On April 21, 2022, FERC issued an order assessing a civil penalty of $600,000 to Ampersand Cranberry Lake Hydro, LLC (“Ampersand”), licensee for the 595 kilowatt (kW) Cranberry Lake Hydroelectric Project in St. Lawrence County, New York, for violation of Article 5 of the project’s license, which requires a licensee to retain possession of all project property covered by the license.

The project is located at a dam in upstate New York owned by the Oswegatchie River-Cranberry Reservoir Regulating District Corporation (“OR-CRRDC”), a municipal corporation of New York State.  Ampersand received the license via transfer in 2015 and operated the project pursuant to a lease agreement with OR-CRRDC to use the dam.  As part of Ampersand’s application to receive the transferred license, it committed to complete certain dam safety repairs involving the Project’s fuse plug, which is designed to fail during very high flows to increase the Project’s discharge capacity.  Ampersand originally committed to complete the safety repair work in 2017 but failed to do so.

In January 2019, OR-CRRDC filed a complaint in state court alleging Ampersand’s failure to pay rent, water tax, and interest as required by the lease agreement, and sought damages of approximately $16,000 or, in the alternative, an order evicting Ampersand from the leased property.  Over the next several months, OR-CRRDC pursued termination of Ampersand’s lease, while Ampersand continued to request extensions of time from Commission staff to complete the dam safety repairs.  In July 2021, Ampersand and OR-CRRDC executed a settlement resolving the state litigation, which required Ampersand to terminate its lease and vacate the premises.  Ampersand did not complete the dam safety repair work prior to termination of its lease.  In October 2021, FERC issued an Order to Show Cause and Notice of Proposed Penalty, finding that, as a result of OR-CRRDC’s termination of Ampersand’s lease, Ampersand was in violation of Article 5 of its license for failure to retain possession of all project property.  The order proposed a civil penalty of $600,000 pursuant to section 31 of the Federal Power Act and directed Ampersand to file an answer showing why it should not be found to have violated Article 5 of its license and why the violation should not warrant an order assessing a civil penalty of $600,000 (see December 21, 2021 edition of the WER).

In November 2021, Ampersand filed its answer, in which it acknowledged its violation of Article 5 of the license, but offered as a defense that its relinquishment of the project property was involuntary, and that it “had no choice” but to enter into the settlement agreement with OR-CRRDC because OR-CRRDC had rejected Ampersand’s “efforts to resolve the contractual dispute.”  Ampersand’s answer argued that, as a result of OR-CRRDC’s termination of the lease, the appropriate remedy is termination of the license either by “constructive termination” or implied surrender, rather than a monetary penalty. Ampersand also explained that it did not file an application for license surrender because Commission staff had warned it that all dam safety repairs would have to be completed prior to submittal of such an application.

On December 22, 2021, the Commission’s Office of Enforcement staff filed a reply to Ampersand, rejecting its claim of “involuntary relinquishment,” and noting that Ampersand “voluntarily entered into that settlement agreement and had multiple options available to it that did not require abandoning its property rights, even if it believed that OR-CRRDC’s demands were unreasonable or legally incorrect,” including, for example, paying rent and tax payments into escrow while the parties attempted to resolve their dispute.  Enforcement staff also rejected Ampersand’s argument that the appropriate remedy is “constructive termination” or implied surrender, explaining that the Commission does not recognize “constructive termination,” and that section 6 of the Federal Power Act does not allow licensees to terminate their own licenses without the agreement of the Commission.  Staff also rejected Ampersand’s argument that the license should be terminated by implied surrender, noting that implied surrender is discretionary, and the facts in this case do not support the Commission’s use of its discretion because, among other things, the Commission should not “reward Respondent’s attempt to make an end run around Staff’s warning to not submit a surrender application until outstanding dam safety work was complete.”

The Commission agreed with Enforcement staff’s answer, noting additional facts from the record which demonstrated, in the Commission’s view, that Ampersand “deliberately attempted to shirk its obligations under the Project license by voluntarily entering into an agreement to terminate its access to the Project property.”  For example, the Commission noted that Ampersand had previously threatened to surrender its license, pushing the obligation and cost of dam safety repairs onto OR-CRRDC unless OR-CRRDC agreed to renegotiate the lease agreement on terms more favorable to Ampersand.  The Commission also noted that the dam is classified as “high hazard potential,” and that allowing termination of the license by implied surrender could pose a serious public safety risk.

In determining the appropriate remedy, the Commission noted that a total of 270 days had elapsed since Ampersand lost possession of the Project property.  Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements of 2015, the maximum penalty was $25,075 per-day for each violation, making Ampersand subject to a maximum civil penalty of $6,770,250.  It also considered the factors set forth in 18 C.F.R. § 385.1505, which include whether the licensee had actual or constructive knowledge of the violation, whether the licensee has a history of previous violations, whether economic benefits were derived because of the violation, whether the violation caused actual damage to property or the environment, whether the violation endangered persons, property, or the environment, and whether there were timely efforts to remediate the violation (the “1505 factors”).   The Commission acknowledged that Ampersand does not have a history of prior violations and that this violation did cause actual damage to persons, property, or the environment.  However, it noted that, by failing to complete the dam safety work (estimated to cost approximately $350,000), Ampersand derived an economic benefit and endangered persons, property, and the environment.  It also noted that Ampersand did not make any significant remedial efforts that would mitigate the penalty.

Based on these factors, the Commission determined that the appropriate remedy is $600,000, to be paid within 60 days.  Pursuant to section 31 of the Federal Power Act, no rehearing is available on the Commission’s order.  Rather, if the penalty is not paid within 60 days, the Commission shall institute a proceeding in district court seeking an order affirming the penalty.

The Commission’s order is available here.