Albany Engineering Corp. v. F.E.R.C.

• Decision Date: 28 November 2008
• Docket Number: No. 07-1162.,07-1162.
• Citation: 548 F.3d 1071
• Parties: ALBANY ENGINEERING CORPORATION, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Hudson River-Black River Regulating District, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

548 F.3d 1071

ALBANY ENGINEERING CORPORATION, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Hudson River-Black River Regulating District, Intervenor.

No. 07-1162.

United States Court of Appeals, District of Columbia Circuit.

Argued September 12, 2008.

Decided November 28, 2008.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.

William S. Huang argued the cause for petitioner. With him on the briefs were Frances E. Francis and Rebecca Baldwin.

Lona T. Perry, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were Cynthia A. Marlette, General Counsel, Robert H. Solomon, Solicitor, and Judith A. Albert, Senior Attorney.

Michael N. McCarty argued the cause for intervenor. With him on the brief were John H. Conway and Christian D. McMurray.

Before: BROWN and KAVANAUGH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

Concurring opinion filed by Circuit Judge BROWN.

WILLIAMS, Senior Circuit Judge:

An upstream dam typically will render the downstream flow more even and predictable, enabling downstream hydropower plants to operate at a higher capacity. Farmington River Power Co. v. FERC, 103 F.3d 1002, 1004 (D.C.Cir.1997); see also 18 C.F.R. § 11.10(a)(2). To enable the upstream firms to recoup part of the cost of conferring these "headwater benefits," Congress in § 10(f) of the Federal Power Act ("FPA"), 16 U.S.C. § 803(f) (2006), directed the Federal Energy Regulatory Commission (technically the direction was to its predecessor, but the change is of no moment here) to require its downstream licensees to reimburse upstream operators "for such part of the annual charges for interest, maintenance, and depreciation thereon as the Commission may deem equitable." Id. (emphases added). This case presents the question whether § 10(f) preempts state law over compensation for headwater benefits, or whether, alternatively, it allows states to mandate compensation for elements of cost other than "interest, maintenance, and depreciation."

FERC held that § 10(f) preempted state law only insofar as the state authorized charges for interest, maintenance, and depreciation. Fourth Branch Associates (Mechanicville) v. Hudson River-Black River Regulating District, 117 FERC ¶ 61,321 (2006) ("Order"). Thus it left New York (the state in question, and of course by extension all other states) free to authorize upstream firms to assess FERC licensees for all headwater improvement costs not fitting into the "interest, maintenance, and depreciation" categories.

Our review of the text and legislative history of the FPA generally and § 10(f) specifically convinces us that § 10(f) must, in order to accomplish the full objectives of Congress, be understood to preempt all state orders of assessment for headwater benefits. See Louisiana Pub. Serv. Comm'n v. F.C.C., 476 U.S. 355, 368-69, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986) ("Pre-emption occurs ... where the state law stands as an obstacle to the accomplishment and execution of the full objectives of Congress."); Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372-73, 120 S.Ct. 2288, 147 L.Ed.2d 352 (2000); Geier v. American Honda Motor Co., Inc., 529 U.S. 861, 881, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000); Armstrong v. Accrediting Council for Continuing Educ. and Training, Inc., 168 F.3d 1362, 1369 (D.C.Cir.1999). Thus we find that FERC's interpretation of § 10(f) was unreasonable, and we remand the case to FERC to consider appropriate remedies consistent with our holding.

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The Hudson River-Black River Regulating District (the "District") is a New York state agency authorized to operate the Conklingville Dam and its related impoundment, Great Sacandaga Lake, on the Sacandaga River, a tributary of the Hudson. Fourth Branch Associates (Mechanicville) v. Hudson River-Black River Regulating District, 119 FERC ¶ 61,141, PP 3-10 (2007) ("Order on Rehearing"). In 1992, FERC determined that the District must obtain licenses for both the Conklingville Dam and Great Sacandaga Lake because the E.J. West Project, a FERC licensee located on the Conklingville Dam, used the District's facilities to generate power. FERC issued an original license to the District in September 2002. Id.

Albany Engineering Corporation is the successor to Fourth Branch Associates and as such is the FERC licensee for the Mechanicville Hydroelectric Project, located downstream of Great Sacandaga Lake. Id. New York law authorizes the District to recover its capital, maintenance, and operating costs through assessments against public corporations and real estate parcels benefited by the construction of dams and reservoirs. N.Y. Envtl. Conserv. Law § 15-2121. Under this authority the District has been levying annual assessments against downstream FERC licensees such as Albany for decades. Order, 117 FERC ¶ 61,321 at P 11.

On July 25, 2006, Albany filed a formal complaint with FERC against the District, alleging that since 2002 the District had been improperly assessing annual charges for headwater benefits. Id. at P 1. Albany argued that § 10(f) vests FERC with the exclusive jurisdiction to determine the level of reimbursement for costs associated with such benefits. Section 10(f) states:

That whenever any licensee hereunder is directly benefited by the construction work of another licensee, a permittee, or of the United States of a storage reservoir or other headwater improvement, the Commission shall require as a condition of the license that the licensee so benefited shall reimburse the owner of such reservoir or other improvements for such part of the annual charges for interest, maintenance, and depreciation thereon as the Commission may deem equitable. The proportion of such charges to be paid by any licensee shall be determined by the Commission. The licensees or permittees affected shall pay to the United States the cost of making such determination as fixed by the Commission.

16 U.S.C. § 803(f) (emphases added).

FERC found that "there is no question" that the District had charged Albany for headwater benefits. Order, 117 FERC ¶ 61,321 at P 38. Insofar as New York's statutory scheme covered charges for interest, maintenance, and depreciation, it found the scheme preempted by § 10(f). Id. at P 44. So far as other costs were concerned, however, FERC rejected Albany's preemption claim. Id. at PP 49-50. In reaching this conclusion, it characterized § 10(f) as manifesting a single federal interest — that of "ensuring the participation of downstream project owners in the financial burden incident to the construction of power and storage facilities of a river basin." Id. at P 49. FERC also found that it had no authority to require the District to rescind assessments made under color of state law or to order refunds of amounts already paid. Id. at PP 55-56.

Albany sought rehearing, which FERC denied. Albany now appeals to this court, objecting to all the above rulings other than FERC's finding that § 10(f) did preempt state-law mandates for reimbursement of interest, maintenance, and depreciation. (The District files no cross appeal on that issue.)

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This court generally reviews an agency's interpretations of the statutes it administers under the deferential standard set forth in Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). But a recent dissenting Supreme Court opinion has called into question whether Chevron deference is appropriate when addressing questions of preemption. In Watters v. Wachovia Bank, 550 U.S. 1, 127 S.Ct. 1559, 1584, 167 L.Ed.2d 389 (2007) (Stevens, J., dissenting) (joined by Roberts, C.J., and Scalia, J.), the dissent argued that "[u]nlike Congress, administrative agencies are clearly not designed to represent the interests of the States...." As a result, the dissent reasoned that "when an agency purports to decide the scope of federal preemption, a healthy respect for state sovereignty calls for something less than Chevron deference." Id.

We have in the past rejected the argument that "wherever a federal agency's exercise of authority will preempt state power, Chevron deference is inappropriate." Oklahoma Natural Gas Co. v. FERC, 28 F.3d 1281, 1284 (D.C.Cir.1994). We reasoned that, "with the exception of negative exercises of federal authority, all agency legal interpretations have some preemptive effect...." Id. Hence, we rejected the application of a "non-deference principle" because it would "have to be applied almost universally, overturning Chevron." Id. The context, to be sure, involved an issue — the scope of the agency's jurisdiction — that only implicitly was of preemptive effect, not, as here, an express issue of whether undisputed FERC authority has preemptive effect. Oklahoma Natural Gas Company also of course left open the question of whether or not an agency decision that avoids preemption of a state law — as is the case with FERC's decision here — is still deserving of Chevron deference.

Ultimately, this case doesn't require us to resolve the applicability of Chevron to agency preemption decisions, as "we would vacate [FERC's] interpretation even under the more deferential Chevron standard." Port Authority of New York and New Jersey v. Dep't of Transp., 479 F.3d 21, 28 (D.C.Cir.2007). In short, we will assume in favor of FERC that its conclusion is entitled to Chevron deference.

Another framing issue is the familiar presumption against preemption. See, e.g., Geier v. American Honda Motor Co., Inc., 166 F.3d 1236, 1237 (D.C.Cir.1999), aff'd, 529 U.S. 861, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000). But this presumption may be overcome if, as we hold today, the court finds that the preemptive purpose of Congress was "clear and manifest." Geier, 166 F.3d at 1237 (citing Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996)).

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We start with FERC co...