provide a copy of the construction schedul e.i. Lessee must prepare and submit an Operation and Maintenance Plan and anEmergency Preparedness Plan to Interior.j. Lessee and Interior will conduct interim and final construction inspections to theextent necessary to ensure the integrity of the Reclamation project.k. Lessee must submit a start-up testing plan to Interior. Interior may require theLessee to perform additional testing to ensure the integrity of the CUP facility.I. Contractor must conduct powerplant testing. Interior personnel will witness thetesting.m. Lessee must submit testing documentation and results to Interior. Interior willprovide its approval which wi ll be required on any and all results that are pertinent to theCUP facilities. Lessee must furnish as-b uilt drawings to Interior.n. Interior will give permission for commercial operation subject to acceptability ofpowerplant test results. Lessee must submit its first annual lease payment to Interior Iyear from date of approval for commercial operation. Interior will coordinate with theLessee to update the CUP facilities' Standing Operating Procedures.