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Erie Boulevard Hydropower, LP v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

December 22, 2017

Erie Boulevard Hydropower, LP, Petitioner
Federal Energy Regulatory Commission, Respondent Hudson River-Black River Regulating District, Intervenor

          Argued September 25, 2017

         On Petition for Review of Orders of the Federal Energy Regulatory Commission

          Ariel N. Lavinbuk argued the cause for the petitioner. Roy T. Englert Jr. and Peter B. Siegal were with him on brief. John A. Whittaker, IV entered an appearance.

          Elizabeth E. Rylander, Attorney, Federal Energy Regulatory Commission, argued the cause for the respondent. Robert H. Solomon, Solicitor, was with her on brief.

          Frederick A. Brodie, Assistant Solicitor General, Office of the Attorney General for the State of New York, argued the cause for the intervenor. Eric T. Schneiderman, Attorney General, Barbara D. Underwood, Solicitor General, and Victor Paladino, Assistant Solicitor General, were with him on brief.

          Before: Henderson and Millett, Circuit Judges, and Ginsburg, Senior Circuit Judge.



         This hydroelectric dispute arises from the banks of the Sacandaga and Hudson Rivers and the ripples of our decision in Albany Engineering Corp. v. FERC, 548 F.3d 1071 (D.C. Cir. 2008) (Albany). The petitioner is Erie Boulevard Hydropower, LP (Erie), which operates a series of dams that lie downstream from the Conklingville Dam (Dam) in the Hudson River basin. The Dam is operated by the Hudson River-Black River Regulating District (District), which appears as an intervenor herein. The respondent is the Federal Energy Regulatory Commission (FERC or Commission).

         Before our Albany decision, parallel federal and New York state regulatory regimes required downstream hydroelectric facilities (e.g., Erie) to reimburse their headwater counterparts (e.g., the District) for certain costs. Albany changed that dual-track regulatory scheme by holding that the New York State assessment regime is preempted by section 10(f) of the Federal Power Act (FPA), which entitles the District to recover only "interest, maintenance, and depreciation" costs. Id.; see 16 U.S.C. § 803(f). In the wake of Albany, Erie petitioned FERC to credit it for costs the District had assessed it in excess of the federally mandated costs. In 2015, after a lengthy administrative process, the Commission denied Erie's request and denied rehearing. In doing so, the Commission relied on the fact that Erie and the District had formally settled their state law dispute over headwater charges in 2006. Erie then petitioned this Court to vacate the Commission's orders. For the reasons set forth below, we deny Erie's petition.

         I. BACKGROUND

         In the early twentieth century, the State of New York built the Dam on the Sacandaga River. The Dam flooded the upstream river plain and created the Great Sacandaga Lake (Lake). New York established the District to operate the Dam, which it has done from 1930 to the present.

         The FPA prohibits the unlicensed construction, operation or maintenance of any "dam, water conduit, reservoir, power house, or other works incidental thereto across, along, or in any of the navigable waters of the United States." 16 U.S.C. § 817(1). In 1993, Erie's predecessor, Niagara Mohawk Power Corporation, applied to FERC for a license to operate the E.J. West power facility immediately downstream from the Dam.[1] During the application process, FERC determined that the Dam and the Lake were part of the same hydroelectric "project" as the E.J. West facility and that the FPA therefore required the District to license them as well. See 16 U.S.C. § 796(11). After almost a decade of administrative proceedings, in 2002, FERC granted licenses to Erie (for the E.J. West project) and to the District (for the Dam and the Lake).

         Erie operates four FERC-licensed projects downstream from the Dam: (1) E.J. West (Project No. 2318); (2) Stewarts Bridge (Project No. 2047); (3) Hudson River (Project No. 2482);[2] and (4) Feeder Dam (Project No. 2554). Since the Commission issued the District's license in 2002, the interaction between Erie and the District has been contentious. Their conflict has played out in state court, in federal court and before FERC.

         A. Regulatory Framework

         In the world of hydroelectricity, "[a]n upstream dam typically will render the downstream flow more even and predictable, enabling downstream hydropower plants to operate at a higher capacity." Albany, 548 F.3d at 1072. When a downstream FERC licensee benefits from the regulated flow caused by an upstream dam (headwater benefits), the FPA authorizes the upstream FERC-licensed dam operator (upstream operator) to collect reimbursement for certain costs. 16 U.S.C. § 803(f). Specifically, section 10(f) of the FPA provides that the Commission "shall require" downstream licensees that benefit from an upstream operator's "reservoir or other improvements" to reimburse the upstream operator "for such part of the annual charges for interest, maintenance, and depreciation thereon as the Commission may deem equitable." Id. In other words, because the headwater dam enables the downstream facility to produce additional energy, the downstream licensee reciprocates by paying for a portion of the upstream operator's costs. Id.

         Commission regulations establish two procedures for calculating reimbursable headwater benefits costs. See generally 18 C.F.R. §§ 11.10-11.17. The preferred method is for the upstream and downstream licensees to negotiate a settlement and submit it to the Commission for approval under FERC Rule 602. Id. § 11.14 (incorporating id. § 385.602). Alternatively, if the parties are unable to settle, they can petition FERC to conduct a headwater benefits investigation in order to determine the correct charges. Id. § 11.15. The cost of the investigation is apportioned equally between the FERC-licensed headwater project owner and the collective downstream recipients of the headwater benefits. Id. § 11.17(c)(2). After conducting the investigation, the Commission sets reimbursable costs based on a formula that balances the energy gains for the downstream licensee against the specified costs associated with the upstream dam operator. Id. § 11.11(b).

         B. State Court Litigation and 2006 Settlement

         Before Albany, the District assessed headwater benefits charges against Erie and other downstream operators on the Sacandaga and Hudson Rivers pursuant to the New York State Environmental Conservation Law. See Albany, 548 F.3d at 1078. In New York State court, Erie challenged the District's budget, assessment and apportionment used to determine headwater benefits for each of the six budget years from 2000-06.[3] The parties eventually settled the state court litigation and the Fulton County State Supreme Court approved their settlement agreement (Agreement) in a Stipulated Settlement and Order (Settlement Order) dated May 30, 2006. Joint Appendix (JA) 349-57.

         The Agreement provided benefits to both parties. Erie received: (1) $822, 220 as credits applying to the District's assessments for the three-year period 2006-09; (2) an additional $140, 220 "in the form of a reduction in assessment of $46, 740.00" for each of the budget years from 2007-09; and (3) the execution of a separate document entitled "Amendment to Reservoir Operating Agreement and Letter Agreement, " which gave Erie a beneficial extension thereto. JA 350-53. In return, Erie agreed to two broad release clauses:

10. Each of the Parties, on behalf of itself and on behalf of any person or entity claiming by, through or under it, does hereby release and forever discharge each of the other Parties, and their respective officers, directors, trustees . . . [etc.] from any and all claims, demands, judgments, liabilities, damages, and causes of action of every kind and character, whether such claims arise in contract or in tort, are founded upon statutory or common law, or whether such claims are known or unknown, at law or in equity . . . arising out of or in any way related to the District's budgets, assessments, and apportionments for the budget years July 1, 2000 to June 30, 2001, July 1, 2001 to June 30, 2002, July 1, 2002 to June 30, 2003, July 1, 2004 to June 20, 2005, and July 1, 2005 to June 30, 2006, which such Party may now have against the Released Parties (to the extent that such claims originated in whole or in part or, based on presently existing facts, that could have originated in whole or in part on or before the date hereof).
. . .
13. [Erie] agrees to waive any future challenges or claims with respect to the District's July 1, 2006 to June 30, 2007, July 1, 2007 to June 30, 2008, and July 1, 2008 to June 30, 2009 budgets, assessments, and/or apportionments and agrees not to bring any lawsuit or legal action of any kind challenging, contesting or disputing the District's budgets, assessments and/or apportionments for the period July 1, 2006 to June 20, 2009.

JA 353-54. In Paragraph 15, the parties further agreed to make the Settlement Order "inadmissible in any subsequent action or proceeding before any court of law or administrative body, except . . . in any action or proceeding for enforcement of its provisions." JA 354. Finally, the Settlement Order provides that "the settlement of these proceedings is hereby approved as just, reasonable and to be in the best interests of the Parties." JA 355.

         C. Albany Engineering Corporation

         Similarly displeased with the District's state headwater benefits assessments, another downstream licensee, Albany Engineering Corporation (Albany), challenged the District's charges before the Commission.[4] See Albany, 548 F.3d at 1071. Albany argued that section 10(f) of the FPA preempts all state headwater benefits assessments as a matter of law. Id. at 1073. The Commission agreed in part. It held that section 10(f) preempts state law "only insofar as the state authorize[s] charges for interest, maintenance, and depreciation"; it left states free, however, to charge FERC licensees for "all headwater improvement costs not fitting into" those three categories. Id. (emphasis in original). Albany petitioned for review and this Court granted its petition. Id.

         In reviewing the FPA's legislative history, this Court determined that the FPA "manifest[ed] a deliberate congressional decision to balance the goal of compensating upstream owners (and thus encouraging their investment) and that of protecting downstream ones (and thus encouraging their investment)." Id. at 1076. We therefore held that section 10(f) preempts in toto any state law that authorizes headwater benefits charges.[5] Id. at 1073. On the issue of remedies, however, the Court punted, declaring:

We do not reach FERC's decision to neither order refunds for Albany's past payments to the District nor convene a settlement conference. FERC reasoned that ยง 10(f) does not grant it the authority to address independent actions taken by an upstream licensee to collect ...

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