Before: Randolph, Rogers and Tatel, Circuit Judges.
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 12, 1996
On Petition for Review of Orders of the Federal Energy Regulatory Commission
Opinion for the Court filed by Circuit Judge Rogers.
The City of Oswego, New York, petitions for review of three orders by the Federal Energy Regulatory Commission ("FERC") relating to the High Dam project, a hydroelectric power plant located on the Oswego River. In the orders, FERC issued the City a license to operate the project, but imposed retroactive annual fees for a period of unauthorized operation from 1949 to 1991 and denied the City's application for an exemption from the fees and for a waiver of any penalty for late payment.
The City challenges FERC's orders on three grounds. First, it contends that FERC lacked authority to require the City to pay retroactive annual fees for a period when the City did not operate the project, but merely leased the project facilities to Niagara Mohawk Power Company ("Niagara Mohawk") and its predecessors, which operated the project and sold the power. Second, the City contends that, even if the retroactive fees were properly imposed, it is entitled to a statutory exemption from licensing fees under the Federal Power Act ("FPA"), 16 U.S.C. Section(s) 791a-828c, for municipalities that sell power to the public without profit. Third, the City contends that it was entitled to a waiver of any late-payment penalty because it demonstrated "good cause" for late payment when it advised FERC that the local governing body with authority to approve payment was not scheduled to meet until after the date when the payment was due.
We do not address the first of these contentions, because we conclude that the City's failure to seek rehearing of the order imposing the retroactive fees bars it from challenging that order now. As to the denial of the "without profit" exemption, we conclude that FERC's interpretation of the term "profits" to include the rental payments the City received under the lease was a permissible interpretation of the statute. Finally, we conclude that FERC's response to the City's claim that the City Council's schedule would prevent timely payment was non-responsive, and therefore arbitrary. Accordingly, we deny the petition except with regard to the imposition of the late payment penalty; on that issue, we remand the case to FERC for further consideration.
Section 23(b) of the FPA, 16 U.S.C. Section(s) 817, makes it unlawful for any person, State, or municipality to "construct, operate, or maintain" a hydroelectric power project that is within FERC's jurisdiction without a valid license from FERC or a federal permit issued prior to 1920. A project falls within FERC's jurisdiction if it is located on a navigable water of the United States or public land or reservations of the United States, or if it uses surplus water from a government dam. Id. In addition, Section(s) 23(b) provides that any entity wishing to construct a new hydroelectric project along a non-navigable water of the United States over which Congress has Commerce Clause jurisdiction must file a declaration of intent with FERC. If FERC determines that interstate commerce would be affected by the proposed project, it falls within the agency's jurisdiction, and the entity may not construct, operate, or maintain the project without a license from FERC. This last category, however, applies only to projects constructed after the effective date of the FPA, August 26, 1935.
The High Dam project is located on the Oswego River in Oswego County, New York. The City of Oswego has owned the real property on which the project is situated at least since the 1920s, and leased it to Niagara Mohawk and its predecessors in interest from at least 1928 until 1993. Three hydroelectric generators were installed at the site in 1928, and a fourth was constructed in 1949. Neither the City nor Niagara Mohawk obtained a license for the project prior to 1981.
In 1981, Long Lake Energy Corporation, a competitor of Niagara Mohawk, applied to FERC for a license for the High Dam project and several others. Thereafter, in 1982, the City and Niagara Mohawk filed a competing joint license application for the same projects. FERC instructed the City and Niagara Mohawk to file separate applications for each of the projects, although it did not prohibit them from filing a joint application for the High Dam project. The City then filed a separate application for a license for the High Dam project. Niagara Mohawk did not file an application. As a municipality, the City was entitled to a bidding preference under Section(s) 7(a) of the FPA, 16 U.S.C. 800(a). *fn1
In 1991, FERC found that the High Dam project fell within its jurisdiction. City of Oswego, 57 FERC Para(s) 62,100 (1991). It noted that the Oswego River was found to be a navigable water in 1968, and that, in any case, a part of the High Dam project was constructed after 1935 and affected interstate commerce. Id. at 63,156. On November 22, 1991, FERC issued the Licensing Order, granting the City permission to operate and maintain the High Dam Project. City of Oswego, 57 FERC Para(s) 62,139 (1991), reh'g denied, 67 FERC Para(s) 61,150 (1994), reconsideration denied, 72 FERC Para(s) 61,279 (1995). The Licensing Order contained two significant conditions. First, it required the City to modify its lease with Niagara Mohawk so that the City would have control over the project facilities. *fn2 Id. at 63,208-11. Second, the Licensing Order required the City to pay a fee equal to the total annual fees that would have been paid between 1949 and 1991, had the project been ...