FOR most of its 271 years, an old lumber mill along the Rahway River in Cranford got its power from water spilling over the falls near its banks. The building is now used for office space, its old-fashioned waterwheel long ago displaced by electricity generated from a modern fossil fuel-burning plant. But if the mill's current owner, George T. McDonough, a Cranford businessman, has his way, that arrangement might soon change. A local start-up, HydroCoil Power Inc., has approached Mr. McDonough about installing a new "microhydro' technology at the mill that can convert the kinetic energy of fast-flowing water into electricity