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Hydro Licensing and the Endangered Species Act: Implications of FERC's Current Approach

If a hydro project affects a threatened or endangered species, the Endangered Species Act authorizes the U.S. departments of Commerce or Interior to specify plans for protecting these species. As recent cases illustrate, Federal Energy Regulatory Commission policy to consider such plans mandatory for hydro licensees may be inconsistent with FERC’s Federal Power Act mandate to balance developmental and non-developmental values associated with a hydro project.

By Susan A. Moore

When issuing an operating license for a hydroelectric project, the Federal Energy Regulatory Commission (FERC) has a mandate under the Federal Power Act (FPA) to determine the public interest by balancing developmental and non-developmental considerations. A key component is an evaluation of the environmental effects of a proposed license, including those to fish and wildlife.

Numerous federal statutes establish FERC’s responsibilities regarding hydroelectric project licenses. These include the FPA, Electric Consumers Protection Act (ECPA), National Environmental Policy Act (NEPA), and Endangered Species Act (ESA).

Recent FERC decisions interpreting its responsibilities under the ESA raise questions about the role of the ESA when FERC issues hydroelectric licenses and its ability to fulfill its statutory responsibilities under the FPA and NEPA. In my opinion, this suggests the need for regulatory and/or legislative reform to clarify responsibilities.

A review of FERC’s statutory obligations

FERC must consider several statutes when fulfilling its role in issuing operating licenses for hydroelectric projects.

FPA and ECPA

Under sections 4(e) and 10 of the FPA, which was passed in 1920, FERC issues hydroelectric licenses for non-federally owned projects and establishes the terms and conditions under which such projects are operated.1

ECPA, passed in 1986, amended these two sections to require that FERC consider “nondevelopment” values when deciding whether, and under what terms and conditions, a hydroelectric license should be issued.2 These values include fish and wildlife protection, mitigation, and enhancement; recreational opportunities; and energy conservation.2

Under FPA section 4(e), FERC must give energy conservation and environmental values “equal consideration” with power and other developmental values. Amended section 10(a)(1) requires FERC to consider protection, mitigation, and enhancement of fish and wildlife, and other beneficial uses referenced in section 4(e) – such as irrigation, flood control, water supply, and recreation. In addition, FERC must resolve issues presented when these values compete.

FPA section 10(a)(2), as modified by ECPA, requires that FERC inform itself about the needs and uses of the river. FERC must do this by considering comprehensive plans developed by other entities under state and federal law, as well as recommendations of other state and federal agencies and Indian tribes.

FPA section 10(j), added by ECPA, requires that FERC include in project licenses conditions “to adequately and equitably protect, mitigate damages to, and enhance, fish and wildlife (including related spawning grounds and habitat) affected by the development, operation, and management of the project.” Such conditions must be based on recommendations from the Department of Commerce’s National Marine Fisheries Service (NMFS), the Department of the Interior’s U.S. Fish and Wildlife Service (FWS), and state fish and wildlife agencies. FERC may reject section 10(j) recommendations if they are inconsistent with the purposes of FPA Part I (which governs hydroelectric licensing and relicensing) or other applicable law. However, FERC must first attempt to resolve differences among the agencies’ recommendations and explain why a rejected recommendation is inconsistent with the FPA.

Nondevelopmental issues do not trump other interests.3 FPA sections 4(e) and 10(a) require that FERC determine the “public interest” (by balancing power and non-power values). And, the Energy Policy Act of 2005 (EPAct 2005) modified FPA sections 4(e) and 18 (which relates to installation of fishways/fish passage facilities) to require that federal agencies give equal consideration to power and non-power values.4 Moreover, FPA section 15, which was not amended by ECPA, requires that FERC issue licenses “upon reasonable terms.”

NEPA

When considering a hydroelectric license, FERC also must comply with NEPA, which was passed in 1969, and take a “hard look” at the possible environmental effects of a major federal action.5 If that action may significantly affect the quality of the human environment, FERC must prepare an environmental impact statement (EIS) evaluating those effects and assessing alternatives.


The Endangered Species Act requires that the Federal Energy Regulatory Commission’s actions in issuing hydroelectric licenses not jeopardize the continued existence of threatened or endangered species such as this chum salmon. (Photo copyright Daniel Slocum. Image from BigStockPhoto.com)
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Compliance with NEPA’s extensive procedural requirements necessarily implicates compliance with the FPA’s requirement that FERC give “equal consideration” to developmental and non-developmental issues. FERC’s environmental analyses of applications for a new license and for license amendments are comprehensive.

ESA

ESA section 7(a)(2) imposes both procedural and substantive obligations on federal agencies to engage in meaningful consultation with NMFS and FWS (collectively, service agencies).6 In addition, this section imposes the responsibility to ensure that any action “authorize[d], fund[ed], or carrie[d] out,” including FERC’s issuance of hydroelectric licenses, will not jeopardize the continued existence of a threatened or endangered species or result in the destruction or adverse modification of any species’ critical habitat.6 In addition, ESA section 9 prohibits FERC and licensees from “taking” a protected species. “Taking” is broadly defined to include harassing or harming, or modifying critical habitat.


Recent decisions related to licensing and endangered species protection raise questions about conflicts with the Federal Energy Regulatory Commission’s mandate to balance a project’s developmental and non-developmental values and the Endangered Species Act.
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FERC’s ESA section 7 evaluation of a hydroelectric license application often involves formal consultation with one or both service agencies.7 FERC prepares and submits a biological assessment evaluating the potential effects of license issuance on listed species or their critical habitat. FERC also determines whether actions taken under the operating license will likely jeopardize the listed species or adversely affect or destroy critical habitat.

If FERC determines the proposed action is not likely to have these adverse effects, and the service agencies agree, formal consultation is not required. However, if FERC or one of the service agencies determines a proposed action may adversely affect a listed species or its critical habitat, FERC must formally consult with the service agencies. The purpose of this consultation is to obtain a biological opinion (BiOp) from the service agency on whether the action is likely to jeopardize the continued existence of the species or cause adverse modification to, or destruction of, its critical habitat.

If the service agency determines license issuance is not likely to jeopardize listed species or result in adverse modification or destruction of critical habitat, it issues a “no jeopardy” opinion. Otherwise, the agency issues a “jeopardy” opinion that includes “reasonable and prudent alternatives” (RPAs) to FERC’s proposed action that the service agency believes will avoid the jeopardy or adverse modification.

In the case of either a “no jeopardy” opinion or a “jeopardy” opinion, the service agency may conclude that either FERC’s action or an RPA may still result in taking of a listed species. The service agency may find this take to be “incidental” to the agency action and that such incidental take will not jeopardize the continued existence of the listed species or adversely modify its critical habitat. The service agency must then provide FERC with an “incidental take statement” that permits the take but specifies reasonable and prudent measures necessary or appropriate to minimize the effects of such incidental take.

Issuance of the BiOp concludes an ESA section 7(a)(2) consultation. Under the service agencies’ Part 402 consultation regulations, FERC has the discretion to determine whether and how to proceed. FERC may:

– Adopt one of the service agencies’ RPAs;

– Elect not to undertake the proposed action;

– Reinitiate consultation; or

– Adopt an alternative not set forth in the BiOp.

Importantly, FERC, not the service agencies, makes the ultimate decision whether its proposed action will satisfy the requirements of section 7(a)(2).

However, the service agencies’ final rule adopting its 402 consultation regulations noted that courts accord “great deference” to BiOps and that a federal agency disagreeing with the conclusions of a BiOp must articulate in the administrative record its reasons for such disagreement.8 An agency deviating from the RPAs contained in a BiOp assume the risk of violating ESA section 7(a)(2).

In Bennett v. Spear, the U.S. Supreme Court characterized BiOps as having “a powerful coercive effect on the action agency.”9 The court explained that an action agency must articulate its reasons for disagreeing with a BiOp. The court also ruled that an agency “runs a substantial risk if its (inexpert) reasons turn out to be wrong.” Moreover, the court added, an incidental take statement authorizes the action agency to take a listed species, as long as the agency complies with the statement’s terms and conditions. Thus, the court stated, an action agency may be “technically free to disregard the BiOp, but it does so at its own peril (and that of its employees), for ‘any person’ who knowingly ‘takes’ an endangered or threatened species is subject to substantial civil and criminal penalties, including imprisonment.”

Although it appears that FERC believes the Bennett v. Spear case sets the bar quite high for an agency to justify adopting an alternative not presented in a BiOp, the case does not preclude an agency from taking such action. As the court acknowledged, FERC can choose a different alternative, if that choice is well supported. Furthermore, the Supreme Court’s admonition that an action agency that disregards a BiOp risks liability for a ‘take’ was made with regard to an agency disregarding reasonable and prudent measures contained in an incidental take statement. It did not refer to an agency disregarding RPAs contained in the ESA section 7 jeopardy opinion.

How FERC treats ESA biological opinions

FERC’s treatment of BiOps in two recent cases raises issues regarding the role of BiOps in operating license decisions. Both cases reflect FERC’s highly deferential treatment of BiOps, even when FERC’s own environmental analysis conflicts with the service agencies’ recommendations. These decisions raise questions regarding FERC’s ability to comply with its statutory obligations under the FPA and NEPA.

Similkameen River project

In 1996, FERC issued an original license to Public Utility District No. 1 of Okanogan County to construct a 4.1-MW hydro project on the Similkameen River in Washington.10 Stakeholders disagreed about the need for fish passage facilities at the project. Canadian provincial authorities and a Canadian Indian Tribe opposed introducing anadromous fish into Canadian waters above the dam because of the risk of transmitting disease to resident fish populations. The Washington Department of Fish and Game also had reservations about the need for fish passage facilities.

FERC’s order issuing a license for this project did not require immediate installation of fish passage facilities, instead reserving the authority to require fishways in the future. If fishways were ultimately required, FERC noted they should be implemented as part of a regional collaborative decision-making process that included a cost-sharing mechanism.

One year after FERC issued its order, NMFS listed Upper Columbia River steelhead as endangered, and FERC engaged in ESA section 7 consultation. FERC’s biological assessment was that the project would not jeopardize the species. NMFS ultimately released a “no jeopardy” BiOp agreeing with FERC’s opinion. Nevertheless, NMFS included upstream and downstream fish passage as a reasonable and prudent measure in the incidental take statement.

FERC strongly objected, noting these measures would render the project uneconomic, would actually harm the upstream fishery, and were not supported by the evidence. Thus, FERC determined the public interest no longer supported issuing the license, rescinded the existing license, and denied the license application. When rescinding the license, FERC cited the Bennett v. Spear decision, noting the “powerful coercive effect” of a BiOp on an action agency because of the nature of an incidental take statement and the liability an agency assumes when it proceeds with a proposed action not identified in a BiOp.

Potter Valley project

The problem of the “coercive” effect of a BiOp also is illustrated in a 2004 decision involving Pacific Gas & Electric’s (PG&E)’s 9.4-MW Potter Valley project.11 After a flow study and agency consultations that were required under its 1983 operating license for the project, PG&E filed an amendment to its license. This amendment consisted of an implementation and compliance plan reflecting the joint recommendations of FWS and NMFS for a flow regime.

After an extensive review of the proposed amendment based on its NEPA requirements, FERC’s biological assessment concluded that the recommended alternative in the final EIS was not likely to jeopardize the continued existence of threatened salmonids. NMFS disagreed and initiated formal consultation. Before issuing its final BiOp, NMFS issued a draft opinion. FERC filed comments on this draft opinion expressing its disapproval, including its disagreement with NMFS’ use of a pre-project environmental baseline to find that increases in instream flows for listed species could nevertheless result in jeopardy. Despite FERC’s objections, the final BiOp found jeopardy and included an RPA to remove jeopardy, as well as an incidental take statement containing reasonable and prudent measures.

In its order amending the license for the Potter Valley project, FERC again registered its disagreement with NMFS’ RPA and explained, based on its own extensive NEPA analysis, why FERC’s preferred alternative would “provide sufficient assurance of benefits to the threatened salmonids and less risk to other water uses than the regime provided by the Biological Opinion.” Nevertheless, relying on cases such as Bennett v. Spear, FERC adopted the RPA from NMFS as the license amendment “because NOAA Fisheries’ [sic] is the agency with principal responsibility for administering the ESA with respect to anadromous fish, and in light of the nature of an incidental take statement.”

Multiple parties filed petitions for review of FERC’s order amending the license for the Potter Valley project. The U.S. Court of Appeals for the Ninth Circuit refused to interfere with FERC’s decision to defer to NMFS. In an unpublished memorandum opinion, the Ninth Circuit Court denied all petitions.12 The court rejected petitioners’ arguments that FERC improperly deferred to NMFS’ BiOp. However, the court’s opinion focused entirely on whether NMFS abused its discretion in devising the BiOp, not whether FERC abused its authority in relying on it. Having found the BiOp legitimate, the court apparently saw no reason to examine FERC’s adoption of it. The court avoided discussion of the disagreement regarding the proper baseline by mischaracterizing FERC’s preferred alternative as a “marginal” improvement and holding that NMFS could not be criticized for rejecting it.

Implications of FERC’s treatment of biological opinions

As stated earlier, FERC has several options when it disagrees with a BiOp, including adopting an alternative not provided in the BiOp. However, even if FERC demonstrates that its preferred alternative will satisfy ESA section 7, FERC has elected to defer completely to the service agency’s conclusions in the BiOp. This is the case even when FERC’s own orders indicate it believes the BiOps are not wholly supported by substantial evidence, are inconsistent with FERC’s environmental analysis, are inconsistent with the scope of the proposed agency action, or will disrupt related international and regional collaborative efforts. Unless a BiOp is “patently unsupported and arbitrary,” FERC has found the risk of disregarding it could lead to an unauthorized take.

FERC appears to apply a standard that is more stringent than some courts have held is required. For example, courts have upheld an agency possessing expertise on an issue if it adopts alternative and reasonably adequate steps to avoid jeopardy.13 However, FERC has been unwilling to press the issue. Furthermore, FERC appears to confuse the applicability of the risk of ‘take’ that the Supreme Court articulated in Bennett v. Spear. The court warned of the risk of ‘take’ in the context of an action agency disregarding reasonable and prudent measures contained in an incidental take statement, the violation of which can result in a ‘take’ prohibited by ESA section 9. However, FERC appears to believe this risk of ‘take’ liability applies when it reaches different conclusions regarding RPAs in the service agencies’ section 7 jeopardy analysis, despite the fact that FERC may have more information than the service agencies regarding what will, and will not, result in jeopardy.

Consequently, this acquiescence to a service agency’s BiOp raises questions regarding the efficacy of FERC’s environmental analysis and its ability to satisfy its FPA responsibility to balance factors and determine the public interest. With respect to the Potter Valley project, FERC’s refusal to deviate from the RPA from NMFS appears to render FERC’s own extensive NEPA record and related analysis irrelevant.

FERC’s treatment of BiOps under ESA section 7 also has implications related to its responsibility under the FPA to determine the public interest by balancing all power and non-power values.14 FERC’s approach to this subject has the potential to expand already broad mandatory conditioning authorities that exist under FPA sections 4(e) and 18. In the name of protecting fish and wildlife, the service agencies conceivably can trump other FPA section 4 and 10 considerations by providing RPAs and reasonable and prudent measures that the service agencies know FERC will treat as mandatory (if it does not abandon the proposed action). This is particularly significant in view of recent EPAct 2005 changes to FPA sections 4(e) and 18 that require federal agencies to give equal consideration to power and non-power values. It is conceivable that the service agencies could use the ESA as an end-around of these EPAct 2005 changes.

Furthermore, if FERC continues to treat RPAs as mandatory, it could easily find itself in the position of enforcing two completely inconsistent measures. For example, when considering relicensing the City of Tacoma’s 131-MW Cushman Project in Washington, the U.S. Department of the Interior imposed mandatory FPA section 4(e) conditions that required continuous 240 cubic feet per second (cfs) flow from the project. However, the BiOp from NMFS contained an RPA calling for 240 cfs flow or inflow, whichever is less. On review, the U.S. Court of Appeals for the District of Columbia held that the 4(e) conditions were, indeed, mandatory. The court discussed the meaning of the BiOp RPA. However, the court only tangentially acknowledged the potential clash in stating that the language in the RPA may “have limited significance in light of our conclusion regarding [FERC’s inability to reject] Interior’s section 4(e) conditions, because one of Interior’s conditions is a continuous release of 240 cfs, irrespective of inflow.”15

FERC’s policy regarding BiOps also has implications for its new integrated licensing process (ILP), which encourages early involvement by all stakeholders, including FERC staff, the service agencies, state and federal agencies, and tribes. This early consultation process is designed to facilitate identification, study, and resolution of issues before a license application is filed. FERC’s treatment of BiOps arguably gives the service agencies unwarranted leverage and raises questions regarding whether the service agencies will have the incentive to meaningfully participate in this licensing process, knowing they achieve their objectives through a BiOp. The service agencies also may be further emboldened by the D.C. Circuit Court’s holding in City of Tacoma v. FERC that BiOps created as part of a hydroelectric relicensing proceeding may not be challenged directly, but may only be challenged as part of the relicensing proceeding.

Recommendations to improve the situation

Given its expertise in conducting environmental analyses, FERC could refuse to defer so readily to the service agencies’ recommendations, particularly if FERC takes a less risk-averse approach to interpreting the ESA.

Regulatory and legislative reform also could significantly assist FERC in fulfilling its statutory responsibilities under the FPA, NEPA, and the ESA, rather than prioritizing the service agencies’ demands under the ESA. In particular, the service agencies and Congress should consider ways to reconcile ESA implementation with FERC’s balancing responsibilities under the FPA. The service agencies or Congress should tighten the standard for what constitutes “best available science” and demand that economic and technical feasibility considerations be considered early in the service agencies’ consultation process under ESA sections 7 and 10. Additionally, the service agencies or Congress should clarify that minimization and mitigation measures must be proportional to the proposed action and the potential benefits. Finally, the service agencies should revise their regulations to establish existing conditions, not pre-project conditions, as the baseline for analysis of jeopardy in BiOps.

The author may be reached at Van Ness Feldman, 1050 Thomas Jefferson Street, N.W., 7th Floor, Washington, DC 20007-3877; (1) 202-298-1896; E-mail: sam@ vnf.com.

This paper reflects the views of the author and does not reflect the views of Van Ness Feldman, P.C., or its clients.

Notes

 

  1. 16 U.S.C. §§ 797(e) & 803(a)(2000).
  2. Electric Consumers Protection Act of 1986, Pub. L. No. 99-495, 1986 U.S.C.C.A.N. (100 Stat.) 1243 (codified at 16 U.S.C. § 797(b) et seq.).
  3. Dep’t of Interior v. FERC, 952 F.2d 538, 545 (D.C. Cir. 1992) (“ECPA amendments do not give environmental factors preemptive force.”); see also California v. FERC, 966 F.2d 1541, 1550 (9th Cir. 1992) (Equal consideration does not mean equal treatment.).
  4. Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594.
  5. 42 U.S.C. §§ 4321-4370f (2000).
  6. 16 U.S.C. § 1536.
  7. 50 C.F.R. Part 402 (2004) (“402 consultation regulations”).
  8. Interagency Cooperation-Endangered Species Act of 1973, as Amended; Final Rule, 51 Fed Reg. 19,926, 19,956 (June 3, 1986).
  9. 520 U.S. 154, 169 (1997).
  10. Pub. Util. District No. 1 of Okanogan County, Wash., 76 FERC ¶ 61,271 (1996); order on rehearing and lifting stay, 78 FERC ¶ 61,097 (1997), order on rehearing, 88 FERC ¶ 61,040
  11. (1999), order on rehearing, rescinding license, denying license application, and terminating stay, 90 FERC ¶ 61,169 (2000).
  12. Pac. Gas & Elec. Co., 106 FERC ¶ 61,065 at P 101; order on rehearing, 107 FERC ¶ 61,232; order on rehearing, 108 FERC ¶ 61,266 (2004), petitions for review denied memorandum.
  13. Cal. Sportfishing Prot. Alliance v. FERC, No. 04-73498, 2006 U.S. App. LEXIS 18282 (9th Cir. July 18, 2006).
  14. Tribal Vill. of Akutan v. Hodel, 869 F.2d 1185, 1193-94 (9th Cir. 1988); Natural Res. Def. Council, Inc. v. Army Corps of Eng’rs, 2001 U.S. Dist. LEXIS 21029, at *35 (S.D. Fla. 2001).
  15. See City of Centralia v. FERC, 213 F.3d 742, 748-49 (D.C. Cir. 2000); City of Oconto Falls v. FERC, 204 F.3d 1154, 1160 (D.C. Cir. 2000); Dep’t of Interior, 952 F.2d at 545.
  16. City of Tacoma v. FERC, 460 F.3d 53, 77 (D.C. Cir. 2006).

 

Susan Moore is member with the law firm Van Ness Feldman, P.C. Her hydroelectric practice focuses on assisting clients on regulatory matters before the Federal Energy Regulatory Commission and in appellate litigation before the federal courts of appeals.


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