Farmington River Power Co. v. F.E.R.C.

• Decision Date: 10 January 1997
• Docket Number: No. 95-1504,95-1504
• Citation: 103 F.3d 1002
• Parties: FARMINGTON RIVER POWER COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1002

103 F.3d 1002

322 U.S.App.D.C. 296

FARMINGTON RIVER POWER COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

No. 95-1504.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 9, 1996.

Decided Jan. 10, 1997.

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

John N. Estes, III, Washington, DC, argued the cause and filed the briefs for petitioner.

Janet K. Jones, Attorney, Federal Energy Regulatory Commission, Silver Springs, MD, argued the cause for respondent. With her on the brief was Jerome M. Feit, Solicitor, Washington, DC.

Before: GINSBURG, RANDOLPH and TATEL, Circuit Judges.

Opinion of the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

The basic issue in this case is whether the Federal Energy Regulatory Commission may charge petitioner, an operator of a nonlicensed dam, for what are known as "headwater benefits"--energy benefits a dam receives from the operation of an upstream dam--for periods prior to the date on which the Commission notified petitioner of its potential liability. Because we hold that section 10(f) of the Federal Power Act authorizes FERC to impose headwater charges only for periods following individual notice, we vacate the Commission's Order and remand for reconsideration. We also conclude that the Commission, in violation of section 27 of the Power Act, improperly charged petitioner for releases of water to which petitioner had a vested right under state law.

I

This case involves three dams on the Farmington River, a tributary of the Connecticut River flowing from Massachusetts through the New Hartford, Connecticut area. Owned by petitioner, the Farmington River Power Company, and built in 1925 near the river's mouth, Rainbow Dam supplies power to Farmington's parent company, the Stanley Works. Because Rainbow Dam is not on a navigable waterway, it did not originally need a license from the Federal Power Commission, FERC's predecessor. In 1972, the Second Circuit reversed FERC's attempt to bring the dam under license, concluding that requiring a license for a dam that predated the licensing requirement would exceed FERC's authority. Farmington River Power Co. v. FPC, 455 F.2d 86 (2d Cir.1972).

The Metropolitan District, a Connecticut municipal corporation, owns Goodwin Dam, which was completed in 1960 and is located about forty-five miles upstream from Rainbow Dam. The Army Corps of Engineers constructed the third dam, Colebrook, in the pool of water Goodwin Dam created. Colebrook Dam began operating in 1969. The Metropolitan District now operates Colebrook in conjunction with Goodwin Dam.

Hydropower plants benefit from even and predictable flows of water, which allow them to operate continuously at higher capacity. Through storage and controlled release of water, upstream dams and reservoirs create such "headwater benefits." To encourage the construction of these flow-control dams, Congress included section 10(f) in the Federal Water Power Act of 1920, requiring licensed power projects receiving headwater benefits to pay to the upstream providers equitable charges as determined by the Federal Power Commission. Federal Water Power Act, ch. 285, sec. 10(f), 41 Stat. 1063, 1070 (1920). In 1935, Congress amended the Act to authorize the Commission to assess nonlicensed dams for headwater benefits. Federal Power Act, ch. 687, tit. II, § 206, 49 Stat. 803, 843-44 (1935) (codified as amended at 16 U.S.C. 803(f) (1994)).

Almost two decades after the construction of Colebrook Dam, FERC informed Farmington, by letter dated January 11, 1988, that it was "conducting a headwater benefits study of the Farmington River Basin under section 10(f) of the Federal Power Act" and requested information about flow and power generation for the period from 1975 to 1986. Farmington supplied the requested information. After conducting a study using a complex computer model, FERC issued a preliminary report in December 1991, estimating headwater benefits to Farmington between 1972 and 1991 at $682,667. Following a period for comment and discussion, the Commission issued a final report in September 1994, along with an order assessing Farmington $943,835, including $68,759 for the cost of conducting the headwater benefits study. Farmington River Power Co., 68 FERC p 62,291, 1994 WL 528394 (1994).

Farmington sought rehearing, claiming that it had no notice of charges prior to the study, and that it had a vested right to the release of the water in question. The Commission denied rehearing on both grounds, but granted rehearing as to Farmington's argument that the statute did not authorize charging nonlicensees for the costs of the study, and vacated that portion of its initial Order. Farmington River Power Co., 72 FERC p 61,119, 1995 WL 454375 (1995).

II

We begin with the basic issue in this case: whether section 10(f) charges may include assessments for headwater benefits received prior to the notice called for by this section. With respect to nonlicensed dams, section 10(f) provides:

Whenever any power project not under license is benefited by the construction work of a licensee or permittee, the United States or any agency thereof, the Commission, after notice to the owner or owners of such unlicensed project, shall determine and fix a reasonable and equitable annual charge to be paid to the licensee or permittee on account of such benefits, or to the United States if it be the owner of such headwater improvements.

16 U.S.C. § 803(f) (1994). Relying on section 10(f)'s initial phrase, the Commission argues that liability attaches "whenever" power projects receive benefits, whether before or after notice from FERC. We disagree. Because the "whenever" phrase modifies only the verbs "shall determine and fix," it specifies only when the Commission may determine and fix charges, not the period of liability. Only "equitable" and "annual" directly modify the word "charge." Because requiring that charges be annual has no significance for charges based on periods prior to notice, the word "annual" creates a presumption of prospective charges.

The signal difference between this language concerning nonlicensed dams and the language covering licensees reinforces our reading of the statute. As to licensed dams, the first paragraph of section 10(f) specifies that "the Commission shall require as a condition of the license that the licensee so benefited shall reimburse" the owner of an upstream dam for headwater benefits. Id. Licensed dams, then, have an affirmative duty to pay. The statute itself, as well as the explicit conditions of their licenses, puts licensed dams on clear notice of this duty. In contrast, nonlicensed dams have neither an affirmative duty to pay nor licenses providing individual notice of the date from which liability may accrue. Instead, section 10(f) directs FERC to fix an annual charge "after notice." Id. Because Congress thus clearly contemplated only prospective annual charges, we need not defer to the Commission's contrary interpretation. See MCI Telecomm. Corp. v. AT&T, 512 U.S. 218, 229, 114 S.Ct. 2223, 2231, 129 L.Ed.2d 182 (1994) ("[A]n agency's interpretation of a statute is not entitled to deference when it goes beyond the meaning that the statute can bear."); Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984) ("If the intent of Congress is clear, that is the end of the matter.").

Even if we thought the language of the statute ambiguous, we would not defer to the Commission, because we find its interpretation of section 10(f) unreasonable. See id. at 843-44, 104 S.Ct. at 2781-83. As interpreted by the Commission, nothing in section 10(f) would prohibit it from imposing retroactive liability all the way back to 1935, the year in which Congress amended section 10(f) to cover nonlicensed dams. Although the Commission limits retroactive liability to 25 years, Louisville Gas & Elec. Co., 58 FERC p 61,338, p 62,094, 1992 WL 74702 (1992), it does so simply as an exercise of its equitable discretion, not because it believes the statute so requires.

The Commission's interpretation of section 10(f) is particularly unreasonable in view of the peculiar nature of headwater benefits liability. Unlike in most regulatory statutes, where liability accrues from the actions of regulated parties, here liability flows solely from the actions of others, i.e., operators of upstream dams. As the Commission acknowledges, it is difficult for a project owner even to know whether its dam is receiving headwater benefits. Under these circumstances, we cannot believe Congress meant to impose pre-notice liability on owners of nonlicensed dams such as Farmington.

Our holding that the Commission may not impose...