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Bureau of Reclamation – Lease of Power Privilege (7-FD-v)

Information current as of 2024
Non-federal hydropower may be developed on Bureau of Reclamation (BOR) facilities through either the Federal Energy Regulatory Commission (FERC) License or BOR Lease of Power Privilege (LOPP) permitting process. For each non-federal project, the underlying BOR facility (dam or conduit) determines which of the two permitting processes is required. Per the 1992 Memorandum of Understanding between the Federal Energy Regulatory Commission and the Department of Interior, Bureau of Reclamation (1992 MOU) and (Section 9(c) of the Reclamation Project Act of 1939 (RPA, Section 9(c)) as amended by the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013), all non-federal hydropower projects sited on BOR conduits, and BOR dams authorized for federal power development require a BOR LOPP. All other sites (i.e., BOR dams not authorized for federal power development) require a FERC License/Exemption. Generally, permitting authority is mutually exclusive; development proceeds through either a LOPP or FERC License - but not both. However, for a pumped-storage project it is possible for both FERC and the BOR to have jurisdiction. This would occur where FERC has jurisdiction over the power project within the project boundary, and the BOR has jurisdiction over a reservoir above or below the project and outside the FERC project boundary.


The BOR is committed to facilitating the development of non-federal hydropower at existing BOR federal facilities. Acting on this commitment, BOR has undertaken a number of activities, including:

  • Completion of two publicly available resource assessments. Assessments identify technical hydropower potential at existing BOR facilities.
  • Collaborated with stakeholder groups to improve the Lease of Power Privilege (LOPP) process and LOPP Directive and Standard (D&S) policy guidance document. D&S was published in 2012 and revised in 2014. LOPP outreach has also been conducted with various stakeholder groups and hydropower industry associations.
  • Partnered with other federal agencies (United States Army Corps of Engineers and the Department of Energy) under the Memorandum of Understanding (MOU) for Hydropower to, in part, encourage and streamline non-federal development on federal infrastructure.


Through these activities, BOR has made resources available to developers and peeled back the barriers that impede non-federal development.

Any non-federal project developed on a BOR facility must not impair the efficiency of BOR generated power or water deliveries, jeopardize public safety, or negatively affect any other BOR project purpose. For these reasons, oversight of the non-federal projects is necessary to ensure these conditions are met. Oversight is administered through either the LOPP contract or FERC License conditioning requirements.

The process used by the BOR when issuing an LOPP is set forth in a BOR manual entitled LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08). LOPPs grant contractual rights to utilize federal facilities for electric power generation as well as to sell the electricity and any associated Renewable Energy Credits (RECs) (see FAC 04-08, Section 1.F). The BOR is authorized to issue LOPPs with a maximum term of 40 years (RPA, Section 9(c)). LOPPs contain terms and conditions that establish the scope of the project, and obligations requiring that projects not impair BOR generated power or water deliveries, jeopardize public safety, or damage the environment to an extent determined unsatisfactory (FAC 04-08, Sections 1 and 9.D). In addition, the project may not interfere with other authorized project purposes such as those found in project specific acts (FAC 04-08, Section 5).

LOPP Process

Per the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013, the LOPP process treats development on BOR dams and conduits differently (FAC 04-08, Section 7). LOPP development sited on BOR dams follows a Competitive Solicitation Process (CSP) (FAC 04-08, Section 7.A.(2) and (3)), wherein BOR solicits proposals for hydropower development through a public process to ensure fair and open competition. Following the solicitation, BOR will review all proposals received, and select a preliminary lease recipient based on criteria set forth in the solicitation (FAC 04-08, Section 7.A.(2)(b)(ii) and (3)(a)(iii)). As part of the CSP, preference entities, such as a municipality or tribe, will be given a preferential opportunity to submit LOPP proposals (FAC 04-08, Section 7.C).

For LOPP development sited on BOR conduits, the BOR will first grant any irrigation districts (IDs) or water users associations (WUAs) operating or receiving water from the BOR conduit the first opportunity to submit a proposal. Following the offer, the IDs or WUAs have 60 days to either accept or reject, in writing, the opportunity to develop hydropower through a LOPP. If the ID or WUA accepts the offer or if they initially submitted the FRD, then they have 150 days to submit a proposal to Reclamation. During this time, Reclamation does not solicit proposals from other entities and no other entity is eligible to receive a LOPP for the project site. If the ID or WUA rejects the opportunity to develop hydropower through a LOPP or fails to submit an acceptable proposal within 150 days, Reclamation will solicit proposals through the CSP, as described in Section 3.1.1. Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013

A Reclamation selection team reviews all submitted proposals and provides a recommendation to the Reclamation regional director to award a preliminary lease to the selected developer LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08). The selection process for transferred conduits is slightly different from the selection process for reserved conduits. For development at transferred conduits, the Reclamation selection team has 14 days to review LOPP proposals and make a recommendation to the regional director to award a preliminary lease. For development at reserved conduits, the review period for the selection depends on how many, if any, IDs or WUAs express interest in the LOPP LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08). If a single ID or WUA receiving water from the project submits a LOPP proposal, the Reclamation selection team has 14 days to review the LOPP proposal and make a recommendation to the regional director. If multiple IDs or WUAs receiving water from the project submit LOPP proposals, the Reclamation selection team has 30 days to review the LOPP proposal and make a recommendation LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08).

After the BOR issues a preliminary lease, the developer must complete an iterative process with the BOR which requires extensive study of the project, including impact to the environment and public safety, and project obligations including, but not limited to, maintenance agreements and delivery of electricity or water (FAC 04-08, Section 9). After the study process is completed, the BOR may issue an LOPP (FAC 04-08, Section 9.D). After an LOPP is executed, the process continues through completion of construction including preparation of design drawings and specifications, a safety and health program, and a construction inspection by BOR (FAC 04-08, Section 8). After completion of construction, the terms of the LOPP, applicable statutes, Executive Orders, judicial decisions, policies, regulations, and project specific acts govern the ongoing relationship between the developer and BOR.

Herein used, the term developer may include IDs, WUAs, and priority entities seeking to develop a hydropower project on a BOR facility. When special processes are available for IDs, WUAs, and priority entities, the narrative will make clear the special process applies only to these particular types of developers.



Bureau of Reclamation – Lease of Power Privilege Process

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7-FD-v.1 to 7-FD-v.6 – Will a Proposed Non-Federal Hydroelectric Project be Constructed on a Conduit or a Dam?

There are distinct processes for BOR issuance of LOPPs for conduits and dams.

Conduit

LOPPs for BOR managed conduits are issued under the Section 9(c) of the Reclamation Project Act of 1939 as amended by the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013 (see FAC 04-08, Section 7.A.(2) and (3)).

A Conduit is defined as “any tunnel, canal, pipeline, aqueduct, flume, ditch, or similar manmade water conveyance that is operated for the distribution of water for agricultural, municipal, or industrial consumption and not primarily for the generation of electricity or conveyance of water over or through a dam, its abutments, or foundation via existing or proposed conveyance features” (43 U.S.C. § 485h(c)(9)(A)).

To begin the LOPP process for hydropower development on a BOR conduit, the developer must submit a Formal Request for Development (FRD) to the BOR (FAC 04-08, Sections 7.A.(2)(a) and (3)(a)). An FRD is an “official letter to the regional director from a potential non-Federal developer requesting that the LOPP process be initiated at a site or sites” (FAC 04-08, Section 3.C) (see e.g., LOPP Formal Request for Development). In addition, the BOR may make an independent decision to initiate this process once the developer submits an FRD.

Dam

The LOPP process for hydropower development of BOR dams requires FERC and the BOR to make a jurisdictional determination under the 1992 MOU. To begin the LOPP process for hydropower development on a BOR dam, the developer may submit either a Notice of Intent (NOI) to FERC or an FRD to the BOR (see FAC 04-08, Section 7.A.(1)).

Under the 1992 MOU, FERC will assert jurisdiction to license non-federal hydropower development on a BOR dam where FERC would otherwise have jurisdiction to license a facility of the proposed size under the Federal Power Act. If the scope of the project is within FERC’s licensing authority, the developer will need to complete FERC’s hydropower licensing process.

FERC Hydropower Authorization Overview:
7-FD-e

However, if FERC asserts its jurisdiction, the BOR will still play a role in approving the project. The BOR’s role includes, but is not limited to,

  • Review of license application with right to object,
  • Coordination and consultation with developer throughout development process,
  • Written approval of construction plans,
  • Periodic inspection during and after construction, and
  • Assessment of an annual charge.

(1981 Memorandum of Understanding between the Federal Energy Regulatory Commission and the Water and Power Resources Service and 1992 MOU).

If the FRD or NOI is for non-federal hydropower development on a BOR dam not reserved for Federal hydropower development under reclamation law, the BOR will assert jurisdiction and initiate the LOPP process (1992 MOU).

7-FD-v.7 – Is There Adequate Interest in Development by the Federal Government?

Prior to initiating the LOPP process for development of hydropower on a BOR managed dam, the BOR, in collaboration with relevant power marketing administrations (PMAs) and power customers, will determine whether there is adequate interest in development by the federal government. If the federal government expresses adequate interest, the subject impoundment will be reserved to be utilized by the federal government and the developer will not receive an LOPP. If the federal government does not express adequate interest, the BOR will solicit proposals for hydropower development.

(See FAC 04-08, Sections 2, 4.A.(6)).

7-FD-v.8 – Create Selection Team to Review Proposals

The BOR creates a selection team to review submitted LOPP proposals and provide a recommendation to the regional director for award of the preliminary lease (see FAC 04-08, Section 4.E).

7-FD-v.9 to 7-FD-v.11 – Is the Reclamation Conduit for Transferred or Reserved Work?

BOR conduits might be operated and maintained either by the BOR (reserved), or an ID or WUA (transferred) (43 U.S.C. §§ 485h(c)(2)(C) and (D)). The first opportunity to develop hydropower projects on BOR conduits will be offered to any ID or WUA that operates or receives water from the conduit (43 U.S.C. § 485h(c)(2)(A)). Irrigation districts, or "IDs", include, “any irrigation, water conservation or conservancy, multicounty water conservation or conservancy district, or any separate public entity composed of two or more such districts and jointly exercising powers of its member districts” (43 U.S.C. § 485h(c)(9)(B)). Water users associations, or "WUAs", include, “organization[s] that [have] a contract with Reclamation for the use or delivery of Reclamation project water” (FAC 04-08, Section 3.N).

Transferred Conduit

Water associations responsible for operation and maintenance of a transferred conduit have the first option to submit an LOPP proposal (see FAC 04-08, Section 7.A.(2)). If the BOR receives an FRD from the operating entity, the entity will be required to submit an LOPP proposal within 150 calendar days and the CSP will not apply (see FAC 04-08, Section 7.A.(2)(a)). If the BOR receives an FRD from a developer that is not the operating entity, the BOR will offer the LOPP to the operating entity (FAC 04-08, Section 7.A.(2)(b)). The operating entity must accept or reject, in writing, the LOPP opportunity within 60 calendar days (see FAC 04-08, Section 7.A.(2)(b)). If the operating entity accepts the opportunity, it will be required to submit an LOPP proposal within 150 calendar days and the CSP will not apply (FAC 04-08, Sections 7.A.(2)(b)(i)). If the operating entity does not accept the LOPP opportunity or fails to submit an acceptable proposal within 150 calendar days, the BOR will solicit LOPP proposals under the CSP for developing hydropower on the conduit (FAC 04-08, Sections 7.A.(2)(b)(ii)), (see also 43 U.S.C. § 485h(c)(2)(B)). (See Lease of Power Privilege Flowchart: Transferred Work Conduit Request Through Award of Preliminary Lease).

Reserved Conduit

Reserved conduits often deliver water to one or more IDs or WUAs (see FAC 04-08, Sections 7.A.(3)). Water associations receiving water from a reserved conduit have the first option to submit LOPP proposals and, as such, the BOR will first offer the LOPP to any ID or WUA receiving water from the conduit (see FAC 04-08, Section 7.A.(3)(a)). IDs and WUAs must accept or reject, in writing, the LOPP opportunity within 60 calendar days (see FAC 04-08, Section 7.A.(3)(a)). If an ID or WUA accepts the opportunity, it is required to submit an LOPP proposal within 150 calendar days and the CSP will not apply (see FAC 04-08, Sections 7.A.(3)(a)(i) and (a)(ii)). If an ID or WUA does not accept the LOPP opportunity or fails to submit an acceptable proposal within 150 calendar days, the BOR will solicit LOPP proposals under the CSP for developing hydropower on the conduit (see FAC 04-08, Section 7.A.(3)(a)(iii)), (see also 43 U.S.C. § 485h(c)(2)(B)).

(See Lease of Power Privilege Flowchart: Reserved Work Conduit Request Through Award of Preliminary Lease).

7-FD-v.12 – Will One or More ID or WUA Submit an LOPP Proposal?

If at least one ID or WUA chooses to accept the LOPP opportunity, such entity is required to submit an LOPP proposal and the CSP will not apply (FAC 04-08, Sections 7.A.(2)(b)(i), (3)(a)(i), and (3)(a)(ii)). Instead the selection team will select among IDs or WUAs that submit acceptable proposals, as discussed in 7-FD-v.14 (see FAC 04-08, Section 7.A.(3)(a)(ii)).

7-FD-v.13 – Solicitation of LOPP Proposals

If necessary, the BOR will initiate the CSP for conduits by soliciting LOPP proposals from developers (see FAC 04-08, Section 7.A.(1)(a)). The BOR will only initiate this process for conduits after the opportunity has been offered to any applicable IDs or WUA (see FAC 04-08, Sections 7.A.(2)(ii) and (3)(iii)). The BOR will solicit proposals through a public process such as publishing a solicitation in the Federal Register (FAC 04-08, Section 7.A.(1)). The CSP is intended to ensure fair and open competition for receipt of the preliminary lease (see FAC 04-08, Sections 7.A.(2)(ii) and (3)(iii)). The LOPP solicitation will include the evaluation criteria by which the selection team will make its decision (FAC 04-08, Section 7.C.(1)). Evaluation criteria includes project specific LOPP proposal requirements based on a set of minimum LOPP proposal requirements (FAC 04-08, Section 7.C), discussed below in 3-FD-p.18. The solicitation process provides 150 days from the date of publication for developers to submit LOPP proposals (FAC 04-08, Section 7.A.(1)(b)).

There are additional requirements for soliciting proposals for transferred conduits and sites located within Indian Reservations. If the solicitation is for a transferred conduit, the solicitation must disclose that fact (FAC 04-08, Section 7.C.(2)). If the solicitation is for a site located within the external boundaries of an Indian Reservation (or a dependent community), the solicitation must disclose information about the site location and that a letter of cooperation from the relevant tribal government, regarding land access and related issues, will be considered by the selection team (FAC 04-08, Section 7.C.(3)).

(See Lease of Power Privilege Flowchart: Dam Request Through Award of Preliminary Lease).

7-FD-v.14 – LOPP Proposal

Developers must submit LOPP proposals based on the criteria set forth in the solicitation. In addition to the minimum requirements, there are additional requirements for transferred conduit proposals. Developers are required “to submit a proposal explaining in as precise detail as is practicable how the hydropower potential at the site would be developed” (FAC 04-08, Section 7C(4)).

LOPP Proposal Minimum Requirements

All LOPP proposals must include:

  • Information explaining whether and why the applicant qualifies as a preference entity.
  • Information relevant to the qualifications of the proposing entity to plan and implement such a project, including but not limited to:
    • type of organization;
    • length of time in business;
    • experience in funding, design, and construction of similar projects;
    • experience in developing, operating, and maintaining similar facilities;
    • industry rating(s) that indicate financial soundness and/or technical and managerial capability;
    • experience of key management personnel;
    • history of any reorganizations or mergers with other companies; and
    • any other information that demonstrates the interested entity’s organizational, technical, and financial ability to perform all aspects of the work.
  • Geographical locations and descriptions of principal structures and other important features of the proposed development including roads and transmission lines. Proposals must estimate and/or describe:
    • installed capacity and the capacity of the power facilities under dry, average, and wet hydrological conditions;
    • daily, weekly, monthly, and annual pattern of expected generation under average, wet, and dry hydrological conditions;
    • ability of generation to provide ancillary services such as regulation, spinning reserves, and voltampere reactive support;
    • information on the reliability of the generation, potential maintenance outage schedule, and duration;
    • if capacity and energy can be delivered to another location, either by the proposing entity or by potential third party transmission agents, the proposal must specify where that capacity and energy can be delivered; and
    • concepts and contractual arrangements (including the involved parties) related to transmission interconnection, power sales, and the proposed approach to third party transmission if required.
  • Existing title arrangements or a description of the ability to acquire title to or the right to occupy and use lands necessary for the proposed LOPP project, including such additional lands as may be required during construction.
  • A description of studies necessary to adequately define impacts of the proposed LOPP project on the Reclamation project, historic properties (if such are present), and the environment. The proposal must describe:
    • any significant environmental issues associated with the proposed LOPP project;
    • the proposing entity’s approach for gathering relevant data and resolving such issues to protect and enhance the quality of the environment; and
    • any proposed use of the LOPP project for conservation and utilization of the available water resources in the public interest.
  • Plans for assuming liability for damage to the operational and structural integrity of the Reclamation project caused by construction, operation, and/or maintenance of the hydropower development.
  • The organizational structure planned for the long-term O&M of any proposed hydropower development.
  • A management plan, including:
    • schedules of these activities as applicable, to accomplish activities such as planning;
    • National Environmental Protection Act (NEPA) compliance;
    • National Historic Preservation Act (NHPA) compliance;
    • Endangered Species Act (ESA) compliance;
    • necessary studies;
    • LOPP project development;
    • design, construction, safety plan, and facility testing; and
    • the start of hydropower production.
  • An estimate of development costs proposed including but not limited to:
    • all investment costs such as the cost of studies to determine feasibility;
    • NEPA compliance;
    • NHPA compliance;
    • ESA compliance;
    • other statutory compliance;
    • design;
    • construction;
    • financing as well as the amortized annual cost of the investment;
    • annual O&M expense for the hydropower development;
    • lease payments to the United States;
    • expenses associated with the Reclamation project;
    • anticipated return on investment; and
    • any additional transmission expenses associated with the development of the LOPP project.
  • Proposed methods of financing the LOPP project.
  • Economic analysis that compares the present worth of all benefits and costs of the hydropower development.

(FAC 04-08, Section 7.C). (See also, LOPP Proposal Checklist).

Transferred Conduit Proposals

In addition to the minimum requirements, LOPP proposals for transferred conduits must define how the project would operate in harmony with the conduit and existing applicable contracts related to O&M of features being considered for modification. The BOR will consider favorably, a letter of cooperation or contractual arrangement from the operator of the conduit.

(FAC 04-08, Section 7.C.(2)).

7-FD-v.15 to 7-FD-v.16 – Review Proposal(s) and Submit Recommendation

The selection team will review submitted LOPP proposals and provide a recommendation to the regional director for award of the preliminary lease. Proposals will be reviewed in accordance with Section 9(c) of the Reclamation Project Act of 1939 as amended by the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013. To be considered for selection, the project must not impair Reclamation generated power or water deliveries, jeopardize public safety, or interfere with other authorized project purposes such as those found in project specific acts.

(FAC 04-08, Section 7.A).

Transferred Conduits

For development of transferred conduits, the selection team will have 14 calendar days to review LOPP proposals and make a recommendation to the regional director for award of the preliminary lease. If an operating entity of a transferred conduit submits an FRD and submits an LOPP proposal that meets the minimum criteria, the selection team will recommend the operating entity as the recipient of the preliminary lease. If a developer that is not the operating entity submits an FRD for a transferred conduit, but the operating entity submits an LOPP proposal that meets the minimum criteria to develop the project, the selection team will recommend the operating entity as the recipient of the preliminary lease. If the operating entity rejects the opportunity or fails to submit a proposal that meets the minimum criteria to develop the project, the selection team will make its recommendation based on the results of the CSP.

(FAC 04-08, Section 7.A.(2)(a)).

Reserved Conduits

For development of reserved conduits, the review period for the selection team will differ depending on how many, if any, ID’s or WUA’s express interest. If a single ID or WUA receiving water from the project submits an LOPP proposal, the selection team will have 14 calendar days to review the LOPP proposal and make a recommendation. If the LOPP proposal meets the minimum criteria to develop the project, the selection team will recommend the ID or WUA as the recipient of the preliminary lease. If multiple IDs or WUAs submit LOPP proposals, the selection team will have 30 calendar days to review the submitted LOPP proposals and provide a recommendation for the recipient of the preliminary lease. If no ID or WUA accepts the opportunity or submits an acceptable proposal, the selection team will make its recommendation based on the results of the CSP.

(FAC 04-08, Section 7.A.(3)(a)).

7-FD-v.17 – Create Selection Team to Review Proposals

The BOR creates a selection team to review submitted LOPP proposals and provide a recommendation to the regional director for award of the preliminary lease (see FAC 04-08, Section 4.E).

7-FD-v.18 – Solicitation of LOPP Proposals

The BOR will initiate the CSP for all dams through a public process such as publishing a solicitation in the Federal Register (FAC 04-08, Section 7.A.(1)). The CSP is intended to ensure fair and open competition for receipt of the preliminary lease (see FAC 04-08, Sections 7.A.(2)(ii) and (3)(iii)). The LOPP solicitation will include the evaluation criteria by which the selection team will make its decision (FAC 04-08, Section 7.C.(1)). Evaluation criteria includes project specific LOPP proposal requirements based on a set of minimum LOPP proposal requirements (FAC 04-08, Section 7.C), discussed below in 3-FD-p.18. The solicitation process provides 150 days from the date of publication for developers to submit LOPP proposals (FAC 04-08, Section 7.A.(1)(b)).

(See Lease of Power Privilege Flowchart: Dam Request Through Award of Preliminary Lease).

7-FD-v.19 – LOPP Proposal

Developers must submit LOPP proposals based on the criteria set forth in the solicitation. Developers are required “to submit a proposal explaining in as precise detail as is practicable how the hydropower potential at the site would be developed” (FAC 04-08, Section 7C(4)). The minimum proposal requirements are discussed in detail above in 7-FD-v.14.

7-FD-v.20 – Review Proposal(s) and Submit Recommendation

The selection team will review submitted LOPP proposals and provide a recommendation to the regional director for award of the preliminary lease. Proposals will be reviewed in accordance with Section 9(c) of the Reclamation Project Act of 1939 as amended by the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013. To be considered for selection, the project must not impair Reclamation generated power or water deliveries, jeopardize public safety, or interfere with other authorized project purposes such as those found in project specific acts.

(FAC 04-08, Section 7.A).

Dams

For development on dams, the selection team will have 30 calendar days to review LOPP proposals and make a recommendation to the regional director for award of the preliminary lease (FAC 04-08, Section 7.A.(1)(b)).

7-FD-v.21 to 7-FD-v.23 – Has a Preference Entity Submitted an LOPP Proposal?

Under the CSP, the proposal selection process for both dams and conduits affords priority to preference entities (43 U.S.C. § 485h(c)(1)). Preference entities are defined as “municipalities and other public corporations or agencies including tribes, and also 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” (FAC 04-08, Section 3.H). Priority entities must be “well qualified to develop and provide long-term O&M of the hydropower facility.” In order to receive preferential treatment, the preference entities proposal must be at least as well qualified as competing plans. If a priority entity submits a deficient plan, the BOR will notify the priority entity and afford it up to 30 calendar days to revise its proposal.

(FAC 04-08, Section 7.A.(1)(c) and (1)(d)).

7-FD-v.24 to 7-FD-v.25 – Select Recipient of Preliminary Lease

Based upon the recommendation made by the selection team, the regional director will select the recipient of the preliminary lease (see e.g., LOPP Example Acceptance Letter). A preliminary lease is “an agreement between BOR and the lessee that outlines the responsibilities of BOR and the lessee during the negotiation of the LOPP, and directs that the potential lessee must enter into a cost recovery agreement to provide advance funding to BOR before BOR incurs any costs for work related to the preliminary lease or LOPP.” Preliminary leases are non-transferrable and do not guarantee that an LOPP will ultimately be awarded.

(FAC 04-08, Section 3.I).

BOR retains the right to deny the issuance of an LOPP or withdraw a previously issued preliminary lease or LOPP at any time based on:

  • Inadequate design information;
  • Unsatisfactory environmental impacts;
  • Safety concerns;
  • Security concerns;
  • Detrimental impact to the BOR project; or
  • Any other legitimate reason as determined by the regional director.

(FAC 04-08, Section 9).

Dams

Preliminary lessees are provided with a maximum of 24 months from the date of issuance of the preliminary lease to complete the requirements set forth in the lease and sign the LOPP. A maximum of 4 years is allowed from the date of issuance of the preliminary lease to the beginning of construction.

(FAC 04-08, Section 8.A).

Conduits

If more than one IDs or WUAs has accepted the LOPP opportunity for developing hydropower on a BOR conduit, the BOR will not initiate the CSP (FAC 04-08, Sections 7.A.(2)(b)(i), (3)(a)(i), and (3)(a)(ii)). Instead the selection team will select among IDs or WUAs that submit acceptable proposals, as discussed in 7-FD-v.14 (see FAC 04-08, Section 7.A.(3)(a)(ii)).

Preliminary lessees are provided with a maximum of 15 months from the date of issuance of the preliminary lease to complete the requirements set forth in the lease and sign the LOPP. A maximum of 3 years is allowed from the date of issuance of the preliminary lease to the beginning of construction.

(FAC 04-08, Section 8.B).

Timeframe requirements are determined or extended at the sole discretion of the regional director. Timeframes will only be extended for just cause resulting from actions and/or circumstances that are beyond the control of BOR and the lessee.

(FAC 04-08, Section 7.B).

7-FD-v.26– Does a Water User Organization Have Operation, Maintenance, or Replacement Transfer Contracts Associated with the Existing Federal Project?

The preliminary lessee and the BOR will meet with affected water user organizations within 30 calendar days after the issuance of the preliminary lease. Affected water user organizations are those with operation, maintenance, and/or replacement transfer contracts associated with the existing facility where the organization is not a participant in the proposed LOPP. The parties will meet to discuss the LOPP process, roles, and responsibilities. The agreed upon terms, roles, and responsibilities resulting from this meeting are to be documented in a manner agreeable to the parties involved. If the affected organization has O&M transfer contracts associated with the existing facility, the LOPP contracts will involve the organization and require the lessee share in O&M costs that benefit the proposed facility.

(FAC 04-08, Section 10).

7-FD-v.27 to 7-FD-v.28 – Does a Non-Participant Power Customer Receive Reclamation Generated Hydropower from the Existing Federal Project?

If a power customer, who is not a participant to the LOPP process, receives BOR generated hydropower from the existing facility, a meeting between the BOR, the preliminary lessee, and the affected power customer to discuss the LOPP process, roles, and responsibilities must occur within 30 calendar days after the issuance of the preliminary lease. The agreed upon terms, roles, and responsibilities resulting from this meeting are to be documented in a manner agreeable to the parties involved.

(FAC 04-08, Section 4.F.(2)).

(See Lease of Power Privilege Flowchart: Award of Preliminary Lease through Award of Lease of Power Privilege).

7-FD-v.29 to 7-FD-v.30 – Itemized Estimate of BOR Administrative Costs

Prior to the BOR conducting any work for the preliminary lease or LOPP, and in advance of any expenditure, the lessee must provide the necessary funding to cover all BOR administrative costs pursuant to a cost recovery agreement (CRA). To establish the terms of the CRA, the BOR will provide the lessee with an itemized and detailed estimate of costs based on its understanding of the LOPP project. The lessee will be required to pay the BOR (in advance) in accordance with an agreed upon funding plan. Increases beyond the originally agreed upon amounts will be negotiated with the lessee before BOR incurs those costs. Unused funds will be returned to the lessee without interest. BOR will track of all Reclamation costs related to the LOPP project.

The itemized and detailed estimate of costs will include any and all work related to:

  • NEPA, NHPA, ESA, and other statutory compliance;
  • Development;
  • Construction;
  • O&M;
  • Inspections;
  • Security of the lessee’s power facilities;
  • Review of all other necessary studies, analyses, designs, plans, specifications, and related material associated with the proposed power plant; and
  • Any other related administrative costs.

(FAC 04-08, Section 11.A).

7-FD-v.31 to 7-FD-v.33 – Does a PMA Have Responsibility for Project Repayment or Have First Right of Refusal to Purchase Existing Federal Project Energy and RECs?

Where revenues derived through a power marketing administration (PMA) are used for repayment of a portion of the project, or is otherwise provided right of first refusal by law, that PMA will be given the first opportunity to purchase the energy and any RECs produced by the project. This applies to all hydropower development on BOR facilities except small conduit. Upon issuance of the preliminary lease, the lessee is obligated to offer the energy and RECs to the PMA, which has 60 calendar days from the date of the initial offer to make a decision whether to purchase the energy and RECs. If the PMA does not elect to purchase the energy or RECS, the lessee will have the right to market the energy and RECs produced by the project to others. There is no obligation for the PMA to purchase the energy or RECs.

(FAC 04-08, Section 9.C(4)).

For small conduit hydropower development, projects capable of producing 5 MWs or less, there is no requirement to offer the PMA the first opportunity to purchase the energy and, if applicable, the RECs produced by the project (see 43 U.S.C. § 485h(c)(2)(E)).

The process of establishing an agreement for purchase of energy or RECs may occur concurrently with the development of project studies discussed in 7-FD-v.34 to 7-FD-v.38.

7-FD-v.34 – Meet with BOR to Identify Potential Studies and Discuss Public Safety

After the BOR grants a preliminary lease, the BOR and preliminary lessee must work together to discuss public safety issues and identify all necessary studies that must being conducted prior to executing the LOPP (FAC 04-08, Sections 9.C.(1) and (3)). Necessary studies are determined based on the requirement that BOR ensure that the efficiency of Reclamation-generated power or water deliveries will not be impaired, to ensure the public safety and the continued safe operation and structural integrity of the BOR facilities, and to ensure compliance with NEPA, ESA, and NHPA commitments (FAC 04-08, Section 9.C.(2)). All statutory compliance will be the financial responsibility of the lessee (FAC 04-08, Section 9.C.(2)). The LOPP lead will collect and coordinate the review of all studies from the lessee (FAC 04-08, Section 9.C.(1)).

At a minimum, the following topic areas will be considered for study based on project requirements:

  • Public and dam safety impacts/modifications;
  • Site characteristics and existing facilities;
  • Land rights, including but not limited to acquisitions, easements, leases, licenses, consent documents, and other use authorizations;
  • Hydraulics and hydrology;
  • Sedimentation study;
  • Water rights;
  • Project features and design;
  • Power production;
  • Environmental analysis suitable for Reclamation’s use in the NEPA, NHPA, ESA, and other statutory compliance;
  • Safety assessment;
  • Security assessment;
  • Operation and maintenance plan; and
  • Project development plan and construction schedule.

(FAC 04-08, Appendix B).

In addition, the BOR and the preliminary lessee meet to discuss the BOR’s involvement in public safety aspects of the project. BOR shares its plans with the lessee to correct public safety related issues at the facility known to exist at the time of the LOPP contract negotiations. Public safety issues which emerge at a later date could require adjustments to the location, design, construction, and/or operations of the lessee’s power plant facilities. Costs associated with such adjustments are the responsibility of the lessee.

(See FAC 04-08, Section 9.C.(3)).

7-FD-v.35 – Complete Environmental Process

The lessee must comply with NEPA, ESA, NHPA, and other statutory requirements during the preliminary lease phase and prior to execution of the LOPP. Reclamation incorporates terms and conditions resulting from NEPA, ESA, NHPA and other statutory compliance requirements within the LOPP. LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08).

Reclamation is the lead agency responsible for complying with the requirements of NEPA and the lessee is responsible for the costs associated with compliance. Reclamation may apply a categorical exclusion under NEPA to small conduit hydropower activities pursuant to the 2013 Reclamation Small Conduit Hydropower Act or other project activities Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act of 2013; LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08)). When determining whether to apply the categorical exclusion, Reclamation considers whether the project is a small conduit hydropower project, or if the project will: utilize an existing dam or conduit, have a point of diversion and discharge in close proximity to the existing infrastructure and would not significantly affect the flow patterns of the water sources, increase or change the timing of diversions and discharges, and have the same primary purpose for the infrastructure (e.g., most commonly irrigation).

LOPP Processes, Responsibilities, Timelines, and Charges Directive and Standard (FAC 04-08)).

If a categorical exclusion does not apply to the project, Reclamation prepares and issues either an Environmental Assessment (EA) and/or an Environmental Impact Statement (EIS) that examines alternatives and the likely effects to the human environment from the proposed project 40 C.F.R. §§ 1501.3 – 1501.4. From Reclamation’s experience, most LOPP projects are unlikely to rise to the level of an EIS. (See Northern Water – About Us)

Reclamation may permit the lessee to prepare an EA. However, Reclamation must “make its own evaluation of the environmental issues and take responsibility for the scope and content of the [EA]” 40 C.F.R. § 1506.5(b). If Reclamation determines an EIS is required, Reclamation either prepares the EIS or hires a third-party consultant to prepare the EIS. The lessee may solicit third-party consultant candidates, but Reclamation makes the final selection decision and is ultimately responsible for the EIS preparation (e.g., scope and content). Reclamation must also independently evaluate the EIS prior to approval 40 C.F.R. § 1506.5(c).

Hydropower Environmental Review Overview: 9

7-FD-v.36 to 7-FD-v.37 – Complete Required Studies

Prior to being granted an LOPP, the preliminary lessee must complete all studies it is obligated to complete as a condition to receiving the LOPP (see FAC 04-08, Section 9.C). Studies conducted under the preliminary lease are subject to BOR’s review and approval (FAC 04-08, Sections 9.A and B). The BOR will reserve the right to conduct or direct the completion of analyses, designs, and data collection which directly affect public safety aspects of the facilities into which the lessee’s power plant facilities are to be integrated (FAC 04-08, Section 9.B). Within 45 days of receipt, the BOR will review all analyses, designs, plans, specifications, and related material associated with all features of the proposed power plant and appurtenant facilities not directly affect public safety. Work may not proceed on any aspect of the project until the lessee obtains the BOR’s written approval.

(FAC 04-08, Section 9).

(See Lease of Power Privilege Flowchart: Award of Preliminary Lease through Award of Lease of Power Privilege).

7-FD-v.38 to 7-FD-v.39 – Execute LOPP

After the preliminary lessee meets all the conditions to issuing the LOPP contained the preliminary lease, the BOR will execute an LOPP. LOPPs contain numerous conditions, discussed in this section.

The regional director determines maximum timeframes for construction. For dams, the lessee has one (1) year from the date of the execution of the LOPP to complete final design drawings, specifications, and other specified requirements, whereas for conduits the lessee has only nine (9) months. The preliminary lessee may begin construction of the project only after Reclamation accepts the design drawings and specifications as well as the safety and health program and provides notice to the lessee to proceed with construction. Reclamation allows a maximum of four (4) years from the date of the preliminary lease to begin construction for dams and a maximum of three (3) years for conduits.

Reclamation can deny the issuance of a LOPP or withdraw a previously issued preliminary lease or LOPP at any time based on inadequate design information, environmental impacts, safety concerns, physical security concerns, cybersecurity concerns, detrimental impact to the Reclamation project, or any other legitimate reason as determined by the Reclamation regional director.

(FAC 04-08, Section 8).

Among other conditions, LOPPs address:

  • Non-impairment of existing facilities by construction or O&M of lessee’s power plant facilities, including limits on impairing:
    • existing or future project operations;
    • existing water rights;
    • compliance with environmental requirements or commitments;
    • efficiency of the project for irrigation purposes;
    • operations of, or entitlements to, Reclamation hydroelectric facilities;
    • security;
    • correction of public safety deficiencies; or
    • create any public safety related deficiency, recreation hazards, or other safety problems;
  • Title to the Federal and power plant facility.
  • Access to and operation of the facilities;
  • BOR inspection of the facilities ensure public safety and compliance with NEPA, ESA, NHPA, and other statutory commitments;
  • Responsibility for physical security of existing facilities;
  • Lessee obtained comprehensive and sufficient performance bond or irrevocable letter of credit to cover any costs for the removal of the facilities and the clean-up or restoration of the site;
  • Indemnification of BOR by lessee;
  • Lessee compensation of Reclamation for lost generation and other interruptions; and
  • BOR first right of purchase for the power plant.

(For more detailed description of requirements, see FAC 04-08, Section 9.D).

7-FD-v.40 to 7-FD-v.43 – Prepare Design Drawings and Specifications

Upon execution of the LOPP, the developer and BOR begin an iterative process of preparation and review of both design drawings and specifications, and a public health and safety program. These processes may occur concurrently.

The developer submits design drawings and specifications to the BOR, and the BOR reviews all analyses, designs, plans, specifications, and related material associated with all features of the proposed power plant and appurtenant facilities. The initial phase for the design drawings and specifications requires the developer prepare, and submit to the BOR, 60% design drawings and specifications. Subsequent iterations require the developer submit 90% and final design drawings and specifications, subject to BOR’s review and acceptance.

(FAC 04-08, Sections 9.B, 9.C.(1), 9.D.(1); see also FAC 04-08, Appendix B).

(See Lease of Power Privilege Flowchart: Lease of Power Privilege Contract through End of Construction).

7-FD-v.44 to 7-FD-v.53 – Prepare Safety and Health Program

The developer and the BOR also complete an iterative process of preparation and review of a safety and health program. This process requires the developer to prepare a safety and health program which undergoes a process of review by the BOR and revision by the developer. Upon acceptance by the BOR, the developer then submits program documents to the BOR subject to another round of review, revision, and approval. Upon approval, the BOR issues a Notice to Proceed. Work may not proceed on any aspect of the project until the developer obtains the BOR’s written approval. The BOR oversees the construction effort, including on-site inspection, focusing primarily on the work, which directly affects the public safety aspects of their facilities.

(FAC 04-08, Sections 9.A, 9.B).

(See Lease of Power Privilege Flowchart: Lease of Power Privilege Contract through End of Construction).

7-FD-v.54 to 7-FD-v.56 – Begin Construction

After design drawings and specifications, and a safety and health program are accepted by the BOR, the developer may begin construction. The BOR oversees the construction effort, including on-site inspection, focusing primarily on the work directly affecting the public safety aspects of their facilities. Upon completion of construction, the developer must submit as-built drawings to BOR.

(See Lease of Power Privilege Flowchart: Lease of Power Privilege Contract through End of Construction).

(See also FERC Compliance Handbook, at section 2.6 Start of Construction Requirements).

7-FD-v.57 – Bring Plant Into Operation

Calculation of LOPP payments begins after the initial successful startup and testing of the generating equipment, or within 20 days of the commencement of initial startup and testing of the generating equipment, whichever occurs first (FAC 04-08, Section 11).

7-FD-v.58 – Pay Annual LOPP Charges

The developer is required to pay annual LOPP charges (see FAC 04-08, Sections 11 and 12). Under the Reclamation Act of 1939, Section 9(c), “[a]ny sale of electric power or Lease of power privileges, made by the Secretary in connection with the operation of any project or division of a project, shall be for such periods, not to exceed forty years, and at such rates as in his judgment will produce power revenues at least sufficient to cover an appropriate share of the annual operation and maintenance cost, interest on an appropriate share of the construction investment at not less than 3 per centum per annum, and such other fixed charges as the Secretary deems proper.”

The rate is reviewed every 10 years to ensure that it is consistent with the parameters of the Reclamation Act of 1939. Unless otherwise directed by specific project authorizations, in accordance with Section 5 of the Town Sites and Power Development Act of 1906, the LOPP charge paid by the developer to the BOR must be deposited in the BOR fund as a credit to the project and applied against the total outstanding reimbursable repayment obligation for reimbursable project construction costs of the Federal project on which the LOPP is issued pursuant to the existing construction cost allocation. Rates are established as either a Standard LOPP charge or a Discounted LOPP Charge.

(FAC 04-08, Section 11).

Standard LOPP Charge

The annual LOPP charge is set at three mills per kilowatt-hour (kWh) of gross energy produced by the facility, measured at the generator, to the United States for the use of the Reclamation facility. This rate increases each year commensurate with inflation based on the average of the previous five years of the Gross Domestic Product (GDP) Price Deflator. If the five-year GDP Price Deflator average shows no change or deflation, the LOPP rate will remain the same as the previous year’s rate. The rate of increase of the five-year GDP Price Deflator average is capped at five percent.

(FAC 04-08, Section 11.B(2)(a)).

Discounted LOPP Charge

For entities that are already responsible for project O&M repayment for the site of the LOPP project, recognition of that contribution to O&M is made through a reduction of the LOPP charge. The reduced annual LOPP charge is set at two mills per kWh of gross energy produced by the facility, measured at the generator, to the United States for the use of the Reclamation facility. This rate increases each year commensurate with inflation based on the average of the previous five years of the GDP Price Deflator. If the five-year GDP Price Deflator average shows no change or deflation, the LOPP rate remains the same as the previous year’s rate. The rate of increase of the five-year GDP Price Deflator average is capped at five percent.

(FAC 04-08, Section 11.B(2)(b)).

(For an overview of annual charges, see also FAC 04-08, Appendix D).


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