Western Minnesota Municipal Power Agency v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 19, 2015 Decided November 20, 2015
No. 14-1153
WESTERN MINNESOTA MUNICIPAL POWER AGENCY, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Sam Kalen argued the cause for petitioners. With him on
the briefs were Michael Swiger and John Clements. Randolph
L. Elliott and Delia D. Patterson entered appearances.
Holly E. Cafer, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were David L. Morenoff, General Counsel, and Robert H.
Solomon, Solicitor. Susanna Y. Chu, Attorney, entered an
appearance.
Before: GARLAND, Chief Judge, ROGERS, Circuit Judge,
and EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge ROGERS.
2
ROGERS, Circuit Judge: The Western Minnesota Municipal
Power Agency (“Western Minnesota”) submitted an application
pursuant to the Federal Power Act (“FPA”) for a preliminary
permit for a hydroelectric project in Polk County, Iowa. A
private developer, FFP Qualified Hydro 14, LLC (“FFP”), also
submitted a permit application for the same project on the same
day. Despite Western Minnesota’s status as a municipality, the
Federal Energy Regulatory Commission 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. FFP Qualified Hydro 14, LLC,
Order Issuing Successive Preliminary Permit, Granting Priority
to File License Application, and Denying Competing
Application (“Permit Order”), 145 FERC ¶ 61,255, at ¶ 17 (Dec.
19, 2013). Based on a random drawing, the Commission
awarded the permit to FFP and denied rehearing. Western
Minnesota and intervenors petition for review on the principal
ground that the Commission’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.
I.
The Commission is authorized under Section 4 of the FPA
to issue licenses for the construction, operation, and
maintenance of hydroelectric projects on federal land or waters
in a two-stage process: a preliminary permit and a license. 16
U.S.C. § 797. A preliminary permit gives the holder “priority of
application” for a license and enables the holder “to secure the
data and to perform the acts required” for a license application.
Id. §§ 797(f), 798(a). Section 7(a) of the FPA provides that the
Commission “shall give preference to” preliminary permit
3
applications of “States and municipalities.” 16 U.S.C. § 800(a).
A “municipality” is defined as “a city, county, irrigation district,
drainage district, or other political subdivision or agency of a
State competent under the laws thereof to carry on the business
of developing, transmitting, utilizing, or distributing power.”
FPA § 3(7), 16 U.S.C. § 796(7).
The Commission has adopted several timing regulations of
relevance here. Where the municipal preference does not apply
because both or neither of the competing applicants are a state
or municipality, and the plans of both are equally well adapted,
“the Commission will favor the applicant with the earliest
application acceptance date.” 18 C.F.R. § 4.37(b)(2).
Applications received after regular business hours are
considered filed on the next regular business day. Id.
§ 385.2001(a)(2). Where two permit applications are deemed
filed on the same date and at the same time, the Commission’s
longstanding practice has been to break the tie by means of a
lottery. See FFP Qualified Hydro 14, LLC, Order Granting
Motion to Intervene Out-of-Time and Denying Rehearing, 147
FERC ¶ 61,233, at ¶ 7 n.9 (2014) (“Rehearing Order”) (citing
Petersburg Mun. Power & Light v. FERC, 409 F. App’x 364,
366 (D.C. Cir. 2011)).
Between 5:00 p.m. on January 31, 2013 and 8:30 a.m. on
February 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 from Western Minnesota and one from FFP. FFP is a
private, non-municipal developer and holder of a prior
preliminary permit for the Saylorville Dam site that expired on
January 31, 2013. Western Minnesota is a municipal
corporation and political subdivision of the State of Minnesota.
Although Western Minnesota satisfied the definition of
municipality under FPA § 3(7), the Commission announced its
4
intention to conduct a random drawing to determine which
applicant would be considered to have filed first and be entitled
to the permit. On the day of the drawing, Western Minnesota
filed a motion arguing that the drawing was unnecessary
because it was entitled to municipal preference. Nevertheless,
the Commission held the drawing, which resulted in priority
being granted to FFP.
On December 19, 2013, the Commission granted FFP a
successive preliminary permit and priority to file a future license
application and denied Western Minnesota’s competing
application. Permit Order, 145 FERC ¶ 61,255. Stating that
Section 7(a) provided “no guidance as to the scope of the
municipal preference,” the Commission decided that “the 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.” Id. at ¶ 17. More
generally, the Commission observed 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.” Id.
Because Western Minnesota’s headquarters in Ortonville,
Minnesota are “almost 400 miles from” the Saylorville Dam in
Iowa, and “the record reveals no connection, beyond a business
development interest, between the proposed project and
[Western Minnesota],” the Commission concluded that
“granting municipal preference to Western Minnesota in these
circumstances would not be in the public interest.” Id.
(emphasis added). As Western Minnesota was not entitled to a
municipal preference and “there [was] no claim that either FFP’s
or Western Minnesota’s plans is better adapted than the other,”
the Commission awarded the preliminary permit to FFP as a
result of the random drawing. Id. ¶ 20.
 5
Western Minnesota filed a request for rehearing on the
ground that the Commission’s interpretation of the municipal
preference was contrary to the plain text of Section 7(a).
Additionally, it argued that the Commission had impermissibly
changed its longstanding interpretation of the provision and that
its “in the vicinity” standard was too vague to be understood or
applied. The American Public Power Association and the Public
Power Council moved to intervene in support of Western
Minnesota and also requested rehearing. The Commission
granted the motion to intervene out of time but denied both
requests for rehearing. Rehearing Order ¶ 1. Western
Minnesota and intervenors (together, “Western Minnesota”)
petition for review of the Permit and Rehearing Orders.
II.
The court reviews an agency’s interpretation of a statute
that it administers under the two-step framework of Chevron
U.S.A., Inc. v. NRDC, 467 U.S. 837, 842–43 (1984). Under step
one, the court must determine “whether Congress has directly
spoken to the precise question at issue.” Id. at 842. If so, then
the court and the agency must “give effect to the unambiguously
expressed intent of Congress.” Id. at 842–43. If the court
determines that “the statute is silent or ambiguous with respect
to the specific issue,” then under step two, “the question for the
court is whether the agency’s answer is based on a permissible
construction of the statute.” Id. at 843.
In addressing a question of statutory interpretation, the court
begins with the text. See, e.g., Engine Mfrs. Ass’n v. S. Coast
Air Quality Mgmt. Dist., 541 U.S. 246, 252 (2004). Section 7(a)
of the FPA provides:
In issuing preliminary permits hereunder or
original licenses where no preliminary permit has
6
been issued, the Commission shall give preference
to applications therefor by States and
municipalities, provided the plans for the same are
deemed by the Commission equally well adapted,
or shall within a reasonable time to be fixed by the
Commission be made equally well adapted, to
conserve and utilize in the public interest the water
resources of the region.
16 U.S.C. § 800(a) (emphasis added). As Western Minnesota
points out, “[n]othing in this language qualifies or restricts
which ‘states’ or which ‘municipalities’ are to be favored.”
Pet’rs’ Br. 12–13. Congress determined that these entities shall
be granted preference as long as their plans are determined by
the Commission to be as “equally well adapted” to that of a
competing non-municipal applicant. It defined the word
“municipality” broadly, leaving no indication that geographic
considerations are relevant to an applicant’s status as a
municipality. FPA § 3(7), 16 U.S.C. § 796(7). Further, nothing
in the text of Section 7(a) suggests that Congress’s use of the
phrase “shall give preference” is anything other than a
mandatory directive to the Commission. The ordinary meaning
of “shall” is the opposite of “may,” denoting the Commission’s
duty to prefer municipalities with at least equal plans, not an
invitation for the Commission to determine when preferring a
particular municipality would serve the public interest as the
Commission sees it. See Ass’n of Am. R.Rs. v. Costle, 562 F.2d
1310, 1312 (D.C. Cir. 1977); BLACK’S LAW DICTIONARY 1379
(7th ed. 1990). Additionally, the plain text shows that Congress
was specific about the public policy it intended to advance by
Section 7(a): a municipality shall receive preference only where
its plans are “equally well adapted . . . to conserve and utilize in
the public interest the water resources of the region.” 16 U.S.C.
§ 800(a). This precondition is not a limit on which entities are
municipalities that qualify for the statutory preference but rather
7
describes the circumstances that must exist to trigger application
of the preference.
By its terms, then, Section 7(a) is a “statutory tie-breaker
provision favoring states and municipalities over private
parties.” Oconto Falls v. FERC, 41 F.3d 671, 672 (D.C. Cir.
1994). As defined in Section 3(7), “municipality” neither
betrays ambiguity nor leaves a statutory gap for the Commission
to fill. Contrary to the Commission’s conclusion, Congress has
spoken directly to the question at issue.
In concluding that Section 7(a) is ambiguous because it
provided no guidance on its scope, the Commission has
“manufactured ambiguity,” “ignoring [Chevron step one]
altogether by failing to articulate how the plain text of Section
7(a) was unclear.” Pet’rs’ Br. 11. The Commission never
explained why the meaning of “States and municipalities” is
ambiguous such that the municipal preference can be limited to
those municipalities in a project’s “vicinity,” a word Congress
did not use in defining “municipality” or elsewhere in Sections
4 or 7(a). Instead, the Commission declined to apply the
municipal preference because of its policy conclusion 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.” See Permit Order ¶ 17. In
the Commission’s view, if any municipality “could legitimately
claim preference,” a “distant municipality” in competition with
a “nearby municipality” could “win a tie breaking drawing and
then deprive the nearby municipality of the right to utilize a
local water resource.” Id. Rather than inferring from
Congress’s silence that the physical proximity of a municipality
to a project is irrelevant to whether it is a “municipality” for
purposes of the Section 7(a) preference, the Commission
inferred a legislative delegation to pick and choose favored
municipalities to advance the Commission’s policy.
8
Agencies are empowered to make policy only insofar as
Congress expressly or impliedly delegates that power. See
Utility Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2445
(2014). “Were courts to presume a delegation of power absent
an express withholding of such power, agencies would enjoy
virtually limitless hegemony, a result plainly out of keeping
with Chevron and quite likely with the Constitution as well.”
Ethyl Corp. v. EPA, 51 F.3d 1053, 1060 (D.C. Cir. 1995)
(emphasis in original). The Commission’s apparent
understanding that “Chevron step two is implicated any time a
statute does not expressly negate the existence of a claimed
administrative power . . . , is both flatly unfaithful to the
principles of administrative law . . . and refuted by precedent.”
Id. (alteration in original). In Section 7(a), Congress adopted a
clear mandate that where applications are “equally well
adapted,” the application of a “municipality” is to be preferred
over that of a private applicant. Bolstering this mandate is the
broad definition of “municipality.” The Commission’s injection
of a proximity requirement in the definition of “municipality”
is unwarranted. By stating that the preference applies only
when competing applicants’ plans are “equally well adapted” to
develop and conserve the “water resources of the region,”
Congress identified a single qualification on application of the
preference in favor of a “municipality.”
Nothing in the structure of the FPA reveals a contrary
intent. The Commission relies on Section 4(f) of the FPA,
which requires the Commission to give notice of an application
for a preliminary permit (1) “to any State or municipality likely
to be interested in or affected by such application,” and (2) by
publication in a daily or weekly newspaper published in the
county or counties where the project is situated. 16 U.S.C.
§ 797(f). The Commission has interpreted Section 4(f) to set
geographic criteria for identifying which political subdivisions
9
must be notified of a permit application. See 18 C.F.R.
§ 4.32(a)(2). Noting the distinction in Section 4(f) between
municipalities in general and those “likely to be interested in”
a potential project, the Commission stated that “it would be
administratively impossible for the Commission to determine
which municipalities were likely to be interested” in a project
“other than on the basis of propinquity.” Permit Order ¶ 18.
Because Section 4(f) “does not extend the same treatment to all
municipalities,” the Commission concluded it could also
distinguish between municipalities on the basis of proximity for
purposes of applying the Section 7(a) preference. Id. Relying
on its view of the undesirability of far-away municipalities
developing local water resources, the Commission declined to
grant Western Minnesota a municipal preference because
Western Minnesota’s headquarters are almost 400 miles from
the project site and Western had only “a business development
interest” in the proposed project. Permit Order ¶ 19.
Although the Commission’s premise that Section 7(a) must
be read in light of its broader statutory context may be
unobjectionable, see, e.g., FDA v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 132 (2000), its analysis has
veered off course. Section 4(f) is a notice provision, not a
substantive restriction on the municipal preference in Section
7(a). The Commission is not faced with two statutory
provisions having differing mandates, creating a “fundamental
ambiguity” that would warrant application of the Commission’s
expertise. See Nat’l Ass’n of Home Builders v. Defs. of
Wildlife, 551 U.S. 644, 666 (2007). Nor is there an
inconsistency from the plain text of these provisions that a
municipality eligible for the Section 7(a) preference may not be
entitled to receive Section 4(f) notice.
On rehearing, the Commission suggested that the clause
limiting notice to those “State[s] or municipalit[ies] likely to be
10
interested in or affected by such application,” 16 U.S.C.
§ 797(f) (emphasis added), would be “superfluous” if Congress
intended “to extend municipal preference to all municipalities
without exception,” Rehearing Order ¶ 21. This argument fails
on several grounds. First, by its plain terms, the clause informs
the Commission which group of municipalities must be notified
of an application, not which municipalities the Commission
must prefer under Section 7(a). Consistent with the
Commission’s observation about administrative feasibility, see
Permit Order ¶ 18, the clause sets a manageable limit on the
Commission’s notice obligations. Second, interpreting Section
4(f)’s procedural requirements as a substantive limit on the
scope of Section 7(a) ignores the connector “or”. Section 4(f)
requires the Commission to give notice of a preliminary permit
application “to any State or municipality likely to be interested
in or affected by such application.” 16 U.S.C. § 797(f)
(emphasis added). Municipalities “in the vicinity of” a project
site are likely to be “affected by” the application whereas here
Western Minnesota has stated its “interest[]” in the Saylorville
Dam project. That interest is therefore established and more
than just “likely.” Even if Section 4(f) were viewed as in some
way qualifying the scope of the municipal preference in Section
7(a), Western Minnesota qualifies by its clear “interest” in the
project.
The Commission’s reliance on Northern Colorado Water
Conservancy District v. FERC, 730 F.2d 1509 (D.C. Cir. 1984),
as support for interpreting Section 4(f) as a limit on the scope
of Section 7(a) is misplaced. That case did not discuss whether
the two provisions should be read together. In Northern
Colorado, the Commission had failed to provide written notice
of a preliminary permit application to the Water Conservancy
District even though the District was a “municipality” under
FPA § 3(7) and “likely to be interested in or affected by” the
application under Section 4(f) because the District distributed
11
water from the canal at the project site. See id. at 1516. In
granting the District’s petition to reopen the preliminary permit
application process, the court stated that Section 4(f)’s notice
requirement “was designed to assist municipalities in their
competition for permits” and “was primarily intended to allow
states and municipalities to assert and thus protect their
statutory preferences.” Id. at 1512, 1513. The court also
“reject[ed] any argument that ‘municipality’ has a different
meaning for purposes of a § 4(f) notice than for purposes of a
§ 7(a) municipal preference.” Id. at 1516 n.7. Citing this
footnote as support for a proximity limit on the scope of the
municipal preference, the Commission maintains that its
approach ensures a consistent interpretation of the word
municipalities in Sections 4(f) and 7(a). See Resp. Br. at 26.
This overlooks that the meaning of “municipality” is the same
for both Sections 4(f) and 7(a). Rather, the relevant difference
between municipalities to be notified and municipalities
entitled to the municipal preference arises from the absence in
Section 7(a) of the limiting clause in Section 4(f) — “affected
by or likely to be interested in” — that cabins the
Commission’s notice obligations. “[W]here Congress includes
particular language in one section of a statute but omits it in
another section of the same Act, it is generally presumed that
Congress acts intentionally and purposely in the disparate
inclusion or exclusion.” Russello v. United States, 464 U.S. 16,
23 (1983) (internal quotation omitted). Nothing in the plain
text of Sections 4(f) or 7(a) rebuts this presumption.
The Commission’s resort on rehearing to legislative history
is also unavailing. The Commission points out that Section
7(a) was “originally enacted in the Federal Water Power Act of
1920, when the nation’s electric grid was relatively
undeveloped and access to hydroelectric power was at a
particular premium for municipalities seeking to provide
electric power to their communities.” Rehearing Order ¶ 24.
12
But even if Congress did not envision the magnitude of current
long-distance transmission, it was aware transmission capacity
would grow.1 Nonetheless, relying on legislative history, the
Commission concluded that “Congress intended only to give a
preference to states and municipalities with respect to water
resources in proximity to those public entities, to facilitate the
development of those resources for the benefit of local
consumers.” Rehearing Order ¶ 24. Yet the legislative history,
by the Commission’s own admission, is “limited,” id., and it is
inconclusive on the question whether the municipal preference
was intended to preserve local municipalities’ control over
water resources or to encourage public rather than private
ownership.2 On the other hand, the legislative history would
1
For instance, the House Committee on Public Lands heard
testimony that “the site of the water plant is not likely to be its field of
operation; its power is distributed over a large area.” Hearings Before
the House Comm. on Public Lands, 63rd Cong. 328 (1914) (statement
of George Otis Smith, U.S. Geological Survey, Dep’t of Interior).
Similarly, O.C. Merrill, “the chief draftsman of the Federal Water
Power Act,” see Allegheny Elec. Coop., Inc., 26 FERC ¶ 61,119, at
61,296 (1984), testified that “a very considerable increase in the
output of electric energy could be secured by the combination of
existing isolated plants into a single system through the medium of
high-tension transmission lines.” Hearings Before the House Comm.
on Water Power, 65th Cong. 19–20 (1918) (statement of O.C. Merrill,
Forest Service, Dep’t of Agriculture).
2
Some of the legislative history suggests Congress’s primary
concern was local development of resources. For instance, one
Senator stated a “very strong[] . . . opinion that the States and the
counties, municipalities, and other subdivisions . . . in which these
water-power sites are situated should have the right to develop them
for the use of the people of those States, counties, or municipalities,
as the case may be.” Statement of Sen. Nugent, 59 Cong. Rec. 1571
(1920). Other parts suggest Congress was concerned with protecting
public over private ownership. For instance, another Senator
13
suggest that Congress did not intend for the Commission to
have discretion in picking among states and municipalities,
contrary to the Commission’s approach here.3 In short, the
legislative history cannot save the Commission’s interpretation
from the plain statutory text.
On rehearing the Commission also purported to invoke the
absurdity doctrine, stating Section 7(a) was ambiguous because
applying the municipal preference to all municipalities
regardless of geographic proximity would work an “absurd or
mischievous” result and would “thwart the statute’s manifest
purpose.” Rehearing Order ¶ 20. It again referenced
hypothetical examples of an East Coast municipal entity
claiming preference to develop a project in Hawaii, and a
competition between a distant and a nearby municipality where
a tiebreaker drawing results in depriving the nearby
emphasized that the statute would “look[] with favor upon”
hydroelectric plants operated by municipalities, because “[w]herever
the interests of the public are best served by it, I think it is just as well
and better to give it to the municipality than it would be to give it to
private individuals to do the same thing.” Statement of Sen.
LaFollette, 56 Cong. Rec. 9113 (1918).
3
An early version of the bill that would become the FPA
provided that “in issuing preliminary permits or licenses hereunder the
commission may in its discretion give preference to applications
therefor by States and municipalities.” 56 Cong. Rec. 9775 (1918).
The House of Representatives adopted an amendment striking the
phrase “may in its discretion” and replacing it with the word “shall.”
Id. at 9805. The sponsor of this amendment stated its “sole purpose”
was “to place States, municipalities, and other political subdivisions
upon an equality with private applicants” by “mak[ing] it mandatory
upon the commission to grant the license to the State or municipality,
if the plans submitted by it are . . . as good as those submitted by the
private applicant.” Id. at 9804 (statement of Rep. Doremus).
14
municipality of the right to utilize a local water resource. Id.;
see Permit Order ¶ 17. In the Commission’s view, “these types
of consequences were not likely intended, or anticipated, by
Congress in enacting FPA section 7(a)” in 1920. Rehearing
Order ¶ 20. The statutory issue for the court, however, is not
whether the Commission’s interpretation of Section 7(a)’s
municipal preference is the better public policy. Before the
Commission can invoke the doctrine of “absurd or mischievous
consequences” to rewrite the statute, it must demonstrate that
the plain meaning of the statutory text “‘defies rationality’ by
‘render[ing] a statute nonsensical [and] superfluous.’” United
States v. Cook, 594 F.3d 883, 891 (D.C. Cir. 2010) (quoting
Landstar Express Am., Inc. v. Fed. Maritime Comm’n, 569 F.3d
493, 498–99 (D.C. Cir. 2009). The Commission has not met
this high threshold. 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.’” Clark-Cowlitz Joint Operating Agency v. FERC,
775 F.2d 366, 377 (D.C. Cir. 1985), vacated and reh’g en banc
granted, 787 F.2d 674 (1986) (quoting O.C. Merrill, Benefits
Accruing to Municipalities Through the Federal Water Power
Act, THE AMERICAN CITY, Vol. XXIII, No. 5 (Nov. 1920)).
Even when Congress limited the municipal preference in 1986
to “original” as distinct from relicensing proceedings, when it
would have been aware of modern long-distance transmission,
it did not add a proximity requirement. See Oconto Falls, 41
F.3d at 672 (citing the Electric Consumers Protection Act, Pub.
L. No. 99-495, 100 Stat. 1246 (1986) (codified at 16 U.S.C.
§§ 791a–828c)).
15
To the extent the Commission is concerned that granting
a preference to a too-distant municipality seeking a preliminary
permit could have “undesirable consequences,” Rehearing
Order ¶ 20, the Commission may be able to address it through
the “equally well adapted” provision of Section 7(a), cf. id. ¶ 20
n.25. That could permit a local municipality (or local private
entity) to triumph over a distant municipality, without limiting
the statutory definition of “municipality.” The nature and
extent of the Commission’s concern is unclear, however. The
Commission has rejected a proximity “test” for well-
adaptedness, see, e.g., N.E.W. Hydro, Inc. City of Oconto Falls,
Wis., 85 FERC ¶ 61,222, 61,909 & n.12 (1998), and reported
that “many licensees are headquartered a distance from their
projects, to no ill effect,” id. at 61,909. Of course, the propriety
of using the “equally well adapted” requirement to impose
some geographic constraints is not a question before the court
and would involve a Chevron step two analysis. The
Commission’s approach here, by contrast, that there is some
geographical limit inherent to what is a “municipality” for
purposes of Section 7(a), fails at Chevron step one.
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.