UPDATE April 9, 2009:  FERC and MMS agree to rule changes that suspend the FERC preliminary permit system for OCS wave power projects.  The Company expects its current permit applications to be denied.  But our existing preliminary permit in Washington state is not affected by this decision.  We will continue our business in the other sites using the new permit system.  The Company's plans for these sites are not affected by the change in the FERC preliminary permit system. Primary regulation of ocean renewable energy generation is done by both the Minerals Management Service (MMS) of the US Department of the Interior, and the Federal Energy Regulatory Commission (FERC). The MMS regulates alternative energy generation on the Outer Continental Shelf beyond state waters (3 miles offshore except in Texas where it is 10 miles).  MMS issues leases for energy extraction and/or generation.  Leases must be bid out competitively.  Lessees must pay substantial fees and then must pay rent for use of federal lands.  MMS has issued a draft regulation for alternative energy management and is now finalizing the rule following a public comment period.  At this time it is not possible to apply for an alternative energy generation lease A main concern with the MMS system is that a developer can invest substantial money to evaluate site feasibility, only to end up out-bid in a lease competition.  The up-front lease application fees and acreage rent are burdensome because they are imposed long before any power is generated to make revenues. To date only 3 alternative energy projects have been proposed in offshore waters:  The Cape Wind project in Massachusetts, and two tidal power projects in the Gulf Stream off Florida.  The FERC regulates hydropower, including wave and tidal power.  It issues preliminary permits for site feasibility studies and development, and commercial licenses for power generation.  The FERC process is a “homesteading” type.  A project developer can apply for a free Preliminary Permit to evaluate a site, specifying its boundaries.  If the preliminary permit is issued the developer has exclusive control over that site for hydropower generation for three years, during which a commercial license application must be prepared and submitted to FERC.  The FERC requires compliance with all other applicable laws and regulations and has a complex process to guide the license application development and ensure proper consultation with all parties.  A commercial license is typically for 30 years and gives the developer exclusive rights to the site for that period.  Licenses can be renewed in perpetuity if conforming to FERC rules.  MMS has asserted it regulates all alternative energy generation in offshore waters.  But on October 16, 2008 the FERC announced its assertion of jurisdiction over wave power projects in any navigable USA waters including offshore.  FERC’s existing permit application process will apply, including granting of exclusive site development rights for wave power development to the first applicant for the site (who must also remain in good standing with the FERC permit and licensing process).  This announcement created a window of opportunity.  The Company quickly identified the best sites in the USA for gigawatt-scale ocean renewable energy generation and applied for FERC preliminary permits to develop them by proposing wave energy generation on offshore platforms.  This triggers the regulatory process and gives the Company a priority right to develop those sites for wave power.  The offshore platforms can also support large wind turbines.  MMS regulates the wind power generation and seabed lease.  The Company will meet all MMS requirements.  But the Company has obtained the first-mover advantage and expects it will not have to compete for the sites because that is not required by the FERC as long as wave power is produced.  The conflict between FERC and MMS can be resolved if MMS will drop the one really problematic part of its regulation - requiring competitive bidding for sites.  That makes sense for oil and gas production which uses up a public resource, but not for generating renewable power from waves and wind. The Company is looking forward to close collaboration with all stakeholders and regulatory authorities.