Kamargo Corp. v. F.E.R.C., 87-1352

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Citation852 F.2d 1392
Docket NumberNo. 87-1352,87-1352
Parties, 100 P.U.R.4th 558 KAMARGO CORPORATION, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Niagara Mohawk Power Corp., Intervenor.
Decision Date09 August 1988

Page 1392

852 F.2d 1392
271 U.S.App.D.C. 425, 100 P.U.R.4th 558
KAMARGO CORPORATION, et al., Petitioners,
Niagara Mohawk Power Corp., Intervenor.
No. 87-1352.
United States Court of Appeals,
District of Columbia Circuit.
Argued March 25, 1988.
Decided Aug. 9, 1988.

Patrick M. Hanlon, with whom Stephen J. Hadley and Sanford L. Hartman, were on the brief, for petitioners.

Samuel Soopper, Atty., F.E.R.C., with whom Catherine C. Cook, Gen. Counsel, and Jerome M. Feit, Sol., F.E.R.C., were on the brief, for respondent.

William J. Madden, Jr., McNeill Watkins, II and Steven J. Riggs were on the brief, for intervenor Niagara Mohawk Power Corp.

Before EDWARDS, SILBERMAN, and WILLIAMS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

Petitioners, Kamargo and ten other related corporations ("Kamargo"), seek review of a decision by the Federal Energy Regulatory Commission ("FERC") denying their applications for preliminary permits under 16 U.S.C. Sec. 797(f) (1982). The permits Kamargo sought would have authorized it to

Page 1393

study the feasibility of developing currently unlicensed generating capacity at or near eleven separate hydroelectric projects in upstate New York. Those projects are licensed to and operated by intervenor Niagara Mohawk Power Corporation ("Niagara"). FERC denied the applications based primarily on its reading of the recently passed Electric Consumers Protection Act of 1986 ("ECPA"), which the Commission thought indicated it should not grant preliminary permits for development of excess capacity at or near a site where relicensing of the original licenses is "imminent"--in this case within eight years. Since we do not believe FERC's position is based on a reasonable construction of ECPA, nor is it otherwise adequately explained, we grant Kamargo's petition and remand for further consideration.



FERC is charged under the Federal Power Act ("FPA") with regulating and promoting the development of non-federally owned hydroelectric power in the United States. 16 U.S.C. Secs. 791a et seq. (1982 & Supp. IV 1986). It grants licenses for construction, operation, and maintenance of facilities necessary to that development. When licensing a project for the first time, the Commission grants an "original" or "initial," license to the party whose proposed project will be the "best adapted to a comprehensive plan for improving the waterway ... [and] water-power development." 16 U.S.C. Sec. 803(a)(1) (1982 & Supp. IV 1986). In light of the expense involved in hydroelectric development, FERC has traditionally granted licenses for long periods of time (up to fifty years) to make an individual project more attractive relative to the risks involved. City of Batesville, 38 F.E.R.C. p 61,105 (1987).

Congress has also authorized FERC to issue preliminary permits for the limited purpose of "maintaining priority of application for a license ... as ... may be necessary for making examinations and surveys, for preparing maps, plans, specifications, and estimates, and for making financial arrangements." 16 U.S.C. Secs. 797(f), 798 (1982). Preliminary permits take some of the risk out of the exploration of hydroelectric power by giving developers who obtained them a preference when it comes time for the initial licensing of a project. See National Wildlife Fed'n v. FERC, 801 F.2d 1505, 1508 (9th Cir.1986); Appomattox River Water Auth. v. FERC, 736 F.2d 1000, 1003-04 (4th Cir.1984); City of Bedford v. FERC, 718 F.2d 1164, 1166 (D.C.Cir.1983).

A preliminary permit holder, in the event of a contest, is in the most preferred position to receive an original license under the FPA and the Commission's regulations. The statute gives a preference for a license to states and municipalities as against any applicant other than a permit holder if its plans are "equally well adapted." 16 U.S.C. Sec. 800(a) (1982 & Supp. IV 1986). In addition, the statute gives a permit holder substantial control over the timing of applications for an original license. For the duration of the permit (up to three years) the permit holder has the absolute right to initially file for the original license. 16 U.S.C. Sec. 798; see also 18 C.F.R. 4.33(b) (1987). Only after the permit holder files can a competitor intervene. By regulation, FERC has further enhanced the value of this preference requiring that if two or more applicants for an original license are "equally well adapted," then FERC must break the tie in favor of a permit holder. 18 C.F.R. Sec. 4.37(c)(1) (1987). And, if the Commission considers a preferred applicant's proposal to be not as well adapted as a competitor's, the applicant is told by the Commission in what fashion it falls short and is given a "reasonable period of time" to amend its application so that it is at least "as well adapted" as its competitor's. 18 C.F.R. Sec. 4.37(c)(2) (1987). It is thus rather obvious that the statute and FERC's regulations give the holder of a preliminary permit an enormous advantage over all others in pursuit of an original license. It is also clear that a state or municipality--which is preferred against other competitors in the event of a contest for a preliminary

Page 1394

permit 1--is also in a favored status and, if the holder of a preliminary permit as well, a crushing favorite to gain an original license.

As we noted, original licenses under the FPA (passed in 1920) typically were granted for fifty years. It was only in the 1970's, then, that the Commission was confronted with the question whether the municipal preference applied at the time an investor-owned utility sought a license, or in statutory terms a "new license." See 16 U.S.C. Sec. 808 (1982 & Supp. IV 1986); 18 C.F.R. Sec. 4.30(b)(19) (1987). The Commission initially said "yes" and then reversed itself; and as the issue was being litigated in several courts of appeals, 2 Congress intervened. Congress was concerned that if the municipal preference applied at the time of relicensing and caused transfers of projects, consumers would end up paying higher rates for electricity--a particularly serious problem since the "bulk of licenses expiring over the next 15 years are held by investor-owned utilities." S.REP. NO. 161, 99th Cong., 1st Sess. 5-6 (1985). Congress, through ECPA, determined that the municipal preference should not apply to a new license. Although a state or municipality can prevail over an incumbent investor-owned utility that seeks to renew a license if the former's proposal is "best adapted," "insignificant differences ... between competing applications are not determinative and shall not result in the transfer of a project." 16 U.S.C. Sec. 808(a)(2) (1982 & Supp. IV 1986) (emphasis added); see also 132 CONG.REC. H8953 (daily ed. Oct. 2, 1986) (statement of Rep. Shelby) ("public should not suffer the disruptions and economic dislocations that would be associated with a license transfer unless a good reason in the public interest has been shown."). Moreover, the Commission shall consider the incumbent's track record, or "record of compliance with the ... existing license" as well as "actions taken by the existing licensee related to the project which affect the public." 16 U.S.C. Sec. 808(a)(3) (1982 & Supp. IV 1986). The municipal preference thus was actually reversed in a relicensing to create a marginal incumbent preference.

Congress also constructed a timetable for applicants for a new license. The incumbent, or existing licensee must notify the Commission that it intends to file for a new license at least five years before the expiration of the existing license, and its application must be received at least two years before expiration. 16 U.S.C. Sec. 808(b)(1), (c)(1) (1982 & Supp. IV 1986). Nothing in ECPA's timing or preference provisions for relicensing altered or modified in any fashion the statutory provision governing the grant of an original license or a preliminary permit. "[T]hese provisions do not apply to original licenses. They apply only to existing licensees and their competitors." H.R.REP. NO. 507, 99th Cong., 2d Sess. 33 (1985), U.S.Code Cong. & Admin.News 1986, pp. 2496, 2520. In fact, both before and after ECPA, the Commission operated under the same standard for

Page 1395

granting both original and new licenses, by ensuring that the "project adopted ... will be best adapted to a comprehensive plan for improving or developing a waterway." 16 U.S.C. Sec. 803(a) (1982 & Supp. IV 1986). ECPA did make, however, one change that affected both original and new licenses. Congress required that the Commission give equal consideration to non-developmental values, principally environmental ones, in granting all licenses. See 16 U.S.C. Secs. 797(e), 803(a), 808(a) (1982 & Supp. IV 1986); H.R.CONF.REP. NO. 934, 99th Cong., 2d Sess. 21-22 (1985).


One year before ECPA's enactment, in October 1985, Kamargo, an investor-owned utility, filed with the Commission eleven preliminary permit applications to study the future development of additional unutilized water resources at existing projects licensed to Niagara. Each application proposed installation of a new Kamargo power plant on the same river and in the general vicinity (although most on the opposite bank of the river) of an existing hydroelectric plant licensed to and operated by Niagara. Also an investor-owned utility, Niagara's fifty-year licenses on all of these projects expire...

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