Wi. Valley Improvement Co. v. Fed. Energy Regulatory Comm'n, 97-1557

• Decision Date: 26 January 2001
• Docket Number: No. 97-1557,97-1557
• Citation: 236 F.3d 738
• Parties: (D.C. Cir. 2001) Wisconsin Valley Improvement Company, Petitioner v. Federal Energy Regulatory Commission, Respondent United States Department of the Interior and Department of Agriculture, Intervenors & 99-1511
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 738

236 F.3d 738 (D.C. Cir. 2001)

Wisconsin Valley Improvement Company, Petitioner v. Federal Energy Regulatory Commission, Respondent

United States Department of the Interior and Department of Agriculture, Intervenors

No. 97-1557 & 99-1511.

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 1, 2000

Decided January 26, 2001

[Copyrighted Material Omitted]

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

Naikang Tsao argued the cause for petitioner. With him on the briefs were Michael D. Fischer and Bradley D. Jackson.

Larry D. Gasteiger, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the briefs was John H. Conway, Acting Solicitor.

Ronald M. Spritzer, Attorney, U.S. Department of Justice, argued the cause for intervenors. With him on the briefs were Lois J. Schiffer, Assistant Attorney General, and John T. Stahr, Attorney.

Before: Edwards, Chief Judge, Sentelle and Randolph, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge:

Wisconsin Valley Improvement Company ("WVIC" or "the company") petitions for review of Federal Energy Regulatory Commission ("FERC") orders imposing conditions on its license to operate a hydropower project. In addition to charging WVIC an annual fee for "use" of submerged federal lands, the licensing order requires petitioner to implement a "wild rice enhancement plan." FERC imposed the latter condition at the instance of intervenors United States Forest Service and Department of the Interior ("the agencies"), which hold federal lands overflowed by WVIC's reservoir. Petitioner argues, inter alia, that the conditions imposed exceed the scope of FERC's authority under the Federal Power Act ("FPA"), 16 U.S.C. S 791a et seq. (1994), as they govern areas that are not part of any "reservations" of the United States. Petitioner further argues that the enhancement plan is arbitrary and capricious as the required reduction in reservoir's water level would not result in wild rice growth, and challenges the requirement that it pay fees for its "use" of the submerged agency land. We conclude that FERC lawfully could require the wild rice implementation plan under the FPA and further, since it is impossible to confine reductions in the water level to federally controlled land, that FERC was entitled to impose water-level conditions on the entire project. We further hold that the agencies' decisions concerning the wild rice plan were not arbitrary and capricious, but that FERC's decision to charge annual fees was.

I. BACKGROUND

Subchapter I of the FPA, 16 U.S.C. S S 791a-823a (1994), confers on FERC the authority to award licenses for the operation of hydropower projects on the navigable waters of the United States. In particular, FPA S 4(e) requires FERC to include in licenses for projects that operate "within" a "reservation" of the United States, any "such conditions as the Secretary of the department under whose supervision such reservation falls shall deem necessary for the adequate protection and utilization of such reservation." Id. S 797(e). That is, if a FERC-licensed project is located "within" an agency-supervised "reservation," that agency may require FERC to impose conditions on the manner in which the licensee may operate it. The FPA further defines "reservation" to include "national forests, tribal lands embraced within Indian reservations, military reservations, and other lands and interests in lands owned by the United States, and withdrawn, reserved, or withheld from private appropriation and disposal under the public land laws; also lands and interests in lands acquired and held for any public purposes; but shall not include national monuments or national parks." Id. S 796(2) (emphases added).

For the better part of a century, WVIC has operated a project--known as the Wisconsin River Headwaters System--consisting of dams and reservoirs on the Wisconsin and Tomahawk Rivers. WVIC was chartered by Wisconsin's legislature in 1907. In the same year, the company acquired the Lac Vieux Desert reservoir, a natural drainage lake on the Wisconsin-Michigan border that had been dammed for logging operations in 1870. Since 1907, WVIC has operated the reservoir and dam with the principal intent of producing hydroelectric power, as well as providing flood control. The company in 1937 replaced Lac Vieux Desert's nineteenth century logging dam with a concrete reservoir dam. And in 1959, WVIC acquired from FERC's predecessor agency, the Federal Power Commission, a 50-year license for its project (the project was licensed in 1959, but its license was retroactive to 1943). At the time, the company was not charged fees for "using, enjoying, or occupying" the nearby federally owned lands that its reservoir overflowed.

WVIC sought to renew its license in 1991. During the relicensing proceedings, the agencies submitted to FERC, pursuant to FPA S 4(e), a number of conditions that would restrict the manner in which WVIC could operate its project. Those conditions were appropriate, the agencies explained, because WVIC's reservoir overflows 617.3 acres of the Nicolet and Ottawa National Forests, under the Forest Service's jurisdiction, and one-half acre of the Lac Vieux Desert Indian Reservation, administered by the Interior Department. See Wisconsin Valley Improvement Co., 80 FERC p 61,054, 61,170 (1997). After administrative hearings over a five-year period, FERC on July 18, 1996 issued an order that granted WVIC's license application and included the agencies' proposed conditions, three of which the company now challenges. See Wisconsin Valley Improvement Co., 76 FERC p 61,050 (1996).

First, and most important, is Article 114, which requires WVIC to implement at Lac Vieux Desert what FERC styles a ten-year "wild rice enhancement plan." The company is obliged to reduce the reservoir's maximum water level by about nine inches, and to contribute $200,000 toward the planting and monitoring of wild rice. See id. at 61,257-59. The agencies asserted that their "wild rice enhancement plan" was necessary to reverse the depletion of wild rice at the reservoir. Although rice had once been abundant at Lac Vieux Desert, they explained, it had almost completely disappeared by the 1950s. The agencies attributed that decline to the high water that resulted when WVIC rebuilt the reservoir's dam in 1937, and correspondingly concluded that decreasing the reservoir's water level would create conditions favorable to the self-sustaining growth of wild rice. See Final Environmental Impact Statement at 3-37, 4-74 to 4-76, app. J (June 1996). WVIC estimates that, in addition to the $200,000 rice expenditure, it will suffer $400,000 in lost hydropower revenues over the ten-year period. See Petitioner's brief at 54; WVIC Response to Draft Environmental Impact Statement at 5-3 to 5-4 (April 13, 1995).

In addition, FERC included in WVIC's new license two provisions--Articles 201 and 202--that require the company to pay annual fees to the United States for its use of submerged federally-owned land. See Wisconsin Valley Improvement Co., 76 FERC at 61,237. Such payments are required, FERC submits, by FPA S 10(e), which obliges a licensee to "pay to the United States reasonable annual charges in an amount to be fixed by the Commission ... for recompensing it for the use, occupancy, and enjoyment of its lands or other property." 16 U.S.C. S 803(e) (1994).

WVIC sought an administrative rehearing and petitioned for review in this Court. Although FERC subsequently issued several orders that modified its initial 1996 ruling, see Wisconsin Valley Improvement Co., 80 FERC p 61,054 (1997); Wisconsin Valley Improvement Co., 87 FERC p 62,251 (1999); Wisconsin Valley Improvement Co., 89 FERC p 61,057 (1999), it left intact the portions challenged here. WVIC's first petition for review, case number 97-1557, was consolidated with its present petition by a January 10, 2000 order of this Court.

II. DISCUSSION

A. FPA S 4(e)

This Court reviews FERC's orders--including conditions prescribed by agencies pursuant to FPA S 4(e)--under the Administrative Procedure Act ("APA"), 5 U.S.C. S 551 et seq. (1994), which obliges us to reverse any agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Id. S 706(2)(A); see Sithe/Independence Power Partners v. FERC, 165 F.3d 944, 948 (D.C. Cir. 1998). As pertinent here, the APA's prohibition on arbitrary and capricious agency action requires us to decide whether FERC correctly concluded that the lands flooded by WVIC's reservoir are part of a "reservation" of the United States within the meaning of the FPA.

1. Existence of S 4(e) authority

WVIC argues that FERC cannot impose the conditions submitted by the agencies under S 4(e) as the facts of the present licensing procedure do not come within the rationale of that section. As petitioner views it, the mandatory conditioning authority under that section, giving as it does carte blanche authority to impose conditions on projects located within federal reservations, see Escondido Mut. Water Co. v. La Jolla Band of Mission Indians, 466 U.S. 765 (1984), could not have been intended to provide that sort of authority to otherwise uninvolved agencies over the regulation of license projects no more connected to reservation land than WVIC is to the lands under consideration. WVIC argues that its project cannot be "within" the relevant reservations because "[t]he Agencies have no protectable property interests that conflict with WVIC's prescriptive water rights, and its operation of the Reservoir does not depend on the use or occupancy of any federal property right." Petitioner's brief at 11. That is a non sequitur.

The question whether WVIC owns flowage easements over the lands is irrelevant to whether the lands themselves are part of a...