City of Ukiah, Cal. v. F.E.R.C.

• Citation: 234 U.S.App.D.C. 307,729 F.2d 793
• Decision Date: 06 March 1984
• Docket Number: 83-1181,Nos. 83-1114,s. 83-1114
• Parties: CITY OF UKIAH, CALIFORNIA, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Sonoma County Water Agency, Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 793

729 F.2d 793

234 U.S.App.D.C. 307

CITY OF UKIAH, CALIFORNIA, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Sonoma County Water Agency, Intervenor.

Nos. 83-1114, 83-1181.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 2, 1983.

Decided March 6, 1984.

Petitions for Review of an Order of the Federal Energy Regulatory commission.

Robert A. O'Neil, Washington, D.C., with whom Frederic Lee Klein, Washington, D.C., was on the brief, for petitioner.

Joshua Z. Rokach, Atty., F.E.R.C., Washington, D.C., with whom Stephen R. Melton, Acting Gen. Counsel, and Thajauna D. Miller, Atty., F.E.R.C., Washington, D.C., were on the brief, for respondent.

George A. Avery, Washington, D.C., with whom Suzan D. Hatfield, Deputy County Counsel, Santa Rosa, Cal., Janet M. Robins, and Patricia Sharin Flagg, Washington, D.C., were on the brief, for intervenor.

Before WRIGHT and TAMM, Circuit Judges, and LUTHER M. SWYGERT, ^* Senior Circuit Judge for the Seventh Circuit.

Opinion for the court filed by Circuit Judge TAMM.

TAMM, Circuit Judge:

Petitioner, City of Ukiah, appeals the Federal Energy Regulatory Commission's (the Commission) issuance of a permit to Sonoma County Water Agency to study the feasibility of operating a hydroelectric generating plant. Petitioner asserts both substantive and procedural objections to the Commission's decision. Because we find the Commission's decision procedurally sound and supported by substantial evidence on the record as a whole, we affirm.

I. BACKGROUND

The City of Ukiah (Ukiah) applied to the Commission on May 27, 1980 for a "preliminary permit" to study the possibility of operating a hydroelectric generating plant at Warm Springs Dam. ¹ Sonoma County Water Agency (Sonoma), intervenors in this action, applied for the same permit on August 25, 1980. Under the Commission's regulations, the first-filed applicant is to be awarded the permit unless a subsequent applicant demonstrates an advantage in generating potential. ² Here, the Commission found that Sonoma had demonstrated a capacity to produce substantially more electricity than Ukiah. Accordingly, the Commission awarded the permit to Sonoma. ³

The Commission's conclusion that Sonoma could generate significantly more electricity than Ukiah at Warm Springs Dam rests primarily on a contractual relationship between Sonoma and the Army Corps of Engineers (the Corps). In 1964, Sonoma entered into a contract (1964 contract) with the Corps to purchase three blocks of water storage space in the reservoir (Lake Sonoma) behind Warm Springs Dam. Joint Appendix (J.A.) 649-60. ⁴ Most important for this case, the contract also gave Sonoma discretion to direct releases and regulate the use of stored water. J.A. 509, 653, 658.

In its initial decision, the Commission found that Sonoma, by virtue of "its authority to direct water releases from [Warm Springs Dam], has demonstrated ... the ability to produce substantially more power ... than ... Ukiah." City of Ukiah, 18 FERC (CCH) p 61,108, at 61,204 (1982) (Order Issuing Preliminary Permit and Denying Competing Application). The Commission also acknowledged Sonoma's claim that if it generated electricity at Warm Springs Dam, it would release excess water to increase power production. Id. at 61,203. Since there is a cost associated with releasing stored water, Sonoma noted that it would promote power generation only if it, and not Ukiah, received the benefits from the project. ⁵ J.A. 71-72. Consequently, the Commission concluded that "Sonoma's control of water releases from Warm Springs Dam ... uniquely qualifies Sonoma as a superior applicant for a preliminary permit." Id.

Ukiah applied for a rehearing of this order on March 12, 1982. ⁶ In its application, Ukiah argued that if Sonoma released water for power generation, Sonoma would be required to begin repayment of the project's costs. Ukiah thus asserted that even if Sonoma's contract with the Corps allowed Sonoma to release water for power generation, there would be a significant economic disincentive discouraging such releases.

In October 1982, following the issuance of the Commission's initial order, Sonoma and the Corps signed an amended contract (1982 contract). In the new contract, Sonoma agreed to purchase a fourth block of storage space and to begin paying the Corps for each block in 1993, 1996, 2001, and 2006 respectively, regardless of when consumptive use begins. J.A. 347-48; see id. at 511, 514. Also, Sonoma retained its discretion to direct releases from the Warm Springs Dam reservoir. J.A. 344-45. In considering Ukiah's rehearing application, the Commission noted that the 1982 contract "severs the relationship between payback of the project's costs and actual use of the stored water." City of Ukiah, 21 FERC (CCH) p 61,133, at 61,361 n. 2 (1982) (Order Denying Rehearing). The Commission determined that since Sonoma could release water without triggering its repayment obligation, no economic disincentive would discourage Sonoma from releasing stored water for power generation before the water was needed for consumption. Id. at 61,361. The Commission thus concluded that Sonoma had the "operational flexibility" regarding water releases to produce significantly more power at the dam than Ukiah, and rejected Ukiah's rehearing application. Id. at 61,361 n. 2.

On January 26, 1983, the Commission rejected Ukiah's second application for rehearing essentially for the same reasons that it granted Sonoma the permit in its initial decision. City of Ukiah, 22 FERC (CCH) p 61,063 (1983) (Notice Rejecting Application for Rehearing and Reconsideration). Ukiah has appealed the Commission's denials of rehearing as well as its initial issuance of the permit to Sonoma. Ukiah asserts that the Commission's issuance of the permit is not supported by substantial evidence and is procedurally flawed. After full consideration, we find that the Commission's decision is substantively and procedurally sound. Accordingly, we affirm.

II. UKIAH'S SUBSTANTIVE CLAIM

Ukiah contends that the Commission's decision to grant Sonoma the permit was not supported by substantial evidence. Ukiah disputes the Commission's finding that Sonoma's contractual relation with the Corps gives Sonoma a comparative advantage in power generation. Ukiah argues instead that both applicants can produce essentially the same amount of power and that it, as the first-filed applicant, therefore deserves the permit.

Sonoma's contract will afford it an advantage in power generation if three conditions exist. First, Sonoma must have excess water in its storage space that could be released for nonconsumptive purposes. Second, the contract must give Sonoma the discretion to release its stored water for nonconsumptive purposes. Third, there must be no significant economic disincentive discouraging Sonoma from releasing its stored water for nonconsumptive purposes.

The first condition is an empirical concern and may be disposed of briefly. All parties to this litigation agree that Sonoma County probably will not require consumptive use of Sonoma's stored water until the 1990's. The last block of Sonoma's stored water is not scheduled for use until approximately 2010. J.A. 64. Thus, for about twenty-five years at least a portion of the stored water will be available for nonconsumptive releases. ⁷

The second two conditions require an examination of Sonoma's contract and the Water Supply Act of 1958, 43 U.S.C. Sec. 390b (1976) (Water Supply Act). Both inquiries may be considered questions of law. Danks v. Fields, 696 F.2d 572, 575 (8th Cir.1982) (interpretation of a written document is question of law). We therefore are not limited to, and do not employ, the deferential arbitrary and capricious standard in reviewing these issues of law. Office of Communication of United Church of Christ v. FCC, 707 F.2d 1413, 1422-23 n. 12 (D.C.Cir.1983).

Implicit in the Commission's decisions that Sonoma's contractual relations allowed it to produce more power than Ukiah is the view that the 1964 and 1982 contracts permitted Sonoma to direct water releases for nonconsumptive purposes. 18 FERC (CCH) p 61,108, at 61,203-04; 21 FERC (CCH) p 61,133; 22 FERC (CCH) p 61,063. We review this finding only with regard to the 1982 contract which superseded the 1964 contract. ⁸ Article 1(b)(2) of Sonoma's 1982 contract gives Sonoma "the right to withdraw water from the lake, or to order releases ... by the Government ... subject to ... Article 1(c) and to the extent of water the aforesaid storage space will provide ...." J.A. 344. In Article 1(c), the government in turn reserves the right to control Sonoma's discretion to release its stored water essentially for four purposes (1) flood control, (2) to meet authorized Project purposes such as maintenance of the Dam and fish population, (3) to preserve life and/or property, and (4) to ensure the repayment provisions of the contract are consistent with the Water Supply Act. ⁹ J.A. 345. The contract, by its terms, does not prevent Sonoma from releasing stored water for nonconsumptive purposes. We see no reason to require the Commission to read into Sonoma's contract a prohibition against releases for nonconsumptive purposes generally or for power generation specifically. ¹⁰ We therefore sustain the Commission's finding that Sonoma's contract gives it the discretion to release its stored water for nonconsumptive purposes, including power generation.

Finally, we address the Commission's conclusion that there is no economic disincentive that discourages Sonoma from releasing its excess water for power generation. As noted earlier, the Commission found no economic disincentive because the 1982 contract does not directly link Sonoma's repayment schedule with the actual date Sonoma first uses its stored water. ¹¹ See supra p. 795. Ukiah argues, however, that even if no economic disincentive derives from the 1982 contract, the...