Hydropower Development Guidelines

Central Utah Project - Bonneville Unit

Guidelines for Hydropower Development under a

Lease of Power Privilege

August 13, 2024

Subject: Lease of Power Privilege

Purpose: Establishes direction for non-Federal hydropower development under a lease of power privilege at Bonneville Unit, Central Utah Project (CUP) facilities under the jurisdiction of the Department of the Interior (Interior). 

1. Introduction

This document provides direction for non-Federal hydropower development under a Lease of Power Privilege (LOPP) at the Bonneville Unit of the CUP. The direction contained herein is informational only and does not provide any enforceable obligations upon any party. The final negotiated LOPP contract will contain all final enforceable commitments. Further, the information is provided as of the date of this document and is subject to change due to changes in law, policy, or rates.

A LOPP is a contractual right given to a non-Federal lessee (Lessee) to use a Bureau of Reclamation (Reclamation) facility for electric power generation consistent with Reclamation project purposes (including project power). A LOPP 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. Under the Central Utah Project Completion Act (CUPCA) Public Law 102-575, Titles II-VI, the authority for issuing LOPP on the Bonneville Unit is given to the Secretary of the Interior and delegated to the CUPCA Office.  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. This Act also provided that the Secretary would give lease preference to municipalities and other public corporations or agencies and cooperatives and other nonprofit organizations financed under the Rural Electrification Act of 1936. This Act was amended by the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013, P.L. 113-24, which provides in part that for small conduit hydropower development the Secretary will first offer the lease of power privilege to an irrigation district or water users association operating the applicable transferred conduit, or to the irrigation district or water users association receiving water from the applicable reserved conduit. Small conduit hydropower is defined in P.L. 113-24 as a facility capable of producing 5 megawatts or less of electric capacity.  

2. Jurisdiction for Hydropower Development

Interior has jurisdiction for non-Federal hydropower development on Bonneville Unit facilities under the purview of the CUPCA Office, 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 non-Federal development of hydropower under a LOPP may be limited.

In accordance with the Act, the Central Utah Water Conservancy District (CUWCD) will be given a preference to develop any LOPP because it is a public agency. In addition, for small conduit hydropower development, under Article 2 of P.L. 113-24), CUWCD, as the entity responsible for operating the transferred Bonneville Unit features under the jurisdiction of CUPCA, will be given the first opportunity to develop a LOPP on the transferred features of the Bonneville Unit.   

Requests to develop hydropower at Bonneville Unit facilities under a LOPP will 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 LOPP process, Interior will coordinate with FERC.

Requests to develop hydropower at CUP facilities will be consistent with CUPCA, Reclamation Law as defined above, environmental law, and other applicable statutes, regulations, and policies. Existing contracts and documents pertaining to the Bonneville Unit and/or the CUP, including the 2004 Definite Plan Report (DPR), will 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 LOPP requests or proposals that would impair the construction, operation, maintenance, and replacement (OM&R), or future development of the Bonneville Unit and/or CUP (including the development of project power). Prior to leasing, Interior will consult with Reclamation and Western Area Power Administration (WAPA) on the proposed hydropower development.

3. Lease of Power Privilege Factors

For hydropower development on Bonneville Unit facilities under a LOPP, the following major factors should be addressed. Other factors may be added depending on the nature of the hydroelectric power proposal.

a. Representation – In any work involving a LOPP on the Bonneville Unit facilities, the United States is represented by Interior. The Bonneville Unit OM&R entity is CUWCD who will be given a preference for any LOPP; and for small conduit hydropower will be provided the first opportunity to develop a LOPP on transferred works, in accordance with P.L. 113-24. Under circumstances where the CUWCD in not the automatic LOPP lessee, or if it elects not to pursue a LOPP on BU transferred works, coordination with CUWCD as the operating entity is still required as CUWCD will be a party to all LOPP contracts.

b. Water Delivery Priority – All powerplant operations will be consistent with operations of the Bonneville Unit. In accordance with Section 208 of CUPCA, use of CUP water diverted out of the Colorado River Basin for power purposes will be incidental to the use of CUP water for project purposes. Neither Interior nor the CUWCD will 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 LOPP lessee will be expected to bear an appropriate share of the full cost of Bonneville Unit facilities that provide for delivery of water to the hydropower development unless otherwise provided by Public Law 113-20, or other applicable law. 

ii. Features without Power Repayment Obligation – If a LOPP 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 to power. At these sites where there is no cost allocation to power, the Lessee will pay an equitable amount for the use of the Bonneville Unit  facility as negotiated in the LOPP. 

iii. Calculation of LOPP payments will begin after the initial successful startup and testing of the generating equipment, or within twenty (20) days of the commencement of the initial startup and testing of the generating equipment, whichever comes first. The rate will be reviewed every ten (10) years to ensure that it is consistent with the parameters of the Reclamation Act of 1939, as amended. 

• Discounted LOPP Charge. If CUWCD, as the OM&R entity, accepts the opportunity to pursue a LOPP on transferred works, Interior will provide a reduction to the LOPP charge. The reduced annual LOPP charge is set at two (2) mils per kilowatt hour (kWh) of gross energy produced by the facility, measured at the generator, to increase each year commensurate with inflation based on the average of the previous five (5) years of the non-seasonally adjusted United States city average Consumer Price Index (CPI) for all items. If the five-year CPI average shows no change or deflation, the LOPP rate will remain the same as the previous year’s rate.
• Standard LOPP Charge. If CUWCD declines the opportunity to pursue a LOPP on transferred works, a standard LOPP charge will be applied. The annual LOPP charge is set at three (3) mils per kWh of gross energy produced by the facility, measured at the generator, to increase each year commensurate with inflation based on the average of the previous five (5) years of the non-seasonally adjusted United States city average CPI for all items. If the five-year CPI average shows no change or deflation, the LOPP rate will remain the same as the previous year’s rate.

All LOPP payments paid by the Lessee to the United States will be deposited in the Upper Colorado River Basin Fund and credited to the Bonneville Unit pursuant to section 5(c) of the Colorado River Storage Project Act of 1956 (CRSPA).

d. Operation and Maintenance of Bonneville Unit Facilities – The structural and operational integrity of existing Bonneville Unit facilities will not be impaired by construction, operation, or maintenance of the powerplant and/or transmission facilities. Powerplant and transmission facilities construction and operation will not interfere with existing operations, jeopardize existing water rights, harm water quality, or create any safety problems. The Lessee will 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 Bonneville Unit facilities will not be compromised by investigation, construction, operation, or maintenance of the powerplant and transmission facilities.  Physical security of existing facilities will be maintained by the CUWCD, or its designee, during OM&R activities. The Lessee will not interfere with CUWCD security activities and will be subject to search and background checks, as deemed necessary by CUWCD, to maintain the physical security of Bonneville Unit facilities. The Lessee will be responsible for any incremental security costs incurred by CUWCD or Interior as a result of the Lessee’s hydropower development. The Lessee will be required to have security practices commensurate with CUWCD and Reclamation security practices.

f. Access – Access to the existing Bonneville Unit facilities for regular OM&R as well as emergency operation and repair will be maintained during construction and operation of the powerplant and transmission facilities.

g. Environmental Commitments – The investigations, planning, and OM&R of powerplant and transmission facilities will not impair the ability of Interior or CUWCD to meet their respective environmental commitments under existing environmental documents and will be in compliance with any and all environmental legislation (including but not limited to the National Environmental Policy Act (NEPA), the Endangered Species Act (ESA), and the Clean Water Act). 

h. Water Rights – Neither the LOPP nor the construction and operation of the LOPP 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 OM&R of the LOPP powerplant and transmission facilities will be planned and conducted in a safe manner and will not compromise the OM&R of CUP facilities.

j. Review of Plans – The purpose of Interior’s review of designs, plans, and specifications for the proposed development and related materials will be to ensure the continued safe operation of Bonneville Unit facilities, the integrity of Bonneville Unit structures, and compliance with environmental commitments.

k. Design, Construction, OM&R – The Lessee will be responsible for the design, construction, OM&R of the powerplant facilities unless contracted otherwise.

l. Inspection – Interior will inspect powerplant and related facilities to the extent necessary to ensure the continued safe operation and structural integrity of Bonneville Unit facilities and to ensure compliance with environmental commitments.

m. Denial of LOPP – Interior may deny the issuance of a LOPP at any time based on inadequate design information, unsatisfactory environmental impacts, detrimental impact to the Bonneville Unit and/or CUP, or any other legitimate reason.

n. Expenses – The Lessee will be responsible for all hydropower development, construction, operation, maintenance, and replacement costs.  Interior will receive advance payment for all costs of its activities related to the development, operation, maintenance, and replacement of the powerplant and transmission facilities as well as any related administrative costs. Details of the advance payment will be outlined in a contract between the United States and the Lessee.

o. Title - Title to Bonneville Unit facilities and any modifications thereto will remain with the United States until otherwise provided by Congress. Title to the proposed installed powerplant facilities is with the Lessee unless legislated or contracted otherwise. The LOPP will address what will occur if the Lessee fails to operate or desires to sell the facilities to which it has title. LOPPs may not be transferred, or facilities sold without written approval of Interior. All realty issues will be addressed in the LOPP.

p. Power Marketing - WAPA will be given the first opportunity to purchase the generation from the facility developed under a LOPP at a cost-based rate. Such cost-based rate may include a reasonable rate of return on investment to the Lessee. Prior to leasing, the Potential Lessee will coordinate with Interior and WAPA to determine its interest in purchasing the power generated under the LOPP. 

4. Application, Selection, and Negotiating Process

The following paragraphs describe major steps associated with the development of hydroelectric powerplants under a LOPP with Interior. These steps are generally in sequence but may require advance planning and preparation if they are to be completed in time to meet the project schedule.  Additional steps may be necessary, depending upon the nature and impacts of the proposed hydroelectric project. If Interior has received a request and, in response, elects to initiate a LOPP process, preference will be given in accordance with the Act, as amended. 

a. Interior will consider initiating the LOPP process upon written request in accordance with the Act, as amended. 

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 LOPP process should be initiated, Interior may establish selection criteria and publish a notice of intent to accept proposals for a LOPP through the Federal Register, media, and mailings to known interested parties.  It is expected that proposals would include, but not be limited to, the following:

• Qualifications as preference entity;
• Site characteristics and existing facilities;
• Land acquisition and easements;
• Hydraulics 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 for NEPA compliance;
• Safety assessment;
• Project development plan and construction schedule; and 
• Operation and maintenance plan.

d. If Interior elects to request proposals, then 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 Act 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 WAPA, Interior will select the best qualified applicant (Potential Lessee). Interior will notify the Potential Lessee and all other applicants of the decision. 

f. The Potential Lessee will notify Interior when it is prepared to enter into negotiations for a LOPP. 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. A preliminary lease and funding agreement will be developed between Interior and the Potential Lessee. Interior will establish a trust account by letter agreement with the Potential Lessee for the purpose of covering Interior and Reclamation expenses associated with developing a LOPP. The Potential Lessee will then 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 five  (5) years from the date of written notification to have NEPA compliance completed, approved by Interior, and enter into a LOPP.  The Lessee will then have up to two (2) years from the date of execution of the lease to complete the designs and specifications and one (1) 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 LOPP. Such NEPA compliance will  include compliance with ESA, coordination of project planning with the U.S. Fish and Wildlife Service in compliance with the Fish and Wildlife Coordination Act and cultural resources survey approval by Interior among other requirements.

j. The LOPP will require compliance with an Environmental Commitment Plan and Environmental Commitment Checklist.  After completion of NEPA compliance and the associated decision document and the negotiations are concluded, the parties will execute the LOPP. The Potential Lessee would then be considered the Lessee.

5. Development

a. The Lessee will prepare technical specifications and drawings of its facilities, and present these to Interior, at which time Interior will review and comment. Proposed modifications to existing CUP facilities will be described in detail. Examples of modifications include, but are not limited to: changes in penstock transient pressures, risk of failure or flood, drainage, increased noise or heat, operator safety, effects on discharge capacity, etc. Structural changes will be shown in detail. Examples of structural changes 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 will be evaluated.  Value engineering is a systematic, organized approach to providing necessary functions in a project at the lowest cost.  The Lessee will conduct a Value Engineering study (with participation by Interior) and submit a report to Interior at the thirty (30) percent design level.

b. Lessee will 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 will 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 will 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 will 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 LOPP. Lessee is then responsible for providing a notice to proceed to start construction to the contractor.

h. Lessee will notify Interior of construction start date in advance of onsite construction and provide a copy of the construction schedule. Interior will provide construction inspection, the cost of which will be advanced to Interior by the Lessee under the  preliminary lease and funding agreement.

i. Lessee will 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 Bonneville Unit project.

k. Lessee will 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.

l. Contractor will conduct powerplant testing. Interior personnel will witness the testing.

m. Lessee will submit testing documentation and results to Interior. Interior will provide its approval which will be required on any and all results that are pertinent to the Bonneville Unit facilities. Lessee will furnish as-built drawings to Interior.

n. Interior will give permission for commercial operation subject to acceptability of powerplant test results. Lessee will submit its first annual lease payment to Interior 1 year from date of approval for commercial operation. Interior will coordinate with the Lessee to update the CUP facilities’ Standing Operating Procedures.

o. Lessee will cooperate with Interior on periodic annual inspections of the facility.