The History of Water Rights, Part I:
The Formation of the FERC
The issue of water rights in the United States came to prominence in the late 1800s and early 1900s, when certain large industrialists (or as detractors might call some of them, “robber barons”) and conservationists fought over who had the rights to control natural resources. These rights were worth fortunes and were not easily subject to the laws of the free market. Where water for power production was concerned, the rights too easily became equivalent to monopolies. [Roger: the early developers were in fact free enterprisers who risked capital; most of them later got taken over by the utilities and Sam Insull who blocked their paths to the capital markets and transmission. Hence, the deletions] The battles extended to Congress as well, where water rights divided politicians as much along the lines of those favoring states’ rights versus federalists as well as industrialists versus conservationists.
After decades of fighting, a conference Coalition in Congress finally produced a compromise bill on the water power issue on April 30, 1920. It affirmed “the jurisdiction of the federal government over water power in all navigable waters.” The bill defined “navigable waters” to include “streams or other bodies of water over which Congress has jurisdiction to regulate commerce among foreign nations and among the States,” which included rivers from their source to their mouth. As to these waters, no more claims or titles in fee simple and in perpetuity could pass to private hands, as ownership in these waters was vested in the United States, according to the bill, which would become known as the Federal Water Power Act..
The legislation also established the Federal Power Commission, initially the three Secretaries of War, Interior and Agriculture (later an appointed group), which could license the construction of hydroelectric stations by non-federal entities. The bill thus provided for both private development and public development, with licenses being issued by the Commission to provide authority to generate electricity using the water. [Roger: federal development was controlled by Congress; FPC always issued licenses to both non-federal, governmental entities, as well as private entities.] Yet by its very nature, private control over public water resources and the hydroelectric power it generates is a monopoly.[Suggestion: delete the rest] To protect the public, Congress also gave the FPC the authority to condition the licenses it issued and required the FPC to issue only licenses that were limited in time and provided for comprehensive development of the Nation’s waterways. In short, the FPC was to apply a strict standard before granting a monopoly, however limited.
As to these licenses, perhaps Congress’ most valuable protection was that every 50 years or so, the public could look at the record and decide whether the use of the river was so important that the public might be better served by a change in ownership. At the end of a license period, the license could be renewed to the current licensee, or a new license can be given to another applicant, but in all cases, the United States reserves the right to take over a privately owned project upon the expiration of the license (“recapture) and the payment of a reasonable amount called “net investment.” The law was subsequently amended so that if the United States wishes to take over a publicly-owned Project, it must pay the public Licensee fair market value.
The problem with recapture or a change in existing Licensee ownership is that the FPC’s regulations make it difficult and expensive for either the government to recover possession at the end of 50 years or for a challenger to succeed in a competitive proceeding against an existing Licensee. Moreover, even though the former licensee is to be reimbursed for its “net investment” not to exceed “fair value” if the federal government takes over a project, that could easily run into the hundreds of millions of dollars. [Roger—it’s net investment for recapture, not to exceed fair value—meaning whichever is lower; and fair market value only if the government tries to take it by eminent domain during the course of the license.]
President Woodrow Wilson signed the Federal Water Power Act into law on June 10, 1920. Since that time, the Federal Power Commission has been renamed the Federal Energy Regulatory Commission, or FERC, but its powers remain virtually the same, as to its water power responsibilities. What has changed has been a growing demand by citizens for more input in the FERC’s decisions as to who should control their water rights, and for whose benefits these rights should be used. That is where we, the North Carolina Water Rights Coalition, are involved. For more information on that, as well as how the FERC relicensing process works, read our next installment, The History of Water Rights, Part II.
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