Clark-Cowlitz Joint Operating Agency v. F.E.R.C., CLARK-COWLITZ

Decision Date11 August 1987
Docket NumberNo. 83-2231,CLARK-COWLITZ,83-2231
Citation264 U.S. App. D.C. 58,826 F.2d 1074
PartiesJOINT OPERATING AGENCY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, People of the State of California, et al., Pacific Power & Light Company, Edison Electric Institute, Sacramento Municipal Utility District, et al., Pacific Gas & Electric Company, Public Utility Commissioner of the State of Oregon, Washington State Department of Fisheries, et al., American Paper Institute, Inc., City of Santa Clara, California, et al., American Public Power Association, Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

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

Christopher D. Williams, with whom Robert L. McCarty and George H. Williams, Jr., Washington, D.C., were on the brief, for petitioner.

Jerome M. Feit, Sol., F.E.R.C., with whom William H. Satterfield, Gen. Counsel, Joseph S. Davies and John N. Estes, III, Attys., F.E.R.C. were on the brief, for respondent. Arlene P. Groner, Atty., F.E.R.C., Washington, D.C., also entered an appearance for respondent.

Thomas H. Nelson, Portland, Or., for intervenor, Pacific Power & Light Co., Hugh Smith, Portland, Or., also entered an appearance for intervenor.

Janice E. Kerr, J. Calvin Simpson and Peter G. Fairchild, San Francisco, Cal., were on the brief for intervenors, People of the State of California, et al.

James B. Liberman, Ira H. Jolles and Peter B. Kelsey, Washington, D.C., were on the brief for intervenor, Edison Elec. Institute.

Robert C. McDiarmid, Daniel I. Davidson, Frances E. Francis, Ben Finkelstein, G. Philip Nowak and Charles H. Cochran, Washington, D.C., were on the joint brief for public intervenors, Sacramento Mun. Utility Dist., et al.

Robert Ohlbach and Jack F. Fallin, Jr., San Francisco, Cal., were on the brief for intervenor, Pacific Gas & Elec. Co. Malcolm H. Furbush, San Francisco, Cal., also entered an appearance, for intervenor.

W. Benny Won, Salem, Or., was on the brief for intervenor, Public Utility Commissioner of Oregon.

Rigdon H. Boykin, New York City, was on the brief for intervenor, American Paper Institute, Inc.

Richard K. Willard, Asst. Atty. Gen. and Michael Kimmel, Atty., Dept. of Justice, Washington, D.C., were on the brief for amicus curiae, U.S., urging affirmance.

James M. Johnson, Olympia, Wash., entered an appearance for intervenor, Washington State Dept. of Fisheries, et al.

Frederick H. Ritts, Washington, D.C., entered an appearance for intervenor, American Public Power Ass'n.


BUCKLEY, Circuit Judges, and WRIGHT **, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge STARR.

Dissenting opinion filed by Circuit Judge MIKVA, with whom Circuit Judges ROBINSON and EDWARDS join.

STARR, Circuit Judge:

This case involves a contest for a license to operate a hydroelectric power plant in the Pacific Northwest. The legal issues generated by the contest, however, far transcend the question of which of two competitors will win the right to operate the plant in question. To the contrary, the case involves fundamental issues of the power of an administrative agency to change its interpretation of law and to take regulatory action based upon that new interpretation.

The specific issue before us is whether in competing for a license, a public entity, the Clark-Cowlitz Joint Operating Agency, was entitled to the municipal (and State) preference prescribed in section 7(a) of the Federal Power Act, 16 U.S.C. Sec. 800(a) (1982). 1 The Federal Energy Regulatory Commission determined that Congress did not intend the statutorily prescribed municipal preference to apply in relicensing proceedings in which, as here, the incumbent licensee was competing for the license. In reaching this determination, however, FERC overruled its contrary conclusion articulated only three years earlier in declaratory proceedings in which both Clark-Cowlitz and the incumbent licensee, Pacific Power & Light Company, participated.

The petitioner here, Clark-Cowlitz, contends that the Commission acted unlawfully in accomplishing this about-face as to parties who participated in the earlier declaratory proceedings. Initially, we are called upon to decide whether principles of preclusion or retroactivity bar FERC from applying its reinterpretation of section 7(a) in the contest between Clark-Cowlitz and Pacific Power. If we conclude that FERC is not barred, then we must consider whether FERC's new interpretation is permissible under the principles enunciated in 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). See also Immigration & Naturalization Service v. Cardoza-Fonseca, --- U.S. ----, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987). For the reasons that follow, we hold that FERC was not precluded from applying its new interpretation of section 7(a) in the present proceeding. We also uphold its interpretation as reasonable and consistent with Congressional intent. One aspect of the Commission's substantive analysis, however (apart from statutory interpretation), falls short of the standards of reasoned decision making and thus requires a remand of the case to the agency.


The relevant facts can be briefly stated. Pacific Power & Light Company is the incumbent licensee of the Merwin Hydroelectric Power Project. That facility is situated on the Lewis River in the State of Washington, between the Counties of Clark and Cowlitz. Pacific Power has owned, operated, and maintained the Merwin project since 1941, when Pacific Power's predecessor transferred the 50-year license originally issued in 1929 for the project to the investor-owned utility. Anticipating the looming expiration of the original license, Pacific Power filed an application for a new license in 1976. Shortly thereafter, public utility districts in Clark and Cowlitz Counties formed the Clark-Cowlitz Joint Operating Agency to compete for the Merwin license. Clark-Cowlitz filed its competing application in 1977, claiming the benefit of the municipal preference of section 7(a).

At that time, the original licenses for many other hydroelectric projects were likewise about to expire. A common issue arose as to whether States and municipalities contending for new licenses at the various projects could claim the benefit of section 7(a)'s municipal preference when incumbent licensees also sought new licenses for the projects. In view of the recurring nature of this issue, FERC decided to address the question in a declaratory order proceeding. See 5 U.S.C. Sec. 554(e) (1982). Numerous parties, including Clark-Cowlitz and Pacific Power, intervened and participated in that proceeding. Then, in an opinion issued in 1980, FERC concluded that the section 7(a) municipal preference applied in all relicensing proceedings, including those in which incumbent licensees were competing to maintain authority to operate their respective projects. City of Bountiful, 11 F.E.R.C. p 61,337, at 61,706, reh'g denied, 12 F.E.R.C. p 61,179, at 61,459 (1980).

Not surprisingly, FERC's decision failed to win universal acclaim. No less than thirty-eight petitioners appealed the agency's decision in the Bountiful declaratory order proceeding to the Eleventh Circuit. That court reviewed FERC's interpretation of section 7(a) under the deferential standard that " 'the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong.' " Alabama Power Co. v. FERC, 685 F.2d 1311, 1318 (11th Cir.1982) (quoting CBS, Inc. v. FCC, 453 U.S. 367, 382, 101 S.Ct. 2813, 2823, 69 L.Ed.2d 706 (1981)), cert. denied, 463 U.S. 1230, 103 S.Ct. 3573, 77 L.Ed.2d 1415 (1983). Under this standard of "great deference," the court upheld FERC's interpretation as "consistent with the statute's language, structure, scheme, and available legislative history." Id. 2 The Eleventh Circuit's opinion issued in September 1982.

As the Bountiful litigation proceeded in Atlanta, however, back in Washington, D.C., FERC was busily re-evaluating its stance on the applicability of the municipal preference. The Commission ultimately concluded that its Bountiful interpretation was contrary to Congressional intent, and that the preference did not apply when, in addition to a state or municipal applicant, the incumbent licensee sought a new license for an existing project. The first notice of this reassessment appeared in a brief filed by the Solicitor General in the United States Supreme Court on the petition for certiorari in Alabama Power. See Brief for the Federal Energy Regulatory Commission on Petitions for a Writ of Certiorari at 8-9, Utah Power & Light Co. v. FERC, 463 U.S. 1230, 103 S.Ct. 3573, 77 L.Ed.2d 1415 (1983), Joint Appendix ("J.A.") at 95, 106-07. There, the Solicitor General urged the Court, in light of FERC's reinterpretation, to grant the petitions and remand the case to the Eleventh Circuit. The Court, however, declined the invitation and denied certiorari. Utah Power & Light Co. v. FERC, 463 U.S. 1230, 103 S.Ct. 3573, 77 L.Ed.2d 1415 (1983).

At this juncture in the rather baroque history of the municipal preference issue, we return from the Bountiful litigation and rejoin Clark-Cowlitz in its efforts before the Commission to secure the Merwin license. Following FERC's decision in Bountiful, Clark-Cowlitz, along with numerous applicants for licenses at other sites, pressed FERC to begin hearings on individual projects. As luck would have it, hearings on the Merwin relicensing were the first out of the gate; indeed, those hearings got underway only three days after the Eleventh Circuit affirmed Bountiful. To Clark-Cowlitz's chagrin, however, in ultimately ruling on the Merwin applications, FERC formally announced its change of mind...

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