In Fall River Electric Cooperative v. Federal Energy Regulatory Commission, (— F.3d —, 2008 WL 4149659, C.A.9, Sept. 10, 2008), a United States Court of Appeals considered whether it would review two orders by the Federal Energy Regulatory Commission (“FERC”) that dismissed the license application and request for a rehearing by an energy company. The Court of Appeals concluded that FERC properly dismissed the license application and it need not rehear the matter.
The Missouri-Madison Hydroelectric Project (“Project”) develops hydropower along the Madison and Missouri Rivers in southwestern Montana. The Project is licensed to Pennsylvania Power and Light Montana, LLC (“PPL”). The Project consists of nine hydroelectric “developments,” eight of which have power generating facilities. The Hebgen Development, similar to a dam, is the only development without power generating facilities, and is located up stream from the other eight developments.
In 2001, FERC granted Fall River Electric Cooperative, Inc. (“Fall River”) a three year preliminary permit to conduct investigations into the feasibility of making the Hebgen Development a power generating facility. PPL did not oppose the issuance of the preliminary permit and cooperated with Fall River during its investigations. In May of 2004, Fall River filed a Final License Application with FERC which included its proposed modifications to the Hebgen Development: constructing a powerhouse, modifying the intake tower and conduit, and installing a penstock.
In July 2004, FERC informed Fall River that its license application may conflict with the Federal Power Act (“FPA”) because FERC could not approve any development proposal that would materially alter or modify the Project without PPL’s approval. However, Fall River had been in contact and negotiating with PPL over Fall River’s proposal. Accordingly, FERC informed Fall River that it would “continue to process” Fall River’s application until the negotiations reached a conclusion.
In May 2005, PPL decided to terminate negotiations with Fall River, informing both Fall River and FERC by letter. Shortly thereafter, FERC dismissed Fall River’s license application and denied its request for a rehearing. FERC dismissed Fall River’s application because Fall River’s proposal “would substantially alter PPL’s licensed project works without PPL’s consent” in violation of the FPA. FERC also found Fall River’s proposed changes to the Hebgen Development to be significant and would require “not insubstantial” coordination obligations between Fall River and PPL. FERC concluded that all of the changes required under Fall River’s proposal would “substantially alter the existing license” and therefore require PPL’s consent. FERC also concluded that the issuance of the preliminary permit had no bearing on FERC’s decision to dismiss Fall River’s Final License Application. Fall River petitioned for review.
The Court of Appeals began with an examination of the relevant provisions of the FPA. The FPA provides “that licenses may be altered . . . only upon mutual agreement between the licensee and the [FERC].” Though the FPA does not define “altered,” both the FERC and Fall River acknowledge that a proposed project must “substantially alter” an existing license. Consequently, FERC may authorize minimally invasive, “small encroachments on a license.” According to FERC precedent, what qualifies as an alteration is a factual inquiry to be determined on a case by case basis.
Fall River argued that its proposal would not substantially or materially alter PPL’s licensed project, and therefore FERC’s stated reasons for denying Fall River’s application were unfounded. The court reviewed the extensive findings made by FERC in connection with Fall River’s application. Among the physical changes, Fall River’s proposal altered the Hebgen Development by constructing a powerhouse, modifying the intake tower and conduit, and installing a penstock. In addition, Fall River’s proposal required substantial coordination obligations between Fall River and PPL. The Court was satisfied with FERC’s conclusion that the cumulative effect of the physical alterations and requisite coordinated operational obligations under Fall River’s proposal amounted to the “substantial alteration” of PPL’s license.
Fall River also argued that FERC’s orders were inconsistent with its own precedent and were therefore not entitled to deference by the Court of Appeals. Fall Rivers attacked six different cases used by FERC in reaching its ultimate decision to deny Fall River’s license application. In three of the cases FERC found a substantial alteration and denied a license application, and in the other three FERC did not find a substantial alteration and granted a license application. Fall River attempted to distinguish the factual circumstances of its own proposal from the cases where a substantial alteration was found, while at the same time highlighting the similarities between its proposal and the cases where a substantial alteration was not found and a license application was granted. The Court of Appeals was not persuaded by Fall River’s efforts. Instead, the court noted that FERC precedent provides that FERC’s finding of substantial alteration is made on a case by case basis, and that the cited precedent “served as guideposts in FERC’s evaluation and analysis of Fall River’s proposal.”
Next, Fall River argued that FERC was inconsistent with the application of its regulations because FERC granted Fall River’s preliminary permit, but denied its Final License Application despite the fact that both applications were “substantially identical.” The Court of Appeals agreed that the standard for accepting preliminary applications and final applications were the same – – that is a preliminary permit should be denied if the proposal would alter on an already existing license. However, the court noted that FERC precedent provides that “where it is not clear at the permit stage that the proposed development would involve an impermissible alteration of an existing license, the [FERC] will issue the permit.” FERC explained that it issued the preliminary permit to Fall River because Fall River and PPL were in negotiations over Fall River’s proposal and if an agreement was reached, a final permit could be issued. However, once PPL indicated to FERC that negotiations had failed and would not continue, FERC dismissed Fall River’s application. The court concluded that FERC had acted in accordance with FERC regulations on the matter of issuing the preliminary permit, and the issuance of the preliminary permit did not compel FERC to grant Fall River’s Final License Application.
Finally, Fall River argued that FERC did not adequately consider whether PPL had impliedly consented to Fall River’s proposal by not “intervening in, protesting, or commenting on either the Preliminary Permit Application or the Final License Application.” The court quickly dismissed this argument because there was not authority, statutory or otherwise, to support Fall River’s contention.
In conclusion, the Court of Appeals found that there was substantial evidence to support FERC’s conclusions that PPL’s license would be substantially altered by Fall River’s proposal, and therefore FERC’s orders were consistent with the FPA. Fall River’s petition for review was denied.