Erie Boulevard Hydropower, LP v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 25, 2017 Decided December 22, 2017

No. 16-1015

ERIE BOULEVARD HYDROPOWER, LP,
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

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
 2
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.

Opinion for the Court filed by Circuit Judge HENDERSON.

KAREN LECRAFT HENDERSON, 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
 3
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.

1
Niagara Mohawk transferred the E.J. West facility (and three
other facilities) to Erie in 1999.
 4
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

2
The Hudson River Project contains two facilities, Spier Falls
and Sherman Island Developments, which are covered by the same
license.
 5
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

3
Although the District’s federal license did not issue until
2002, it assessed state headwater benefits charges in 2000-02.
 6
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
 7
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

4
On August 1, 2006, Erie moved to intervene in Albany’s
proceedings before the Commission. See Pet’r’s Supp. App’x, Ex.
A at 1 (filed post-argument pursuant to Court’s Sept. 26, 2017 order).
 8
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 § 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.

Id. at 1079 (internal quotation marks omitted). Thus, because
we concluded that “state law is in fact preempted in its
entirety,” we remanded the case to the Commission to
determine whether section 10(f) “may grant FERC some

5
“Federal preemption can be express or implied.” Armstrong
v. Accrediting Council for Continuing Educ. & Training, Inc., 168
F.3d 1362, 1369 (D.C. Cir.), opinion amended on denial of
reh’g, 177 F.3d 1036 (D.C. Cir. 1999). Albany is an implied
preemption decision because the text of the FPA is silent as to
preemption but we nonetheless concluded in that case that the
Congress’s “commitment to comprehensive federal regulation” in
the FPA left no room for “disparate state reimbursement schemes.”
Albany, 548 F.3d at 1076.
 9
authority over the District’s [preempted] actions.” Id. at 1080
(emphasis in original).

Judge Brown concurred in the judgment. She took issue,
primarily, with the clarity of FERC’s decision that it did not
have authority over the District’s charges. Albany, 548 F.3d
at 1081 (Brown, J., concurring). “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 . . . then it has not
adequately explained itself.” Id. On this point, she declared:
“I do not know if FERC has offered a plausible argument, or a
Rorschach inkblot.” Id. at 1084. She concluded that she
“would remand without deciding the scope of preemption, to
let FERC explain itself anew, and better.” Id. She also traced
the root of the dispute to FERC’s inexplicable inaction in the
face of statutory language requiring it to ensure that the
upstream operator is equitably compensated. Id. at 1082 n.1.6

On remand, Albany again requested that FERC order the
District to refund the unauthorized state law assessments it had
theretofore paid. 7 The Commission again demurred and

6
Although FERC licensed the Dam in 2002, it did not begin
the process of investigating energy gains and calculating headwater
benefits charges until 2009. See generally Albany Eng’g Corp. v.
Hudson River-Black River Regulating Dist., 127 FERC ¶ 61,174
(May 19, 2009) (May 2009 Order).
7
After the Albany remand, Erie filed another motion to
intervene and answer with FERC to ensure its participation in
Commission proceedings continued. See Pet’r’s Supp. App’x, Ex.
B at 5 n.2 (“Erie notes that it . . . should already be considered a party
to any remand proceeding. Erie is submitting this motion to
intervene out of an abundance of caution in the event such party
 10
denied Albany’s request. See Albany Eng’g Corp. v. Hudson
River-Black River Regulating Dist., 127 FERC ¶ 61,174 at PP
26, 28 (May 19, 2009) (footnotes omitted) (May 2009 Order).
It denied Albany’s rehearing request as well. Albany Reh’g
Order on Remand, 129 FERC ¶ 61,134 at P 26 (Nov. 19, 2009)
(November 2009 Order).

Albany then turned to state court. Its efforts there were
more successful. The Supreme Court of Albany County held:
“The Court of Appeals [for the D.C. Circuit] clearly stated that
the assessment levied by the District for the years 2003-07 was
in violation of federal law. Since the levies were unlawful, the
plaintiff was entitled to refunds for those assessments
previously paid.” Albany Eng’g Corp. v. Hudson River-Black
River Regulating Dist., RJI No. 01-12-105799 at 7, 2012 WL
1144735 (N.Y. Sup. Ct. Apr. 2, 2012). Accordingly, the
Albany County Supreme Court entered judgment for Albany.8
Id.

As its May 2009 and November 2009 Orders manifest, the
Commission continued to maintain that it lacked authority to
order refunds for the District’s unauthorized assessments under
state law. The Commission did suggest, however, that it “may
be able, at the conclusion of a headwater benefits investigation,
to permit Albany Engineering to offset amounts it owes by the

status is not deemed to extend to the remand proceedings”). Erie’s
motion did not address the 2006 Settlement.
8
The New York Supreme Court, Appellate Division,
eventually affirmed but remanded the case to “determine defendant’s
entitlement to an offset of the amount owed based on the outcome of
the headwaters benefit investigation completed by FERC.” Albany
Eng’g Corp. v. Hudson River-Black River Regulating Dist., 973
N.Y.S.2d 391, 394 (N.Y. App. Div. 2013).
 11
amounts it has paid to the District.” May 2009 Order, 127
FERC ¶ 61,174 at P 19. In short, the Commission proposed a
crediting scheme whereby Albany’s 2002-08 overpayments
could be offset against the District’s future section 10(f)
assessments.

To that end, the Commission’s May 2009 Order authorized
proceedings before a settlement judge “to assist the parties and
other owners of projects in the affected river basin in reaching
a headwater benefits settlement. Failing an agreement,
Commission staff [was] directed to institute a headwater
benefits investigation.” Id. at P 3. As earlier discussed, the
November 2009 Order denying rehearing prompted Albany to
turn to state court for its refund. Meanwhile, the other
downstream licensees, including Erie, began FERC-initiated
settlement discussions with the District but the discussions
were not successful. Accordingly, in 2009, the Commission
began its headwater benefits investigation to “determine the
appropriate headwater benefits payments for these projects.”
Id.

D. PROCEEDINGS BEFORE FERC ON REMAND (2012)

After three years of data collection and draft reports, the
Commission issued an order determining headwater benefits.
Order Determining Headwater Benefits in the Hudson River
Basin, 140 FERC ¶ 62,089 at P 44 (July 31, 2012) (July 2012
Order). Among other things, the July 2012 Order declared
that, during the 2002-08 period, the Conklingville Dam and
Great Sacandaga Lake Project had provided Erie’s downstream
projects with a total of $1,849,640 in section 10(f) headwater
benefits. Id. at PP 39-42. The July 2012 Order also
calculated Erie’s interim headwater assessment to be $365,100
per year from 2012 on. Id.
 12
In response to a draft of the July 2012 Order, the District
had requested that the Commission “defer consideration of
whether, and how, prior payments under [New York law]
would be credited against Headwater Benefit charges until after
the amount of those charges has been finally settled.” See
Letter from Robert S. Foltan, District’s Chief Engineer, to
Kimberly D. Bose, Secretary of FERC (Mar. 16, 2012). The
District also sought to reserve its right to limit the amount of
credits for payments made before the Albany decision.
Although the Commission denied the District’s request, it did
not order a final payment schedule for the downstream
licensees. It did, however, calculate benefits and set forth a
method for determining credits:

To the extent that downstream project owners
have already paid the District under New York
law for what were, incontestably, headwater
benefits, requiring those project owners to pay
the District yet again for headwater benefits for
those years, this time under section 10(f), would
amount to a double payment that could not be
reconciled with the Commission’s
responsibility to ensure reimbursements that are
“equitable.” Moreover, to the extent that,
while the [project] has been under license, any
of the downstream project owners made
payments exceeding the amounts that this order
finds were owed for those years, those
overpayments, equitably, should be offset
against future charges.

July 2012 Order, 140 FERC ¶ 62,089 at P 44.

The Commission made four additional points. First, it
noted that it could not determine the full extent of the licensees’
 13
credits without more information because the payment records
for 2002-08 were not in the record. Relatedly, it noted that
downstream licensees “may already have obtained refunds
from the District through court action or other means.” Id. at
P 45. Second, the Commission directed the downstream
licensees to contact the District and attempt to settle the
outstanding charges based on its calculation of headwater
benefits. Third, if settlement negotiations failed, the
Commission noted that it intended to request the necessary
information from the parties and establish a headwater benefits
payment schedule “that reflects the annual amounts that staff
has determined would be owed to the District and the amounts
that have already been paid.” Id. at P 48. Fourth, and finally,
the Commission iterated that no headwater benefits settlement
was final until and unless it was filed with the Commission for
approval.

E. FEDERAL COURT LITIGATION

On January 21, 2014, the District initiated a declaratory
judgment action against Erie in the Fulton County Supreme
Court. See Hudson River-Black River Regulating Dist. v. Erie
Boulevard Hydropower, L.P., No. 6:14-CV-173, 2014 WL
5502375, at *1 (N.D.N.Y. Oct. 30, 2014). The District’s
complaint asked the court to give effect to the parties’ 2006
Settlement Agreement and preclude Erie from claiming
refunds for the years 2000-09. Id. at *2. Erie removed the
case to the United States District Court for the Northern District
of New York and moved to dismiss. Id.

In response to the motion to dismiss, the District proposed
that the court enter a consent order dismissing the litigation “on
the specific ground that the entire Settlement Agreement is
unenforceable as preempted by the [FPA].” Id. Erie opposed
the District’s proposal, claiming that “only the portion of the
 14
2006 Settlement Agreement that deals with headwater benefits
assessments—not the entire document—is unenforceable.”
Id.

Ultimately, the court dismissed the case as moot because
Erie was seeking credits rather than a refund. Id. at *3. The
court further held that, even if the case were not moot, it would
abstain from deciding the issue because of the then-pending
FERC proceeding. Id.

F. FERC’S 2015 ORDERS

This 15-year saga culminated in the two 2015 orders sub
judice. Notwithstanding the Commission’s effort to promote
a settlement through its July 2012 Order, the parties were
unable to settle their dispute. On October 31, 2012, Erie
notified the Commission that: (1) the parties’ attempts to settle
the dispute had failed; (2) Erie had paid the District
$9,146,507.98 between 2002 and 2008; and (3) once the
Commission’s section 10(f) assessments of $1,849,640 were
subtracted, Erie was entitled to $7,296,867.98 in credits
towards future District assessments. The District responded
by stating that there had been no overpayments because Erie’s
claims had been resolved through the 2006 Settlement Order.

After evaluating the parties’ arguments with respect to the
Settlement Order, the Commission concluded that it was
“reasonable and equitable to hold [Erie] and the District to the
bargain they struck regarding these payments.” Order
Calculating Dates for Commencement of Headwater Benefits
Assessments, 152 FERC ¶ 62,124 at P 19 (Aug. 21, 2015)
(August 2015 Order). The Commission further noted that its
“determination of what is fair and equitable in this case in no
way affects the validity of the 2006 Settlement.” Id. at P 20.
Importantly, it held that its decision did not constitute a
headwater benefits settlement submitted for approval pursuant
 15
to Commission Rule 602. Id. Its decision not to award
credits was unique to Erie; because the other downstream
operators had not settled their state law claims, the Commission
credited them for their overpayments. Id. at PP 21-30.

Thereafter, Erie filed a timely request for rehearing and for
a stay of the August 2015 Order. Order on Reh’g and
Dismissing Motion for Stay, 153 FERC ¶ 61,218 (Nov. 19,
2015) (November 2015 Order). In its motion, Erie made nine
assignments of error. Other than an issue regarding Erie’s
Glens Falls Project (which was not part of the 2006
Settlement), the Commission rejected all of Erie’s arguments,
denied rehearing and dismissed the stay motion. Id. at P 64.
Erie then petitioned for review.

II. ANALYSIS

Our jurisdiction to review the Commission’s final orders
arises under 16 U.S.C. § 825l(b). We review an agency’s
exercise of statutory authority pursuant to section 706 of the
Administrative Procedure Act. 5 U.S.C. § 706(2). We must
set aside agency actions that are “arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law . . . [or]
in excess of statutory jurisdiction, authority, or limitations, or
short of statutory right.” Id. § 706(2)(A), (C); see also Motor
Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 41 (1983). But we must uphold an agency’s
decision if there is a “‘rational connection between the facts
found and the choice made.’” State Farm, 463 U.S. at 43
(quoting Burlington Truck Lines v. United States, 371 U.S. 156,
168 (1962)).

Erie asserts four grounds to grant its petition, seeking to
vacate the Commission’s two 2015 orders. It argues that they
run contrary to: (1) section 10(f) of the FPA; (2) the 2006
Settlement; (3) the Commission’s regulations; and (4) a “legion
 16
of prior, unchallenged Commission orders.” Unlike the Dam,
Erie’s arguments do not hold water.

A. FEDERAL POWER ACT, SECTION 10(F)

Erie first argues that the District’s collection of state
headwater benefits assessments violated the FPA
notwithstanding the fact that Erie formally settled its
challenges to the District’s state-law assessments in 2006.

A federal court’s preemption decision ordinarily does not
undo independent contractual obligations. Am. Airlines, Inc.
v. Wolens, 513 U.S. 219, 222 (1995). In Wolens, the United
States Supreme Court held “that the [Airline Deregulation
Act’s] preemption prescription bars state-imposed regulation
of air carriers, but allows room for court enforcement of
contract terms set by the parties themselves.” Id. The Court
reaffirmed this principle in 2013, when, for preemption
purposes, it drew “a rough line between a government’s
exercise of regulatory authority and its own contract-based
participation in a market.” Am. Trucking Ass’ns, Inc. v. City
of Los Angeles, 133 S.Ct. 2096, 2102 (2013).

Like Wolens, Albany is a preemption decision. See supra
note 5; Albany, 548 F.3d at 1077. In effect, Albany invalidated
the provisions of New York’s Environmental Conservation
Law that “conflict[ed] with the FPA’s purpose to provide for a
comprehensive legislative scheme to govern the nation’s
hydropower development.” Albany, 548 F.3d at 1079.
Albany went no further than that. Id. (“We do not reach
FERC’s decision to neither order refunds for Albany’s past
payments to the District nor convene a settlement
conference.”). Indeed, there is nothing in Albany that
unravels the District’s contractual rights or affects the finality
of its previous litigation. Id. Instead, Albany left FERC free
 17
to use the full scope of its equitable authority to craft a remedy.
Id.

Although Erie does not directly challenge FERC’s
authority to establish a crediting regime, we begin by
examining that authority because it defines the scope of
FERC’s equitable discretion under the FPA. The FPA grants
the Commission broad discretion in setting the rate of
headwater benefits assessments so long as the charges consist
of “interest, maintenance, and depreciation.” Id.
Specifically, section 10(f) allows the Commission to set the
assessments “as the Commission may deem equitable. The
proportion of such charges to be paid by any licensee shall be
determined by the Commission.” 16 U.S.C. § 803(f)
(emphasis added). Thus, the statute differentiates between
FERC’s calculation of “interest, maintenance, and
depreciation” and FERC’s equitable power to assess only a
portion thereof. It is under its equitable power granted by
section 10(f) that the Commission established its policy of
crediting downstream licensees for their state overpayments to
the District. July 2012 Order, 140 FERC ¶ 62,089 at P 44.

The distinction between straightforward calculations and
equitable assessments makes perfect sense in the context of this
case. Under the FPA, the mathematical formula for
determining headwater benefits charges is set out in regulations
promulgated in 1986. See generally 18 C.F.R. § 11.11.
Albany forced FERC to finally calculate section 10(f)
assessments after six years of inaction. See Albany, 548 F.3d
at 1083 (Brown, J., concurring) (explaining why the FPA does
not incentivize licensees to seek a headwater benefits
investigation when FERC does not act on its own).
Accordingly, the downstream licensees turned to FERC once
Albany effectively told them to do so in order to calculate their
future payments. Id. at 1080-81. In response, the
 18
Commission implemented a one-time equitable program that
credited downstream licensees for future headwater benefits
charges. The standard headwater benefits calculation
remained the same but the Commission invoked its equitable
authority to award credits against the overpayments we
identified in Albany. We believe its crediting scheme easily
falls within FERC’s FPA-granted equitable authority.

B. 2006 SETTLEMENT

Having established that the FPA authorizes FERC to grant
credits, the question becomes whether FERC was arbitrary and
capricious in declining Erie’s request for credits based on
Erie’s 2006 Settlement with the District. We conclude it was
not.

“[T]his court has consistently required the Commission to
give weight to the contracts and settlements of the parties
before it.” Tejas Power Corp. v. FERC, 908 F.2d 998, 1003
(D.C. Cir. 1990). We have held that “[i]t is perverse . . . to
reject a settlement because later developments make one
party’s decision appear unwise.” Panhandle Eastern Pipe
Line Co. v. FERC, 95 F.3d 62, 74 (D.C. Cir. 1996). Applying
this principle in Burlington Resources Inc. v. FERC, we
required FERC to approve a private settlement even though the
settlement was based, in part, on charges that were later found
to exceed the maximum price ceiling mandated by the National
Gas Policy Act. 513 F.3d 243, 244 (D.C. Cir. 2008). Thus,
even if the legal underpinning of a settlement has eroded, the
settlement remains intact before the Commission. See id.; see
also Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 758
(1995) (“New legal principles, even when applied
retroactively, do not apply to cases already closed.”).

Moreover, as a contractual matter, it is well settled under
New York law that “a change in the law does not render an
 19
agreement void.” Anita Founds., Inc. v. ILGWU Nat’l Ret.
Fund, 902 F.2d 185, 189 (2d Cir. 1990). Thus, the state
court’s Settlement Order is “enforceable according to its
terms,” notwithstanding our Albany decision, McKenzie v.
Vintage Hallmark, PLC, 755 N.Y.S.2d 288, 289 (Mem.) (N.Y.
App. Div. 2003), and we interpret its terms in accordance with
their plain meaning, Vider v. Vider, 846 N.Y.S.2d 666, 667
(N.Y. App. Div. 2007).

Erie points to the language of the Settlement Agreement in
challenging the remedy FERC adopted. It argues that its
request in this case does not constitute a “claim” against the
District within the meaning of Paragraphs 10 and 13 of the
Agreement and suggests that FERC was not obligated to
enforce the Agreement against Erie.9 We read the language
differently. In the Settlement Agreement, Erie released “any
and all claims, demands, judgments, liabilities, damages, and
causes action of every kind and character . . . arising out of or
in any way related to the District’s . . . assessments” for 2000-
06. JA 353. This is broad language and it does not stop there;
it further waives “any future challenges or claims with respect
to” 2006-09. JA 354. The issues in this case are plainly
“related to the District’s . . . assessments.” Indeed, the
District’s assessments lie at the heart of the dispute because
Erie requests credits for the overpayments it made based on
those assessments.

Next, Erie argues that the 2006 Settlement Order is not
admissible before the Commission. The parties stipulated in
Paragraph 15 of the Agreement that the Settlement Order is
“inadmissible in any subsequent action or proceeding before
any court of law or administrative body.” JA 354. Excepted
from the inadmissibility provision, however, is “any action or
9
As discussed infra, we do not believe FERC has any such
obligation and it has not asserted it does.
 20
proceeding for enforcement of [the Agreement’s] provisions.”
Id. Erie asks this Court to read the provision without regard
to its exception. Under the exception, it is difficult to dispute
that, by denying Erie credits for its overpayments, the
Commission was giving effect to, that is, enforcing the
Settlement Order’s waiver provision. Although the
enforcement mechanism is by way of administrative
proceedings, not court action, the exception applies to “any
action or proceeding for enforcement of its provisions.” Id.
(emphasis added).

Accordingly, because the Settlement Order was properly
before it, FERC was well within its authority to give it
equitable effect under the FPA. Just as the legality of the
charges in Burlington was uncertain when the parties settled,
the preemptive effect of the FPA was also unclear when Erie
and the District settled their state law disputes. Indeed, both
parties may have settled precisely because the value of their
respective claims was uncertain. See Burlington, 513 F.3d at
248 (rejecting Commission’s attempt to “forbid private parties
from settling claims of uncertain value”). In signing the 2006
Settlement Agreement, Erie took a calculated risk. It received
both immediate and future monetary benefits as well as a
valuable contract extension of its Reservoir Operating
Agreement. In return, it released all of its claims against the
District for the years 2000-09. By denying Erie credits, FERC
did nothing other than hold Erie to its bargain. FERC’s
decision properly adhered to the principles set forth in Wolens,
Burlington and the authorities cited above. It was neither
arbitrary nor capricious.

C. FERC’S REGULATIONS AND ORDERS

Erie next maintains that, even if the FPA and the 2006
Settlement do not require the Commission to award credits for
 21
Erie’s past state overpayments, its regulations and past orders
compel it to do so. We disagree.

“It is axiomatic . . . that an agency is bound by its own
regulations.” Nat’l Envtl. Dev. Ass’n’s Clear Air Project v.
EPA, 752 F.3d 999, 1009 (D.C. Cir. 2014) (quoting Panhandle
E. Pipe Line Co. v. FERC, 613 F.2d 1120, 1135 (D.C. Cir.
1979)). Therefore, if an agency action fails to comply with its
regulations, that action may be set aside as arbitrary and
capricious. Id. An agency decision that departs from agency
precedent without explanation is similarly arbitrary and
capricious. See State Farm, 463 U.S. at 41.

Erie argues that the Commission set its headwater benefits
charges by using the 2006 Settlement rather than the two
methods set forth in the regulations. Because the 2006
Settlement was not—as required by Rule 602—submitted to,
nor approved by, the Commission, however, Erie maintains
that FERC violated its own regulations.

Erie is, first, wrong on the facts. The Commission did not
base its calculation of headwater benefits charges on the 2006
Settlement. Instead, it conducted a three-year investigation
from 2009-12 and ultimately determined the appropriate
amount of headwater benefits based on cost-accounting and
energy-gains data. The procedure for the investigation was
detailed in FERC’s May 2009 Order on remand from Albany
and the results of the investigation were included in the July
2012 Order. See July 2012 Order, 140 FERC ¶ 62,089. In
that Order, the Commission’s findings were explicit: it
conducted an energy-gains analysis, made a cost assessment of
the Conklingville Dam and detailed its findings in tables
included in its report. Id. at PP 39-42. All told, the benefits
 22
assessment for Erie totaled, for 2002-08, $1,849,640. 10 Id.
The 2006 Settlement was not cited in the calculations and those
calculations conform to the prescribed procedure under the
regulations.

The 2006 Settlement came into play only in determining
credits against future headwater benefits assessments. As
detailed in 18 C.F.R. § 11.11(a)(5), the regulations establish a
maximum headwater benefits payment based on the
downstream licensee’s energy gains.11 Apart from that cap,
the regulations do not address “reduced” headwater benefits.
Because the Commission properly calculated headwater
benefits using the energy-gains-to-costs ratio described in the
regulations, Erie’s argument that FERC did not follow its
regulations fails.

The Commission’s past orders involving the District
likewise do not support Erie’s petition. Erie points to
language contained in a 2007 Order the Commission issued in
the Albany proceeding:

[T]he fact that the District and Erie reached a
settlement in respect to Erie’s assessments does
not affect our authority under section 10(f) to
determine the proportion of equitable charges

10
According to FERC’s calculations, Erie was required to pay
the following annual amounts: $46,898 in 2002; $199,657 in 2003;
$241,342 in 2004; $276,858 in 2005; $353,400 in 2006; $366,385 in
2007; $365,100 in 2008; and a prospective assessment of $365,100
from 2009 forward. July 2012 Order, 140 FERC ¶ 62,089 at PP 39-
42.
11
Headwater benefits charges may not “exceed 85 percent of
the value of the energy gains.” 18 C.F.R. § 11.11(a)(5).
 23
for interest, maintenance, and depreciation that
each downstream hydropower beneficiary
should pay the District. The settlement was
not submitted to the Commission for approval
and does not reflect a Commission
determination of the charges that Erie should
pay under section 10(f).

Albany Order on Reh’g, 119 FERC ¶ 61,141 at P 35 (May 17,
2007) (May 2007 Order). Using this language, Erie asserts
that the Commission considered—and rejected—the 2006
Settlement as a basis for the section 10(f) calculations.12 If
this is true, Erie’s argument goes, FERC was barred from
considering the 2006 Settlement Agreement in its 2015 credit
determinations.

Erie’s argument is again defeated by the distinction
between the calculation of headwater benefits charges under
section 10(f), on the one hand, and the Commission’s equitable
decision to grant remedial credits, on the other. In calculating
headwater benefits, the Commission’s orders and regulations
are clear: a settlement agreement cannot take the place of the
Commission’s section 10(f) calculation unless it is formally
submitted to FERC under Rule 602. See 18 C.F.R.

12
The Commission’s 2007 Order did not respond to Erie’s
assertions; instead, it responded to Albany’s argument protesting the
District’s headwater benefits charges. May 2007 Order, 119 FERC
¶ 61,141 at PP 32-36. Under New York’s (now preempted)
headwater benefits reimbursement scheme, downstream
beneficiaries were collectively required to reimburse the headwater
operator for all of the headwater operator’s costs. Id. Because
Erie’s 2006 Settlement had reduced the amount it had to pay, other
operators like Albany had to pay more. In the 2007 proceeding,
Albany objected that this result was inequitable. Id.
 24
§§ 11.11(b), 11.14. Here, the procedure was followed to a
“T”; the parties could not settle their differences and,
accordingly, the Commission conducted a three-year
investigation and set formal section 10(f) rates in its July 2012
Order. Critically, the rates were based on energy-gains and
cost-accounting data, not on the 2006 Settlement Agreement.

The remedial credits are a different matter. The credits
represent the Commission’s response to Albany, which
suggested, without deciding, that the Commission has the
authority to provide some remedy for downstream licensees’
state overpayments. See Albany, 548 F.3d at 1080 (“[Section]
10(f) may grant FERC some authority over the District’s
actions.”). Following that suggestion, FERC found support
for its remedial authority in section 10(f)’s language that
charges are to be assessed “as the Commission may deem
equitable.” 16 U.S.C. § 803(f). As earlier discussed, the
basis for the remedial scheme was set forth in FERC’s July
2012 Order once the full headwater benefits investigation was
complete. In that same Order, the headwater benefits were
calculated and remain, even today, unchallenged.

What Erie does challenge are the Commission’s equitable
reductions to those calculations. In this regard, Erie points to
the following language in the July 2012 Order: “to the extent
that, while the Great Sacandaga Lake Project has been under
license, any of the downstream project owners made payments
exceeding the amounts that this order finds were owed for those
years, those overpayments, equitably, should be offset against
future charges.” See July 2012 Order, 140 FERC ¶ 62,089 at
P 44 (emphasis added). But the July 2012 Order did not
determine credit amounts and the quoted language does not tell
the whole story. In the very next paragraph, the Commission
noted that it could not determine the extent of the licensees’
credits because evidence of assessments from 2002-08 was not
 25
in the record. Id. at P 45. The Commission further noted that
downstream licensees “may already have obtained refunds
from the District through court action or other means.” Id.
The July 2012 Order set forth the framework for awarding
credits but it did not fix the amount of credits due. That was
done, for the first time, in the Commission’s 2015 orders.
Accordingly, the 2015 orders did not—and could not—veer
from any of the Commission’s earlier orders.

For the foregoing reasons, Erie’s petition is denied.

So ordered.