Gas and Elec. Dept. of City of Holyoke, Mass. v. Federal Energy Regulatory Commission, 79-1587

• Decision Date: 10 September 1980
• Docket Number: No. 79-1587,79-1587
• Citation: 629 F.2d 197
• Parties: GAS AND ELECTRIC DEPARTMENT OF the CITY OF HOLYOKE, MASSACHUSETTS, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Holyoke Water Power Company, Intervenor.
• Court: U.S. Court of Appeals — First Circuit

Page 197

629 F.2d 197

GAS AND ELECTRIC DEPARTMENT OF the CITY OF HOLYOKE, MASSACHUSETTS, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Holyoke Water Power Company, Intervenor.

No. 79-1587.

United States Court of Appeals, First Circuit.

Argued April 10, 1980.

Decided Aug. 14, 1980.

As Amended Sept. 10, 1980.

Frances E. Francis, Washington, D. C., with whom Marc R. Poirier and Spiegel & McDiarmid, Washington, D. C., Maurice J. Ferriter and Begley, Ferriter, Brady & Lavelle, Holyoke, Mass., were on brief, for petitioner.

Joseph G. Stiles, Atty., Federal Energy Regulatory Commission, Washington, D. C., with whom Robert R. Nordhaus, Gen. Counsel, and Jerome M. Feit, Acting Deputy Sol., Federal Energy Regulatory Commission, Washington, D. C., were on brief, for respondent.

Jerome Ackerman, Washington, D. C., with whom Terry Coleman and Covington & Burling, Washington, D. C., were on brief, for intervenor.

Before COFFIN, Chief Judge, BOWNES, Circuit Judge, LOUGHLIN, ^* District Judge.

BOWNES, Circuit Judge.

In 1849, the predecessor of the Holyoke Water Power Company constructed a masonry dam across the Connecticut River at Hadley Falls, near Holyoke, Massachusetts. More than one thousand feet long and thirty feet high, the dam created an enormous head of water to power local industries. By 1948, the dam diverted water into miles of canals on both sides of the river, generating fourteen megawatts of mechanical energy for industries along the canals and eleven megawatts of hydroelectric energy for local utilities.

In 1948, the Holyoke Water Power Company (the Company) filed an application with the Federal Power Commission ¹ (the Commission) for a license for its existing facilities ² and proposed new generating capacity at Hadley Falls. The Company's application proposed immediate installation of one fifteen megawatt turbine and eventual development of sixty megawatts of capacity at the site. The Gas and Electric Department of the City of Holyoke (the Department) promptly filed a competing license application, seeking to win control of Hadley Falls by use of the municipal preference provisions of the Federal Power Act. ³ The Department's application also proposed an eventual site capacity of sixty megawatts, but, unlike the Company's application, proposed the immediate installation of two fifteen megawatt turbines.

In evaluating the competing applications, the Commission found that the Department lacked authority under Massachusetts law to construct a project which lay, in part, outside municipal boundaries and that the Department lacked the means to finance the project. More importantly, the Commission found that, as designed, the Department's project failed to make efficient use of the water resource and was not economically feasible. Because of these disabilities, the Commission concluded that the Department failed completely to show eligibility for the municipal preference. Holyoke Water Power Company, 8 F.P.C. 471, 488 (1949). The Commission, pursuant to 16 U.S.C. § 803(a), ⁴ then determined the Company's plan of development to be the best adapted to a comprehensive plan for improving and developing the river and awarded a fifty year license to the Company. The Department took no appeal.

In this case, the Department attempts again to obtain part of the development opportunity it lost to the Company in 1949. Specifically, the Department appeals the Commission's denial of its 1978 application for a preliminary permit ⁵ to study the feasibility of installing a second fifteen megawatt turbine at the Company's Hadley Falls dam. As framed by the Department, this appeal poses several significant questions of energy law and policy. ⁶ The threshold question, however, is whether the Commission's 1979 interpretation of the license issued to the Company in 1949 to include authorization to install the second turbine at Hadley Falls was clearly erroneous. We find no error in that determination. We affirm the Commission's rejection of the Department's preliminary permit application on the grounds the 1949 license included authorization, subject to a condition subsequent, for the installation of the second turbine and that the time has long since passed for the Department to challenge the Commission's 1949 licensing decision. Accordingly, the other issues raised by the Department on appeal are not timely, and we do not consider them.

The efficient use of the water flowing past Hadley Falls was a crucial factor in the Commission's 1949 decision to award the Hadley Falls license to the Company and to authorize the immediate installation of only one fifteen megawatt turbine. The Company proposed installation of one fifteen megawatt turbine and maintenance of the more than four miles of existing canals and generating facilities; the Department proposed installation of two fifteen megawatt turbines and the dewatering ⁷ and filling in of the canal system. The Department's apparent purpose for diverting water from the canals into the two turbines was to increase the flow of water to the turbines, increase the load factor or operating efficiency of the turbines and, thereby allow the Department to rely on the turbines for a more constant source of power. ⁸ Dewatering of the canals would have resulted in the loss of power generation and eliminated the water table created by them, both of which are vital to the industries located along the canals. It also would have forced the City of Holyoke to construct a new industrial waste treatment plant and necessitated construction of a conduit to carry process water to manufacturing industries along the canals. The commission staff submitted to the Commission a "proposed ultimate comprehensive plan of development" to provide a standard for evaluating the competing applications. The staff plan, which placed a high priority on the efficient use of flowing water, recommended an eventual new generating capacity of sixty megawatts, use of the canal system as long as it remained economical, an increase in the storage capacity of the dam and the economic dispatch of water. Significantly, the staff plan also recommended a staged development at Hadley Falls:

With its ultimate plan as an objective, the Commission's staff recommends its development, in steps, as market demands require. The initial step which would fit into the comprehensive plan would be the construction of one or two 15,000-kilowatt units with a two-unit tailrace; the complete substructure and superstructure for one or two units; a forebay; one or two complete powerhouse units; the intake structures for the future units, including a concrete slab acting as a bulkhead, and raising of the wall between the first-level canal and the new forebay and leaving the present normal water surface elevation of 100.6 feet (mean sea level) unchanged.

Holyoke Water Power Company, 8 F.P.C. at 481.

In its decision awarding the license to the Company, the Commission gave great weight to the similarities between the staff plan of development and the plan of the Company. In particular, the Commission noted that, when the Company's plan to preserve the canals was combined with the staff plan for the economic dispatch of water, the capacity of the existing system would be increased by nearly three megawatts to a total of twenty-eight megawatts, all at no extra cost. In contrast, the Department's plan to dewater the canals and install two fifteen megawatt turbines would result in a net increase in capacity of five megawatts at a cost of $13,000,000. The Company's plan to install one fifteen megawatt turbine would increase the capacity of Hadley Falls to forty-three megawatts at a cost still far below that of the Department's thirty megawatt plan. The Commission further observed that the Company's plan of development provided for use of the full flow of the river seventy percent of the time, while the Department's plan would result in the full flow only forty-two percent of the time.

Because of its relationship to the efficient use of water and the current value of hydroelectric energy, the installation of the second fifteen megawatt turbine received close study by the Commission. The Commission seemed to be influenced in its analysis by the fact that not all of the output of the second turbine could be marketed immediately and that the second turbine would not, at least initially, produce an increase in dependable capacity:

Economic feasibility of a second unit. The estimated incremental cost for the construction of a second unit is $1,700,000, with an annual cost of about $173,000, based on a 5 percent interest rate.

The second unit would result in the production of an additional 40,000,000 kilowatt-hours with no increase in dependable capacity initially. On the assumption that three-fourths of this additional 40,000,000 kilowatt-hours could be used in the total load of the Company, the Department, and the mills by 1955, and using the value of 4.53 mills per kilowatt-hour for energy, the value of the increased power would be about $136,000. The annual cost would exceed the annual benefits by about $37,000, thus making the second unit presently economically infeasible. On a 3 percent interest rate as an element in the annual charge for the second unit the average annual charge would be about $131,000 as compared with $173,000, and the annual benefits would exceed the annual cost, by about $5,000.

Id. at 482.

The Commission's analysis showed that, although the second turbine was not economically feasible, it was sufficiently close to feasibility to justify construction of the project to permit installation with little or no modification of the project works. In its order issuing the license, the Commission gave specific form to the staff's general proposal of staged development at Hadley Falls:

(B) The licensee shall commence the proposed initial redevelopment comprising the new power plant with initial installation...