Court backs costly Cushman license; restored 4(e) terms boost tab

A U.S. appeals court declared Aug. 22 that the Federal Energy Regulatory Commission has the unilateral power to shut down a hydropower project — either directly or by imposing costly conditions that cause a licensee to reject a new license.

At the same time, the U.S. Court of Appeals, District of Columbia Circuit, chastised FERC for improperly rejecting Interior Department mandatory conditions because Interior failed to meet a FERC deadline for submitting them.

With those and other far-reaching findings, the appeals court let stand the relicensing of the city of Tacoma, Washington’s 131-MW Cushman hydroelectric project on Washington’s North Fork Skokomish River. However, the case was sent back to FERC with orders to restore Interior’s mandatory conditions under Federal Power Act Section 4(e).

Tacoma was one of several parties who appealed the final relicense order issued in 2004. The city argued that the order was so laden with open-ended, experimental, and expensive conditions that it could not accept the license if upheld. Noting that FERC found the project had a net benefit of �negative $2.06 million� per year, Tacoma said the relicense order violated FERC’s responsibility under the Federal Power Act to issue a license containing �reasonable terms.�

�Congress implicitly extended to FERC power to shut down projects�

Contrary to an untested 1995 FERC policy statement claiming FERC can decommission hydro projects, Tacoma argued the FPA contains no provision for such an action. Tacoma added that �FERC may not do indirectly that which it has no authority to do directly — or, in other words, de facto decommissioning� by making the project too expensive to operate.

The appeals court disagreed, noting there has been a major shift in national priorities since Cushman originally was licensed in 1924. It said priorities have changed from near-exclusive focus on development in the 1920s to an increasing focus on environmental protection, which is reflected in amendments to the FPA.

�Therefore, the question we must decide is whether �reasonable terms’ can, in some cases, be terms that may have the effect of shutting a project down or occasioning a change of ownership,� the court said. �We think the answer is yes, especially here where, according to FERC’s factual finding, Tacoma has recouped its initial investment plus a significant annual return on that investment.�

The court declined to outline the circumstances under which FERC might order the decommissioning of a hydro project. However, it opened the door to project shutdown, in principle.

�In conclusion, we find persuasive FERC’s argument that Congress implicitly extended to FERC the power to shut down projects either directly, by denying a new license, or indirectly, by imposing reasonable and necessary conditions that cause the licensee to reject the new license,� the court said.

D.C. Circuit: FERC wrong to reject Interior conditions

However, not everything in the decision went FERC’s way. The judges said FERC exceeded its authority when it rejected the Interior Department’s Section 4(e) mandatory license conditions because they were not submitted by a FERC-imposed deadline.

Although the FPA prohibits the commission from rejecting or modifying resource agency mandatory conditions, FERC set a 60-day deadline for their submission. In the Cushman case, Interior said the deadline was unworkable and submitted preliminary conditions two years later and final conditions nine months after that. The court said FERC was wrong to reject the conditions as untimely because the FPA gives it no discretion to do so.

�FERC can no more dictate to Interior when Interior should complete its work than Interior can dictate to FERC when FERC should do so,� the court said. �Here, FERC took all the time it needed — a full 24 years — to issue a license to Tacoma. Interior, in contrast, produced its license conditions within about three years of receiving notice.�

The court also said FERC could not limit the scope of Interior’s conditions, which were intended to protect the Skokomish Indian Reservation. FERC argued only part of the project, a road and a transmission line, were on the reservation and that the conditions must be limited to effects of those parts. The court rejected that limitation.

�On the contrary, so long as some portion of the project is on the reservation, the secretary is authorized to impose any conditions that will protect the reservation, including utilization of the reservation in a manner consistent with its original purpose,� it said.

As a result, the court ordered FERC to restore Interior’s conditions to the license, which the court admitted could prompt FERC to decide not to reissue the license, or could be an additional burden prompting Tacoma to reject it.

The judges did uphold FERC in regard to states’ issuance of water quality certification under Clean Water Act Section 401. Similar to the federal agency mandatory conditions, FERC cannot reject state certification and cannot issue a license without one unless the state waives certification. However, the court said FERC does have an obligation to make sure the state certification complies with the requirements of Section 401.

�This obligation does not require FERC to inquire into every nuance of the state law proceeding … but it does require FERC to at least confirm that the state has facially satisfied the express requirements of Section 401,� the court said.

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