State of Cal., ex rel. State Water Resources Bd. v. F.E.R.C., 87-7538

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation877 F.2d 743
Docket NumberNo. 87-7538,87-7538
Parties, 19 Envtl. L. Rep. 21,303 STATE OF CALIFORNIA, ex rel. STATE WATER RESOURCES BOARD, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Rock Creek Limited Partnership, Intervenor.
Decision Date06 June 1989

John K. Van de Kamp, Atty. Gen., State of Cal., Clifford T. Lee and Roderick E Catherine C. Cook, General Counsel, Jerome M. Feit, Sol., F.E.R.C., Washington, D.C., for respondent.

Walston, Deputy Attys. Gen., San Francisco, Cal., for petitioner.

Louis Touton, Jones, Day, Reavis & Pogue, Los Angeles, Cal., for intervenor.

Petition for Review of a Decision of the Federal Energy Regulatory Commission.

Before HUG, TANG and BOOCHEVER, Circuit Judges.

HUG, Circuit Judge:

The State of California petitions us to review the Federal Energy Regulatory Commission's decision finding exclusive federal control over the setting of hydroelectric power project water flow rates. After examining the preemption implications of the Federal Power Act ("FPA"), 16 U.S.C. Secs. 791a-825r (1982 & Supp. V 1987), we affirm the Commission's conclusion that the Act awards the federal government sole authority to set flow rates.

BACKGROUND

Rock Creek is a small tributary of the South Fork of the American River near Placerville, California. Rock Creek runs entirely within the state of California and lies on public lands administered by the U.S. Bureau of Land Management.

The Rock Creek Limited Partnership chose the creek as the site for a small hydroelectric power project. They proposed a project that will consist of a concrete diversion dam located about one mile upstream from Rock Creek's confluence with the American River. The dam will divert water through a tunnel into three penstocks, and then into a powerhouse equipped with three turbine generators having a total capacity of 3,000 kilowatts. After passing through the powerhouse, the water will empty into the American River about one mile down stream. The penstocks and powerhouse will be built on the site of an older powerhouse and penstock complex. The project is expected to generate about 7,000 megawatt-hours of electricity annually. The Pacific Gas & Electric Company will purchase the project's power.

The dam will divert some of the water flow from Rock Creek into the power project and leave the remainder of the water to flow in its natural course in Rock Creek. The minimum amount of water flow that must be left in Rock Creek, denominated the "minimum flow rate," is the principal point at issue in this case.

In April, 1983, after submission of an application by the Partnership, the Federal Energy Regulatory Commission ("FERC") issued a license for the project's construction and operation. Article 37 of the license fixed an interim minimum flow rate of eleven cubic feet per second ("cfs") from May to September, and fifteen cfs from October through April. These flow rates would apply until the project's sponsors satisfied the provisions of Article 38, which requires the owners to conduct long-term minimum flow rate studies in conjunction with the California Department of Fish and Game ("DFG").

In February, 1984, the California State Water Resources Control Board ("WRCB") issued two permits to the project for the appropriation of Rock Creek's water. These permits incorporated the federal license's interim minimum flow figures and reserved jurisdiction to the WRCB to set permanent rates after completion of the long-term studies. The permits noted that Rock Creek serves as an important source of adult trout for the Rock Creek-American River system. California law in effect at the time the permits were issued charged the WRCB with subjecting appropriations "to such terms and conditions as in its judgment will best develop, conserve, and utilize in the public interest" the water affected by the permits. Cal. Water Code Sec. 1257 (West 1971). 1

In July, 1986, the project's sponsors petitioned for a declaratory order stating that FERC had exclusive jurisdiction to establish permanent minimum flow rates. About eight months later, in March, 1987, FERC issued a declaratory order in which it held that "[t]he imposition of minimum flow releases for fishery protection and other purposes is an integral part of the Commission's comprehensive planning and licensing process under section 10(a) of the Federal Power Act." 38 FERC p 61,240 (1987) (footnote omitted). In addition to citing the FPA, the Commission relied on First Iowa Hydro-Electric Coop. v. FPC, 328 U.S. 152, 66 S.Ct. 906, 90 L.Ed. 1143 (1946), for authority to preempt state regulation of flow rates.

A few days after FERC issued its declaratory order, the WRCB amended its permits in response to the DFG's completion of the fishery studies. On the DFG's recommendation and after a hearing in which the project's sponsors disputed the studies, the WRCB increased minimum flow rates to permanent levels of sixty cfs from March through June and thirty cfs from July through February. In the order amending the permits the WRCB stated that First Iowa did not support federal preemption of this issue and that the WRCB had "jurisdiction in this matter to regulate the Rock Creek project, notwithstanding the concurrent exercise of jurisdiction over other aspects of the project by FERC." WRCB Order WR 87-2 (1987).

The State of California then filed with FERC a motion for intervention on behalf of the WRCB and requested a rehearing of the declaratory order. The rehearing petition raised as its sole argument the question of federal preemption under the FPA of flow rate setting powers. FERC granted the intervention motion but denied, in November, 1987, the rehearing request.

California filed a timely petition in this court in December, 1987, seeking review of the declaratory order and the order denying rehearing. It presents the issue of whether the FPA vests exclusive authority in FERC to set minimum flow requirements for hydroelectric power projects licensed under the Act.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction under 16 U.S.C. Sec. 825l(b) to review decisions issued by the Commission. Our jurisdiction is limited to objections raised in the petitioner's application for rehearing before the Commission. 16 U.S.C. Sec. 825l (b) (1982); LaFlamme v. FERC, 852 F.2d 389, 397 (9th Cir.1988).

Our review of the decision at issue in this appeal is respectful but searching. Generally, we may reverse the Commission's orders only if we find them arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or not in accordance with law. 5 U.S.C. Sec. 706(2)(A) (1982); City of Centralia, Wash. v. FERC, 799 F.2d 475, 481 (9th Cir.1986); The Steamboaters v. FERC, 759 F.2d 1382, 1388 (9th Cir.1985). California challenges, however, the Commission's determination of purely legal questions involving the construction of the FPA. Since this case involves only issues of statutory interpretation, the high degree of deference associated with the arbitrary and capricious standard, see Nat'l Wildlife Fed'n v. Burford, 871 F.2d 849, 855 (9th Cir.1989), is considerably relaxed. While we accord deference to the construction of a statute by those charged with its administration, Filiberti v. Merit Sys. Protection Bd., 804 F.2d 1504, 1508 (9th Cir.1986); City of Centralia, 799 F.2d at 481, we keep in mind that the courts are the final authorities on issues of statutory construction, Fed. Election Comm'n v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981); Tulalip Tribes of Wash. v. FERC, 732 F.2d 1451, 1454 (9th Cir.1984). The justification for deference to an agency's interpretation of a statute decreases when the statutory construction requires consideration of broad concerns beyond the agency's expertise. Grunfeder v. Heckler, 748 F.2d 503, 505 (9th Cir.1984) (en banc). The FERC decision in this case deals not with the technical aspects of the FPA but with general issues of preemption and the division

of regulatory authority between state and federal governments. These subjects belong to the sphere of judicial rather than agency expertise.

ANALYSIS

California asserts that neither the terms of the FPA nor case law interpreting it authorize federal preemption of state laws dealing with the acquisition of water rights and the conditions attached to the exercise of those rights. California offers two main lines of argument. First, it claims that section 27 of the FPA, codified at 16 U.S.C. Sec. 821 (1982), is an anti-preemption provision requiring projects licensed under the FPA to comply with state water rights and usage laws. Second, it argues that First Iowa is distinguishable and not on point. California relies heavily on the FPA's legislative history and on the Supreme Court's holdings in California v. United States, 438 U.S. 645, 98 S.Ct. 2985, 57 L.Ed.2d 1018 (1978), for these arguments.

Against California's contentions, FERC argues that the FPA vests comprehensive hydropower planning authority in the federal government generally and in FERC specifically. It claims that this authority amounts to a clear grant of preemption. It also argues that First Iowa recognized and approved this preemption and that California v. United States is irrelevant to the issues at hand.

I. Preemption

Preemption analysis always starts with the presumption that Congress did not intend to displace state law. See, e.g., Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 2128, 68 L.Ed.2d 576 (1981). However, as the Court has stated:

Such a purpose [to displace state law] may be evidenced in several ways. The scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the states to supplement it. Or the Act of Congress may touch a field...

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