Clifton Power Corp. v. F.E.R.C., s. 94-1775

• Decision Date: 24 October 1996
• Docket Number: 95-1220 and 95-1257,Nos. 94-1775,s. 94-1775
• Citation: 88 F.3d 1258
• Parties: , Util. L. Rep. P 14,113 CLIFTON POWER CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1258

88 F.3d 1258

319 U.S.App.D.C. 195, Util. L. Rep. P 14,113

CLIFTON POWER CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 94-1775, 95-1220 and 95-1257.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 29, 1996.

Decided July 23, 1996.

Rehearing Denied Oct. 24, 1996.

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

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

Katherine Waldbauer, Attorney, Federal Energy Regulatory Commission, with whom Jerome M. Feit, Solicitor, and Joseph S. Davies, Deputy Solicitor, were on the brief, Washington, DC, argued the cause for respondent.

Before: WALD, WILLIAMS, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

The Federal Energy Regulatory Commission assessed a $122,100 penalty against the operator of a small, hydroelectric power project on the Pacolet River in South Carolina for violating a compliance order and the requirement of its license that it install and operate to the Commission's satisfaction certain measurement devices. Although we affirm the Commission's findings that the dam operator violated its license and the compliance order, we conclude that in numerous respects the Commission's penalty assessment does not satisfy the requirements of reasoned decisionmaking. In particular, we find that in assessing the final penalty, the Commission either did not correct for certain errors contained in the notice of proposed penalty on which the penalty was based or did not explain how it corrected for them; that the Commission failed to tailor the daily penalty to the duration of each violation; and that the Commission failed adequately to explain the nexus between the size of the penalty and the seriousness of the violation. We therefore vacate the penalty and remand to the Commission to reconsider and reduce the fine.

I.

The petitioner, Clifton Power Corporation, operates its hydroelectric facility pursuant to a license issued by the Commission in 1986. Clifton Power Corp., 35 F.E.R.C.p 61,303 (1986) (order issuing license). The license incorporates the terms and conditions contained in the Commission's standard Form L-12. See id. at 61,695 (incorporating Form L-12, Terms and Conditions of License for Constructed Minor Project Affecting the Interests of Interstate or Foreign Commerce, 54 F.P.C. 1871 (1975)). Article 6 of Form L-12 requires Clifton to install and maintain gages to monitor the water height and flow of the river on which the project is located and the level of the water contained in the reservoir of its dam, and to install and maintain devices to measure the amount of energy produced. See 54 F.P.C. at 1873. According to Article 6, "[t]he number, character, and location of gages, meters, or other measuring devices, and the method of operation thereof, shall at all times be satisfactory to the Commission or its authorized representative." Id. at 1873. Article 21 of the license requires the project continuously to discharge a minimum water flow of 20 cubic feet per second. 35 F.E.R.C. at 61,697.

In 1986, shortly after the Commission issued Clifton's license, Commission officials notified Clifton by letter of its need to install stream-flow monitoring equipment. This letter began five years of Commission efforts to bring Clifton into compliance with Article 6 of its license. After numerous exchanges between Commission staff and Clifton's sole officer and shareholder, a Commission division director issued a Compliance Order on July 28, 1989 instructing Clifton to install the gages required by Article 6 and to file a plan for compliance. See Clifton Power Corp., 48 F.E.R.C. p 62,089 (1989) (compliance order). The Compliance Order emphasized two requirements: that Clifton's project maintain a minimum flow of 20 cubic feet per second and that it operate in a "run-of-river" mode--that is, with its outflow continuously equaling its inflow. See id. at 63,085. The order required Clifton to file a compliance plan within thirty days and to install the required gages within ninety days. See id. at 63,086. Although Clifton did not comply immediately, it did begin developing plans to comply while simultaneously appealing the Compliance Order to the Commission. After denying Clifton's appeal and its request for rehearing, see Clifton Power Corp., 49 F.E.R.C. p 61,305 (1989) (order denying appeals), reh'g denied, 52 F.E.R.C. p 61,320 (1990), the Commission issued a Notice of Proposed Penalty in 1991, suggesting a fine of $200 per day running from October 26, 1989, the date by which the Compliance Order instructed Clifton to install the required gages, see Clifton Power Corp., 54 F.E.R.C. p 61,339, at 62,098 (1991) (notice of proposed penalty). After a hearing, an administrative law judge rejected this suggested daily penalty, which would have totaled $148,000 for 740 days of noncompliance. Instead, the ALJ assessed a penalty of $15,000. See Clifton Power Corp., 65 F.E.R.C. p 63,007, at 65,039 (1993) (initial decision imposing a civil penalty). Rejecting several of the ALJ's findings, the Commission imposed a penalty of $165 per day for a period of 740 days, totaling $122,100. See Clifton Power Corp., 69 F.E.R.C. p 61,087, at 61,344-46 (1994) (order modifying initial decision and denying rehearing). The Commission denied rehearing. See Clifton Power Corp., 70 F.E.R.C. p 61,302 (1995) (order denying rehearing). Clifton now petitions for review.

II.

Clifton first challenges the requirements of the July 28, 1989 Compliance Order and the Commission's findings that Clifton violated its license. It begins by arguing that the Compliance Order improperly required it to gage the dam's run-of-river mode of operation. Roughly speaking, a hydroelectric project operating in a run-of-river mode releases the same amount of water that flows into it. The Compliance Order stated, "The run-of-river mode of operation must be gaged by a continuously recording reservoir pool level gage or must be verified by all of the following: inflow records, power generation records, and minimum flow gaging records." 48 F.E.R.C. at 63,085. According to Clifton, because its license does not contain a specific provision requiring it to operate in a run-of-river mode, the Commission had no authority to require it to gage or to verify operation in this mode. On this point, the ALJ agreed, see 65 F.E.R.C. at 65,037-38, but the Commission reversed, pointing out that "Clifton proposed a run-of-river mode of operation in its application, and the licensing order approved that proposal." 69 F.E.R.C. at 61,342. Although acknowledging that Clifton's license has "no special article imposing [a run-of-river] condition," the Commission concluded that Clifton "is bound to operate in that mode" because "it applied to operate in that mode." Id.

Section 6 of the Federal Power Act provides that all terms or conditions of a license for a hydroelectric power project must be accepted by the licensee, and the conditions and the licensee's acceptance of those conditions must be expressed in the license:

Each such license shall be conditioned upon acceptance by the licensee of all of the terms and conditions of [the Federal Power Act] and such further conditions, if any, as the Commission shall prescribe in conformity with [the Act], which said terms and conditions and the acceptance thereof shall be expressed in said license.

16 U.S.C. § 799 (1994). The Commission concedes that Clifton's license does not contain an explicit requirement that Clifton operate in a run-of-river mode. In fact, the license has only two references to run-of-river mode. It notes that in 1929 the dam was "designed as a run-of-the-river hydroelectric project," 35 F.E.R.C. at 61,693, and it indicates in a footnote that "[t]he project is operated on a run-of-the-river basis," id. at 61,697 n. 3. Although these statements are descriptive, not prescriptive, the Commission concluded that, in view of indications in Clifton's application that the dam would be operated in a run-of-river mode, it would read these statements in the license as indicating both a requirement to operate in such mode and Clifton's acceptance of that requirement. See 69 F.E.R.C. at 61,342. In this court, although not in its order, the Commission relies on 16 U.S.C. § 802, which requires license applicants to submit "[s]uch maps, plans, [and] specifications ... as may be required for a full understanding of the proposed project" and provides that "[s]uch maps, plans, and specifications when approved by the commission shall be made a part of the license."

In our view, the Commission's finding that Clifton's license includes a run-of-river requirement is neither supported by substantial evidence nor consistent with the hydroelectric licensing provisions of the Federal Power Act. Although Clifton's license application clearly stated that "[t]he project will be manually operated as a run-of-river project," and although the Fish and Wildlife Service supported Clifton's license application on the understanding that the project would operate in a run-of-river mode, Clifton's license does not expressly so require, nor does it indicate Commission approval of the materials submitted by Clifton that described the project's mode of operation as run-of-river. In contrast, Clifton's license expressly incorporates two other exhibits that Clifton submitted as part of its application, see 35 F.E.R.C. at 61,695, and at least forty-four other licenses issued by the Commission within a twelve-month period during which Clifton's license was issued include specific articles requiring run-of-river operation, see, e.g., Sven Elov Ericson, 36 F.E.R.C. p 62,374, at 63,881 (1986) (order issuing license); Powerhouse Systems, 33 F.E.R.C. p 62,054, at 63,088 (1985) (order issuing license). ...