The memorandum of understanding between the Federal Energy Regulatory Commission and various California state agencies is another important step supporting renewable energy development on the offshore continental shelf.

The May 18, 2010, Memorandum of Understanding (MOU) between the Federal Energy Regulatory Commission (FERC) and the state of California to coordinate procedures and schedules for review of hydrokinetic energy projects off the California coast is the latest indication that energy development on the offshore continental shelf (OCS) is accelerating. The FERC-California MOU is the fourth that FERC has reached with coastal states, reflecting the agency’s similar agreements with Washington, Oregon and Maine. Although its use is still largely untapped, hydrokinetic energy derived from waves, tides and ocean currents is potentially a major renewable power source. The total average wave energy on the OCS alone is estimated to be 2,100 TWh per year, an amount more than half that of annual U.S. electricity consumption.

Facilitating the FERC-California MOU is an April 2009 agreement between FERC and the U.S. Department of Interior Minerals Management Service (MMS), which clarified that FERC would have licensing authority over hydrokinetic facilities, while the MMS would be responsible for issuing leases for the OCS area in which such facilities would operate. Four months later, the two agencies reached agreement on the leasing and licensing requirements for such projects. The MMS, meanwhile, has also developed procedures for issuing commercial and limited project leases. Commercial leases will give a developer the access and operational rights to produce, sell and deliver hydrokinetic power on a commercial scale for periods extending up to 30 years, while limited leases will be issued for shorter periods – five years, for example – and convey the right to conduct activities such as site assessment and technology research and testing.

Although the FERC-California MOU does not specifically license any hydrokinetic project on the California OCS, it does define the framework for how the federal and state governmental entities will work together when such projects are proposed. Each will notify the other when one becomes aware of a potential applicant for a preliminary permit, pilot project license or license, and both entities will agree as early as possible on a schedule for processing license applications while encouraging other federal and state agencies to adhere to the schedule. They will also coordinate the environmental reviews of proposed projects in California state waters, working with both project developers and the numerous stakeholders involved.

Significantly, in the MOU, FERC and California agreed to encourage applicants to seek pilot project licenses prior to a full commercial license, which will allow for testing of devices before commercial deployment. FERC staff has developed a licensing process for hydrokinetic pilot projects tailored to meet the needs of entities interested in testing new technology, including connection with the interstate grid, while minimizing the risk of adverse environmental impacts. The goal of the pilot process is to allow developers to test new hydrokinetic technologies, to determine appropriate siting of these technologies and to confirm their environmental effects, while maintaining FERC oversight and agency input. The process completes licensing in as few as six months to allow for project installation, operation and environmental testing as soon as possible.

It is important to note that the pilot project licensing process is a very preliminary first step in developing a hydrokinetic installation. These permits do not authorize construction. Rather, they give the developer priority to study a project at the specified site for the duration of the permit, generally three years. Notably, this establishes what FERC calls “guaranteed first-to-file status,” and must be followed up by meeting all the steps of a complex reporting process as well as the MMS leasing protocols. Moreover, the FERC-California MOU itself acknowledges the many hurdles that a project must clear, given that power and development needs must give “equal consideration… to the adequate protection, mitigation of damage to, and enhancement of, fish and wildlife (including related spawning grounds and habitat), the protection of recreational opportunities, and the preservation of other aspects of environmental quality….”

Nevertheless, the fact that a state with substantial OCS coastline and demanding environmental laws has entered an agreement to consider development of this resource for energy purposes indicates the momentum behind all renewable energy development. Certainly, California’s renewable portfolio standard (RPS) for producing 33 percent of the state’s electric energy from renewable sources by 2020 is a powerful incentive, and adequate regulatory support for renewable development that can meet RPS standards is essential. Many hurdles remain, from the cost and timing of interconnection issues to the actual implementation of the untested MMS leasing process. But, as the April 2010 Department of the Interior approval of the long-delayed Cape Wind project on the Massachusetts OCS shows, the regulatory and economic justification for renewable power installations has an increasingly powerful impetus