Court says FERC erred by not giving municipal preference in hydro case

The U.S. Court of Appeals for the District of Columbia Circuit has concluded that the Federal Energy Regulatory Commission was mistaken when it failed to grant a municipal utility in Western Minnesota priority for a preliminary hydropower permit in Iowa when the municipal was competing against a private firm.

In the Nov. 20 ruling, the D.C. Circuit said FERC was wrong in concluding that the preference extends only to a state or municipal utility in the vicinity of the proposed hydroelectric project.

The D.C. Circuit found that Congress wanted municipal utilities to have priority against private parties and this preference is not limited to municipal utilities within 400 miles.

The Western Minnesota Municipal Power Agency submitted an application under the Federal Power Act for a preliminary permit for a hydroelectric project in Polk County, Iowa.

A private developer, FFP Qualified Hydro 14, also submitted a permit application for the same project on the same day. Despite Western Minnesota’s status as a municipality, FERC concluded that the municipal preference under Section 7(a) of the FPA applies only to municipalities “located in the vicinity” of the water resources to be developed.

Based on a random drawing, FERC awarded the permit to FFP and denied rehearing. Western Minnesota and intervenors petition for review on the principal ground that the FERC’s geographic proximity test is an impermissible interpretation of the plain text of the statute.

“We agree that Congress has spoken directly to the question in defining “municipality” in Section 3(7) of the FPA, and we grant the petition,” the court held.

Between 5 p.m. on Jan. 31, 2013 and 8:30 a.m. on Feb. 1, 2013, the Commission received two applications for a preliminary permit to study the feasibility of a hydroelectric project at the Saylorville Dam and Lake in Polk County, Iowa. One was from Western Minnesota and one from FFP.

The facility would be a 15 MW generator, GenerationHub has reported.

Western Minnesota filed a motion arguing that the drawing was unnecessary because it was entitled to municipal preference. Nevertheless, FERC held the drawing, which resulted in priority being granted to FFP.

FERC had ruled that its “best reading of the statute is that municipalities should be accorded preference only with respect to the development of water resources that are located in their vicinity.” FERC went on to say that “it is difficult to discern what public interest is served by giving a municipality a preference with respect to a project that is far from the site of the municipality,” and that “[t]o do so would effectively make municipalities super-competitors with respect to all new hydropower developments, regardless of their location.”

Western Minnesota’s headquarters is in Ortonville, Minn., and that is almost 400 miles from the Saylorville Dam in Iowa.

FERC held that granting municipal preference to Western Minnesota in these circumstances would not be in the public interest. FERC said there was no claim that either FFP’s or Western Minnesota’s plans is better adapted than the other.”

With this reasoning, FERC awarded the preliminary permit to FFP as a result of the drawing.

Western Minnesota filed a request for rehearing. The American Public Power Association and the Public Power Council moved to intervene in support of Western Minnesota and also requested rehearing. FERC denied both requests for rehearing.

“There is nothing patently unreasonable in favoring any and all municipalities over private applicants when “˜the chief purpose’ of the FPA was “to “˜provide conditions under which capital can be secured [to develop hydropower] while at the same time fully to protect the paramount interests of the public in its last great national resource,'” the D.C. Circuit, said, quoting prior decisions.

If FERC is concerned that granting preference to a too-distant municipality seeking a preliminary permit, it could possibly address this through the “equally-well adapted provision” of Section 7 (a), the court said. In the past, however, FERC has rejected a proximity test for whether a proposal was well adapted. Anyway, that issue is not before the court, the D.C. Circuit said.

“Accordingly, we grant the petition for review, vacate the Commission’s Permit Order and Rehearing Order, and remand for further proceedings without reaching Western Minnesota’s other challenges,” the court said.

Western Minnesota Municipal Power Agency versus FERC No. 14-1153 was argued before a three-judge panel for the court on Oct. 19 and the decision was issued on Nov. 20.

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Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 22 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants.

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