Thomas Hodgson & Sons, Inc. v. F.E.R.C.

• Decision Date: 08 December 1994
• Docket Number: Nos. 93-1503,94-1752,s. 93-1503
• Citation: 49 F.3d 822
• Parties: THOMAS HODGSON & SONS, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 822

49 F.3d 822

THOMAS HODGSON & SONS, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 93-1503, 94-1752.

United States Court of Appeals First Circuit.

Heard Dec. 8, 1994

Decided March 13, 1995.

Howard M. Moffett, with whom Orr & Reno, P.A., Concord, NH, was on brief, for petitioner.

Joel M. Cockrell, Atty., with whom Susan Tomasky, General Counsel, and Jerome M. Feit, Sol., F.E.R.C., Washington, DC, were on brief, for respondent.

Before TORRUELLA, Chief Judge, BOWNES, Senior Circuit Judge, and CYR, Circuit Judge.

BOWNES, Senior Circuit Judge.

Petitioner, Thomas Hodgson and Sons, Inc. (Hodgson), appeals from a second order by respondent, the Federal Energy Regulatory Commission (FERC), denying Hodgson a rehearing, and from FERC's finding that the operation of Hodgson's China Mill hydroelectric plant (China Mill) came under the licensing jurisdiction of Section 23(b) of the Federal Power Act (FPA)2 ¹ pursuant to FERC's "post-1935 construction" rule. FERC claims that for purposes of Section 23(b), shutting down a hydroelectric plant for twelve years after 1935 and powering it back up to its former specifications constitutes post-1935 construction without more. Hodgson, on the other hand, claims that operating China Mill after maintaining it over the years until its use became profitable, does not amount to such construction, and that even if it does, FERC's terms in the license were unreasonable. After reviewing the statute and pertinent case law, we conclude that FERC erred in its determination that it had jurisdiction over China Mill.

I. BACKGROUND

The China Mill dam was constructed in the late 1860's as a grist mill in Merrimack County, New Hampshire, on the Suncook River, which is not navigable. The site included the dam, diversion canal, penstocks and turbine which were installed prior to 1900. China Mill was converted from hydromechanical to hydroelectric power before 1914. The petitioner has owned China Mill since 1970.

Under a succession of owners, China Mill continuously produced electricity until 1969 in its present configuration. Power generation stopped for approximately twelve years starting in 1969. The parties dispute the nature of the stoppage. Petitioner alleges that a natural disaster initially led to the stoppage. Respondent asserts that the natural disaster was only a log that got caught in the project's machinery and that the true reason for the stoppage was purely economic. During the period of non-generation, the production of power was apparently uneconomical for China Mill. The cost of purchasing electricity was low, and no market existed for selling excess power. For reasons to be stated, the exact cause of the hiatus in the production of electricity does not affect FERC's jurisdiction.

With the federal enactment of the Public Utility Regulatory Policies Act (PURPA) ² and New Hampshire's passage of the Limited Electrical Energy Producers Act (LEEPA), ³ Hodgson decided that it would be again profitable to produce power at China Mill. In 1981 Hodgson started to generate power at China Mill and sold power to the Public Service Company of New Hampshire. In September of 1989 FERC directed Hodgson to show why China Mill should not be licensed under the FPA. At first, Hodgson did not object to obtaining a license and in fact voluntarily applied for one in March, 1990.

Hodgson's spirit of cooperation was short lived. In July, 1992, FERC issued Hodgson a license with conditions that included, inter alia, a minimum water flow of fifty cubic feet per second (cfs), an historic resource management plan, and aesthetic improvements to the mill building. Thomas Hodgson and Sons, Inc., 60 F.E.R.C. p 62,071 (1992) (Hodgson I). Hodgson objected to these conditions, especially challenging the fifty cfs requirement which it claims would result in an annual loss of over $68,000.

Unhappy with the terms of its license, Hodgson withdrew its application ⁴ and sought a rehearing contesting both FERC's jurisdiction and the terms of the license. Thomas Hodgson & Sons, Inc., 63 F.E.R.C. p 61,068, 1993 WL 258938 (1993) (Hodgson II). Among its reasons for denying the rehearing, FERC stated that the generating capacity of China Mill had been increased, but that even if the capacity remained the same, the project had been abandoned and, therefore, the renewed operation constituted post-1935 construction. Id. at 61,293. Its determinative findings were as follows:

Hodgson does not dispute that the Suncook River, a tributary of the Merrimack River, is a Commerce Clause water, or that the project affects interstate commerce due to its interconnection with the interstate electric grid. However, Hodgson disputes that the development has undergone post-1935 construction.

As noted above, the project's generating capacity from 1934 through 1939 was 1,300 kW, but some time between 1939 and 1942 the generating capacity was increased to 1,500 kW. The installation after 1935 of additional generating capacity constitutes post-1935 construction.

Even if the installed capacity of the project were unchanged after 1935, the project would still be required to be licensed. Ordinary maintenance, repair, and reconstruction activity with respect to a project constructed before 1935 does not constitute post-1935 construction for purposes of Section 23(b)(1). However, the pre-1935 construction exception protects only operating projects. Where a project has been abandoned, there is no basis for a claim that the operator retains operating rights, even if the operator, after 1935, restores the project to a condition identical to its pre-abandonment status. As noted above, the China Mill Project was abandoned in the 1960s and was not operated again until 1981. Consequently, the renewed operation constituted post-1935 construction. In light of all of the above, we affirm the Director's finding that the project is required to be licensed.

Id. (emphasis added; footnotes omitted). A second petition for rehearing followed.

During this time, Hodgson, asserting its right to decline the license, petitioned this court for a stay and review of the terms of the license. We determined that Hodgson did not accept the license but declined to stay or further review the order until FERC considered Hodgson's second petition for rehearing. Hodgson v. F.E.R.C., No. 93-1503 (1st Cir. May 14, 1993) (order denying stay of license terms).

In the second petition for rehearing, Thomas Hodgson & Sons, Inc., 67 F.E.R.C. p 61,202 (1994) (Hodgson III), FERC again addressed the challenge to its jurisdiction. We set forth FERC's pertinent findings:

Construction activity in the maintenance and repair of existing continuously operating projects does not constitute post-1935 construction within the meaning of the FPA, so long as the construction activity does not result in such things as the enlargement of generating capacity or of the physical plant. However, construction activity such as the construction or enlargement of a dam or other project works, including the enlargement of generating capacity, constitutes post-1935 construction.

....

... [T]he installation of a new generator at the China Mill Project, of itself, did not result in an increase in generating capacity at the project.

Id. at 61, 632-33 (footnotes omitted).

However, if a hydroelectric project has been taken out of service for a number of years, then the restoration of generation at the project is the equivalent of post-1935 construction, even if the project has not been enlarged, and irrespective of how much or little reconstruction or refurbishment was involved.

Id. at 61,633 (footnote omitted).

In determining whether abandonment has occurred for purposes of section 23(b)(1), the question is not ... whether the site has been literally abandoned and left to fall into a state of disrepair. Nor is the amount of repair or reconstruction work needed to put the project back into operation relevant. Rather, abandonment for FPA purposes means that the hydroelectric generating function of the project has been abandoned.

Id. (footnote omitted).

The new business here is Hodgson's commencement of hydroelectric generation in 1981. We therefore affirm our finding that the China Mill Project is required to be licensed pursuant to section 23(b)(1) of the FPA.

Id. at 61,634 (footnote omitted). This appeal followed.

We have jurisdiction pursuant to 16 U.S.C. Sec. 825l (b) which allows a party "aggrieved by an order issued by the Commission ... [to] obtain a review of such order in the United States court of appeals for any circuit wherein the licensee ... is located." In its petition, Hodgson challenges FERC's jurisdiction and, in the alternative, asks us to review the propriety of the requirements of the license which it claims are unreasonable. Finding that FERC did not have jurisdiction, we do not reach the merits of the license requirements.

II. STANDARD OF REVIEW

We review FERC's findings of fact for "substantial evidence," and if so supported, such findings are conclusive. Northeast Utils. Serv. Co. v. F.E.R.C., 993 F.2d 937, 944 (1st Cir.1993). On the other hand, "[p]ure legal errors require no deference to agency expertise, and are reviewed de novo." Id.; see also Boston Edison Co. v. F.E.R.C., 856 F.2d 361, 363 (1st Cir.1988).

FERC asserts that this court owes deference to its finding of jurisdiction under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Chevron held:

When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency's policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail.

Id. at 866, 104 S.Ct. at 2793. FERC misplaces its reliance on Chevron for two reasons. First, in Chevron, the Supreme Court addressed the issue of whether the ...