A Free-Market Energy Blog

Micro-Hydro: The Regulatory Noose (Logan City vs. FERC)

By Megan Hansen and Ryan Yonk -- December 20, 2013

“[A] complex regulatory nexus surrounds all hydropower projects, no matter how small. As far as regulatory requirements are concerned, it didn’t matter that the project would have little to no environmental impacts…. When it comes to renewable energy, federal policies are working at odds with one another.”

In 2008 Logan City, Utah decided to install a micro-hydro project in its culinary water system. The city’s assistant engineer recognized the opportunity to generate clean, low-cost electricity for the city by installing a turbine in the city’s culinary water pipeline.

Logan City’s project would power 185 homes, and would not require any new construction. At the same time, it would also help reduce excess water pressure in the system. Because the project was so small, and would not affect anything outside of an existing pipeline, city officials thought the permitting process would be a breeze.

What started as a simple plan to install a micro-hydro facility soon became really complex. As Logan City officials learned firsthand, the permitting process required by the Federal Energy Regulatory Commission (FERC), proved to be so lengthy and expensive that the difficulties associated with the process far outweighed the benefits.

As a result, Logan City is not keen to start any new projects of a similar size or scope. This research was recently published as a working paper with the Mercatus Center at George Mason University.

Rare Renewable Viability

Micro-hydropower is basically small-scale hydropower with little to no environmental impacts. Although large dams often get in the way of people, wildlife, and habitat, micro-hydro technology doesn’t require a dam at all.

Wherever water is flowing downhill, through a pipeline or canal, a turbine can be placed into the water and hooked up to a generator. As easy as that you can be generating electricity with zero emissions. What’s more, micro-hydro systems are more efficient than any other type of electricity generation. Once installed, maintenance costs are low.

Although micro-hydropower projects are individually small, the technology’s collective potential is significant. If developed, small and micro-hydropower projects, categorized as 30 megawatts (MW) or less, could power tens of thousands of homes across the U.S., which would double total hydropower generation in the U.S.

Working with FERC

As project managers in Logan City learned firsthand, a complex regulatory nexus surrounds all hydropower projects, no matter how small. As far as regulatory requirements are concerned, it didn’t matter that the project would have little to no environmental impacts.

The city still had to go through an intensive permitting process overseen by the Federal Energy Regulatory Commission (FERC). Logan City’s project began in 2008. By 2012 the city’s project had finally been completed after four years of delays and almost 3 million dollars of total costs.

FERC is the federal agency responsible for issuing licenses and permits for the construction, operation, and maintenance of hydropower plants, as mandated by the Federal Power Act. The licensing process can be long and costly. To create a new project, developers may need to obtain permits from as many as twenty-five different regulatory agencies.

This lengthy regulatory process reduces the desirability of micro-hydropower as a potential energy source, because it often produces too little to compensate for the costs of complying.

Irrelevant Requirements

The list of irrelevant regulatory requirements Logan City was required to meet is a lengthy one. FERC is responsible for making sure all hydropower permit applicants meet the requirements of the Endangered Species Act, National Historic Preservation Act, the Clean Air Act, the Clean Water Act, and the National Environmental Policy Act, just to name a few.

Although large hydropower projects may actually have environmental impacts that are worth documenting, Logan City’s project would not affect anything outside of an existing building built three years prior.

Despite this fact, the city was still required to complete an endangered species analysis and to prove the project would not affect any historic structures. The city’s assistant engineer told us, “There was no common sense” in the permitting requirements.

Green Energy vs. Green Regulation

The $787 billion stimulus package of 2009 included funding for the encouragement of renewable energy sources like hydropower, and Logan’s project fit the bill. Logan City secured a federal grant for $700,000 that helped fund its micro-hydro project.

Ironically, the same stimulus money meant to boost renewable energy added even more stringent regulatory requirements to the list. The stimulus included a “Buy American” stipulation that required every single part used be manufactured in the U.S. This requirement drove up costs even further by eliminating competition from foreign manufacturers.

With each unnecessary regulation that had to be met, costs went up. Logan City had to hire experts to help them prepare complicated environmental analyses, and city employees spent many additional hours meeting regulatory requirements.

Because of this, city officials estimate the project will not break even for 50 years. The city’s assistant engineer told us Logan City will never again do a project of a similar size or scope because,

The cost of the permitting headache and the nightmare and the frustration of the project…. It’s not even capital cost that deters you, it’s the regulatory compliance cost.

Unintended Consequences: Green Energy Loses

When it comes to renewable energy, federal policies are working at odds with one another. On the one hand, federal policies are providing funding for renewable energy projects like micro-hydro. On the other hand, regulations designed to help protect the environment are making small, environmentally friendly projects economically impossible.

As Logan’s assistant engineer told us, “In other countries a project like this would have been considered a gold mine…It’s low maintenance, it’s reliable, it’s proven technology.”

The reality is, federal regulations are stopping smart, green projects like Logan City’s from ever getting off the ground. Cities like Afton, Wyoming and Barre City, Vermont have run into similar regulatory barriers to developing their micro-hydro potential.

These small cities learned, as did Logan City, that just because a regulation is meant to protect the environment does not mean it will actually accomplish that goal. As long as small, low-impact projects are regulated to the same level as large dams, renewable energy development will continue to be strangled.


Megan E. Hansen is a policy analyst at Strata. Ryan M. Yonk is an Assistant Professor of Political Science at Southern Utah University.

Ken J. Sim and Randy T. Simmons also contributed to the larger project.

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