The legal and institutional obstacles to the development of small-scale hydroelectric energy at the state level in New Jersey are described. The Federal government also exercises extensive regulatory authority in the area. The dual regulatory system from the standpoint of the appropriate legal doctrine, the law of pre-emption, application of the law to the case of hydroelectric development, and an inquiry into the practical use of the doctrine by the FERC is discussed. New Jersey follows the riparian theory of water law. Following an extensive discussion of the New Jersey water law, New Jersey regulatory law and financial considerations regarding hydroelectric power development are discussed.