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Policies & Regulations: Energy Policy Act of 2005 and the Interim Agency Rules: Industry Hopes that Rulemaking will Improve Hearing Procedures

While the interim rules are a significant step toward allowing licensees to dispute factual issues with agency conditions and prescriptions, the rules leave several unanswered questions and loopholes that complicate the trial-type hearing process for future licensees.

By Michael Swiger and Sharon White

The Energy Policy Act of 2005 had a significant impact on hydro relicensings before the Federal Energy Regulatory Commission. Under Section 241 of this act, a licensee or any party to a licensing proceeding may, through a trial-type hearing, challenge the factual basis of agency terms and conditions that licensees were previously forced to accept.

Licensees may also propose alternative conditions for agency consideration. The EPAct procedures are the first opportunity licensees have ever had to dispute agency conditions and prescriptions before they are incorporated into a FERC license.

In order to challenge agency conditions under the EPAct procedures, however, licensees must incur the cost and delay of a trial-type hearing. A number of licensees have recommended changes to streamline the EPAct procedures, and a recent Government Accountability Office report has recommended a public rulemaking. But the industry remains uncertain whether the agencies will revise the rules.

Hearing rules

On Nov. 17, 2005, the Departments of Agriculture, Interior and Commerce issued Interim Final Rules for implementing the trial-type hearing and alternatives provisions of EPAct 2005. Under the Federal Power Act, federal agencies may submit mandatory terms and conditions to be attached to a FERC hydropower license.

The Agency Rules under EPAct do not alter the federal agencies’ deadline to submit preliminary conditions within 60 days after FERC issues public notice of a licensing or relicensing application. After an agency has submitted a proposed condition, however, the Agency Rules provide that any party to the license proceeding, within 30 days, may: (1) request a hearing on any disputed issues of material fact underlying a proposed condition; and (2) submit alternative conditions. The Departments then have 30 days to decide whether to stipulate to some or all of the disputed facts and to file an answer to the hearing request. During this time, the Departments will consider whether any proposed alternatives could preclude the need for a hearing. The agency must accept a proposed alternative condition if it is more cost-effective or energy-saving. If there is still a need for hearing, the Departments will refer the case to an administrative law judge. The ALJs assigned for hearings thus far have been from the Department of Commerce (through the United States Coast Guard) and the Department of Agriculture (through the Office of Administrative Law Judges).

The Agency Rules were drafted so that the evidentiary hearing on disputed issues of material fact fits within FERC’s licensing timeframe. The hearing process, therefore, from start to finish, must occur within a 90-day window, so as not to delay FERC’s issuance of a new license.

This 90-day window must encompass pre-hearing conferences, discovery, an evidentiary hearing with witnesses and cross-examination and post-hearing briefs. The ALJ must issue his decision within 30 days after the close of the hearing or 90 days after issuance of the referral notice, whichever occurs first.

The ALJ’s findings of fact are final and can be used by the Departments in analyzing alternatives and developing modified conditions and by FERC in finalizing its NEPA document. The ALJ’s decision is not ripe for judicial review until the Departments issue modified conditions and prescriptions and FERC issues a license order.

Trial-type hearings to date

To date, there have been 20 requests for trial-type hearings filed. The majority of these hearing requests were withdrawn when the parties reached settlement before the hearing date. Three licensees, Avista Corp., PacifiCorp and Public Service Co. of Colorado, have proceeded through the hearing process and received a decision from the ALJ.

Avista’s trial-type hearing for the Post Falls Project involved disputed issues of material fact relating to the Bureau of Indian Affairs’ proposed conditions.

The BIA sought to impose license conditions relating to the summer level of the lake at the project, which BIA claimed had impacts on fish, erosion, water quality, cultural resources and wetlands. The ALJ rejected BIA’s claims that maintaining the summer lake level harmed native fish or increased the level of metals in the lake, but agreed with BIA that the summer lake level has impaired the functioning of wetlands and has potential impacts on tribal cultural sites. Following the ALJ’s decision, BIA issued revised conditions which reflected the ALJ’s decision, information unveiled at the hearing, Avista’s proposed alternatives, and FERC’s draft environmental impact statement.

PacifiCorp’s trial-type hearing for the Klamath Project involved disputed issues of material fact with respect to prescriptions issued by the U.S. Fish and Wildlife Service and the National Marine Fisheries Service, and conditions issued by the Bureau of Land Management. Of the 35 disputed issues filed, four issues were settled, one was dismissed, 16 were reserved for resolution during the FERC proceeding, and 14 went to hearing. The parties were allowed 20 days to complete discovery, and PacifiCorp presented direct and rebuttal testimony for nine witnesses on BLM issues and five witnesses on USFWS/NMFS issues. The ALJ found that PacifiCorp proved its version of the facts with respect to certain section 4(e) issues, but he largely deferred to agency opinions on the feasibility of fish passage. PacifiCorp recently entered into a settlement for removal of the Klamath river dams, and the FERC license proceeding is in abeyance.

Colorado’s trial-type hearing for the Tacoma Project involved disputed issues of material fact with respect to several Forest Service proposed conditions requiring minimum flows to the bypass reach of the project. Colorado’s request for hearing identified eight disputed issues of material fact, but the ALJ dismissed one issue, leaving seven to proceed to trial. The ALJ ruled in favor of the Forest Service on six disputed issues of material fact, and for the licensee on one issue. The Forest Service filed modified conditions after the ALJ issued his decision.

GAO report cites need for improvements

On the eve of the five year anniversary of the Agency Rules, the GAO, in August 2010, issued a report entitled “Stakeholders’ Views on the Energy Policy Act Varied, but More Consistent Information Needed.”

This report was requested by U.S. Sen. Jeff Bingaman, D-N.M., to analyze the extent to which stakeholders have used the trial-type hearing provisions since 2005, and the changes required to improve the procedures. GAO staff interviewed representatives from federal agencies, hydropower licensees, environmental organizations, industry and tribal groups to compile a comprehensive analysis of who was using the trial-type procedures and how they have worked thus far. This report is the first of its kind and instills new hope for the industry that revised rules may be forthcoming.

The GAO report makes a number of conclusions on the implications of the Agency Rules.

It notes that agency conditions and prescriptions are researched more thoroughly since issuance of the Agency Rules, because licensees could challenge the terms in a trial-type hearing. The report also notes that agencies issue fewer conditions and prescriptions since the Agency Rules were issued to avoid a trial-type hearing. The GAO found that agencies have devoted significant resources toward trial-type hearings, spending nearly $3.1 million for the three hearings to date.

As noted in the GAO report, a few resource agency officials have suggested that licensees who lose the trial-type hearing should pay court costs, such as the costs of the ALJ.

The GAO found that the departments have accepted no alternatives as originally proposed by the licensee, but have modified a total of 140 agency conditions and rejected 42 of the proposed alternatives.

While agencies must provide explanations for rejecting alternative conditions under the EPAct, the GAO found that agencies have failed to explain the reasons for not accepting alternatives when they modified conditions. The GAO made two recommendations for executive action.

First, it recommended that, where an agency has not adopted a proposed alternative, it must include in a written statement filed with FERC its reasons for not doing so and whether a proposed alternative was withdrawn as a result of settlement. Second, the GAO report recommends that the departments issue revised rules after providing a period for public comment.

Lessons learned from hearings to date

There are a number of lessons to be learned from the three trial-type hearings that have occurred thus far, and from cases that have settled prior to hearing. The trial-type challenge to agency conditions can be a constructive tool, but licensees and other stakeholders must appreciate the significant commitment such a challenge requires, and use it as a last resort only if settlement negotiations fail.

From a licensee’s perspective, the Agency Rules have created an incentive for resource agencies to collaborate with licensees in developing conditions. Agencies, like licensees, would rather avoid the cost and delay of a trial-type hearing by negotiating conditions in advance.

This risk of cost and delay has produced the most significant effect of the Agency Rules thus far – the encouragement of settlement. Of the 20 projects in which hearing requests were filed, 14 reached settlement before a hearing commenced (GAO report at 13). According to the GAO report, most stakeholders agreed that the Agency Rules promoted settlement to avoid a trial-type hearing. But some noted that settlement negotiations are difficult because efforts to negotiate have moved to preparing for potential hearings.

The tight 90-day window set out in the Agency Rules makes preparation of a concise hearing request nearly impossible.

However, should a licensee pursue this option, preparation is the key to success. The hearing request is due 30 days after preliminary conditions are filed by the agencies, but this is an inadequate amount of time to write such a comprehensive document. Licensees should start preparing their hearing request at least 6 months in advance, based on the potential issues that may be raised in the agencies’ preliminary conditions and prescriptions. This preparation should include selection and narrowing of issues and discussion of potential experts.

Licensees and their counsel must be precise in defining disputed issues, because there are no second chances to reframe an issue. Parties must be comprehensive in identifying disputed issues, but not so over-inclusive that the issues become overwhelming. It is important to try to settle as many issues as possible because there is not enough time to argue every issue before the ALJ. Above everything else, licensees should keep the issues as simple as possible because of the condensed time schedule.

Suggested revisions to streamline the rules

While the Interim Rules became immediately effective upon issuance in 2005, the departments invited public comment, stating that they would consider promulgation of revised rules within 18 months.

Comments were filed by numerous parties, but the departments did not issue revised rules. In June 2009, the National Hydropower Association and the Hydropower Reform Coalition submitted a joint letter to the departments expressing interest in commenting on the Agency Rules before they become final, but no rulemaking has been commenced.

The hydroelectric industry is uncertain whether revised rules will be issued, as more than six years have passed at the time of this publication and the Departments have yet to issue them. Industry leaders are hopeful that the GAO’s recommendation to institute a rulemaking may spur the departments to commence one. If they do not, a petition for rulemaking may be necessary to force a revised rule.

While the Interim Rules were a significant step toward allowing licensees to dispute factual issues with agency conditions and prescriptions, the rules leave several unanswered questions and loopholes for future licensees considering trial-type hearings for their projects.

First, the rules are silent as to a party’s right to challenge a department’s modified or final conditions that differ substantially from the department’s preliminary conditions. This creates a loophole for the Departments to dodge a potential trial-type hearing.

To take advantage of the loophole, an agency can submit standard 4(e) conditions at the preliminary stage, and after the opportunity to request a hearing has passed, the agency can submit substantially different final conditions, and the licensee’s hands are tied. Since the rules only permit a licensee to request a trial-type hearing on disputed issues regarding preliminary conditions, the licensee cannot contest the revised final conditions. This has occurred in at least two relicensings to date, and some fear it may be a growing trend.

For example, in the Poe Project relicensing, the Forest Service included in its final 4(e) conditions a new condition requiring ramping rates for the preservation of aquatic resources, to the surprise of the licensee. The Forest Service’s preliminary 4(e) conditions did not include this ramping rate condition, and it was not proposed by the Forest Service until it was included in the final 4(e) conditions. The licensee filed a proposed alternative and hearing request for the new condition, but the Forest Service rejected these requests on the basis that the Agency Rules do not provide for challenges to final conditions.

Second, the rules are ambiguous as to whether a department must give equal consideration to power and nonpower values, as required by the EPAct, in developing its mandatory conditions. The rules could be read to mean that a department must only give equal consideration in a case where an alternative is presented, which would be contrary to the plain language of the statute. The departments should clarify that equal consideration is required any time the department adopts a condition, regardless of whether alternatives were presented.

Third, the scheduling issues in the 90-day hearing procedure are unnecessarily tight, and parties need more time to have a meaningful trial.

In fact, the agencies have flexibility under the plain language of the EPAct to allow a 90-day hearing for each agency, thus allowing hearings involving two agencies to last up to 180 days, and hearings involving three agencies to last up to 270 days, instead of a compressed 90-day period.

Table 1: Projects Challenging Agency Conditions to Date
Several pending hydro projects are challenging the conditions established by federal agencies. This is a list of hearing requests and alternatives filed to date and the status of each case.

Nevertheless, the agencies have interpreted the EPAct to provide for only a single 90-day hearing, while stakeholders advocate for an extended schedule. A party should have a minimum of 45 days to file its hearing request after the preliminary conditions are issued by the agencies.

In light of the limited time for discovery, the revised rules should also clarify and limit the permissible scope of discovery. For example, the final rule could limit the number of written interrogatories and requests for production a party may serve on another party. In addition, the ALJ should be allowed 30 days after the deadline for filing reply briefs to issue a decision, rather than constrain him to issuing a decision within the 90-day period. These small tweaks in the scheduling will relieve some of the burden on parties, while imposing little delay in the FERC relicensing process.

Fourth, the revised rules should clarify which party bears the burden of proof at the trial-type hearing. All ALJs thus far have ruled that the party challenging the conditions, not the agency, bears the burden of proof. However, one could argue that the disputing party may bear a threshold burden of showing that a disputed fact exists, but the burden of proof then shifts to the agency proposing a condition to defend it. Regardless of who bears the burden of proof, the standard of proof must be clarified to be a preponderance of the evidence. An agency is not entitled to deference or a substantial evidence standard. The rules are silent on this issue and must be clarified.

The interim rules have also created a new problem involving the departments’ ability to forum-shop for a convenient trial location, to the detriment of the licensee.

For example, in the Yadkin-Pee Dee proceeding, Progress Energy Inc., based out of Raleigh, North Carolina, and with counsel in Birmingham, Ala., was assigned a Coast Guard ALJ based in Portland, Ore.

In the Klamath proceeding, PacifiCorp, based out of Portland, Ore., and with counsel in Washington, DC, was assigned an ALJ in Sacramento, Calif. These trial locations created a logistical hurdle for the licensees, who incurred the expense and inconvenience of traveling for the trial and pre-trial events.

The Departments have a similar undue influence over the selection of an ALJ for the trial-type proceeding.

It can be argued that use of resource agency ALJs biases the process against the licensee. Stakeholders also complain that the agency ALJs have given too much deference to the agencies and too often dismiss factual issues on the grounds they are matters of agency policy.

There are a multitude of issues that remain unresolved regarding the Agency Rules for trial-type hearings. If licensees want to see these changes implemented and the agencies fail to initiate a rulemaking, they may be forced to file a petition for rulemaking to bring the issues before the Departments.


Michael Swiger and Sharon White are attorney with Van Ness Feldman PC and counsel to a number of FERC hydroelectric licensees, including municipalities, investor-owned utilities, private developers, paper companies, irrigation districts, lending institutions, and investors. Swiger served as counsel to PacifiCorp in the EPAct trial-type hearing for the Klamath Hydroelectric Project.

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