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Parties Involved:
Chippewa and Flambeau Improvement Company
Petitioner
Federal Energy Regulatory Commission
Respondent

Document Text:

Notice: This opinion is subject to formal revision before publication in the

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 18, 2002 Decided April 18, 2003

No. 01-1329

CHIPPEWA AND FLAMBEAU IMPROVEMENT COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

John A. Whittaker IV argued the cause for petitioner.

With him on the briefs was William J. Madden Jr.

Robert H. Solomon, Associate Solicitor, Federal Energy

Regulatory Commission, argued the cause for respondent.

With him on the brief were Cynthia A. Marlette, General

Counsel, and Dennis Lane, Solicitor.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #01-1329 Document #744593 Filed: 04/18/2003 Page 1 of 11
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Before: GINSBURG, Chief Judge, and EDWARDS and GARLAND,

Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The Chippewa and Flambeau Improvement Company petitions for review of a series of orders

in which the Federal Energy Regulatory Commission concluded that the Company must obtain a license under the

Federal Power Act for its Turtle–Flambeau reservoir on the

Flambeau River in northern Wisconsin. We reject the Company’s arguments that the reservoir is not subject to the

Commission’s jurisdiction and hence we deny the petition.

I. Background

In 1924 the predecessor of the Company filed with the

predecessor of the Commission a declaration of its intention

to create a reservoir for the purpose of developing power by

damming the headwaters of the Flambeau River. The Agency, finding both that the North Fork of the Flambeau River

was not ‘‘navigable’’ as defined in the Federal Power Act and

that the reservoir would not otherwise affect interstate commerce, declined to assert jurisdiction over the project. The

Company’s predecessor completed construction of the Turtle–

Flambeau storage reservoir in 1926.

Although the reservoir remained free from federal oversight until the issuance of the orders under review, the

Company has long been required to operate it in accordance

with the rules of the Public Service Commission of Wisconsin

and, more recently, pursuant to a 1990 Memorandum of

Understanding with the Wisconsin Department of Natural

Resources. Those authorities have required the Company to

make seasonal releases of water in order to control the risk of

flooding and to preserve natural resources. There is no

electricity-generating equipment at the reservoir, but the

required seasonal releases increase the generation of power

at downstream hydroelectric plants, eight of which are owned

by the principal shareholders in the Company.

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The current dispute has its genesis in the relicensing

proceedings of six downstream plants. In the course of those

proceedings the Commission staff determined that operation

of the Turtle–Flambeau reservoir increased total generation

at plants on the Flambeau River by 8.9 gigawatt-hours per

year, or between five and six percent of the total average

annual generation at those plants.

In light of this information, the Commission opened a

separate docket to consider whether the reservoir should be

licensed on the ground that the reservoir is ‘‘necessary or

appropriate in the maintenance and operation’’ of the licensed

power plants downstream. See 16 U.S.C. § 796(11). In the

orders under review, the Commission concluded that the

reservoir, because of the benefit it provides to plants downstream, is indeed ‘‘part of the complete unit of development

that includes those projects,’’ Chippewa & Flambeau Improvement Co., 95 F.E.R.C. ¶ 61,327 at 62,159, 2001 FERC

LEXIS 1278 (June 1, 2002) (Order Denying Rehearing), and

therefore is subject to licensing under the Federal Power Act.

The Company petitioned for review.

II. Analysis

The Company contends first that the Commission’s assertion of jurisdiction over the Turtle–Flambeau reservoir is

precluded by the Commission’s pre-construction determination that it would lack jurisdiction over the same reservoir.

Second, the Company argues that the Commission failed

adequately to explain why the reservoir is ‘‘necessary or

appropriate’’ to the maintenance and operation of downstream

plants. Finally, the Company argues that the Commission

arbitrarily limited its analysis to the four projects closest to

the reservoir, and thereby inflated the effect that operation of

the reservoir has upon downstream power generation, measured as a percentage increase in power output.

A. Issue preclusion

In response to the Company’s suggestion that the Commission is bound by its previous determination that the reservoir

is not subject to federal licensing requirements, the CommisUSCA Case #01-1329 Document #744593 Filed: 04/18/2003 Page 3 of 11
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sion maintains it is free to reexamine its findings in order to

take account of changes in the relevant facts and the governing law. See Nantahala Power & Light Co. v. FPC, 384

F.2d 200, 206 (4th Cir. 1967). The Commission points out

that its initial determination rested upon a more restrictive

definition of ‘‘navigable waters’’ than that subsequently

adopted by the Supreme Court in United States v. Appalachian Elec. Power Co., 311 U.S. 377 (1940). Under the

Commission’s earlier approach a river that could be made

navigable by improvements was not considered a navigable

waterway. As a consequence, neither the Turtle–Flambeau

reservoir nor the downstream power plants were subject to

licensing, and the Commission therefore had no occasion to

determine whether the reservoir might be ‘‘necessary or

appropriate’’ to the operation of a licensed plant.

Now, by contrast, it is undisputed that the Flambeau River

is ‘‘navigable,’’ and the Commission has licensed all the downstream plants (with the exception of one that is exempt).

Therefore, the Commission argues, the precise question at

issue — namely, whether the Turtle–Flambeau reservoir

should be licensed because it is necessary or appropriate to

the operation of a licensed plant — arose for the first time in

this proceeding, and the Commission is not bound by the

answer it gave to the jurisdictional question at an earlier

time. See, e.g., Clark–Cowlitz Joint Operating Agency v.

FERC, 826 F.2d 1074, 1079 (D.C. Cir. 1987) (en banc) (‘‘[a]

fundamental requisite of issue preclusion is an identity of the

issue decided in the earlier action and that sought to be

precluded in a later action’’).

In reply the Company relies upon an unrelated 1922 decision in which the Commission’s predecessor disclaimed jurisdiction over hydroelectric projects — notwithstanding the

presence upstream of a federally-licensed storage reservoir — on the ground that the Chippewa River was not

navigable. See Federal Power Comm’n, Second Annual Report 61–62, 150–51 (1922). According to the Company, the

Commission’s action

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clearly demonstrate[s] that, even if the Commission

had jurisdiction over one component (i.e., over the

upstream storage reservoir or over the downstream

hydro projects benefitted by the storage reservoir) it

was not in the 1920s asserting jurisdiction over the

other component under a ‘‘complete unit’’ or any

other theory. Thus, even if Appalachian Power had

been the law in 1925 and the [Commission] had at

that time asserted jurisdiction over the downstream

hydroelectric projects on the Flambeau River based

on their location on ‘‘navigable waters,’’ the [Commission] would not have asserted jurisdiction over

Turtle–Flambeau.

The Company’s argument asks too much of preclusion

doctrine. Issue preclusion, upon which the Company purports to rely, applies only to issues that were actually litigated in a prior proceeding; it is undisputed that the Commission has never, prior to the present proceeding, considered

whether the Turtle–Flambeau reservoir should be licensed

because of its possible effects upon federally-licensed projects

in the vicinity. With claim preclusion, the bar extends to

claims that could have been brought, but even that extension

avails the Company naught. In its 1925 order declining to

exercise jurisdiction, the Commission could not have addressed whether jurisdiction could be based upon the reservoir’s likely effects upon licensed plants because there were

no such plants in the vicinity. In sum, the Company’s

speculation as to what might have happened in the 1925

proceeding if the law or the facts had been different is

irrelevant.

At bottom, it seems the Company’s plaint — ‘‘the state has

satisfactorily overseen the safety of the reservoir for 75

years’’ — is merely that the reservoir should not be subjected

to regulation by the Commission after so many years of

uneventful freedom from its clutches. In the Federal Power

Act, however, the Congress did not intend ‘‘to create an

indefeasible private right springing from an initial exercise of

the Commission’s regulatory authority, that would survive

and remain immune from future regulation under any circumstances.’’ Nantahala, 384 F.2d at 209. We agree with the

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Commission that the Supreme Court’s decision in Appalachian Electric Power and its own subsequent licensing of

downstream power plants are changes in the circumstances

sufficient to justify the Commission’s taking a second look at

its jurisdiction over the Turtle–Flambeau reservoir.

B. ‘‘Necessary or appropriate’’

The Company contends that the Commission’s assertion of

jurisdiction was arbitrary and capricious because the Commission did not adequately explain why Turtle–Flambeau is

‘‘necessary or appropriate’’ to the maintenance and operation

of any licensed project. First, the Company argues that

‘‘necessary’’ means ‘‘indispensable,’’ and there is no evidence

in the record suggesting that the downstream plants would

not be financially viable in the absence of the reservoir.

Second, the Company maintains that the Commission failed to

give weight to the ‘‘countervailing consideration’’ that no

agency has identified an environmental or safety need for

federal regulation. Finally, the Company protests that the

Commission has adopted a standardless, ‘‘we-know-it-whenwe-see-it’’ approach to jurisdiction by relying upon the percentage increase in downstream generation and its own ‘‘common sense judgment,’’ as the Commission put it, to identify

the ‘‘necessary or appropriate’’ components of a power project.

In response, the Commission argues that it must be afforded the latitude to make case-by-case determinations whether

a reservoir is ‘‘necessary or appropriate’’ to a licensed power

facility. The Commission notes that its orders in this and

other cases set out a series of relevant factors, including the

effect of the reservoir upon downstream generation and its

storage capacity, location, and purpose. By balancing these

considerations in light of the facts of the present case, the

Commission engaged, it says, in reasoned decisionmaking.

We agree. By enacting the ‘‘necessary or appropriate’’

standard, the Congress invested the Commission with significant discretion. See Towns of Concord, Norwood, & Wellesley v. FERC, 955 F.2d 67, 76 (D.C. Cir. 1992) (‘‘necessary or

appropriate’’ standard in § 309 of Federal Power Act, 16

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U.S.C. § 825h, leaves determination ‘‘to the Commission’s

expert judgment’’). Perhaps if the statute simply required

that the reservoir be ‘‘necessary’’ to the operation or maintenance of a power plant, then the Commission would have to

find that the downstream plants could not operate without it.

But the actual standard is ‘‘necessary or appropriate,’’ and

the Commission therefore may find that a reservoir is appropriate, even if it is not necessary, to that end.

A grant of discretion to an agency does not, of course,

authorize it to make an unprincipled decision, Pearson v.

Shalala, 164 F.3d 650, 660–61 (D.C. Cir. 1999), nor has the

Commission done so here. In a series of cases involving the

licensure of upstream reservoirs, the Commission has based

its jurisdictional determinations upon the extent to which

operation of the reservoir benefits downstream generation.

Thus, in the order under review, the Commission quoted its

decision in Union Water Power Co., 73 F.E.R.C. ¶ 61,296 at

61,824, 1995 FERC LEXIS 2446 (Dec. 8, 1995), to the effect

that ‘‘[i]f a non-federal dam and reservoir substantially benefit generation operations, for example through the timing of

flow releases, these facilities are part of the complete unit of

development.’’ See also PacifiCorp, 98 F.E.R.C. ¶ 61,117 at

61,346, 2002 FERC LEXIS 191 (Feb. 1, 2002) (‘‘The issue

here is whether the Bear Lake Reservoir, as a whole, has a

significant positive impact on downstream generation such

that it should be licensed’’). In two other, more recent

decisions, the Commission held that adding 2.4 to 5 percent to

the total power output of plants downstream was a sufficient

effect to give it jurisdiction over a reservoir. Great Northern

Paper, Inc., 91 F.E.R.C. ¶ 61,035 at 61,124, 2000 FERC

LEXIS 793 (April 12, 2000); Georgia Pacific Corp., 91

F.E.R.C. ¶ 61,047 at 61,171–72, 2000 FERC LEXIS 806 (April

13, 2000). In this case, the impact was greater, reaching 7.25

percent, according to the staff study the validity of which the

Company does not challenge. In the absence of any other

evidence bearing upon the relationship between the reservoir

and plants downstream, it was reasonable for the Commission

to rely solely upon downstream benefits.

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Although some uncertainty is unavoidable when a decision

is remitted to agency discretion, we disagree with the Company that the Commission’s decisions in this case and others

like it leave the owner of a reservoir in the dark about the

necessity to obtain a license under the Act. The Commission

has reasonably interpreted the Act to require licensure of a

reservoir that provides to a licensed power plant downstream

benefits substantial enough to be deemed ‘‘necessary or appropriate’’ to the operation and maintenance of that plant.

And the Commission has found an increase in total generation

of 2.4 percent or more ‘‘substantial,’’ while considering an

impact of .06 percent insufficient. Chippewa & Flambeau

Improvement Co., 95 F.E.R.C. ¶ 61,017 at 61,037, 2001 FERC

LEXIS 728 (April 2, 2001). In this case the increase was

clearly above the line of demarcation, wherever it may lie

between 2.4 and .06 percent. The remaining uncertainty

within that range did not affect the Company.

The Company’s ‘‘countervailing consideration,’’ namely,

that neither the Commission nor any other agency has identified an environmental or safety concern not adequately addressed by state regulation, is not relevant to the statutory

inquiry whether the reservoir has a substantial effect upon

the generation of power. Nor does anything in the statute

require the Commission to explain the need for federal regulation in each particular case. We note, however, that in light

of the coordination of the power plants’ operations with

releases from the reservoir, as acknowledged by the Company’s counsel at oral argument, regulation of the reservoir by

the federal agency charged with oversight of the nation’s

power supply is hardly anomalous.

We conclude that the Commission’s case-by-case approach

to determining whether a reservoir is ‘‘necessary or appropriate’’ to a licensed project, with the emphasis upon the effect

of the reservoir upon the generation of power, is reasonable

and consistent with the purpose of the Act. The Commission

adequately explained its application of that approach to the

facts of this case in the orders under review.

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C. ‘‘Unit of improvement or development’’

Finally, the Company contends the Commission, in determining what effect the reservoir has upon the generation of

power downstream, arbitrarily limited its analysis to the four

projects closest to the reservoir. There are eight power

plants on the Flambeau River and six more plants on the

Chippewa River downstream of its confluence with the Flambeau. According to the Company, if the Commission had

considered the increase in generation at all 14 downstream

plants, the percentage increase in total output attributable to

the operation of the reservoir would have fallen from more

than seven percent to about 1.25 percent — a mere half the

lowest figure the Commission has ever held sufficient to

warrant its asserting jurisdiction.

In support of its argument that the Commission must

consider all downstream benefits, the Company first notes

that the Commission considers all such benefits in determining, under another provision of the Act, how much a downstream plant must pay an upstream reservoir for the benefit

it receives through flow regulation. There is no inconsistency, however. For the purpose of compensating reservoirs,

the Commission understandably tries to determine the full

extent of direct benefits to all licensees because the Act

requires each licensee to make an ‘‘equitable’’ reimbursement

to the reservoir of operating costs. See 16 U.S.C. § 803(f).

In setting the boundaries of a ‘‘complete unit of improvement

or development,’’ on the other hand, the Commission’s task is

not to include every project that benefits to any degree from

the reservoir; to the contrary, the Act limits the unit to those

works for which the reservoir is ‘‘necessary or appropriate’’

or ‘‘used and useful.’’ 16 U.S.C. § 796(11).

Only somewhat more compelling is the Company’s point

that the Commission was unjustified in leaving out of the unit,

for the first time in its final order, four of the eight downstream projects on the Flambeau River. In its first three

orders the Commission considered the effect the reservoir

has upon all the Flambeau projects, as the staff study had

done. In the Order Denying Rehearing, however, the ComUSCA Case #01-1329 Document #744593 Filed: 04/18/2003 Page 9 of 11
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mission divided those eight into more than one unit of development and concluded that, ‘‘although the Staff Study found

generation increments at all eight downstream projects, we

need only find that Turtle–Flambeau provides a significant

increment of generation at the four-project upstream unit of

development.’’ Order Denying Rehearing at 62,161.

The Company posits that the Commission ‘‘truncated’’ the

‘‘unit of development’’ in its final order because, if the lower

Flambeau projects were considered part of the unit, their

proximity to the six Chippewa River projects would require

the inclusion of those projects as well (resulting in a greatly

reduced percentage effect upon generation).

The Commission’s motive is of no moment to the issue

before the court. The relevant question is whether the

Commission reasonably concluded that the four upperFlambeau projects comprised a single unit of development.

The Commission based that conclusion upon its finding that

the four uppermost projects, unlike the plants further downstream, are ‘‘physically and operationally interrelated.’’ Id.

The Act does not define a ‘‘complete unit of improvement

or development.’’ The Commission’s interpretation of that

phrase to encompass all projects ‘‘physically and operationally

related’’ is, therefore, entitled to our deference, as long as it

is consistent with the terms of the statute and not unreasonable. Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 842–43 (1984). We think it is

consistent, and the Company does not argue otherwise.* Nor

does the Company argue persuasively that there is not substantial evidence to support the Commission’s finding the four

projects are operationally integrated. The Company does not

dispute that the four projects are all owned by the Flambeau

Paper Company, which operates them all for the same purpose, namely, providing power to its mill. We therefore

* Although the Act provides that a ‘‘complete unit’’ consists of ‘‘a

power house’’ and appurtenant works, 16 U.S.C. § 796(11), the

Company does not challenge, and we therefore express no opinion

upon, the Commission’s decision to define the unit in this case as

encompassing more than one power house.

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uphold as reasonable the Commission’s determination that

the four projects immediately downstream of the reservoir

constitute a complete unit of development.

III. Conclusion

For the foregoing reasons, the Company’s petition for

review is

Denied.

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