City of Centralia, Wash. v. F.E.R.C., 85-7082

Citation799 F.2d 475
Decision Date04 September 1986
Docket NumberNo. 85-7082,85-7082
PartiesCITY OF CENTRALIA, WASHINGTON, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, and Pacific Power and Light Company, Respondent-Intervenor.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Frank W. Frisk, Jr., Washington, D.C., for petitioner.

John N. Estes, III, F.E.R.C., Washington, D.C., for respondent.

Hugh Smith, Stoel, Rives & Boley, Portland, Or., for respondent-intervenor.

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

Before REINHARDT and BEEZER, Circuit Judges, and COYLE, * District Judge.

REINHARDT, Circuit Judge:

In this challenge to the Federal Energy Regulatory Commission's disposition of two competing applications to develop a hydroelectric project at a dam, we review the policies developed by the Commission to reconcile its differing mandates under the Federal Power Act and the Public Utility Regulatory Policies Act of 1978, as amended by the Energy Security Act of 1980. We affirm those policies under the two acts and affirm its disposition of the competing applications.

A. Statutory Framework

Congress enacted the Federal Power Act (FPA) to promote the " 'comprehensive development of water power.' " Chemehuevi Tribe of Indians v. FPC, 420 U.S. 395, 405, 95 S.Ct. 1066, 1073, 43 L.Ed.2d 279 (1975) (quoting FPC v. Union Electric Co., 381 U.S. 90, 101, 85 S.Ct. 1253, 1259, 14 L.Ed.2d 239 (1965)). In furtherance of that objective and to assure that such development serve the public interest, Congress established a licensing scheme, administered by the Commission, in Subchapter I of the FPA, 16 U.S.C. Secs. 791a-823a (1982), for the construction, operation, and maintenance of hydroelectric power projects. Northern Colorado Water Conservancy District v. FERC, 730 F.2d 1509, 1512 (D.C.Cir.1984). The Commission must find that the licensee's project will be "best adapted to a comprehensive plan for ... the improvement and utilization of water-power development, and for other beneficial public uses...." 16 U.S.C. Sec. 803(a); see also Udall v. FPC, 387 U.S. 428, 450, 87 S.Ct. 1712, 1724, 18 L.Ed.2d 869 (1967).

The Commission may issue preliminary permits to competing license applicants. 16 U.S.C. Sec. 797(f). A permit maintains the permittee's priority of application against potential competitors for the project site while the permitee compiles the data required for licensing. 16 U.S.C. Sec. 798. A permit guarantees priority of consideration to the permittee for up to three years. 16 U.S.C. Sec. 798. A permit is not a prerequisite to studying a site or to submitting a license application.

Prompted by the energy crisis of the 1970's, Congress enacted the Public Utility Regulatory Policies Act of 1978 (PURPA) in order to expedite the development of certain hydroelectric power projects. Idaho Power Co. v. FERC, 766 F.2d 1348, 1350 (9th Cir.1985); H.R.Rep. No. 543, 95th Cong., 2d Sess. 22, 49, 304, reprinted in 1978 U.S.Code Cong. & Ad.News 7659, 7673, 7691, 7716, 7796. PURPA authorizes the Commission to exempt from the licensing procedures of the FPA projects with a generating capacity of up to fifteen megawatts, but only if those projects will utilize solely the hydroelectric potential of existing water conduits not operated primarily for the production of power. 16 U.S.C. Sec. 823a(a), (b).

In the Energy Security Act of 1980, 16 U.S.C. Secs. 2705, 2708 (1982), Congress amended PURPA to expand the Commission's exemption authority to include projects of up to five megawatts that would utilize the hydroelectric potential at an existing dam; however, to receive an exemption under the 1980 amendments, the project's completion must not require any construction or enlargement of the existing dam's impoundment structures, 16 U.S.C. Sec. 2708(a)(6). Neither PURPA as originally enacted nor the Energy Security Act amendments requires that an exemption proposal be "best adapted" to the site.

B. Regulatory Framework
1. The Standard for Exemptions

Under its Energy Security Act regulations, the Commission may grant exemptions for small hydroelectric projects if it finds the exemption to be consistent with the public interest. 18 C.F.R. Sec. 4.105(b)(5) (1984). If the Commission does not act on an application for exemption within 120 days after notifying the applicant that its application has been accepted for filing, the exemption will be deemed consistent with the public interest and granted. 18 C.F.R. Sec. 4.105(b)(4) (1984); International Paper Co. v. FERC, 737 F.2d 1159, 1162 (D.C.Cir.1984).

The Commission has interpreted its public interest standard to require that an exemption proposal "adequately utilize[ ] the water resources of the site, taking into account other considerations such as environmental constraints." Frontier Technology, Inc., 22 FERC p 61,267, at 61,479 (1983). Under the Commission's informal test for adequate utilization, a project adequately utilizes the water resources of a site if it leaves the available water unused no more than 25% of the time. Western Power, Inc., 23 FERC p 61,343, at 61,745 n. 9 (1983). If an exemption proposal does not meet this guideline, the applicant must demonstrate why a lesser use is nevertheless appropriate. Id. Otherwise, the Commission will conclude that the exemption is not in the public interest and will not grant it. Id.

2. The Property Rights Requirement for Exemptions

The Commission requires that exemption applicants own or have an option to purchase the property rights necessary to develop their project. 18 C.F.R. Sec. 4.103(b)(2)(ii) (1984). Unlike license holders, exemption holders have no power of eminent domain. Minnesota Department of Natural Resources, 31 FERC p 61,223, at 61,447 (1985). The Commission's ownership requirement avoids delays from property rights disputes, thereby effectuating Congress' directive to expedite power development. See Preamble to Order No. 106, FERC Statutes & Regulations, Regulations Preambles 1977-81 p 30,204 at p. 31,366 (1980); 45 Fed.Reg. 76115, 76119 (Nov. 18, 1980); Fluid Energy Systems, Inc., 19 FERC p 61,040, at 61,061 (1982). Exemption applications must include an appendix with documentary evidence of the requisite property rights. 18 C.F.R. Sec. 4.107(a) (1984).

3. Competition Between Exemptions and Permits

The Commission has established a set of procedures through rulemaking and adjudication for disposing of mutually exclusive permit and exemption applications. Under the regulations in effect during the challenged proceedings, when an exemption applicant and a permit applicant compete for the same site, "the Commission will favor the application for exemption." 18 C.F.R. Sec. 4.104(e)(1) (1984). The Commission applies this preference for exemption applications in a two-step analysis. The Commission determines first "whether the permit applicant has shown through substantiating information that its proposal is superior to that of the exemption applicant's plans; and [second,] whether the exemption application adequately utilizes the water resources of the site, taking into account other considerations such as environmental constraints." Frontier Technology Inc., 22 FERC, at 61,479; see also Western Power, Inc., 23 FERC, at 61,745. 1 If, having initially rejected the permit applicant for failure to substantiate the superiority of its proposal, the Commission then denies the exemption application because it would not adequately utilize the site, the Commission will reconsider the permit proposal. 2 Frontier Technology Inc., 22 FERC, at 61,479.

C. Proceedings Before the Commission

PP & L is a co-owner with other utilities of the Centralia Steam Electric Plant located at the Skookumchuck Dam in Washington state. The dam was constructed as a single-purpose water supply project to provide water for the electric plant and to mitigate the impact of the plant on fisheries downstream. An opening in the middle of the dam wall (the "outlet works") releases water for both the plant and the fisheries. The dam operates within certain environmental parameters: PP&L has an agreement with the Washington Departments of Fisheries and Game to regulate the release of water downstream and to maintain the reservoir level so as not to disrupt fish migration. Additionally, the state operates salmon rearing ponds downstream from the dam which are dependent upon the close regulation of the temperature of the water released from the dam.

In 1981, PP & L filed an exemption application on its own behalf and on behalf of its co-owners for a 980-kilowatt project at the dam. PP & L proposed using the water from the existing outlet works for its generating facility. The relatively small size of the outlet limits the amount of water available for power production. Several months later the City of Centralia filed an application for a preliminary permit to study the "technical, environmental, economic and financial feasibility" of a 5200-kilowatt project at the dam. Centralia proposed to supplement the existing outlet works by installing larger outlet works elsewhere on the dam.

In its pleadings, Centralia claimed that PP & L's proposed project would underutilize the water resources of the dam. In response, PP & L claimed that a 5200-kilowatt project could be operated at no more than a third of its capacity, due to the physical and environmental constraints of the site. According to PP & L, a power facility larger than the one it proposed would endanger the fish rearing facilities downstream from the dam. PP & L deemed the construction of new outlet works "impractical," since construction would have to proceed underwater yet not disrupt the operation of the dam.

The Commission Deputy Director acting pursuant to authority delegated to him by the Commission, see 18 C.F.R. Sec. 375.308 (1985), granted PP & L's exemption application and denied Centralia's permit application....

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  • State of Cal., ex rel. State Water Resources Bd. v. F.E.R.C., 87-7538
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
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