Fall River Rural Electric Cooperative (Fall River) petitioned the Ninth Circuit for review of two orders issued by the Federal Energy Regulatory Commission (FERC) in response to Fall River’s license application to construct and operate a new hydroelectric power facility on the Madison River in Montana. In denying Fall River’s application and request to hold the proceedings in abeyance, as well as Fall River’s request for a rehearing, FERC concluded the proposed project was barred by section 6 of the Federal Power Act (FPA).[1] The Ninth Circuit denied Fall River’s petition for review, finding substantial evidence in support of FERC’s factual determination under the FPA, and concluding FERC’s orders were consistent with the agency’s precedent and regulations.

Hebgen Dam, a water storage and release facility, is one of nine developments that comprise the Missouri-Madison Hydroelectric Project on a 324-mile stretch of river in southwest Montana. The project is licensed by FERC to Pennsylvania Power & Light Montana (PPL). In 2001, FERC granted Fall River a preliminary permit to determine the feasibility of constructing and operating a hydroelectric facility at Hebgen Dam. PPL did not object to the preliminary permit and entered into negotiations with Fall River regarding a possible site use and operations agreement. Fall River submitted its final license application for the proposed Hebgen Dam project in May 2004. The application proposed several changes and additions to the existing Hebgen Dam, which included the construction of a new powerhouse and several modifications to the existing structure of the dam.[2] Fall River estimated that construction would take approximately three months.

Under section 6 of the FPA, FERC cannot substantially alter existing, licensed projects without the consent of the licensee.[3] In light of section 6 of the FPA, FERC initially agreed to continue processing Fall River’s final license application based on the understanding that Fall River and PPL were actively negotiating an agreement for the construction and operation of the proposed facility. After PPL terminated all negotiations with Fall River, however, FERC dismissed Fall River’s license application. Upon review, FERC concluded section 6 of the FPA barred the proposal because the project would substantially alter PPL’s licensed project, and Fall River did not obtain the requisite consent from licensee PPL. FERC also denied Fall River’s request to hold the application in abeyance because PPL expressed no intent to resume negotiations with Fall River. Subsequently, a three-person panel of FERC commissioners denied Fall River’s request for rehearing, concluding the project required substantial physical alterations and would create potential operating problems related to the joint-use of the Hebgen Dam site.

In its petition for review, Fall River argued that 1) FERC’s orders denying its license application and request to hold the proceedings in abeyance were not supported by substantial evidence, 2) FERC’s decision was inconsistent with the agency’s precedent, regulations, and issuance of a preliminary permit, and 3) FERC failed to consider whether PPL impliedly consented to the project. The Ninth Circuit reviewed FERC’s decision under the Administrative Procedure Act (APA)[4] to determine whether FERC’s action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.[5] When FERC’s findings are supported by substantial evidence, the Ninth Circuit accepts FERC’s factual findings as conclusive.[6]

Reviewing Fall River’s petition, the Ninth Circuit first rejected Fall River’s contention that its proposal would not materially alter PPL’s existing project works, operations, or power generation. The court noted that an “alteration” under section 6 of the FPA is a factual issue determined on a case-by-case basis,[7] but Fall River and FERC agreed that to violate the FPA, a “proposed project must substantially alter an existing license.”[8] FERC concluded that Fall River’s project involved substantial physical alterations to the existing facility, including installation of new gates on the intake tower, excavation of a large area of the dam, reconfiguration of the outlet conduit, and installation of a valve house and new penstock. FERC also determined the “potential for ‘joint-use operational problems [between PPL and Fall River] would be a substantial alteration of the existing license.’”[9] The Ninth Circuit explained that such actions “fundamentally change the physical characteristics and operation of the Hebgen Development,” and that “Fall River apparently [did] not appreciate the cumulative impact of its proposed project.”[10] Accordingly, the Ninth Circuit concluded that FERC’s factual findings regarding the physical alterations and operational interference were supported by substantial evidence.

The court next considered whether FERC’s decision on Fall River’s application was consistent with the agency’s prior precedent. First, the Ninth Circuit examined FERC’s analysis of three cases where the agency found the applicant proposed a substantial alteration to existing licenses.[11] In Niagara Mohawk Power Corporation,[12] FERC rejected a license application to modify an existing development because the project required significant construction and alterations of the existing licensed project, which would effectively lead to the closure of the original facility.[13] The Ninth Circuit reasoned that Fall River’s proposal likewise required “more than an insubstantial amount of construction.”[14] In a second case, FERC denied an application that proposed modifying an existing dam and powerhouse because it involved significant structural modifications to the project dam and project works adjacent to the dam.[15] Although Fall River did not ask to modify an existing powerhouse, the Ninth Circuit determined Fall River hoped to construct a new powerhouse and make other alterations to the Dam. Finally, FERC considered the case of Green Island Power Authority (Green Island),[16] in which a proposal to construct a new dam was denied because it would render an existing project inoperable.[17] In examining Green Island, the Ninth Circuit concluded FERC only used Green Island as an “extreme example of a substantial alteration” and did not imply that Fall River’s proposal needed to be as extreme as the Green Island proposal to amount to a substantial alteration.[18]

The Ninth Circuit also reviewed FERC’s evaluation of earlier decisions where the agency found no substantial alteration to existing licenses. In Water Basin Water Conservancy District,[19] FERC found no substantial alteration to a license to construct a penstock under an existing canal because construction was only expected to take three to seven days and would result in no physical interference to prior licensees once finished.[20] In contrast, the Ninth Circuit determined Fall River’s construction project was expected to take eight months and would “fundamentally alter the flow of water through Hebgen Dam.”[21] Additionally, in Howard W. Bair,[22] FERC granted a preliminary permit that proposed extending an existing pipe by forty feet.[23] The Ninth Circuit distinguished Bair, concluding Bair involved only a preliminary permit and small-scale changes, whereas Fall River’s proposals were “far more extensive.”[24] Finally, in two prior cases, FERC concluded that a 0.3% reduction in power generation did not constitute a substantial alteration.[25] Fall River argued that similarly, its proposed project would not reduce power generation at Hebgen Dam. However, the Ninth Circuit noted that while power generation would not be reduced at Hebgen Dam,[26] the two earlier cases were distinguishable because they lacked “physical modifications comparable to those now proposed by Fall River.”[27] Reviewing the two lines of prior precedent, the Ninth Circuit concluded FERC’s orders regarding Fall River were consistent with the agency’s past decisions and therefore entitled to deference.

The court next considered Fall River’s assertion that FERC’s orders were inconsistent with its regulations and the agency’s issuance of a preliminary permit. Fall River argued that because its final license application was substantially identical to the preliminary application granted by FERC, FERC’s denial of its final license application constituted a change in policy that required a reasoned explanation.[28] The Ninth Circuit noted that FERC’s practice is to issue preliminary permits unless there is a clear indication that a project would involve impermissible alterations to an existing license, [29] or there is a “permanent legal barrier” to the proposed project.[30] Further, FERC’s issuance of a preliminary permit does not indicate the agency made a decision on the merits of a license application.[31] In rejecting Fall River’s argument, the Ninth Circuit concluded FERC’s orders were consistent with its regulations because it was not clear at the time of the preliminary permit application that Fall River’s project would substantially alter PPL’s license, nor was there any indication that a permanent legal barrier would preclude issuance of the final permit.

Lastly, the Ninth Circuit rejected Fall River’s argument that FERC failed to consider whether PPL impliedly consented to the project. The court found no basis to require FERC to thoroughly analyze each and every argument in its decision-making process, particularly in Fall River’s case because section 6 of the FPA “unequivocally” states that FERC may only alter a license if the licensee consents to the change. Further, Fall River did not cite any cases showing there could be an implied agreement by the licensee to the permit changes. Finally, the court deemed the consent argument waived because Fall River did not specifically argue the issue in its opening brief.

In sum, the Ninth Circuit denied Fall River’s petition for review. The court concluded that substantial evidence supported FERC’s determination that the proposal would substantially alter PPL’s license, that FERC’s orders were consistent with the agency’s precedent and issuance of a preliminary permit, and that PPL did not impliedly consent to Fall River’s proposal.

^[1] 16 U.S.C. § 799 (2006).

^[2] Fall River’s proposed modifications to the Hebgen Development included 1) constructing a powerhouse with a single turbine generator unit downstream from the dam, 2) strengthening the conduit to withstand the full reservoir pressure for power generation through pressure grouting and steel lining, 3) bifurcating the conduit, 4) installing a steel penstock to direct the water flow to the new powerhouse, 5) erecting a new power transmission line, and 6) modifying the dam to use all four-instead of only two-of the existing intake tower openings. Fall River Rural Elec. Coop. v. FERC, 543 F.3d 519, 522-23 (9th Cir. 2008).

^[3] Section 6 of the FPA states that “[l]icenses . . . may be altered . . . only upon mutual agreement between the licensee and the Commission,” thus requiring that the licensee, in this case PPL, consent to any proposed alterations. 16 U.S.C. § 799 (2006).

^[4] 5 U.S.C. §§ 551-559, 701-706, 1305, 3105, 3344, 4301, 5335, 5362, 7521 (2006).

^[5] See id. § 706(2);Cal. Dep’t of Water Res. v. FERC, 489 F.3d 1029, 1035 (9th Cir. 2007).

^[6] See 16 U.S.C. § 825l(b) (2006); Bear Lake Watch, Inc. v. FERC, 324 F.3d 1071, 1076 (9th Cir. 2003).

^[7] Universal Elec. Power Co., 92 F.E.R.C. ¶ 61,242, 61,768 (2000).

^[8] Fall River Rural Elec. Coop. v. FERC, 543 F.3d 519, 525 (9th Cir. 2008) (emphasis added).

^[9] Id. at 527.

^[10] Id.

^[11] Id. at 529.

^[12] 29 F.E.R.C. ¶ 61,005 (1984).

^[13] Id. ¶ 61,010.

^[14] Fall River Rural Elec. Coop., 543 F.3d at 528.

^[15] JDJ Energy Co., 41 F.E.R.C. ¶ 61,354 (1987).

^[16] 110 F.E.R.C. ¶ 61,034 (2005).

^[17] Id. ¶ 61,108.

^[18] Fall River Rural Elec. Coop., 543 F.3d at 528.

^[19] 50 F.E.R.C. ¶ 61,409 (1990).

^[20] Id. ¶ 62,263.

^[21] Fall River Rural Elec. Coop., 543 F.3d at 529.

^[22] 20 F.E.R.C. ¶ 61,092, (1982).

^[23] Id. 61,194.

^[24] Fall River Rural Elec. Coop., 543 F.3d at 529.

^[25] See Pac. Gas & Elec. Co. v. FERC, 720 F.2d 78, 89 (D.C. Cir. 1983); Fluid Energy Systems, Inc., 24 F.E.R.C. ¶ 61,298, 61,615 (1983).

^[26] Hebgen Dam lacked existing power generating facilities, so the addition of a new power generating facility could only increase the amount of power generated at the dam.

^[27] Fall River Rural Elec. Coop., 543 F.3d at 529.

^[28] See Flagstaff Med. Ctr., Inc. v. Sullivan, 962 F.2d 879, 886 (9th Cir. 1992) (noting that “changes in agency interpretation must be supported by a ‘reasoned analysis’”).

^[29] See Kamargo Corp., 53 F.E.R.C. ¶ 61,411, 62,439 (1990).

^[30] Town of Summersville v. FERC, 780 F.2d 1034, 1038-39 (D.C. Cir. 1986).

^[31] Id.

Mountain Rhythm Resources, Mountain Water Resources, and Watersong Resources (collectively Mountain Rhythm) sought review of Federal Energy Regulatory Commission (FERC) orders dismissing their applications for licenses to build hydroelectric facilities on tributaries of the Nooksak River in Whatcom County, Washington. The proposed projects were located at least 45 miles (by river distance) from Puget Sound and 900 to 4000 feet above sea level (although Whatcom County borders on Puget Sound). FERC dismissed the permits because Mountain Rhythm failed to obtain state certification from Washington that the projects were consistent with the state’s Coastal Zone Management Program (CZMP), which called for a Shoreline Management Act (SMA) permit from Whatcom County. The Ninth Circuit denied Mountain Rhythm’s petition for review, ruling that 1) FERC’s decision to rely on state coastal zone maps to require state certification was not arbitrary and capricious because FERC could properly consider the project sites in the state’s coastal zone, 2) Mountain Rhythm’s application for an SMA permit from Whatcom would not have been futile because Whatcom County may have issued a variance, and the application itself might have been valuable to the Department of Ecology (DOE) in its review of the project, 3) DOE did not waive its right to approve the projects’ consistency with the CZMP because Mountain Rhythm failed to provide all of the necessary information, and 4) DOE’s conditioning state certification of CZMP consistency on issuance of a County SMA permit did not interfere with FERC’s authority to issue the relevant permits.

Under the Federal Power Act (FPA),[1] an individual who plans to construct a hydroelectric facility must first obtain a license from FERC.[2] Under the Coastal Zone Management Act (CZMA),[3] which protects certain coastline areas, FERC cannot issue a permit to a hydropower applicant unless the relevant state certifies that the project complies with the state’s CZMP.[4] A state waives the right to object to an applicant’s CZMP certification six months after the date of the application, as long as the application contains all necessary data and information.[5] Once denied by the state, an applicant may appeal to the Secretary of Commerce to establish that the proposed project does in fact comply with the CZMA.

The Ninth Circuit first addressed Mountain Rhythm’s complaint that FERC’s dismissal of its license applications was arbitrary and capricious because Washington’s coastal zone impermissibly extended too far inland. Mountain Rhythm argued that the CZMA required that the coastal zone area only extend “to the extent necessary to control shorelands.”[6] In dismissing this argument, the Ninth Circuit reasoned that the projects were located entirely within Whatcom County, which National Oceanic and Atmospheric Administration (NOAA) regulations permitted Washington to categorically designate as coastal zone area.[7] The Ninth Circuit further concluded that Mountain Rhythm could not challenge NOAA’s approval of Washington’s coastal zone by petitioning for review of FERC’s denial of hydropower licenses. The Ninth Circuit reasoned that if Washington had denied certification of Mountain Rhythm’s application for a FERC license, Mountain Rhythm could have properly petitioned the Secretary of Commerce to override Washington and determine that the projects were consistent with the CZMA nonetheless. As such, the court ruled that FERC acted
appropriately when it relied on Washington’s coastal zone area mapping, which placed the project areas in the coastal zone.

Mountain Rhythm then argued that FERC’s decision was arbitrary and capricious because the agency allowed Washington to condition consistency certification on Whatcom County’s approval of an SMA permit, which Mountain Rhythm argued was futile because the County flatly prohibited any hydropower projects at the proposed site. The court dismissed this argument because Mountain Rhythm failed to even apply for an SMA permit from Whatcom County, so it could not be certain that the county would deny it. Second, the Ninth Circuit reasoned that even if rejected, Washington might still certify the projects if the county’s objections to the project were unrelated to the coastal area. The court rejected Mountain Rhythm’s argument that Washington could not require an SMA permit because a permit is not data or information, reasoning that an application for a permit might contain the data or information that Washington required to issue its consistency certification.

The Ninth Circuit next responded to Mountain Rhythm’s argument that DOE waived its right to certify Mountain Rhythm’s project because DOE did not respond to Mountain Rhythm’s application within six months. Mountain Rhythm argued that even though the six-month time limit would not begin to run until the state application was complete, the County’s SMA permit that DOE requested was not necessary information under Washington’s CZMP. While the Ninth Circuit acknowledged that the state’s CZMP did not explicitly require a County permit, the court reasoned that the requirement could be inferred because the CZMP called for a “comprehensive control program”[8] and the DOE gave prompt notice to Mountain Rhythm that the agency required a County SMA permit. The Ninth Circuit therefore held that it was not an abuse of discretion for FERC to require the County SMA permit before beginning the state’s time limit for certifying Mountain Rhythm’s project as consistent with Washington’s CZMP.

The Ninth Circuit finally addressed Mountain Rhythm’s argument that FERC’s decision was arbitrary and capricious because conditioning FERC approval on a County SMA permit would impermissibly allow the County to interfere with FERC’s exclusive authority to grant hydropower licenses. The Ninth Circuit noted that the CZMA explicitly stated that federal hydropower licenses must be consistent with coastal zone requirements.[9] Furthermore, the Ninth Circuit reiterated that Mountain Rhythm could override a state’s consistency determination by petitioning the Secretary of Commerce to determine that the project complied with the CZMA.[10] Finally, the court concluded that the County SMA permit could not supplant FERC’s authority to issue hydropower licenses because granting the SMA permit would not entitle a permittee to operate a hydropower plant nor would a County’s denial of an SMA permit limit the Secretary of Commerce’s ability to override a state consistency certification. The Ninth Circuit concluded that FERC did not act arbitrarily and capriciously when it denied Mountain Rhythm’s application for a hydropower license because Mountain Rhythm failed to obtain state certification under Washington’s CZMP.

[1] 16 U.S.C. §§ 791(a)-828(c) (2000).

[2] Id. § 817.

[3] 16 U.S.C. §§ 1451-1465(c) (2000).

[4] Id. § 1456(c)(3)(A).

[5] Id.

[6] Mountain Rhythm Res. v. Fed. Energy Regulatory Comm’n, 302 F.3d 958, 964 (9th Cir. 2002) (quoting 16 U.S.C. § 1453(l) (2000)).

[7] See 15 C.F.R. § 923.31(a)(8) (2000) (stating that “[a]n inland coastal zone boundary [may be] defined in terms of political jurisdiction (e.g., county . . . )”).

[8] Mountain Rhythm Res., 302 F.3d at 966.

[9] 16 U.S.C. § 1456(c)(3)(A) (2000).

[10] Id. § 1456(c)(3)(A), (B)(ii).

This suit, brought primarily by aluminum companies against several defendants including the Secretary of Commerce and the states of Alaska, Washington, and Oregon, challenges state-permitted salmon harvests off the Northwest coast of the United States and within the Columbia River. The Ninth Circuit’s decision explores the nexus between the National Environmental Policy Act of 1969 (NEPA)[1] and the Endangered Species Act of 1973 (ESA)[2], a matter which is of particular concern in the Northwest due to the substantial number of major federal dams which adversely affect threatened and endangered species of Pacific salmon.

On May 28, 1993, the National Marine Fisheries Service (NMFS) issued a biological opinion and incidental take statement governing the permissible incidental take of salmon under the ESA in the areas involved in this dispute. The aluminum companies, who depend on inexpensive hydroelectric power for their manufacturing processes, wanted to ensure a reduction in the number of fish kills by commercial salmon harvesters so that more fish could be taken in connection with the diversion of water to hydroelectric plants.

The aluminum companies raised several issues under NEPA and the ESA related to the incidental take permits issued by states under section 7 of the ESA.[3] Specifically, the aluminum companies argued that issuance of an incidental take permit is a major federal action triggering NEPA analysis and that section 7 permits are available only to the five agencies cited on the cover of the NMFS biological opinion. They then argued that the defendants should be subject to the more rigorous section 10[4] procedure reserved for private parties.

The district court ruled that NEPA does not apply to incidental take statements under the ESA or to fish management plans, and that states do not have to obtain ESA section 10 private party permits before promulgating salmon fishing regulations. On appeal by the aluminum companies the Ninth Circuit conducted a detailed analysis of NEPA, the ESA, and the Columbia River Fish Management Plan[5] to determine the role of states and federal agencies in the permitting process.

The court first addressed the appellant’s allegation that in addition to a section 7 biological assessment required under the ESA for actions potentially affecting endangered species, the states were required to apply for section 10 permits as well. In the court’s view, this argument had little merit. The biological opinion and the subsequent incidental take statement prepared by NMFS thoroughly delineated the scope of activities being evaluated, including fishing in the Columbia River region. The statement authorized implementation of the Columbia River Fish Management Plan’s ocean/in-river agreement within harvest limits. Because Washington’s and Oregon’s actions were contemplated by these statements, the court concluded that the section 7 studies were sufficient under the ESA.

The court turned next to the appellants’ NEPA claim to determine whether the actions at issue in this controversy constituted “major Federal actions” within the meaning of the Act.[6] The district court concluded that in-river harvests do not constitute major federal actions because they do not entail sufficient federal involvement. The Ninth Circuit rejected this conclusion. According to the Ninth Circuit, the grant of a federal permit, a prerequisite for projects adversely affecting the environment, is a major federal action under NEPA. The appellees acknowledged this fact, but argued that biological opinions and incidental take statements are not permits. The court dismissed the appellees argument, however, concluding that biological opinions and statements are to be considered functionally equivalent to permits because, without them, the activity in question would be prohibited.

Federal regulations require an agency undertaking a major federal action to prepare an Environmental Assessment (EA) in order to determine whether the environmental impact are so significant that they warrant a more detailed study.[7] Appellees argued that preparation of an EA was not necessary in light of the biological assessment (BA) they had already conducted. The court was not convinced, however, and held that BAs are not adequate substitutes for EAs. The court cited a previous opinion which explained that, “[w]hile a BA analyzes the impact of a proposed action upon endangered species, an EA analyzes the impact of the proposed action on all facets of the environment. Thus, if only a BA is prepared, there may be gaps in the agency’s environmental analysis.”[8] The Ninth Circuit concluded that, at a minimum, incidental take statements promulgated under the ESA require both a BA and an EA.

[1]42 U.S.C. §§ 4321-4370c (1994).

[2]16 U.S.C. §§ 1531-1544 (1994).

[3] Id. § 1536.

[4] Id. § 1539.

[5]The Columbia River Fish Management Plan is a “unique, judicially created, federal-state-tribal compact that controls, through consent decree, the rules and regulations governing fishing allocation and rights of harvest for fish that enter the Columbia River System.” Ramsey, 96 F.3d at 438; see also United States v. Oregon, 913 F.2d 576 (9th Cir. 1990), cert. denied, 501 U.S. 1250 (1991).

[6]42 U.S.C. § 4332(C) (1994).

[7]40 C.F.R. §§ 1501.4, 1508.9 (1996).

[8]Save the Yaak Comm. v. Block, 840 F.2d 714, 718 (9th Cir. 1988).

Direct Service Industries (DSIs) challenged the Bonneville Power Administration’s 1993 Record of Decision (ROD) on Water Management Actions in the Columbia River System to be Taken by the Bonneville Power Administration (BPA) in 1993 for the Benefit of Snake River Salmon. The ROD contained various measures designed to benefit the Snake River salmon, which were listed as endangered and threatened species. The DSIs were primarily concerned with the flow augmentation measures contained in the ROD.

The Ninth Circuit dismissed the DSIs’ claims for mootness. The court looked to the reasoning in Idaho Department of Fish and Game,[1] a companion to this case, and determined that because the 1993 flow augmentation measures had already occurred, the DSIs’ claims were moot. The 1993 ROD was followed by a ROD which lasted for four years and gave the DSIs adequate time to obtain judicial review. Thus, the claims were not an exception to the mootness doctrine. In addition, the factual underpinnings of the ROD had been superseded by a 1994-1998 Biological Opinion. The court found that this made the claims especially inappropriate for judicial review.

[1]56 F.3d 1071 (9th Cir. 1995), see infra.

The Ninth Circuit denied Klamath Water Users Protective Association’s (the Association) petition for panel rehearing and rehearing en banc.[1] The Association had previously appealed the decision from the District Court for the District of Oregon which held that the Association was not a third party beneficiary to a contract between the United States Bureau of Reclamation and California Oregon Power Company. This contract controlled the operation of Link River Dam.[2] The Ninth Circuit amended its previous decision and added a footnote stating that its decision involved only the management of the Klamath Project and did not affect the pending Klamath River Basin water rights adjudication.[3]

[1] Klamath Water Users Protective Assoc. v. Patterson, 203 F.3d 1175 (9th Cir. 2000).

[2] Klamath Water Users Protective Assoc. v. Patterson, 191 F.3d 1115, 1123 (9th Cir. 1999), amended and superceded by, 204 F.3d 1206 (9th Cir. 2000), amended by, 203 F.3d 1175 (9th Cir. 2000).

[3] Klamath Water Users Protective Assoc., 203 F.3d at 1176.