Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-01086/USCOURTS-caDC-96-01086-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Kimberly-Clark Corporation
Intervenor
N.E.W. Hydro, Inc.
Intervenor
State of Wisconsin
Petitioner

Document Text:

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1 Scott Paper Co. and N.E.W. Hydro, Inc., 72 FERC ¶ 62,063 (1995), reh'g denied, 74 FERC

¶ 61,024 (1996); Menominee Co. and N.E.W. Hydro, Inc., 72 FERC ¶ 62,065 (1995), reh'g

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 6, 1996 Decided January 17, 1997

No. 96-1086

STATE OF WISCONSIN,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

KIMBERLY-CLARK CORPORATION AND

N.E.W. HYDRO, INC.,

INTERVENORS

Consolidated with

No. 96-1087

On Petitions for Review of an Order of the

Federal Energy Regulatory Commission

-

John C. Scherbarth, Assistant Attorney General, State of Michigan, argued the cause for petitioner

Kelley, with whom Thomas J. Casey, Solicitor General, State of Michigan, was on the briefs.

FrankD.Remington, Assistant AttorneyGeneral, WisconsinDepartment ofJustice, argued the cause

and filed the briefs for petitioner State of Wisconsin.

Joel M. Cockrell, Attorney, Federal Energy Regulatory Commission, argued the cause for

respondent, with whom Jerome M. Feit, Solicitor, and Joseph S. Davies, Deputy Solicitor, were on

the brief. Jill L. Hall, Attorney, entered an appearance.

Before: EDWARDS, Chief Judge, HENDERSON and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: In these consolidated petitions for review of two orders of the

Federal Energy Regulatory Commission ("FERC"),1the Department of Natural Resources of the

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denied, 74 FERC ¶ 61,023 (1996). 

2

"Possible forms of decommissioning extend from simply shutting down the power operations

to tearing out all parts of the project, including the dam, and restoring the site to its pre-project

condition." See Policy Statement on Project Decommissioning at Relicensing, 60 Fed. Reg. 340

n.1 (1995) (referenced in 18 C.F.R. § 2.24). 

State of Wisconsin ("Wisconsin") and the Department of NaturalResources ofthe State of Michigan

("Michigan") challenge FERC's approval of two license transfers for hydroelectric projects.

Petitioners contend that, in order to protect the public interest, FERC should have inquired further

into the financial capability of the license transferee to operate the two dams, particularly in light of

the expected cost of future environmental measures likely to be required for the dams' continued

operation. Petitioners are concerned that in the event the dams become economically unviable and

the transferee decides to abandon the facilities at the termination of the existing licenses, the

transferee may lack sufficient financial resources to cover the costs of decommissioning the dams,2

and the burden of those costs will then fall on the taxpayers of their states. While Michigan

challenges FERC's decision approving the transfer of one dam as arbitrary and capricious, and

unsupported by substantial evidence in the record, Wisconsin objects both procedurally and

substantively to FERC's decisions with regard to both dams. Petitioners seek a remand with

instructions to FERC to investigate further the financial capability of the transferee and to provide

the financial records to the petitioners for their review. We conclude that the procedural challenges

are meritless and that the factualdeterminations challenged bypetitioners are supported bysubstantial

evidence in the record. Because petitioners have not pointed to specific factual evidence to support

their challenges to the financial capability of the transferee, or adduced any evidence to raise serious

concern about FERC's determinations, we further conclude that FERC could rationally decide to

defer consideration of the cost of potential environmental protection measures until they become

necessary at the time of relicensing, and to decline to require the transferee to submit its financial

records. Accordingly, we deny the petitions.

I.

Congress has designed in the Federal Power Act, 16 U.S.C. §§ 791(a)-825(r), "a complete

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scheme of national regulation" to "promote the comprehensive development of the water resources

of the Nation." First Iowa Hydro-Elec. Co-op. v. Federal Power Commission, 328 U.S. 152, 172

n.17, 180 (1946). Vesting authority in FERC to oversee the development of water resources, the Act

provides that any entity proposing to build a hydroelectric project "across, along, or in any of the

navigable waters of the United States" must obtain a license from FERC. 16 U.S.C. § 817(b)(1).

Licenses are issued for terms up to fifty years, at the end of which time FERC may issue a new license

to the existing or a new licensee, authorize a federal take-over of the project, or provide for the

decommissioning of the project. See id. §§ 799, 808(a).

The Federal Power Act provides that during the term of a license, a licensee cannot

voluntarily transfer the license or any rights granted thereunder "without the written approval of the

commission." Id. § 801. Under FERC regulations, a licensee seeking to transfer its license or its

rights, and a person desiring to acquire such license or rights, "shall jointly or severally file an

application for approval ofsuch transfer and acquisition." 18 C.F.R. § 9.1. Each transfer application

must include "in appropriate detail the qualifications of the transferee to hold such license and to

operate the property under license, which qualifications shall be the same as those required of

applicants for license." Id. § 9.2. FERC's approval of a license transfer "is contingent upon the

transfer of title to the properties under license, delivery of all license instruments, and a showing that

such transfer isin the public interest." Id. § 9.3(a). The transferee is thereafter subject to all relevant

Federal Power Act provisions as well as conditions contained in the license, to the same extent as if

it were the original licensee. Id.

Pertinent to these appeals, FERC issued two thirty-year licensesthat it subsequently allowed

to be transferred to a new party. First, in 1985 FERC issued a thirty-year license to the Menominee

Company ("Menominee"), a subsidiary of Scott Paper Company ("Scott"), for the Menominee/Park

Mill Hydroelectric Project, a 4.615 megawatt project on the Menominee River in Marinette County,

Wisconsin, and MenomineeCounty, Michigan. MenomineeCo., 30 FERC¶ 62,264 (1985). Second,

in 1994 FERC issued a thirty-year license to Scott for the Oconto Falls Hydroelectric Project, a 1.8

megawatt project on the Oconto River, Oconto County, Wisconsin. Scott Paper Co., 67 FERC ¶

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72,118 (1994). Sometime prior to March 1995, Menominee and N.E.W. Hydro, Inc. ("NEW")

negotiated the sale of the two hydroelectric dams crossing the Menominee and Oconto Rivers. To

facilitate the sale, on March 7, 1995, Scott and NEW filed a joint application pursuant to § 8 of the

Federal Power Act, 16 U.S.C. § 801, requesting FERC's approval of the transfer of both licenses to

NEW as part of the sale of the assets of the projects. In the application, Scott and NEW represented

that they had executed an agreement on January 20, 1995, that provided that Menominee and Scott

would purchase net electrical energy fromNEWfor a period often years. They also stated that NEW

was qualified to hold the license and wasready, willing, and able to operate and maintain the projects.

FERC gave public notice of the applications on March 20, 1995, and set a comment deadline

of April 6, 1995. 60 Fed. Reg. 15,556 (1995); 60 Fed. Reg. 15,556-01 (1995). Wisconsin

intervened in opposition to the proposed transfer of the licenses for both projects, and Michigan

intervened inopposition to the Menominee transfer. Expressing concern about the financial capability

of NEW, particularly because, under a fisheries plan developed for the Menominee River, it was

expected that by 2015 costly fish passage facilities would need to be installed at the Menominee/Park

Mill Project, Wisconsin argued that before the license was transferred, NEW should be required "to

provide proofoffinancialresponsibilitythus ensuring the continuedmaintenance, or possible removal,

ofthe damin the event the licensee is unable to provide the necessary financialresources." Michigan,

citing unresolved recreational access and fish protection issues, stated, without elaboration, that its

concerns were heightened by the financial status of NEW and by NEW's compliance history in

Michigan.

The Director of FERC's Division of Project Compliance and Administration approved the

license transfers, recounting the concerns expressed byMichigan and Wisconsin but noting that NEW

was "bound by all terms and conditions of the license as though it were the original licensee."

Acknowledging that it was FERC's policy to scrutinize applications seeking to transfer licenses for

economicallymarginal projectsto prevent transfersto licenseeslacking sufficient financialresources

to maintain the projects, the Division Director found this policy to be inapplicable to the transfer

applications ofthe Menominee/Park Mill and Oconto Projects because theywere economicallyviable

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and decommissioning was not reasonably anticipated within the remaining term of the licenses. The

Division Director noted FERC's independent determinations, at the time of the issuance of the initial

licenses, of the projects' economic viability as well as NEW's ten-year power purchase agreements

with Menominee and Scott. Wisconsin and Michigan filed for rehearing on the grounds that the

Division Director's orders did not adequately address their concerns, including the need for

environmentalprotectionmeasures and for an assessment ofthe financial capabilities ofNEW. FERC

denied rehearing, emphasizing the Division Director's two grounds for approving the transfer and

rejecting Michigan's projections with respect to NEW's financing costs and revenues for the two

projects.

II.

This court's review of FERC's approval of license transfers is deferential. See U.S. Dept. of

the Interior v. FERC, 952 F.2d 538, 543 (D.C. Cir. 1992); see also Mine Reclamation Corp. v.

FERC, 30 F.3d 1519, 1524 (D.C. Cir. 1994). "In a licensing decision such as this, where few explicit

statutory provisions govern, our role is narrowly circumscribed." Mine Reclamation, 30 F.3d at

1524. The court will deny a petition for review " "so long as [FERC's] decision is supported by

substantial evidence in the record and reached by reasoned decisionmaking.' " Id. at 1524 (quoting

Electricity Consumers Resource Council v. FERC, 747 F.2d 1511, 1513 (D.C. Cir. 1984)). This

requires "an examination of relevant data and a reasoned explanation supported by a stated

connection between the facts found and the choice made." U.S. Dept. of Interior, 952 F.2d at 543

(quoting Electricity, 747 F.2d at 1513).

Wisconsin and Michigan jointly contend that FERC's approval of the license transfers was

unsupported bysubstantialevidence. Wisconsin focuses principally on procedural issues, maintaining

that it was not afforded access to documents on which FERC relied and that it was denied the

opportunity for an evidentiary hearing. Michigan's challenge focuses more substantively on the

evidence on which FERC relied in reaching its decision to approve the transfer. In considering their

contentions we address first the procedural issues, and then turn to the substantive challenges.

A.

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Wisconsin's procedural challenge to FERC's approval of the license transfers amounts to an

attempt to force FERC to undergo a broad, essentially unlimited inquiry into the transferee'sfinancial

situation and to reconsider the economic viability of the two projects in light of environmental

measures likely to be imposed in the future. Neither the statute nor FERC's regulations require it to

engage in such an undertaking.

Wisconsin first contends that by not convening a formal evidentiary hearing concerning the

license transfer applications, FERC violated its own rule of procedure, 18 C.F.R. § 385.505, and the

Administrative Procedure Act ("APA"), 5 U.S.C. § 554. However, as FERC points out, § 385.505,

which grants participants in an evidentiary hearing the right to present evidence, does not create an

independent right to the hearing itself; the regulation only applies when FERC has already set a

matter for evidentiary hearing pursuant to 18 C.F.R. § 385.502. Nor does the APA guarantee an

unqualified right to an evidentiary hearing. Rather, as the court stated in Conoco, Inc. v. FERC, 90

F.3d 536, 543 n.15 (D.C. Cir. 1987), FERC " "is required to hold hearings only when the disputed

issuesmaynot be resolved through an examination ofwritten submissions.' " (quoting Environmental

Action v. FERC, 996 F.2d 401, 413 (D.C. Cir. 1993) (citations omitted)). Wisconsin has pointed to

no evidence in the record, and was unable to identify anything at oral argument, that created a dispute

of material fact requiring resolution through a formal evidentiary hearing. See Citizens for Allegan

Cty., Inc. v. Federal Power Commission, 414 F.2d 1125, 1128 (D.C. Cir. 1969).

Second, Wisconsin contends that even if FERC were not required to convene a formal

evidentiary hearing, FERC violated its own regulation governing summary dispositions. Section

385.217 provides, in relevant part:

If a decisional authority, other than the Commission, is considering summary

disposition of a proceeding, or part of a proceeding, in the absence of a motion for

summary disposition by a participant, the decisional authority will grant the

participants an opportunity to comment on the proposed disposition prior to any

summary disposition, unless, for good cause shown, the decisional authority provides

otherwise.

18 C.F.R. § 385.217(c)(2). Wisconsin maintains that under this regulation it was entitled to an

opportunity to comment on the Division Director's proposed summary determinations before they

were issued, and not simply a right to seek rehearing by FERC after the fact. FERC responds that

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Wisconsin did have the opportunity to comment before the Division Director rendered his decisions

because, in its Notices of Application For Transfer of License and Approval of Lease, issued more

than four months before the Director's decisions, FERC invited comments, protests, or motions to

intervene, and in response, Wisconsin moved to intervene in opposition to the transfers. However,

when Wisconsin filed its motions to intervene, all it had to comment on was FERC's Notices of

Application, which gave no indication of the Division Director's proposed dispositions. Further,

under § 385.217, the opportunity to comment appliesto "participants," which include any "person[s]

whose intervention in a proceeding is effective under [§ 385.214]," 18 C.F.R. § 385.102, and because

Wisconsin filed motions to intervene, not notices of intervention, it did not become a "participant"

until its motions were granted, id. § 385.214(a)(2), (c)(2), in the same orders that approved the

license transfers. In any event, Wisconsin's contention that FERC acted contrary to § 385.217 was

not raised until oral argument in this court; in its initial brief Wisconsin stated only that the instant

case "appear[s] summary in nature." More critically, Wisconsin did not raise this argument in its

petitions for rehearing, and consequently, the contention is not properly before the court. See Platte

River Whooping Crane Critical Habitat Maintenance Trust v. FERC, 962 F.2d 27, 34-35 (D.C. Cir.

1992). In addition, Wisconsin has no basis on which to maintain that FERC itself (as opposed to the

Division Director) violated § 385.217 by failing to provide an opportunity to comment on its

decisions denying rehearing because, when FERC is the decisional authority, it is within FERC's

discretion to decide whether to afford an opportunity to comment. 18 C.F.R. § 385.217(c)(3).

Finally, because, as counsel conceded at oral argument, Wisconsin never asked to see the

documents on which FERC relied, including the power purchase agreement and the financial

projections supporting FERC's initial license grant to Menominee, Wisconsin's objection to its lack

of access to relevant documentation rings hollow.

B.

We now turn to Michigan's substantive attacks on FERC's decisions to approve the license

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3 While Wisconsin also contends that FERC's decision approving the transfers is unsupported

by the evidence, it focuses on its lack of opportunity to examine and challenge the evidence. 

Because its substantial evidence claim amounts to a restatement of its procedural objections, we

need not address it again. 

transfers.3 Michigan first challenges FERC's finding of current economic viability for the

Menominee/Park Mill Project. In deeming the Menominee project economically viable, FERC

adopted the Division Director's finding, which was based on the original March 1985 determination

of the project's viability and on the 1995 power purchase agreement between Menominee and NEW.

Michigan contends that neither of these factors provided sufficient evidence to support FERC's

decision. We disagree.

In maintaining that the March 1985 order alone does not demonstrate the project's economic

viability, Michigan objects that the documents on which FERC relied in making its 1985

determination were not part of the record. While acknowledging the presence in the record of two

documents predating the March 1985 order that provide information on the project's viability,

Michigan maintains that those documents were received by FERC in May 1985, and thus could not

form the basis for FERC's original decision. This contention is meritless. Regardless of whether

FERC actually relied upon those documents in reaching its 1985 decisionMichigan concedes that

it may not now collaterally attack that 1985 order, see Raton Gas Transmission Co. v. FERC, 852

F.2d 612, 615 (D.C. Cir. 1988)they are part of the record in the instant proceeding. Moreover,

FERC need not again identify and provide the materials that supported its initial grant of the license

nearly twelve years ago. It is FERC's established, and we conclude reasonable, practice in transfer

proceedings to rely, absent changed circumstances, on earlier findings rendered in the license grant

proceedings for evidence of a project's economic viability. Rancho Riata Hydro Partners, Inc., 54

FERC ¶ 61,253 (1991); Niagara Mohawk Power Corp., 32 FERC ¶ 61,291 (1985).

Michigan's objection to FERC's reliance on the power purchase agreement for its finding of

economic viability is likewise meritless. Michigan maintains that although the Division Director

mentioned the agreement in his order, it is unclear whether the Director actually had an opportunity

to examine the agreement because the transfer application only indicated the existence of a contract

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and did not provide any details as to its terms. The power sales contract was not filed in the record

of the instant proceeding until November 28, 1995, which, as Michigan points out, was after the

deadline for filing a petition for rehearing, and in fact three months after Michigan filed its rehearing

request. Yet, as Michigan acknowledges, FERC, which referenced some of the specifics of the power

purchase agreement in its opinion denying rehearing, did have the agreement when it rendered its

ultimate decision approving the license transfer. Contrary to Michigan's contentions, the fact that

FERC did not specify in its order whether it relied on this evidence or "explain how the evidence

supports the conclusion with respect to the financial capacity of the transferee to fulfill the terms of

the license" does not render its determination invalid. Not only is our assumption that FERC acts

reasonably in arriving at its decisions, cf. United States Dept. of the Interior, 952 F.2d at 543; Mine

Reclamation Corp., 30 F.3d at 1524, not undermined by any evidence offered by Michigan, FERC's

statement that Scott wasrequired to purchase the project's net electrical energy adequately indicated

why the power purchase agreement supported a finding that the project was economically viable.

Even assuming it might have been preferable for FERC to spell out in greater detail the significance

it attached to this evidence, there is no basis for the court to conclude that the evidence on which

FERC relied did not support its finding of the project's economic viability.

Michigan further contends that even if FERC's finding of the project's current economic

viability was supported by substantial evidence, FERC's decision to approve the license transfer on

the basis of the current economic viability of the project was arbitrary and capricious. Noting both

a pending entrainment study filed by Menominee that may result in the installation of fish protection

measures, and the Menominee River Fisheries Plan, which calls for fish passage measures to be

installed at the project in 2015, Michiganmaintainsthatsuchmeasuresmay sufficiently increase costs

so as to render the project economically unviable. In the event that NEW lacks adequate resources

to coverthe costs of decommissioning the project, Michigan contendsthat this burdenmayultimately

be borne by the state'staxpayers. Michigan thus challenges as unreasonable FERC's decision to defer

consideration of the potential cost of these measures until relicensing, and to approve the transfer

without examining the transferee's financial resources.

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FERC was under no statutory duty to require the transferee NEW to submit estimates of

mitigation costs or a statement ofitsfinancialresources. See 18 C.F.R. §§ 4.61(d)(2), 9.2. As FERC

correctly points out, transferees must demonstrate the same qualifications as license applicants. Id.,

§ 9.2. Because original license applicants for dam projects that generate less than 5 megawatts, as

doesthe Menominee/Park Hill Project, need not submit estimates of mitigation costs and statements

offinancing sources, id. § 4.61(d)(2), transferees are also free fromany such obligation. With respect

to small projects, as FERC explained in denying rehearing, "the project's economic viability is the

most significant determinant ofthe licensee's ability to pay for the required environmentalmeasures."

74 FERC ¶ 61,023 at 61,068 (1996).

In other contexts, the court has recognized that despite the absence of explicit statutory

directives, FERC may sometimes be required to collect information to determine whether particular

measures are necessary to preserve the public interest. In Platte River Whooping Crane Critical

Habitat Maintenance Trust v. FERC, 876 F.2d 109 (D.C. Cir. 1989), for example, petitioners

challengedFERC'srefusalto undertake anassessment to determinewhether environmental protection

conditionsshould be imposed on a temporary damlicense. Despite FERC's assertion that "necessary

informationwould be developed and addressed during the relicensing proceeding," the court held that

FERC'srefusal to initiate an inquirywas an arbitrary and capricious exercise of discretion. Id. at 114,

199. The court explained, "[a]dmittedly, a bareboned request to collect information about the need

for protective conditions could be summarilydismissed, but here there was considerable evidence laid

before the Commission to trigger its attention to the problem." Id.

Wisconsin's and Michigan's request that FERC resolve the question of mitigation costs and

investigate further into the transferee's financial status before granting the license transfer was just

such a "bareboned request." Neither presented FERC with any evidence to support the doubts they

sought to raise concerning NEW's ability to assume the responsibilities under the licenses. Well

aware that certain environmentalmeasures may be required for the dams' continued operation, FERC

has already initiated a separate proceeding to address this matter. At this point, neither FERC nor

Wisconsin or Michigan can predict with any certainty whether, and in what form, such requirements

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may eventually be imposed. Moreover, as FERC noted, the transferee has agreed to comply with all

the terms and conditions of the licenses, which would include any environmental measures that may

become necessary, and neither Wisconsin nor Michigan has presented any evidence that calls into

question NEW's commitment or ability to do so. Using Michigan's own estimates of costs and

revenues, FERC found that NEW had adequate financial resources to operate and maintain the

projects. Although Michigan objected that FERC simply applied Michigan's revenue projections

without making its own independent revenue determination, Michigan never provided any evidence

to suggest that, as applied by FERC, Michigan's projections were unreliable. In the absence of any

evidence to suggest that the projects were likely to become marginal or to be abandoned by the

transferee, FERCcould reasonablyconclude that consideration ofthe impact offuture environmental

controls on the projects' economic viability was better deferred until such measures were actually

imposed at the time of relicensing, and that the possibility that the projects might be decommissioned

due to its economic unviability was too speculative to warrant requiring NEW to submit additional

financial documentation.

FERC's approvals of the Menominee/Park Mill and Oconto Falls license transfers were

supported by substantial evidence in the record and were the product of reasoned decision-making.

Because, in the absence of the transfers, FERC would have been under no obligation to assess the

availabilityof adequate financialresourcesto undertake potentialfuture environmentalmeasures, and

because the transfer provisions do not require FERC to reevaluate the financial status of existing

projects, 18C.F.R. § 9.3(a), FERCreasonablycould conclude that the transfer of economicallyviable

projects to a transferee willing and able to maintain the projects for the lifetime of the licenses was

in the public interest. Wisconsin's and Michigan's understandable, but unsubstantiated, concerns do

not compel another conclusion. Even assuming, from our perspective, that it might have been

preferable for FERC to engage in a more probing inquiry into the financial status of the transferee,

Congress has vested in FERC the primary responsibility of carrying out the provisions of the Federal

Power Act, 16 U.S.C. §§ 791(a)-825(r), and the FERC determinationsthat Wisconsin and Michigan

attack are precisely the type of decisions that are best left to the expertise of the regulatory agency.

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See United States Dept. of the Interior, 952 F.2d at 543; Mine Reclamation Corp., 30 F.3d at 1524.

Given the lack of any evidence to cast doubt on FERC's conclusions that the projects are viable and

that decommissioning is not anticipated, Wisconsin's and Michigan's challenges fail.

Accordingly, we deny the petitions.

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