United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 12, 2008 Decided November 28, 2008
No. 07-1162
ALBANY ENGINEERING CORPORATION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
HUDSON RIVER-BLACK RIVER REGULATING DISTRICT,
INTERVENOR
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
William S. Huang argued the cause for petitioner. With
him on the briefs were Frances E. Francis and Rebecca
Baldwin.
Lona T. Perry, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. On the brief
were Cynthia A. Marlette, General Counsel, Robert H.
Solomon, Solicitor, and Judith A. Albert, Senior Attorney.
2
Michael N. McCarty argued the cause for intervenor.
With him on the brief were John H. Conway and Christian D.
McMurray.
Before: BROWN and KAVANAUGH, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
Concurring opinion filed by Circuit Judge BROWN.
WILLIAMS, Senior Circuit Judge: An upstream dam
typically will render the downstream flow more even and
predictable, enabling downstream hydropower plants to
operate at a higher capacity. Farmington River Power Co. v.
FERC, 103 F.3d 1002, 1004 (D.C. Cir. 1997); see also 18
C.F.R. § 11.10(a)(2). To enable the upstream firms to recoup
part of the cost of conferring these “headwater benefits,”
Congress in § 10(f) of the Federal Power Act (“FPA”), 16
U.S.C. § 803(f) (2006), directed the Federal Energy
Regulatory Commission (technically the direction was to its
predecessor, but the change is of no moment here) to require
its downstream licensees to reimburse upstream operators “for
such part of the annual charges for interest, maintenance, and
depreciation thereon as the Commission may deem
equitable.” Id. (emphases added). This case presents the
question whether § 10(f) preempts state law over
compensation for headwater benefits, or whether,
alternatively, it allows states to mandate compensation for
elements of cost other than “interest, maintenance, and
depreciation.”
FERC held that § 10(f) preempted state law only insofar
as the state authorized charges for interest, maintenance, and
depreciation. Fourth Branch Associates (Mechanicville) v.
3
Hudson River-Black River Regulating District, 117 FERC
¶61,321 (2006) (“Order”). Thus it left New York (the state in
question, and of course by extension all other states) free to
authorize upstream firms to assess FERC licensees for all
headwater improvement costs not fitting into the “interest,
maintenance, and depreciation” categories.
Our review of the text and legislative history of the FPA
generally and § 10(f) specifically convinces us that § 10(f)
must, in order to accomplish the full objectives of Congress,
be understood to preempt all state orders of assessment for
headwater benefits. See Louisiana Pub. Serv. Comm’n v.
F.C.C., 476 U.S. 355, 368-69 (1986) (“Pre-emption occurs . . .
where the state law stands as an obstacle to the
accomplishment and execution of the full objectives of
Congress.”); Crosby v. Nat’l Foreign Trade Council, 530 U.S.
363, 372-73 (2000); Geier v. American Honda Motor Co.,
Inc., 529 U.S. 861, 881 (2000); Armstrong v. Accrediting
Council for Continuing Educ. and Training, Inc., 168 F.3d
1362, 1369 (D.C. Cir. 1999). Thus we find that FERC’s
interpretation of § 10(f) was unreasonable, and we remand the
case to FERC to consider appropriate remedies consistent
with our holding.
* * *
The Hudson River-Black River Regulating District (the
“District”) is a New York state agency authorized to operate
the Conklingville Dam and its related impoundment, Great
Sacandaga Lake, on the Sacandaga River, a tributary of the
Hudson. Fourth Branch Associates (Mechanicville) v.
Hudson River-Black River Regulating District, 119 FERC
¶61,141, PP 3–10 (2007) (“Order on Rehearing”). In 1992,
FERC determined that the District must obtain licenses for
both the Conklingville Dam and Great Sacandaga Lake
4
because the E.J. West Project, a FERC licensee located on the
Conklingville Dam, used the District’s facilities to generate
power. FERC issued an original license to the District in
September 2002. Id.
Albany Engineering Corporation is the successor to
Fourth Branch Associates and as such is the FERC licensee
for the Mechanicville Hydroelectric Project, located
downstream of Great Sacandaga Lake. Id. New York law
authorizes the District to recover its capital, maintenance, and
operating costs through assessments against public
corporations and real estate parcels benefited by the
construction of dams and reservoirs. N.Y. Envtl. Conserv.
Law § 15-2121. Under this authority the District has been
levying annual assessments against downstream FERC
licensees such as Albany for decades. Order, 117 FERC
¶61,321 at P 11.
On July 25, 2006, Albany filed a formal complaint with
FERC against the District, alleging that since 2002 the District
had been improperly assessing annual charges for headwater
benefits. Id. at P 1. Albany argued that § 10(f) vests FERC
with the exclusive jurisdiction to determine the level of
reimbursement for costs associated with such benefits.
Section 10(f) states:
That whenever any licensee hereunder is directly
benefited by the construction work of another licensee, a
permittee, or of the United States of a storage reservoir or
other headwater improvement, the Commission shall
require as a condition of the license that the licensee so
benefited shall reimburse the owner of such reservoir or
other improvements for such part of the annual charges
for interest, maintenance, and depreciation thereon as the
Commission may deem equitable. The proportion of
such charges to be paid by any licensee shall be
5
determined by the Commission. The licensees or
permittees affected shall pay to the United States the cost
of making such determination as fixed by the
Commission.
16 U.S.C. § 803(f) (emphases added).
FERC found that “there is no question” that the District
had charged Albany for headwater benefits. Order, 117
FERC ¶61,321 at P 38. Insofar as New York’s statutory
scheme covered charges for interest, maintenance, and
depreciation, it found the scheme preempted by § 10(f). Id. at
P 44. So far as other costs were concerned, however, FERC
rejected Albany’s preemption claim. Id. at PP 49-50. In
reaching this conclusion, it characterized § 10(f) as
manifesting a single federal interest—that of “ensuring the
participation of downstream project owners in the financial
burden incident to the construction of power and storage
facilities of a river basin.” Id. at P 49. FERC also found that
it had no authority to require the District to rescind
assessments made under color of state law or to order refunds
of amounts already paid. Id. at PP 55–56.
Albany sought rehearing, which FERC denied. Albany
now appeals to this court, objecting to all the above rulings
other than FERC’s finding that § 10(f) did preempt state-law
mandates for reimbursement of interest, maintenance, and
depreciation. (The District files no cross appeal on that issue.)
* * *
This court generally reviews an agency’s interpretations
of the statutes it administers under the deferential standard set
forth in Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984).
But a recent dissenting Supreme Court opinion has called into
question whether Chevron deference is appropriate when
6
addressing questions of preemption. In Watters v. Wachovia
Bank, 127 S. Ct. 1559, 1584 (2007) (Stevens, J., dissenting)
(joined by Roberts, C.J., and Scalia, J.), the dissent argued that
“[u]nlike Congress, administrative agencies are clearly not
designed to represent the interests of the States . . . .” As a
result, the dissent reasoned that “when an agency purports to
decide the scope of federal preemption, a healthy respect for
state sovereignty calls for something less than Chevron
deference.” Id.
We have in the past rejected the argument that “wherever
a federal agency’s exercise of authority will preempt state
power, Chevron deference is inappropriate.” Oklahoma
Natural Gas Co. v. FERC, 28 F.3d 1281, 1284 (D.C. Cir.
1994). We reasoned that, “with the exception of negative
exercises of federal authority, all agency legal interpretations
have some preemptive effect . . . .” Id. Hence, we rejected
the application of a “non-deference principle” because it
would “have to be applied almost universally, overturning
Chevron.” Id. The context, to be sure, involved an issue—the
scope of the agency’s jurisdiction—that only implicitly was of
preemptive effect, not, as here, an express issue of whether
undisputed FERC authority has preemptive effect. Oklahoma
Natural Gas Company also of course left open the question of
whether or not an agency decision that avoids preemption of a
state law—as is the case with FERC’s decision here—is still
deserving of Chevron deference.
Ultimately, this case doesn’t require us to resolve the
applicability of Chevron to agency preemption decisions, as
“we would vacate [FERC’s] interpretation even under the
more deferential Chevron standard.” Port Authority of New
York and New Jersey v. Dep’t of Transp., 479 F.3d 21, 28
(D.C. Cir. 2007). In short, we will assume in favor of FERC
that its conclusion is entitled to Chevron deference.
7
Another framing issue is the familiar presumption against
preemption. See, e.g., Geier v. American Honda Motor Co.,
Inc., 166 F.3d 1236, 1237 (D.C. Cir. 1999), aff’d, 529 U.S.
861 (2000). But this presumption may be overcome if, as we
hold today, the court finds that the preemptive purpose of
Congress was “clear and manifest.” Geier, 166 F.3d at 1237
(citing Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)).
* * *
We start with FERC counsel’s concession at oral
argument that under § 10(f) FERC itself could not impose
charges for headwater benefits other than “interest,
maintenance, and depreciation.” Oral Argument Rec. 15:10–
15:27. The concession was surely inevitable. As the certainty
of other costs was as plain as plain could be, Congress’s
express provision for three types could hardly leave room for
a FERC mandate of reimbursement of, say, the operational
costs in dispute here. The maxim expressio unius est exclusio
alterius has its limits, but we need not plumb them here.
FERC’s position, then, must be that although Congress
would not allow it to mandate collection of other types of
costs, it meant to allow the states to do so freely. Neither the
overall function of the FPA, nor the sense of § 10(f), allows us
to infer such a meaning.
The Supreme Court has extensively analyzed the
“circumstances which culminated in the passage of the
Federal Water Power Act in 1920.” First Iowa Hydro-Elec.
Coop. v. Fed. Power Comm’n, 328 U.S. 152, 180 (1946). It
found that the Act was “the outgrowth of a widely supported
effort of the conservationists to secure enactment of a
complete scheme of national regulation which would promote
the comprehensive development of the water resources of the
8
Nation.” Id. (emphases added). Congress’s intent was “not
merely to prevent obstructions to navigation,” but rather to
“secure enactment of a comprehensive development of
national resources” through control over the “engineering,
economic and financial soundness” of hydropower projects.
Id. at 172, 180–81. It proceeded to find Iowa’s licensing
scheme preempted:
A dual final authority, with a duplicate system of state
permits and federal licenses required for each project,
would be unworkable. Compliance with the requirements
of such a duplicated system of licensing would be nearly
as bad.
Id. at 168 (internal quotations omitted). Given the
commitment to comprehensive federal regulation, and
preclusion of dual licensing authority, it is hard to imagine
why Congress would have countenanced disparate state
reimbursement schemes, calculated on different bases and
potentially imposing severe costs on hydropower firms in
other states, downstream of the enacting jurisdiction. This
seems like precisely the sort of heterogeneity and conflict that
a complete and comprehensive scheme would be expected to
prevent.
Of course this does not mean that the FPA precludes
every state exercise of power marginally related to federal
hydropower licensees. California v. FERC, 495 U.S. 490,
496–97 (1990). Thus, we must still examine the specific
language and legislative history of § 10(f) to determine if
there is “clear evidence” that Congress intended to preempt
headwater benefits charges for costs not covered by § 10(f).
Id.
As we mentioned earlier, FERC discerned from the text
and legislative history of § 10(f) a single “federal interest,”
9
namely the interest in “ensuring the participation of
downstream project owners in the financial burden incident to
the construction of power and storage facilities of a river
basin.” Order, 117 FERC ¶61, 321 at P 49. If that federal
interest were the only one, it would make sense to understand
§ 10(f) as leaving states free to load up the downstream
operators with costs outside the three specified categories.
But if assuring such a contribution to upstream owners’
burdens had been Congress’s sole intent, it is hard to see why
Congress would have limited FERC’s own authority to
“interest, maintenance, and depreciation,” as FERC’s own
concession and the sound application of expressio unius make
clear it did. FERC advances no argument for why FERC
would be less well suited than the states to determine
equitable operating expenses, as opposed to interest,
maintenance, and depreciation charges. Nor does FERC offer
any reason Congress would be concerned that FERC set only
charges it deemed equitable, yet would leave states free to
collect charges regardless of whether they met FERC’s
judgment of their equity.
FERC’s approach here manifests an interpretative error of
long standing, one that apparently will never die: to treat a
statute’s primary or precipitating object as its sole object. As
the Supreme Court said in Rodriguez v. United States, 480
U.S. 522, 526–27 (1987),
But no legislation pursues its purposes at all costs.
Deciding what competing values will or will not be
sacrificed to the achievement of a particular objective is
the very essence of legislative choice—and it frustrates
rather than effectuates legislative intent simplistically to
assume that whatever furthers the statute’s primary
objective must be the law.
10
Id. at 525–26 (emphasis in original). See also Bd. of
Governors of the Fed. Reserve Sys. v. Dimension Fin. Corp.,
474 U.S. 361, 373–74 (1986); Vencor, Inc. v. Physicians’
Mut. Ins., 211 F.3d 1323, 1325–26 (D.C. Cir. 2000).
The text of § 10(f) clearly reflects just such congressional
balancing. The limitation on the types of costs recoverable,
and the insistence that such costs be deemed “equitable” by
FERC, manifest 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).
FERC itself, in its own provision for reimbursement under
§ 10(f), invokes the word “equitable” to support its limitation
of headwater benefits charges to “85 percent of the value of
the energy gains.” 18 C.F.R. § 11.11(b)(5). See also Order
No. 453, 51 Fed. Reg. at 24,314, [1986-1990 Regs.
Preambles] FERC Stat. & Regs. at 30,310 (addressing issue of
whether the cap provided downstream operators with adequate
incentives); 49 Fed. Reg. 1067-01, 1070 [1982-1987 Proposed
Regs.] FERC Stat. & Regs. at 32,850 (explaining that the
purpose of a cap on total charges was to avoid the “inequitable
result” of charges “larger than the value of the gains for a
project for an individual year”).
The legislative history of § 10(f) is consistent with this
interpretation. Several representatives speaking in support of
§ 10(f) stressed that § 10(f) was meant to provide for limited
reimbursement. Representative Dill, speaking in favor of the
§ 10(f) amendment, explained:
Take the Columbia River power sites and the power sites
on the streams that flow into it. If a dam is built to
establish a reservoir for water to furnish power on one of
these streams, it furnishes water for all dams below it and
whoever may happen to build a dam on a power site
11
below should contribute to the cost of the reservoir dam
in proportion to the benefits received. This amendment
provides that very thing, and I most earnestly hope it will
be adopted.
56 Cong. Rec. 9,916 (1918) (emphases added).
Representative Raker, also speaking in support of the
amendment, stated that § 10(f) would require downstream
licensees to contribute to the cost of an upstream project “to
the expense [sic; “extent”?] that the subsequent works are
benefited by virtue of the original work.” Id.
FERC’s reasoning in its orders here observed none of
these signs of careful congressional balancing. Rather, the
Commission simply stated that “the legislative history of
section 10(f) is sparse and does not otherwise reveal
Congress’s reasons for limiting reimbursable costs to interest,
maintenance and depreciation.” Order, 117 FERC ¶61,321 at
P 45. Consequently, FERC could see no reason to prevent the
District from collecting for charges other than interest,
maintenance, and depreciation, since preventing that
collection would, it thought, be “disruptive” to the District’s
current assessment scheme. Id. at P 50. FERC emphasized
that the District “has expenses that do not fall within the
categories specified by section 10(f),” and if it were unable to
assess such costs the District would have difficulty
“administering a storage project that affects a variety of
downstream uses within that state.” Id.
FERC evidently believes that the legislative history’s
failure to mention “disruption” of the sort it espies here
renders its interpretation of § 10(f) reasonable. But it is
simply “not the law that a statute can have no effects which
are not explicitly mentioned in its legislative history.”
Pittston Coal Group v. Sebben, 488 U.S. 105, 115 (1988).
Moreover, “The relative importance to the State of its own
12
law is not material when there is a conflict with a valid federal
law, for the Framers of our Constitution provided that the
federal law must prevail.” Arizona v. Bowsher, 935 F. 2d
332, 335 (D.C. Cir. 1991) (quoting Fidelity Federal Savings
& Loan Ass’n v. De La Cuesta, 458 U.S. 141, 153 (1982)).
Though FERC found that the District was assessing
charges for headwater benefits, Order on Rehearing, 119
FERC ¶61,141 at P 15, it repeatedly stressed the “unusual”
nature of the “situation here, in which an upstream storage
reservoir is owned by a state and is dependent on state-
authorized assessments to cover its operations costs,” id.. at P
41. See also Order, 117 FERC ¶61,321 at P 38; Order on
Rehearing, 119 FERC ¶61,141 at P 32. But § 10(f) by its
terms applies “whenever any licensee hereunder is directly
benefited”—thus in all cases when licensees receive
headwater benefits from the construction efforts of upstream
licensees. The Commission’s attempted distinction between
public and private ownership is thus irrelevant to the question
of whether or not § 10(f) preempts state laws mandating
compensation for headwater benefits. If § 10(f) preempts
state charges for headwater benefits, then it does so for both
private and public actors equally.
Besides disrupting Congress’s intended balance between
provider and recipient interests, the Commission’s
understanding of § 10(f) would generate complex issues of
meshing state charges with FERC-approved ones. FERC, in
the absence of agreement between the parties, uses its
Headwater Benefits Energy Gains model to allocate the
interest, maintenance, and depreciation to downstream
beneficiaries in proportion to the value of the energy gains
each beneficiary enjoys, calculated as “the cost of obtaining
an equivalent amount of electricity from the most likely
alternative source,” and of course subject to the cap of 85% of
that value. 18 C.F.R. § 11.11(b)(5).
13
The District’s methodology is rather different. Using a
1925 benefits study under which hydropower owners pay for
95% of the District’s costs, it appears to apportion them
among hydropower project owners on the basis of a mixture
of private settlement agreements with E.J. West and a pro rata
charge based on the amount of head at the individual
downstream property as a percentage of the total head on the
waterway. Answer of Hudson River-Black River Regulating
District to Compl. by Fourth Branch Associates
(Mechanicville), 7–8 (filed Sept. 25, 2006); Joint Appendix
(“J.A.”) 258–59.
As FERC acknowledged, “There is no doubt that these
differences between the assessment schemes exist.” Order on
Rehearing, 119 FERC ¶61,141 at P 33. Even in light of these
differences, however, FERC argued that because the “New
York scheme assesses charges for other expenses, based on a
different method of determining benefits,” the administration
of both the New York law and § 10(f) would not be
problematic. Id. at P 33.
But such a dual authority over headwater assessments,
especially ones based on different methodologies, would
result in a morass of issues that would undermine the
congressional intent to create a comprehensive scheme of
hydropower development. Two such issues are worth
discussing here. First, FERC is quite naive in its assumption
that because States would purportedly charge only for “other”
costs (i.e., costs other than interest, maintenance, and
depreciation) there could be no conflict with FERC authority.
States could use different methods of accounting for costs,
arbitrarily minimizing any characterization of costs as interest,
maintenance, or depreciation. This would invite either
duplicate collection from downstream owners or the creation
of an accounting mess that some institution—FERC or a
court—would have to sort out. This case illustrates precisely
14
such a problem. After FERC’s initial Order was handed
down, the District adopted a resolution to apply funds it
received from Erie for the E.J. West Project against the
District’s full costs for interest, maintenance, and
depreciation. Resolution to Establish an Accounting Policy
for the Application of E.J. West Water Fees, J.A. 498–500.
As a result, as the District sees it, all assessments to Albany
are now for costs other than interest, maintenance and
depreciation. Id. at 500. The resolution further provides that
this change “shall have no financial or economic impact” on
cost apportionment to Albany and others. Id. at 499. Thus,
even though Albany currently pays the exact same amount as
it did before this change in District policy, it will have to take
on the expense of proving that the district’s charges are at
least in part “really” for interest, maintenance, and
depreciation; given the potential elasticity of cost-accounting
in such a context, the burden would likely be heavy—far
beyond anything one can suppose Congress might have
approved.
Second, even if the cost characterization issue could be
easily resolved, FERC’s interpretation of § 10(f) would allow
states to apportion costs between downstream operators in a
manner that results in charges far in excess of the actual
benefits received (not to mention the 85% cap). Albany
argues that this issue is present in this case as well. A
District-commissioned report from 2003 concluded that the
Mechanicville project receives only 0.11% of the benefits of
the District’s operations. J.A. 89 (Report of Gomez and
Sullivan Engineers, P.C.). Yet, the District continues to
assess Mechanicville at a rate of approximately 2.7% of the
District’s budget. J.A. 304–309 (Hudson River-Black River
Regulating District Annual Assessments of Statutory
Beneficiaries for the Fiscal Years 2003–2007, parcel 2
entries).
15
Regardless of whether one accepts the findings of the
District-commissioned report, the point remains that FERC’s
holding would enable states to charge operators in excess of
the benefits received, and thus necessarily in excess of
FERC’s 85% cap. Possibly FERC might respond creatively
by reducing the “equitable” charge for interest, maintenance,
and depreciation charges in response to state action. But there
might well be instances where reduction to zero was not
enough to hold the charge below 85% of FERC-computed
benefits. Even where FERC could thus meet the statutory
requirement that the charge be one deemed “equitable” by
FERC, the exercise would entail costly dispute resolution.
Thus, FERC’s holding would undermine Congress’s clear
intent to limit the total amount of charges imposed on
downstream operators. Breach of that limit, combined with
the cost-characterization issues (and perhaps others), leads to
the conclusion that FERC’s interpretation of § 10(f) would
conflict with the FPA’s purpose to provide for a
comprehensive legislative scheme to govern the nation’s
hydropower development.
* * *
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 § 10(f)
does not grant it the “authority to address independent actions
taken by an upstream licensee to collect charges under color
of state law” absent a headwater benefits investigation. Order
on Rehearing, 119 FERC ¶61,141 at P 55. And, though
FERC plainly had authority to order a settlement conference,
it reasoned that such a conference would be “more
productive” in the context of a headwater benefits
investigation. Id. at P 58.
16
Our holding that § 10(f) preempts all state headwater
benefits assessments materially changes the context for
FERC’s consideration of both these issues. Whereas FERC
and the District formerly believed that the District was free to
assess charges for certain costs under the authority of state
law, our holding makes clear that the District never had such
authority to exact any compensation from Albany for
headwater benefits. Albany’s incentives to seek a headwater
benefits investigation, the cost of which is shared among all
parties, id. at P 58 n.34, are materially increased by our
holding, since the District can no longer avoid or offset an
adverse outcome by classifying costs as operational.
Furthermore, FERC based its decision not to order a
settlement conference in part on the District’s opposition to
such a proceeding. Id. at P 58. But just as Albany’s
incentives are changed by our preemption holding, so too are
the District’s, as it can no longer expect to recover its
operating costs from Albany, with or without a headwater
benefits investigation. In light of these changed
circumstances, we find it appropriate to remand to FERC to
consider the scope of its authority to craft appropriate
remedies. See, e.g., 18 C.F.R. § 385.601 (“The
Commission . . . may convene a conference of the participants
in a proceeding at any time for any purpose related to the
conduct or disposition of the proceeding”); FPA § 309, 16
U.S.C. § 825h (“The Commission shall have power to
perform any and all acts, and to prescribe, issue, make,
amend, and rescind such orders, rules, and regulations as it
may find necessary or appropriate to carry out the provisions
of this chapter.”).
Our separately concurring colleague argues that FERC
“intended its remedies determination to be independent from
its preemption determination,” and as a result, “for purposes
of judicial economy” we need not decide the scope of
preemption. Concurring Op. at 1, 7. The concurrence bases
17
this conclusion on a topic sentence in FERC’s order in which
FERC stated that “even to the extent that it is preempted by
section 10(f), we have no authority over the District’s
actions.” Order on Rehearing, 119 FERC ¶61,141 at P 55.
The very next sentence, however, illustrates that FERC could
not have meant that it had literally no authority, as FERC goes
on to detail what it might require the District to do. Id. The
concurrence observes that FERC’s claim that it has “no
authority” would, if read literally, be “obviously ridiculous.”
Concurring Op. at 1.
Further, FERC asserted that §10(f) “does not give us
authority to address independent actions taken by an upstream
licensee to collect charges under color of state law, even if we
determine that the law is, in part, preempted by the FPA.”
Order on Rehearing, 119 FERC ¶61,141 at P 55 (emphasis
added). This language would seem to leave open the
possibility that where charges may not be made under color of
state law, because state law is in fact preempted in its entirety,
§ 10(f) may grant FERC some authority over the District’s
actions.
Even if our colleague is correct that on remand FERC
may simply clarify that its holding on remedies was in fact
meant to be independent, FERC’s current reasoning on
remedies explicitly references the District’s actions under
color of state law as at least a partial reason for FERC’s
finding that it has no remedial authority. Concerns over
judicial economy do not dictate that we avoid FERC’s
preemption determination even if it later may find a different
justification to deny relief, for “[i]f a reviewing court agrees
that the agency misinterpreted the law, it will set aside the
agency’s action and remand the case—even though the
agency (like a new jury after a mistrial) might later, in the
exercise of its lawful discretion, reach the same result for a
different reason.” Federal Election Commission v. Akins, 524
18
U.S. 11, 23 (1998) (citing SEC v. Chenery Corp., 318 U.S. 80
(1943)). This analysis seems especially fitting here, where the
incentives of the parties to seek a headwater benefits
investigation—which the concurrence claims is the basis for
reading FERC’s remedies analysis as independent—are
materially affected by FERC’s misinterpretation of the FPA.
Before closing, a few points on cases the parties have
invoked on FERC’s power to order refunds: First, FERC’s
reliance on Transmission Agency of Northern California v.
FERC, 495 F.3d 663 (D.C. Cir. 2007), is misplaced. There
we addressed the issue of whether FERC had authority to
order refunds from the City of Vernon for overcollection of its
transmission revenue requirement. Id. at 665. We held that
FERC did not have such authority because municipalities such
as the City of Vernon were explicitly exempted from FERC’s
refund authority under FPA § 201(f), 16 U.S.C. § 824(f). Id.
at 674. No such exemption appears present here. As a FERC
licensee the District is subject to FERC’s full FPA Part I
jurisdiction. 16 U.S.C. § 799.
Equally misplaced is Albany’s reliance on California ex
rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004). There
the Ninth Circuit addressed rates that purportedly complied
with the FERC-approved “market-based tariff system,” but
which, California alleged, actually manifested “artificial
manipulation on a massive scale.” Id. at 1012, 1014. Under
such a scenario, the court understandably saw FERC’s
authority to enforce the filed-rate doctrine as enabling it to
order refunds to remedy the alleged de facto violation of the
doctrine. Id. at 1015–16. The decision by no means compels
a finding that FERC can order refunds of rates collected under
the authority of a state law that is preempted by a federal
statute.
19
Thus we leave the issue of an appropriate remedy for
FERC to resolve on remand, in light of the much broader
preemption that we find compared to what FERC assumed.
* * *
FERC’s judgment below is therefore reversed in part and
remanded for further proceedings not inconsistent with this
judgment.
So ordered.
BROWN, Circuit Judge, concurring in the judgment: I am
loath to write separately from the majority’s well-penned
opinion, particularly given the oft-befuddling pleadings and
record in this case. But it is because of that confusion that I
am writing separately. FERC has not adequately explained
what it has wrought. Thus, like the majority, I believe a
remand is in order, but I am not yet willing to say that
FERC’s orders are irredeemable, or that at this time we need
resolve the scope of § 10(f)’s preemption. Instead, I think we
should remand and let FERC better explain itself before we
decide anything more.
The deep problem is that there is a logical disconnect
between the front and back ends of FERC’s orders. The
reasoning underlying the two parts seem to be in conflict. In
particular, FERC (1) set forth a lengthy preemption analysis,
but (2) then explained that “even to the extent that [the
District’s assessment system] is preempted by section 10(f),
[FERC] ha[s] no authority over the District’s actions.” Order
on Rehearing, 119 FERC ¶61,141 at P 55. If by this
explanation FERC meant that it lacks authority to compel its
licensees to follow the Federal Power Act, then that is
obviously ridiculous. But if FERC meant something more
subtle, which it very well might have, then it has not
adequately explained itself.
As I read the record, I conclude FERC intended its
remedies determination to be independent from its preemption
determination. I simply do not know how else to read
FERC’s Order on Rehearing. In it, FERC frankly
acknowledged it found the “District’s assessment system” not
“entirely compatible with section 10(f),” but nonetheless
denied Albany any relief, even for that acknowledged
incompatibility. Id. The majority remands, believing its
holding that § 10(f) requires total preemption materially
changes this case’s context, but that interpretation of FERC’s
orders does not comfortably jibe with what FERC said:
2
“[E]ven to the extent that [the District’s assessment system] is
preempted by section 10(f), [FERC] ha[s] no authority over
the District’s actions.”
I have struggled to understand what FERC meant by
saying preemption does not matter, and this is what I believe
FERC might have intended: § 10(f) requires headwater
benefits assessments paid from downstream licensees to
upstream licensees for “interest, maintenance, and
depreciation,” to be equitable. However, without a headwater
benefits determination or settlement, FERC does not know
what fees are appropriate under § 10(f), as it does not know
how much the downstream beneficiary is benefited. A
headwater benefits investigation—and thus determination—
only can occur if a licensee requests it. Without a request,
there is no determination; without a determination, FERC has
no authority to forbid an upstream licensee from charging fees
on a downstream licensee, because it does not know whether
fees repugnant to § 10(f) are being assessed, and consequently
the question of preemption is premature until FERC has
determined headwater benefits. Thus, FERC said it had “no
authority to prevent a storage project from attempting to
assess charges from downstream projects under color of state
law and in the absence of a Commission headwater benefits
determination.” Order, 117 FERC ¶61,321 at P 55.
(emphasis added).
Laying aside for the moment the question of whether this
proposed logic is actually FERC’s position (or if it is, whether
it is reasonable), for this analysis to be internally credible, a
couple of things must be true. First, it does not matter how an
upstream licensee labels a headwater benefits charge, but only
the amount. In other words, if the District sends a “headwater
benefits” bill to Albany for only “operations” costs, but the
District is entitled under § 10(f) to the exact same amount of
3
money for “interest, maintenance, and depreciation,” then
there would be no factual need to discuss preemption. It is
only when a fee—assessed under color of state law—is
greater in amount than what is required by § 10(f) that a
question of preemption must be resolved.
Second, FERC need not conduct a headwater benefits
investigation on its own accord. This clearly is FERC’s
position, but it is a curious one under the statute.1
Nonetheless, no one in this case has challenged FERC’s
narrow interpretation of its role, and it is likely that no
licensee ever will. After all, if the expected benefit of a
headwater benefits investigation is greater than the expected
costs, a licensee will request one. But if not, no licensee will
want one.
1
Section 10(f) says “whenever any licensee . . . is directly
benefited by the construction work of another licensee . . . the
Commission shall require as a condition of the license that the
licensee so benefited shall reimburse the owner of such reservoir
. . . for interest, maintenance, and depreciation . . . as the
Commission may deem equitable.” Then, “[t]he proportion of such
charges . . . shall be determined by the Commission. The licensees
. . . shall pay to the United States the cost of making such
determination as fixed by the Commission.” Id.
Three times this short statute says “shall.” Thus, § 10(f) seems
to requires that if a downstream licensee receives headwater
benefits from an upstream licensee, FERC must, as a condition to
licensing that downstream beneficiary, ensure that the upstream
licensee is equitably compensated, with the licensees paying FERC
for the costs of any requisite headwater benefits investigation. But
FERC reads for itself a passive role. Unless one of the licensees
requests a headwater benefits investigation, FERC does … nothing,
even when the licensees are in conflict as to the equitable
assessment. See Order, 117 FERC ¶61,321 at P 55 (“[W]e do not
undertake a headwater benefits determination for benefits from a
non-federal storage project in the absence of a request to do so.”).
4
An interesting thing happens, however, when FERC
does not conduct a headwater benefits investigation, but
instead allows the licensees to negotiate a settlement, with
FERC only conducting an investigation if one of the licensees
requests it. A “windfall” is created, which must go to either
the upstream or the downstream licensee. Who receives the
windfall depends on which licensee is benefited by the status
quo.
To illustrate, consider this hypothetical. Assume a river
on which there is only one upstream licensee, and one
downstream licensee, and they both have perfect information
about each other, and about how much a headwater benefits
investigation will cost.2 Assume further that a downstream
licensee is, and will be in perpetuity, benefited $20,000 a year
from the upstream licensee’s expenditures on “interest,
maintenance, and depreciation”—costs clearly covered by
§ 10(f)—but that a headwater benefits investigation will cost
the upstream and downstream licensees $250,000 each. For
simplicity, assume under § 10(f) that the “equitable” rate of
compensation between downstream and upstream licensees
for headwater benefits is 100% (in fact, the percentage is
lower, but that is of no consequence). Next assume that the
interest rate is 10%, and that state law permits the upstream
licensee to assess benefits from the downstream licensee.
If, in this hypothetical, the status quo favors the
downstream beneficiary (i.e., by not allowing any charges
until a headwater benefits investigation has happened or the
2
Of course, in real life, there is imperfect information. But unless
there is cause to believe that either the upstream or downstream
licensee has a systematic advantage in obtaining accurate
information, then this may not be much of a problem: if the same
uncertainty is built into both sides of the equation, it cancels out.
5
licensees have settled), then a rational upstream licensee will
not request a determination. By investing that $250,000, the
upstream licensee will receive annual payments of $25,000,
more than it would receive if it requested a determination.
The downstream licensee will know this, and thus, in
settlement conversations, will agree to pay nothing, because it
will know the upstream licensee has no credible threat. The
result is a windfall for the downstream licensee: it does not
have to compensate the upstream licensee at all.
If the status quo is reversed (i.e., by allowing any charges
until a headwater benefits investigation has happened or the
licensees have settled), then the upstream licensee receives
the windfall: it will request something less than $45,000 a
year—say, $44,000—from the downstream licensee (the
$20,000 in headwater benefits, plus a share of the cost of a
headwater benefits determination). If the request is greater
than that, the downstream licensee will seek a determination.
But as long as the amount charged is less than that, the
upstream licensee will know that any threat by the
downstream licensee to go to FERC for an investigation is
empty. It would not be economically rational. Thus, the
upstream licensee gains the windfall: the amount above the
actual benefits.
Assuming that FERC need not undertake a headwater
benefits investigation on its own accord, which again no party
has contested, then which placement of the status quo is more
reasonable under federal law? If a downstream licensee is
favored by the status quo, then it would be “directly benefited
by the construction work of another licensee,” but “the
licensee so benefited” would not “reimburse the owner of
such reservoir” for those benefits, contrary to § 10(f). If the
status quo preference is reversed, the upstream licensee
receives the windfall. But, importantly, that result is
6
preferable for the downstream licensee as compared to the
alternative possibility of universal headwater benefits
determinations. And because the upstream licensee is the
creator of the benefit, it makes some intuitive sense that the
windfall goes to it. Or at least that might be a reasonable
reading of the statute. After all, if a downstream licensee
receives headwater benefits, then every day the upstream
licensee is not compensated is a violation of federal law.
So, back to the case at hand, what if FERC had responded
to Albany’s complaint by saying something really simple?
“Even if Albany is right that these charges may in fact be
preempted, we will not get involved until Albany has
requested a headwater benefits investigation, because we do
not know for certain how much the District is entitled to
under § 10(f). Without knowing how much the District is
entitled to under § 10(f), we do not know whether there are
even any charges beyond those the District is already entitled
to, so, as a factual matter, there may be no need to discuss
preemption at all.” On review, we would not rule on
preemption. My understanding of the record is that FERC
may have said essentially what I have just outlined, with the
only difference being that instead of holding its tongue on
preemption, FERC gave its view. Unfortunately, in giving its
view on preemption in the front-end of its orders, FERC
undermined the logic of its back-end analysis: that preemption
is premature.
For instance, instead of saying that it is irrelevant how an
upstream licensee labels its headwater benefit fees because it
only matters whether the amount is greater than what is
actually due under § 10(f), FERC expounded at length on
preemption, treating operations costs as different than those
for “interest, maintenance, and depreciation,” and explaining
why operation costs are not preempted. In other words,
7
FERC actually answered the question it need not have
answered, and it did so in a way that contradicted the most
plausible reason why an antecedent headwater benefits
determination might have mattered. That is incoherence.
Next, instead of explaining why a headwater benefits
determination was required before it would intervene on
Albany’s behalf, FERC offered nothing but the most cursory
of analysis. I have pieced together what I believe may have
been FERC’s rationale, but I am not confident enough even to
say “the agency’s path may reasonably be discerned.”
Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419
U.S. 281, 286 (1974). Instead, while I believe FERC meant
something when it said that preemption did not matter to its
decision to deny Albany relief, and while I may be able to
hazard an educated guess, I do not feel comfortable in saying
this is what FERC must have meant. Pablo Picasso
purportedly said “If I spit, they will take my spit and frame it
as great art.” Likewise here, I do not know if FERC has
offered a plausible argument, or a Rorschach inkblot.
And it matters what FERC meant. If FERC intended to
say that preemption was irrelevant without a headwater
benefits determination because until there is that
determination, no one knows whether the District has
requested fees it is not entitled to under § 10(f), then there
might be no need for this court to decide whether FERC erred
in denying Albany’s requested relief because its preemption
analysis went awry. Instead, it would be as if FERC said
nothing at all about preemption. Thus, for purposes of
judicial economy I would remand without deciding the scope
of preemption, to let FERC explain itself anew, and better.