Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-01153/USCOURTS-caDC-14-01153-0/pdf.json

Parties Involved:
American Public Power Association
Petitioner
Federal Energy Regulatory Commission
Respondent
Public Power Council
Petitioner
Western Minnesota Municipal Power Agency
Petitioner

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 19, 2015 Decided November 20, 2015

No. 14-1153

WESTERN MINNESOTA MUNICIPAL POWER AGENCY, ET AL.,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

On Petition for Review of Orders of the 

Federal Energy Regulatory Commission

Sam Kalen argued the cause for petitioners. With him on

the briefs were Michael Swiger and John Clements. Randolph

L. Elliott and Delia D. Patterson entered appearances.

Holly E. Cafer, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on the

brief were David L. Morenoff, General Counsel, and Robert H.

Solomon, Solicitor. Susanna Y. Chu, Attorney, entered an

appearance.

Before: GARLAND, Chief Judge, ROGERS, Circuit Judge,

and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROGERS.

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ROGERS, Circuit Judge: The Western Minnesota Municipal

Power Agency (“Western Minnesota”) submitted an application

pursuant to the Federal Power Act (“FPA”) for a preliminary

permit for a hydroelectric project in Polk County, Iowa. A

private developer, FFP Qualified Hydro 14, LLC (“FFP”), also

submitted a permit application for the same project on the same

day. Despite Western Minnesota’s status as a municipality, the

Federal Energy Regulatory Commission concluded that the

municipal preference under Section 7(a) of the FPA applies only

to municipalities “located in the[] vicinity” of the water

resources to be developed. FFP Qualified Hydro 14, LLC,

Order Issuing Successive Preliminary Permit, Granting Priority

to File License Application, and Denying Competing

Application (“Permit Order”), 145 FERC ¶ 61,255, at ¶ 17 (Dec.

19, 2013). Based on a random drawing, the Commission

awarded the permit to FFP and denied rehearing. Western

Minnesota and intervenors petition for review on the principal

ground that the Commission’s geographic proximity test is an

impermissible interpretation of the plain text of the statute. We

agree that Congress has spoken directly to the question in

defining “municipality” in Section 3(7) of the FPA, and we

grant the petition.

 

I.

The Commission is authorized under Section 4 of the FPA

to issue licenses for the construction, operation, and

maintenance of hydroelectric projects on federal land or waters

in a two-stage process: a preliminary permit and a license. 16

U.S.C. § 797. A preliminary permit gives the holder “priority of

application” for a license and enables the holder “to secure the

data and to perform the acts required” for a license application. 

Id. §§ 797(f), 798(a). Section 7(a) of the FPA provides that the

Commission “shall give preference to” preliminary permit

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applications of “States and municipalities.” 16 U.S.C. § 800(a). 

A “municipality” is defined as “a city, county, irrigation district,

drainage district, or other political subdivision or agency of a

State competent under the laws thereof to carry on the business

of developing, transmitting, utilizing, or distributing power.” 

FPA § 3(7), 16 U.S.C. § 796(7).

The Commission has adopted several timing regulations of

relevance here. Where the municipal preference does not apply

because both or neither of the competing applicants are a state

or municipality, and the plans of both are equally well adapted,

“the Commission will favor the applicant with the earliest

application acceptance date.” 18 C.F.R. § 4.37(b)(2). 

Applications received after regular business hours are

considered filed on the next regular business day. Id.

§ 385.2001(a)(2). Where two permit applications are deemed

filed on the same date and at the same time, the Commission’s

longstanding practice has been to break the tie by means of a

lottery. See FFP Qualified Hydro 14, LLC, Order Granting

Motion to Intervene Out-of-Time and Denying Rehearing, 147

FERC ¶ 61,233, at ¶ 7 n.9 (2014) (“Rehearing Order”) (citing

Petersburg Mun. Power & Light v. FERC, 409 F. App’x 364,

366 (D.C. Cir. 2011)). 

Between 5:00 p.m. on January 31, 2013 and 8:30 a.m. on

February 1, 2013, the Commission received two applications for

a preliminary permit to study the feasibility of a hydroelectric

project at the Saylorville Dam and Lake in Polk County, Iowa:

one from Western Minnesota and one from FFP. FFP is a

private, non-municipal developer and holder of a prior

preliminary permit for the Saylorville Dam site that expired on

January 31, 2013. Western Minnesota is a municipal

corporation and political subdivision of the State of Minnesota. 

Although Western Minnesota satisfied the definition of

municipality under FPA § 3(7), the Commission announced its

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intention to conduct a random drawing to determine which

applicant would be considered to have filed first and be entitled

to the permit. On the day of the drawing, Western Minnesota

filed a motion arguing that the drawing was unnecessary

because it was entitled to municipal preference. Nevertheless,

the Commission held the drawing, which resulted in priority

being granted to FFP. 

On December 19, 2013, the Commission granted FFP a

successive preliminary permit and priority to file a future license

application and denied Western Minnesota’s competing

application. Permit Order, 145 FERC ¶ 61,255. Stating that

Section 7(a) provided “no guidance as to the scope of the

municipal preference,” the Commission decided that “the best

reading of the statute is that municipalities should be accorded

preference only with respect to the development of water

resources that are located in their vicinity.” Id. at ¶ 17. More

generally, the Commission observed that “it is difficult to

discern what public interest is served by giving a municipality

a preference with respect to a project that is far from the site of

the municipality,” and that “[t]o do so would effectively make

municipalities super-competitors with respect to all new

hydropower developments, regardless of their location.” Id.

Because Western Minnesota’s headquarters in Ortonville,

Minnesota are “almost 400 miles from” the Saylorville Dam in

Iowa, and “the record reveals no connection, beyond a business

development interest, between the proposed project and

[Western Minnesota],” the Commission concluded that

“granting municipal preference to Western Minnesota in these

circumstances would not be in the public interest.” Id.

(emphasis added). As Western Minnesota was not entitled to a

municipal preference and “there [was] no claim that either FFP’s

or Western Minnesota’s plans is better adapted than the other,”

the Commission awarded the preliminary permit to FFP as a

result of the random drawing. Id. ¶ 20. 

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Western Minnesota filed a request for rehearing on the

ground that the Commission’s interpretation of the municipal

preference was contrary to the plain text of Section 7(a).

Additionally, it argued that the Commission had impermissibly

changed its longstanding interpretation of the provision and that

its “in the vicinity” standard was too vague to be understood or

applied. The American Public Power Association and the Public

Power Council moved to intervene in support of Western

Minnesota and also requested rehearing. The Commission

granted the motion to intervene out of time but denied both

requests for rehearing. Rehearing Order ¶ 1. Western

Minnesota and intervenors (together, “Western Minnesota”)

petition for review of the Permit and Rehearing Orders.

II.

The court reviews an agency’s interpretation of a statute

that it administers under the two-step framework of Chevron

U.S.A., Inc. v. NRDC, 467 U.S. 837, 842–43 (1984). Under step

one, the court must determine “whether Congress has directly

spoken to the precise question at issue.” Id. at 842. If so, then

the court and the agency must “give effect to the unambiguously

expressed intent of Congress.” Id. at 842–43. If the court

determines that “the statute is silent or ambiguous with respect

to the specific issue,” then under step two, “the question for the

court is whether the agency’s answer is based on a permissible

construction of the statute.” Id. at 843.

In addressing a question of statutory interpretation, the court

begins with the text. See, e.g., Engine Mfrs. Ass’n v. S. Coast

Air Quality Mgmt. Dist., 541 U.S. 246, 252 (2004). Section 7(a)

of the FPA provides:

In issuing preliminary permits hereunder or

original licenses where no preliminary permit has

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been issued, the Commission shall give preference

to applications therefor by States and

municipalities, provided the plans for the same are

deemed by the Commission equally well adapted,

or shall within a reasonable time to be fixed by the

Commission be made equally well adapted, to

conserve and utilize in the public interest the water

resources of the region.

16 U.S.C. § 800(a) (emphasis added). As Western Minnesota

points out, “[n]othing in this language qualifies or restricts

which ‘states’ or which ‘municipalities’ are to be favored.” 

Pet’rs’ Br. 12–13. Congress determined that these entities shall

be granted preference as long as their plans are determined by

the Commission to be as “equally well adapted” to that of a

competing non-municipal applicant. It defined the word

“municipality” broadly, leaving no indication that geographic

considerations are relevant to an applicant’s status as a

municipality. FPA § 3(7), 16 U.S.C. § 796(7). Further, nothing

in the text of Section 7(a) suggests that Congress’s use of the

phrase “shall give preference” is anything other than a

mandatory directive to the Commission. The ordinary meaning

of “shall” is the opposite of “may,” denoting the Commission’s

duty to prefer municipalities with at least equal plans, not an

invitation for the Commission to determine when preferring a

particular municipality would serve the public interest as the

Commission sees it. See Ass’n of Am. R.Rs. v. Costle, 562 F.2d

1310, 1312 (D.C. Cir. 1977); BLACK’S LAW DICTIONARY 1379

(7th ed. 1990). Additionally, the plain text shows that Congress

was specific about the public policy it intended to advance by

Section 7(a): a municipality shall receive preference only where

its plans are “equally well adapted . . . to conserve and utilize in

the public interest the water resources of the region.” 16 U.S.C.

§ 800(a). This precondition is not a limit on which entities are

municipalities that qualify for the statutory preference but rather

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describes the circumstances that must exist to trigger application

of the preference. 

By its terms, then, Section 7(a) is a “statutory tie-breaker

provision favoring states and municipalities over private

parties.” Oconto Falls v. FERC, 41 F.3d 671, 672 (D.C. Cir.

1994). As defined in Section 3(7), “municipality” neither

betrays ambiguity nor leaves a statutory gap for the Commission

to fill. Contrary to the Commission’s conclusion, Congress has

spoken directly to the question at issue. 

In concluding that Section 7(a) is ambiguous because it

provided no guidance on its scope, the Commission has

“manufactured ambiguity,” “ignoring [Chevron step one]

altogether by failing to articulate how the plain text of Section

7(a) was unclear.” Pet’rs’ Br. 11. The Commission never

explained why the meaning of “States and municipalities” is

ambiguous such that the municipal preference can be limited to

those municipalities in a project’s “vicinity,” a word Congress

did not use in defining “municipality” or elsewhere in Sections

4 or 7(a). Instead, the Commission declined to apply the

municipal preference because of its policy conclusion that “it is

difficult to discern what public interest is served by giving a

municipality a preference with respect to a project that is far

from the site of the municipality.” See Permit Order ¶ 17. In

the Commission’s view, if any municipality “could legitimately

claim preference,” a “distant municipality” in competition with

a “nearby municipality” could “win a tie breaking drawing and

then deprive the nearby municipality of the right to utilize a

local water resource.” Id. Rather than inferring from

Congress’s silence that the physical proximity of a municipality

to a project is irrelevant to whether it is a “municipality” for

purposes of the Section 7(a) preference, the Commission

inferred a legislative delegation to pick and choose favored

municipalities to advance the Commission’s policy. 

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Agencies are empowered to make policy only insofar as

Congress expressly or impliedly delegates that power. See

Utility Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2445

(2014). “Were courts to presume a delegation of power absent

an express withholding of such power, agencies would enjoy

virtually limitless hegemony, a result plainly out of keeping

with Chevron and quite likely with the Constitution as well.” 

Ethyl Corp. v. EPA, 51 F.3d 1053, 1060 (D.C. Cir. 1995)

(emphasis in original). The Commission’s apparent

understanding that “Chevron step two is implicated any time a

statute does not expressly negate the existence of a claimed

administrative power . . . , is both flatly unfaithful to the

principles of administrative law . . . and refuted by precedent.” 

Id. (alteration in original). In Section 7(a), Congress adopted a

clear mandate that where applications are “equally well

adapted,” the application of a “municipality” is to be preferred

over that of a private applicant. Bolstering this mandate is the

broad definition of “municipality.” The Commission’s injection

of a proximity requirement in the definition of “municipality”

is unwarranted. By stating that the preference applies only

when competing applicants’ plans are “equally well adapted” to

develop and conserve the “water resources of the region,”

Congress identified a single qualification on application of the

preference in favor of a “municipality.”

Nothing in the structure of the FPA reveals a contrary

intent. The Commission relies on Section 4(f) of the FPA,

which requires the Commission to give notice of an application

for a preliminary permit (1) “to any State or municipality likely

to be interested in or affected by such application,” and (2) by

publication in a daily or weekly newspaper published in the

county or counties where the project is situated. 16 U.S.C.

§ 797(f). The Commission has interpreted Section 4(f) to set

geographic criteria for identifying which political subdivisions

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must be notified of a permit application. See 18 C.F.R.

§ 4.32(a)(2). Noting the distinction in Section 4(f) between

municipalities in general and those “likely to be interested in”

a potential project, the Commission stated that “it would be

administratively impossible for the Commission to determine

which municipalities were likely to be interested” in a project

“other than on the basis of propinquity.” Permit Order ¶ 18. 

Because Section 4(f) “does not extend the same treatment to all

municipalities,” the Commission concluded it could also

distinguish between municipalities on the basis of proximity for

purposes of applying the Section 7(a) preference. Id. Relying

on its view of the undesirability of far-away municipalities

developing local water resources, the Commission declined to

grant Western Minnesota a municipal preference because

Western Minnesota’s headquarters are almost 400 miles from

the project site and Western had only “a business development

interest” in the proposed project. Permit Order ¶ 19. 

Although the Commission’s premise that Section 7(a) must

be read in light of its broader statutory context may be

unobjectionable, see, e.g., FDA v. Brown & Williamson

Tobacco Corp., 529 U.S. 120, 132 (2000), its analysis has

veered off course. Section 4(f) is a notice provision, not a

substantive restriction on the municipal preference in Section

7(a). The Commission is not faced with two statutory

provisions having differing mandates, creating a “fundamental

ambiguity” that would warrant application of the Commission’s

expertise. See Nat’l Ass’n of Home Builders v. Defs. of

Wildlife, 551 U.S. 644, 666 (2007). Nor is there an

inconsistency from the plain text of these provisions that a

municipality eligible for the Section 7(a) preference may not be

entitled to receive Section 4(f) notice. 

On rehearing, the Commission suggested that the clause 

limiting notice to those “State[s] or municipalit[ies] likely to be

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interested in or affected by such application,” 16 U.S.C.

§ 797(f) (emphasis added), would be “superfluous” if Congress

intended “to extend municipal preference to all municipalities

without exception,” Rehearing Order ¶ 21. This argument fails

on several grounds. First, by its plain terms, the clause informs

the Commission which group of municipalities must be notified

of an application, not which municipalities the Commission

must prefer under Section 7(a). Consistent with the

Commission’s observation about administrative feasibility, see

Permit Order ¶ 18, the clause sets a manageable limit on the

Commission’s notice obligations. Second, interpreting Section

4(f)’s procedural requirements as a substantive limit on the

scope of Section 7(a) ignores the connector “or”. Section 4(f)

requires the Commission to give notice of a preliminary permit

application “to any State or municipality likely to be interested

in or affected by such application.” 16 U.S.C. § 797(f)

(emphasis added). Municipalities “in the vicinity of” a project

site are likely to be “affected by” the application whereas here

Western Minnesota has stated its “interest[]” in the Saylorville

Dam project. That interest is therefore established and more

than just “likely.” Even if Section 4(f) were viewed as in some

way qualifying the scope of the municipal preference in Section

7(a), Western Minnesota qualifies by its clear “interest” in the

project.

The Commission’s reliance on Northern Colorado Water

Conservancy District v. FERC, 730 F.2d 1509 (D.C. Cir. 1984),

as support for interpreting Section 4(f) as a limit on the scope

of Section 7(a) is misplaced. That case did not discuss whether

the two provisions should be read together. In Northern

Colorado, the Commission had failed to provide written notice

of a preliminary permit application to the Water Conservancy

District even though the District was a “municipality” under

FPA § 3(7) and “likely to be interested in or affected by” the

application under Section 4(f) because the District distributed

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water from the canal at the project site. See id. at 1516. In

granting the District’s petition to reopen the preliminary permit

application process, the court stated that Section 4(f)’s notice

requirement “was designed to assist municipalities in their

competition for permits” and “was primarily intended to allow

states and municipalities to assert and thus protect their

statutory preferences.” Id. at 1512, 1513. The court also

“reject[ed] any argument that ‘municipality’ has a different

meaning for purposes of a § 4(f) notice than for purposes of a

§ 7(a) municipal preference.” Id. at 1516 n.7. Citing this

footnote as support for a proximity limit on the scope of the

municipal preference, the Commission maintains that its

approach ensures a consistent interpretation of the word

municipalities in Sections 4(f) and 7(a). See Resp. Br. at 26. 

This overlooks that the meaning of “municipality” is the same

for both Sections 4(f) and 7(a). Rather, the relevant difference 

between municipalities to be notified and municipalities

entitled to the municipal preference arises from the absence in

Section 7(a) of the limiting clause in Section 4(f) — “affected

by or likely to be interested in” — that cabins the

Commission’s notice obligations. “[W]here Congress includes

particular language in one section of a statute but omits it in

another section of the same Act, it is generally presumed that

Congress acts intentionally and purposely in the disparate

inclusion or exclusion.” Russello v. United States, 464 U.S. 16,

23 (1983) (internal quotation omitted). Nothing in the plain

text of Sections 4(f) or 7(a) rebuts this presumption. 

The Commission’s resort on rehearing to legislative history

is also unavailing. The Commission points out that Section

7(a) was “originally enacted in the Federal Water Power Act of

1920, when the nation’s electric grid was relatively

undeveloped and access to hydroelectric power was at a

particular premium for municipalities seeking to provide

electric power to their communities.” Rehearing Order ¶ 24. 

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But even if Congress did not envision the magnitude of current

long-distance transmission, it was aware transmission capacity

would grow.1

 Nonetheless, relying on legislative history, the

Commission concluded that “Congress intended only to give a

preference to states and municipalities with respect to water

resources in proximity to those public entities, to facilitate the

development of those resources for the benefit of local

consumers.” Rehearing Order ¶ 24. Yet the legislative history,

by the Commission’s own admission, is “limited,” id., and it is

inconclusive on the question whether the municipal preference

was intended to preserve local municipalities’ control over

water resources or to encourage public rather than private

ownership.2

 On the other hand, the legislative history would

1

 For instance, the House Committee on Public Lands heard

testimony that “the site of the water plant is not likely to be its field of

operation; its power is distributed over a large area.” Hearings Before

the House Comm. on Public Lands, 63rd Cong. 328 (1914) (statement

of George Otis Smith, U.S. Geological Survey, Dep’t of Interior). 

Similarly, O.C. Merrill, “the chief draftsman of the Federal Water

Power Act,” see Allegheny Elec. Coop., Inc., 26 FERC ¶ 61,119, at

61,296 (1984), testified that “a very considerable increase in the

output of electric energy could be secured by the combination of

existing isolated plants into a single system through the medium of

high-tension transmission lines.” Hearings Before the House Comm.

on Water Power, 65th Cong. 19–20 (1918) (statement of O.C. Merrill,

Forest Service, Dep’t of Agriculture). 

2

 Some of the legislative history suggests Congress’s primary

concern was local development of resources. For instance, one

Senator stated a “very strong[] . . . opinion that the States and the

counties, municipalities, and other subdivisions . . . in which these

water-power sites are situated should have the right to develop them

for the use of the people of those States, counties, or municipalities,

as the case may be.” Statement of Sen. Nugent, 59 Cong. Rec. 1571

(1920). Other parts suggest Congress was concerned with protecting

public over private ownership. For instance, another Senator

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suggest that Congress did not intend for the Commission to

have discretion in picking among states and municipalities,

contrary to the Commission’s approach here.3

 In short, the

legislative history cannot save the Commission’s interpretation

from the plain statutory text. 

On rehearing the Commission also purported to invoke the

absurdity doctrine, stating Section 7(a) was ambiguous because

applying the municipal preference to all municipalities

regardless of geographic proximity would work an “absurd or

mischievous” result and would “thwart the statute’s manifest

purpose.” Rehearing Order ¶ 20. It again referenced

hypothetical examples of an East Coast municipal entity

claiming preference to develop a project in Hawaii, and a

competition between a distant and a nearby municipality where

a tiebreaker drawing results in depriving the nearby

emphasized that the statute would “look[] with favor upon”

hydroelectric plants operated by municipalities, because “[w]herever

the interests of the public are best served by it, I think it is just as well

and better to give it to the municipality than it would be to give it to

private individuals to do the same thing.” Statement of Sen.

LaFollette, 56 Cong. Rec. 9113 (1918).

3

 An early version of the bill that would become the FPA

provided that “in issuing preliminary permits or licenses hereunder the

commission may in its discretion give preference to applications

therefor by States and municipalities.” 56 Cong. Rec. 9775 (1918). 

The House of Representatives adopted an amendment striking the

phrase “may in its discretion” and replacing it with the word “shall.” 

Id. at 9805. The sponsor of this amendment stated its “sole purpose”

was “to place States, municipalities, and other political subdivisions

upon an equality with private applicants” by “mak[ing] it mandatory

upon the commission to grant the license to the State or municipality,

if the plans submitted by it are . . . as good as those submitted by the

private applicant.” Id. at 9804 (statement of Rep. Doremus).

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municipality of the right to utilize a local water resource. Id.;

see Permit Order ¶ 17. In the Commission’s view, “these types

of consequences were not likely intended, or anticipated, by

Congress in enacting FPA section 7(a)” in 1920. Rehearing

Order ¶ 20. The statutory issue for the court, however, is not

whether the Commission’s interpretation of Section 7(a)’s

municipal preference is the better public policy. Before the

Commission can invoke the doctrine of “absurd or mischievous

consequences” to rewrite the statute, it must demonstrate that

the plain meaning of the statutory text “‘defies rationality’ by

‘render[ing] a statute nonsensical [and] superfluous.’” United

States v. Cook, 594 F.3d 883, 891 (D.C. Cir. 2010) (quoting

Landstar Express Am., Inc. v. Fed. Maritime Comm’n, 569 F.3d

493, 498–99 (D.C. Cir. 2009). The Commission has not met

this high threshold. There is nothing patently unreasonable in

favoring any and all municipalities over private applicants

when “‘the chief purpose’” of the FPA was “to ‘provide

conditions under which capital can be secured [to develop

hydropower] while at the same time fully to protect the

paramount interests of the public in its last great national

resource.’” Clark-Cowlitz Joint Operating Agency v. FERC,

775 F.2d 366, 377 (D.C. Cir. 1985), vacated and reh’g en banc

granted, 787 F.2d 674 (1986) (quoting O.C. Merrill, Benefits

Accruing to Municipalities Through the Federal Water Power

Act, THE AMERICAN CITY, Vol. XXIII, No. 5 (Nov. 1920)). 

Even when Congress limited the municipal preference in 1986

to “original” as distinct from relicensing proceedings, when it

would have been aware of modern long-distance transmission, 

it did not add a proximity requirement. See Oconto Falls, 41

F.3d. at 672 (citing the Electric Consumers Protection Act, Pub.

L. No. 99-495, 100 Stat. 1246 (1986) (codified at 16 U.S.C.

§§ 791a–828c)).

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To the extent the Commission is concerned that granting

a preference to a too-distant municipality seeking a preliminary

permit could have “undesirable consequences,” Rehearing

Order ¶ 20, the Commission may be able to address it through

the “equally well adapted” provision of Section 7(a), cf. id. ¶ 20

n.25. That could permit a local municipality (or local private

entity) to triumph over a distant municipality, without limiting

the statutory definition of “municipality.” The nature and

extent of the Commission’s concern is unclear, however. The

Commission has rejected a proximity “test” for welladaptedness, see, e.g., N.E.W. Hydro, Inc. City of Oconto Falls,

Wis., 85 FERC ¶ 61,222, 61,909 & n.12 (1998), and reported

that “many licensees are headquartered a distance from their

projects, to no ill effect,” id. at 61,909. Of course, the propriety

of using the “equally well adapted” requirement to impose

some geographic constraints is not a question before the court

and would involve a Chevron step two analysis. The

Commission’s approach here, by contrast, that there is some

geographical limit inherent to what is a “municipality” for

purposes of Section 7(a), fails at Chevron step one. 

Accordingly, we grant the petition for review, vacate the

Commission’s Permit Order and Rehearing Order, and remand

for further proceedings without reaching Western Minnesota’s

other challenges.

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