Environmental, FERC News, North America

Hydropower: The New Preemption Frontier?

Issue 5 and Volume 36.

With a large number of hydro projects up for new FERC licenses in coming years, regulators and operators will have to address a bevy of issues that could spell change for project operators.

By William S. Huang, Katharine M. Mapes and Jeffrey M. Bayne

There is a longstanding U.S. Supreme Court precedent that federal regulation of hydropower under the Federal Power Act preempts the field, meaning that states cannot regulate in that area because the federal government has occupied it entirely. Despite that, there are significant unresolved issues regarding the line between state and federal authority in the context of hydropower.

Many of those issues have not yet come to a head, but the tensions between states and the Federal Energy Regulatory Commission are likely to increase in the coming years as large numbers of hydro projects come up for relicensing. As FERC considers whether, and under what conditions, new licenses should be issued for those projects, states are likely to seek to require new license conditions governing project operations and calling for an expanded state role during the license term, as has increasingly been their practice in recent years.

Disputes involving the boundaries of federal versus state authority under the FPA made it to the Supreme Court twice last year,1 and both times, the court was asked to decide whether one had encroached on the other’s exclusive authority to regulate electric rates. Hydropower might well be the new preemption frontier.

Background

In 1946, the Supreme Court ruled in First Iowa Hydro-Electric Cooperative v. Federal Power Commission that Part I of the FPA, which regulates hydropower, was meant to be a “complete scheme of national regulation which would promote the comprehensive development of the water resources of the Nation, in so far as it was within the reach of the federal power to do so.”2

The court held the State of Iowa could not require that an applicant obtain a state permit, in addition to a federal license, prior to building a hydro project because “the detailed provisions of the [FPA] providing for the federal plan of [hydro] regulation leave no room or need for conflicting state controls.”3

States, however, are not powerless. For example, states retain authorities created or preserved under federal statutes, such as the Clean Water Act, which gives them a gatekeeper role in FERC licensing proceedings. In addition, to the extent FERC does not exercise licensing jurisdiction over a specific hydropower project, there may be regulatory gaps that states can fill.

In this article, we will discuss three issues involving the boundaries of state and federal authority over hydropower projects:

  • Reopener provisions in CWA Section 401 Water Quality Certifications (WQCs);
  • State enforcement of WQC conditions incorporated into hydro licenses; and
  • State regulation of projects that have been granted FERC-issued exemptions.

State reopeners in FERC hydroelectric licenses

One of the most significant ways that states exercise power over FERC-licensed hydro projects is through their issuance of CWA Section 401 WQCs. Section 401 provides that no federal license or permit for an activity that may result in discharge to navigable waters shall be granted until a state WQC “has been obtained or has been waived.”4 The courts have ruled that Section 401 applies to FERC’s issuance of hydropower licenses5 and that if FERC issues a license, it must include in the license all of the terms and conditions contained in the related WQC.6

Since at least the mid-1990s, a number of state agencies responsible for issuing WQCs for FERC-licensed hydro projects have regularly included reopener provisions that seek to extend the state’s conditioning authority beyond the initial issuance of the license by FERC. Like wishing for more wishes, those provisions state that the agency can revisit and modify its water quality conditions during the license period should the agency deem conditions to have changed.

However, the extent of state authority reserved by those provisions has not been fully tested. It has been FERC’s position that once a license is issued, its terms and conditions cannot be changed without FERC’s express approval — and FERC regularly places caveats on certain types of reopener provisions from state water quality certifying agencies and from other federal agencies with mandatory conditioning authority under FPA Section 4(e).7

According to FERC, reopener provision that contemplate “unspecified long-term changes to project facilities and operations … may not be implemented without prior Commission authorization granted after the filing of an application to amend the license.”8

In a few cases, FERC has modified the terms and conditions of a license at the request of a resource agency that has invoked a reopener provision. However, while FERC has cited the reopener as the reason for a license modification in those cases,9 FERC has not explicitly stated whether or not it has discretion to deny such a request to reopen and modify the license. Those few instances, moreover, were uncontroversial. In most cases, it was the licensee that filed the request to amend its FERC license to incorporate the modified condition,10 and in all but one of the remaining cases, the licensee stated it expressly supported the modification.11 In the last case, the licensee made no explicit statement one way or another.12

There is an open question, then, as to whether FERC or the states have ultimate control when it comes to the implementation of reopeners included in WQCs that have been incorporated into FERC hydro licenses. While FERC cannot alter a Section 401 WQC condition when issuing a license, can it nevertheless restrict exercise of a reopener included in the WQC? Or can it simply refuse to act on requests to modify license conditions with which it disagrees? Cooperation between FERC, licensees and states in individual cases has masked those legal questions to date, but they may be ripe for legal challenge.

State enforcement of WQCs against licensees

As discussed above, FERC must incorporate into any license it issues all of the conditions that a certifying state includes in its WQC for the project. The case law establishing that requirement, however, does not resolve whether and to what extent those conditions — as well as any modified terms and conditions that might be incorporated into the license during its term pursuant to a reopener — will be enforced. FERC’s position is that it is the only entity that can enforce a FERC license,13 and FERC has significant discretion in license enforcement. According to the Ninth Circuit, FERC has “virtually unreviewable discretion” to enforce or not enforce any alleged license violations in any given circumstances.14

A recent decision from the U.S. District Court for the District of Oregon, however, concludes that states and even citizens may be able to bring separate enforcement actions directly against licensees based on the conditions of the WQC incorporated into a FERC license. In Deschutes River Alliance v. Portland GE,15 stakeholders brought an action under the citizen suit provision of the CWA,16 alleging that the Portland General Electric Co. violated several requirements contained in its WQC for the Pelton-Round Butte Hydroelectric Project, each of which is also a condition of its FERC license.17 PGE argued that “because any condition that a state includes in a water quality certification is incorporated into the license or permit, only the licensing entity (here FERC) may enforce permit conditions.”18

The district court rejected PGE’s argument and denied its motions to dismiss. The court explained that while FERC has the authority to enforce any conditions in the WQC once these conditions are included in a license, there was no indication “that Congress intended to limit enforcement avenues.”19

It also noted that the “overwhelming textual support for state authority to create and enforce their own water quality standards” contradicts PGE’s interpretation of the CWA, which “would put all enforcement authority exclusively in the hands of the federal permitting agency.”20 If the court’s decision stands, states would have the right to enforce their own water quality standards directly against licensees, dictating the operation of FERC-licensed hydropower projects outside the FERC process.

State regulation of exempt projects and projects with FERC-issued exemptions

For some hydropower projects, states may have even broader regulatory authority. The Hydropower Regulatory Efficiency Act of 2013,21 for example, established a new category of hydropower projects, called “qualifying conduit hydropower facilities,” that are not required to be licensed by FERC. FERC’s review of such projects is limited to determining whether an applicant meets the statutory qualifying criteria.22 FERC’s qualifying criteria determinations include standard language clarifying that while FERC will not license those projects, “qualifying conduit hydropower facilities remain subject to other applicable federal, state, and local laws and regulations.”23

In addition, the highest court of at least one state has suggested that states might also have authority to directly regulate hydropower projects for which FERC has granted an “exemption” rather than a license. FERC can grant an exemption to certain small hydropower projects24 and conduit hydroelectric projects.25 While projects with exemptions are not required to undergo the full licensing process, they are not free from FERC regulations26 — FERC-issued exemptions, like licenses, contain terms or conditions that the holder must follow.27

In the Matter of Chasm Hydro, Inc. v. New York State Department of Environmental Conservation,28 the New York Court of Appeals was asked to rule on a dispute between an entity that held a FERC exemption for its small hydroelectric project and the New York State Department of Environmental Conservation, which alleged that the exemptee’s operations violated the state’s water quality standards and sought to enforce those standards.

In its order, the court raised two basic questions. The main issue, which the court held was to be determined in the first instance through the administrative process, is whether FERC’s issuance of an exemption, including conditions, preempts states from pursuing their own enforcement actions.

The court also added that “the administrative proceeding should address whether the dam, as an exempt project, should be treated the same as a licensed project for the purpose of preemption analysis”29 — suggesting that states might have more regulatory authority over projects with exemptions than over licensed projects.

Ultimately, the parties settled without resolving the preemption issues framed by the court, so the extent of federal preemption for exemptions remains an open question.30

Conclusion

States have an understandable interest in expanding their authority over hydropower projects, whether through reopener provision in WQCs or state enforcement actions against FERC licensees or exemptees.

However, basic questions as to whether they have the jurisdiction necessary to take those actions and whether state courts are the proper forum for such actions have never been fully resolved.

The coming surge of relicensings may serve as the impetus to bring some of these questions to the courts. In contrast to existing licenses that were issued 30-50 years ago, many of the new licenses issued at relicensing will include reopener provisions and other new conditions that states may seek to enforce in the coming years. Certainly, those involved in those relicensing proceedings and in FERC enforcement proceedings should be aware of the potential for significant unanswered questions to arise, and the opportunities and risks this uncertainty entails. ■


William Huang and Katharine Mapes are partners and Jeffrey Bayne is an associate in the Washington, D.C., law firm of Spiegel & McDiarmid, LLP.

Notes

1Hughes v. Talen Energy Mktg., LLC, 136 S. Ct. 1288 (2016); FERC v. Elec. Power Supply Assn., 136 S. Ct. 760 (2016)

2First Iowa Hydro-Elec. Coop. v. Fed. Power Comm’n, 328 U.S. 152, 180 (1946), reh’g denied, 328 U.S. 879 (1946)

3Id. at 181

433 U.S.C. § 1341(a)(1)

5S.D. Warren Co. v. Maine Bd. of Envtl. Prot., 547 U.S. 370, 375-78 (2006); PUD No. 1 of Jefferson Cty. v. Washington Dep’t of Ecology, 511 U.S. 700, 709, 711-13 (1994)

6Am. Rivers, Inc. v. FERC, 129 F.3d 99, 111-12 (2d Cir. 1997), remanded sub nom. Turnbridge Mill Corp., 82 FERC ¶ 61,265 (1998)

716 U.S.C. § 797(e)

8See, e.g., Duke Energy Progress, Inc., 153 FERC ¶ 61,056, P 61 (2015) (possible modification of flow requirements after five years may not be implemented without prior Commission authorization), petition for review filed sub nom. City of Rockingham v. FERC, No. 15-2535 (4th Cir. docketed Dec. 11, 2015)

9Puget Sound Energy, 130 FERC ¶ 62,220, P 7 (2010) (explaining that “[b]ecause the water quality certification reserves the authority for [the Washington Department of] Ecology to amend the water quality certification, we accept Ecology’s October 26, 2009 amendment and incorporate it as part of the project license.”)

10See, e.g., Consumers Energy Co., 155 FERC ¶ 62,100 (2016); Monadnock Paper Mills, Inc., 156 FERC ¶ 62,103 (2016); S.D. Warren Co., 155 FERC ¶ 62,223 (2016); Oswego Hydro Partners L.P., 102 FERC ¶ 62,187 (2003)

11See, e.g., El Dorado Irrigation Dist., 123 FERC ¶ 62,066, at 64,165 (2008). California Water Board (“Water Board”) “notified the licensee by letter dated September 20, 2007, that it was amending several conditions in the certification … to make its monitoring and reporting requirements consistent with those of the U. S. Forest Service (USFS) Section 4 (e) conditions and with a Settlement Agreement filed with the Commission on April 29, 2003.” Id. Licensee accepted the Water Board proposal, stating in a letter to FERC that it accepts the amendment to the WQC and has no objection to its incorporation into the license. El Dorado Irrigation Dist., El Dorado Hydroelectric Project—FERC Project No. 184—Acceptance of September 20, 2007 Amendment to Water Quality Certification (Mar. 14, 2008), eLibrary No. 20080317-5044. See also, e.g., Flambeau Hydro LLC, 125 FERC ¶ 62,168, at 64,540 (2008). The “Wisconsin Department of Natural Resources (WDNR) filed its notice of revised water quality certification,” which was “the product of a final settlement agreement between and among the State of Wisconsin, Flambeau Hydro LLC (licensee), North Central Power Company, Inc., and the River Alliance of Wisconsin.” Id. While the licensee did not make a filing at FERC in support of incorporating the amended WQC in the license, FERC noted that “[t]he licensee has agreed to the conditions of the revised water quality certificate as indicated by the final settlement agreement …” Id. at 64,541

12Avista Corp., 132 FERC ¶ 62,022 (2010)

13See, e.g., Portland Gen. Elec. Co., 133 FERC ¶ 62,281, P 100 (2010) (noting that “the Commission retains exclusive authority to implement and enforce the terms of the license . . . .”), reh’g denied in part, 134 FERC ¶ 61,206 (2011); California Dep’t of Water Res., 110 FERC ¶ 61,030, P 8 (2005) (“Federal law vests in the Commission exclusive authority over licensing and regulation of the project, except for the right of states to determine vested property rights in water necessary to operate a project.”) (citing California v. FERC, 495 U.S. 490 (1990))

14Friends of Cowlitz v. FERC, 253 F.3d 1161, 1162 (9th Cir. 2001), review denied and amended by 282 F.3d 609 (9th Cir. 2002). FERC does allow other agencies and entities to intervene and participate in post-license proceedings regarding matters on which the other agency or entities are required, under the license, to be consulted. See, e.g., California Dep’t of Water Res., 140 FERC ¶ 61,208, P 24 (2012)

15No. 3:16-cv-1644-SI, 2017 U.S. Dist. LEXIS 44029 (D. Or. Mar. 27, 2017)

1633 U.S.C. § 1365(a)(1)

17Deschutes River All., 2017 U.S. Dist. LEXIS 44029, at *2-3

18Id. at *3-4. PGE alternatively argued that even if a state could enforce a WQC condition contained in a FERC license under state law, the plaintiffs here could not bring suit in federal court. Id. at *4

19Id. at *18

20Id. at *21

21Pub. L. No. 113-23, 127 Stat. 493

2216 U.S.C. § 823a(a)

23See, e.g., FERC Office of Energy Projects, Determination that the Silver Creek Hydro Energy Recovery Facility Project Meets the Qualifying Conduit Hydropower Facility Criteria at 1 (Feb. 27, 2017), eLibrary No. 20170227-3003

2416 U.S.C. § 2705(d)

25These facilities must utilize “only the hydroelectric potential of a conduit” and have “an installed capacity that does not exceed 40 megawatts.” 16 U.S.C. § 823a(b)

26Exemption From All or Part of Part 1 of the Federal Power Act of Small Hydroelectric Power Projects With an Installed Capacity of Five Megawatts or Less, Order No. 106, 45 Fed. Reg. 76,115, 76,121 (Nov. 18, 1980), FERC Stats. & Regs. ¶ 30,204, at 31,169-70 (1980), clarified, Order No. 106-A, 46 Fed. Reg. 55,252 (Nov. 9, 1981), FERC Stats. & Regs. ¶ 30,306 (1981)

27Standard terms and conditions for exemptions are codified at 18 C.F.R. §§ 4.94 and 4.106

2814 N.Y.3d 27, 32 (2010)

29Id

30Order on Consent & Stipulation of Discontinuance, In re the Violations of Article 17 of the Envtl. Conservation Law (“ECL”) of New York Title 6 of the Official Compilation of Codes, Rules & Regulations of New York (“6 NYCRR”) Parts 701 & 703; & the Alleged Violations of Articles 11 & 15 of the ECL & 6 NYCRR Part 703, DEC Case No. R5-20061024-650 (N.Y. Dep’t of Envtl. Conservation Dec. 29, 2014)

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