City of Oswego, N.Y. v. F.E.R.C.

• Decision Date: 18 October 1996
• Docket Number: No. 95-1539,95-1539
• Citation: 97 F.3d 1490
• Parties: , Util. L. Rep. P 14,127 CITY OF OSWEGO, NEW YORK, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1490

97 F.3d 1490

321 U.S.App.D.C. 156, Util. L. Rep. P 14,127

CITY OF OSWEGO, NEW YORK, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

No. 95-1539.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 12, 1996.

Decided Oct. 18, 1996.

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

Carolyn Elefant, argued the cause, for petitioner, with whom Paul V. Nolan, Washington, DC, was on the briefs.

Eric L. Christensen, Attorney, Federal Energy Regulatory Commission, argued the cause, for respondent, with whom Jerome M. Feit, Solicitor, Washington, DC, and Joseph S. Davies, Deputy Solicitor, were on the brief. Edward S. Geldermann, Attorney, Bethesda, MD, entered an appearance.

Before: RANDOLPH, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

The City of Oswego, New York, petitions for review of three orders by the Federal Energy Regulatory Commission ("FERC") relating to the High Dam project, a hydroelectric power plant located on the Oswego River. In the orders, FERC issued the City a license to operate the project, but imposed retroactive annual fees for a period of unauthorized operation from 1949 to 1991 and denied the City's application for an exemption from the fees and for a waiver of any penalty for late payment.

The City challenges FERC's orders on three grounds. First, it contends that FERC lacked authority to require the City to pay retroactive annual fees for a period when the City did not operate the project, but merely leased the project facilities to Niagara Mohawk Power Company ("Niagara Mohawk") and its predecessors, which operated the project and sold the power. Second, the City contends that, even if the retroactive fees were properly imposed, it is entitled to a statutory exemption from licensing fees under the Federal Power Act ("FPA"), 16 U.S.C. §§ 791a-828c, for municipalities that sell power to the public without profit. Third, the City contends that it was entitled to a waiver of any late-payment penalty because it demonstrated "good cause" for late payment when it advised FERC that the local governing body with authority to approve payment was not scheduled to meet until after the date when the payment was due.

We do not address the first of these contentions, because we conclude that the City's failure to seek rehearing of the order imposing the retroactive fees bars it from challenging that order now. As to the denial of the "without profit" exemption, we conclude that FERC's interpretation of the term "profits" to include the rental payments the City received under the lease was a permissible interpretation of the statute. Finally, we conclude that FERC's response to the City's claim that the City Council's schedule would prevent timely payment was non-responsive, and therefore arbitrary. Accordingly, we deny the petition except with regard to the imposition of the late payment penalty; on that issue, we remand the case to FERC for further consideration.

I.

Section 23(b) of the FPA, 16 U.S.C. § 817, makes it unlawful for any person, State, or municipality to "construct, operate, or maintain" a hydroelectric power project that is within FERC's jurisdiction without a valid license from FERC or a federal permit issued prior to 1920. A project falls within FERC's jurisdiction if it is located on a navigable water of the United States or public land or reservations of the United States, or if it uses surplus water from a government dam. Id. In addition, § 23(b) provides that any entity wishing to construct a new hydroelectric project along a non-navigable water of the United States over which Congress has Commerce Clause jurisdiction must file a declaration of intent with FERC. If FERC determines that interstate commerce would be affected by the proposed project, it falls within the agency's jurisdiction, and the entity may not construct, operate, or maintain the project without a license from FERC. This last category, however, applies only to projects constructed after the effective date of the FPA, August 26, 1935.

The High Dam project is located on the Oswego River in Oswego County, New York. The City of Oswego has owned the real property on which the project is situated at least since the 1920s, and leased it to Niagara Mohawk and its predecessors in interest from at least 1928 until 1993. Three hydroelectric generators were installed at the site in 1928, and a fourth was constructed in 1949. Neither the City nor Niagara Mohawk obtained a license for the project prior to 1981.

In 1981, Long Lake Energy Corporation, a competitor of Niagara Mohawk, applied to FERC for a license for the High Dam project and several others. Thereafter, in 1982, the City and Niagara Mohawk filed a competing joint license application for the same projects. FERC instructed the City and Niagara Mohawk to file separate applications for each of the projects, although it did not prohibit them from filing a joint application for the High Dam project. The City then filed a separate application for a license for the High Dam project. Niagara Mohawk did not file an application. As a municipality, the City was entitled to a bidding preference under § 7(a) of the FPA, 16 U.S.C. § 800(a). ¹

In 1991, FERC found that the High Dam project fell within its jurisdiction. City of Oswego, 57 FERC p 62,100 (1991). It noted that the Oswego River was found to be a navigable water in 1968, and that, in any case, a part of the High Dam project was constructed after 1935 and affected interstate commerce. Id. at 63,156. On November 22, 1991, FERC issued the Licensing Order, granting the City permission to operate and maintain the High Dam Project. City of Oswego, 57 FERC p 62,139 (1991), reh'g denied, 67 FERC p 61,150 (1994), reconsideration denied, 72 FERC p 61,279 (1995). The Licensing Order contained two significant conditions. First, it required the City to modify its lease with Niagara Mohawk so that the City would have control over the project facilities. ² Id. at 63,208-11. Second, the Licensing Order required the City to pay a fee equal to the total annual fees that would have been paid between 1949 and 1991, had the project been properly licensed in that period. Id. at 63,211. The Licensing Order stated that it "constitute[d] final agency action," and that requests for rehearing by FERC were to be filed within thirty days, pursuant to 18 C.F.R. § 385.713. Id. at 63,220.

The City did not seek rehearing by FERC of the Licensing Order. On June 18, 1992, FERC sent the City a bill for the annual fees in the amount of $65,101.99, payable by August 2, 1992. On August 3, 1992, the City applied to FERC for an exemption from the annual charges for the period 1949 to 1991, pursuant to § 10(e) of the FPA, 16 U.S.C. § 803(e), and 18 C.F.R. § 11.6. Those sections provide, in relevant part, that a state or municipal licensee is exempt from annual charges to the extent that it sells the power generated by a project to the public without profit. The City also sought a waiver of any penalties for late payment of the fee, pursuant to the "good cause" provision in 18 C.F.R. § 11.21.

On September 16, 1992, FERC denied the request for a "without profit" exemption as to the charges for 1991, and denied a waiver of the late payment penalty. However, it granted the City an additional thirty days to submit information relating to its application for an exemption for the charges for prior years. Although the City apparently provided some additional information, its response is not part of the record before the court. FERC subsequently denied the request. The City paid $65,101.99 under protest on September 27, 1992, and FERC assessed a penalty for late payment. After unsuccessfully seeking rehearing and reconsideration of FERC's orders, City of Oswego, 67 FERC p 61,150 (1994), reconsideration denied, 72 FERC p 61,279 (1995), the City filed this petition.

II.

The City contends that FERC lacked authority to impose the annual fees retroactively from 1949 to 1991 because the City did not "construct, operate, or maintain" the project during that time period. See16 U.S.C. § 817. It maintains that FERC's order went beyond the scope of this court's decision in Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153 (D.C.Cir.1967), which allowed FERC's predecessor, the Federal Power Commission ("FPC"), to backdate licenses and impose fees from the issuance date. FERC responds that the City is barred from challenging the imposition of the fees because it failed to seek timely rehearing of the Licensing Order. In the alternative, FERC maintains that the retroactive assessment was proper under Niagara Mohawk and longstanding agency policy.

We agree with FERC that the City's failure to seek timely rehearing of the Licensing Order precludes it from attacking the validity of the retroactive fees here. Under § 313 of the FPA, 16 U.S.C. § 825l, any party seeking judicial review of a FERC decision must apply for an administrative rehearing within thirty days. ³ Furthermore, FERC's regulations provide that any decision designated as final is a "final decision" from which rehearing may be sought. 18 C.F.R. § 385.713(a)(2)(v) (1996). Here, the Licensing Order of November 21, 1991, provided that the license issued to the City would be backdated to 1981, and that the City would be required to pay an additional fee representing the annual charges that would have been imposed from 1949 to 1981, had a license been in effect during that time period. City of Oswego, 57 FERC at 63,211. The order also stated that it constituted a final agency action and that the City had thirty days to request a rehearing. Id. at 63,220.

The City chose not to seek a rehearing at that time, however. Instead, it waited until August 3, 1992, to file an application for an exemption from both the 1991 annual fee and the retroactive fees. Although the...