No progress: Cohoes Falls.

Who Owns the Rights to the River?

A shell game keeps regulators from considering all the options for Cohoes Falls

It’s been more than a year since the Federal Energy Regulatory Commission approved a new 40-year license for the School Street hydropower plant on Cohoes Falls, but the license is still under dispute. Despite widespread bipartisan support for FERC giving formal consideration to an alternative plan proposed by the Green Island Power Authority, FERC insisted that its hands were tied by its own rules [“Falls Guys,” Metroland, June 9, 2005].

GIPA’s plan would generate more electricity, put more water over the falls, and appears to be more environmentally friendly on a number of counts. However, FERC said that they applied too late: Federal law says competing applications should be filed at the same time as renewal applications, which would have meant GIPA should have filed between 1988 and 1991, when the original license was up for renewal. School Street’s license was the last of a long set of laborious settlements that FERC, the owners, and concerned parties negotiated one at time, which is why it was nearly two decades between the close of the application period and the issuing of a new license.

GIPA currently is challenging the licensing decision in United State Court of Appeals for the Second Circuit. One of its main arguments has been that in approving this license, FERC violates its obligations, as described in the historic Scenic Hudson decision, to consider alternatives and affirmatively guard the public’s interest. So much time has elapsed, GIPA argued, that new information and even new technology have surfaced, and FERC simply cannot make a good decision without taking them into account.

“In all environmental reviews, when information comes in to the record, it has to be considered,” said Warren Reiss, general counsel for Scenic Hudson, which is filing an amicus brief in the appeal. “FERC is putting form over substance here.”

But it’s questionable whether FERC’s portrayal of itself as just going by the rules is accurate. For example, there’s the matter of who owns the plant. Since Niagara Mohawk sold the plant in 1998, the owner of record has been Erie Boulevard Hydropower LP. FERC granted a special approval to transfer the applicant from NiMo to Erie, without requiring that Erie resubmit the application section that explains who the company is and how the public interest will be served by its proposal. According to FERC, that was the last time the plant’s ownership changed.

Even Brookfield, a Canadian energy company that owns dozens of hydroplants in New York state and is the current general partner of Erie, agreed with GIPA that that’s not true. “It went from Niagara Mohawk to Orion [an investor group], then Reliant Energy,” explained Thomas Uncher, spokesperson for Brookfield, who replied to a query directed at Erie’s lawyer. “Brascan bought it from Reliant. The close was in September 2004. After that Brascan to Brookfield was just a name change.” He never used the name Erie Boulevard.

How did regulators miss this? Well, Erie has remained the owner of record the whole time. It is a limited partnership, rather than a corporation, and all of these sales took place by changing its general partners.

Both FERC and the New York state Department of Environmental Conservation, which issued the water-quality permit necessary for the relicensing to proceed, issued no public notices, conducted no official reviews, and required no new filings from the new owner when these partners changed, though that would usually follow a change in permit or license applicant. (DEC and FERC declined to comment.)

In most states, when a partner leaves or joins a partnership, that partnership is considered to have dissolved and re-formed, though that’s not so under famously corporate-friendly Delaware law, under which Erie is registered. Still, government agencies have the latitude to make their own assessments about what’s considered a transfer of ownership. Regulatory agencies usually err on the side of caution in these cases, with purchase of as little as 10 percent of the shares in a corporation requiring the approval of a banking regulator, or a change from 49-to 51-percent ownership often considered a change in ownership for a nuclear plant.

FERC’s policy is to consider each possible ownership transfer on a case-by-case basis. And, say D.C.-based energy attorney Carolyn Elefant and others familiar with FERC, they don’t usually look behind a shell corporation to see if its actual members are changing, even though case law says FERC has the right to “pierce the corporate veil” of potential licensees.

This is significant, in terms of GIPA’s quest to get its proposal considered, because if a plant’s ownership is ruled to have changed, according to the Federal Power Act, that’s considered a material amendment to the application, meaning public notice should be reissued and motions entertained. Jim Besha, the engineer who developed GIPA’s alternative, said that would be an opportunity to make a motion that Erie’s application is “12 years stale, under different owner, and a different proposal, because they changed the capacity several times,” and push for the proceedings to be reopened to competing applications.

Beyond that, however, if regulators have not recognized that the entity holding the license for the Cohoes Falls plant has changed hands, it raises serious questions about the quality of their own due diligence. As Marc Gerstman, GIPA’s counsel, wrote in a January 7, 2008 letter to DEC: “If the DEC is not informed of the new owners, and such information is not publicly available how can the Department . . . be assured of the financial suitability or record of compliance history of any such new partners and therefore, the limited partnership as a whole?”

Several lawyers not involved in the case agreed. “In terms of whether an entity should be able to create a shell and swap the people behind it to hold control of a site,” said Elefant, “it’s questionable whether [under those conditions FERC] is able to carry out its obligation to ensure that a license is in the public interest.”

In fact, if FERC doesn’t consider Erie’s obvious and wholesale partner changes to qualify as a change in ownership, that raises questions far beyond Cohoes Falls. How many of the actual owners of the hydropower plants under FERC’s purview all over the country have not actually been vetted?

It’s hard to know, said Don Garner- Gerhardt of Wisconsin Strategies, who worked on several relicensing projects in Wisconsin when he was on Democratic Congressman David Obey’s staff. “FERC is grossly understaffed,” he said. “Under this administration particularly . . . they’re not real aggressive about pursuing anything that’s going to impact big companies.”

—Miriam Axel-Lute

www.mjoy.org

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