California State Water Resourc v. Ferc

Citation: Not availableDocket: 20-72432

Court: Court of Appeals for the Ninth Circuit; August 4, 2022; Federal Appellate Court

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The United States Court of Appeals for the Ninth Circuit reviewed multiple petitions for review against the Federal Energy Regulatory Commission (FERC) concerning its orders that determined the California State Water Resources Control Board (State Board) had waived its authority under Section 401 of the Clean Water Act. This section mandates that states provide water quality certification before federal licenses for hydroelectric projects are issued, allowing states to impose conditions to ensure compliance with state water quality standards. FERC's orders claimed that the State Board coordinated with the Nevada Irrigation District, Yuba County Water Agency, and Merced Irrigation District (collectively, the Project Applicants) to delay certification decisions by manipulating the timing of certification requests.

FERC argued that the State Board's actions constituted a failure to act, thus waiving its certification authority. However, the appellate panel found that FERC's claims of coordination were not supported by substantial evidence. The evidence indicated that the State Board merely acquiesced to the Project Applicants' unilateral decisions to withdraw and resubmit their requests rather than engaging in a deliberate scheme to delay the process. Consequently, the court concluded that such acquiescence did not amount to a coordinated effort to evade certification deadlines and vacated FERC's orders, remanding the case for further proceedings.

Counsel for the parties involved in the legal matter includes a range of attorneys representing both petitioners and respondents. The California State Water Resources Control Board is represented by Jennifer Kalnins Temple and others from the Office of the Attorney General in Los Angeles. Several environmental organizations, including the South Yuba River Citizens League and Sierra Club, are also petitioners, represented by attorneys from Water and Power Law Group and Western Environmental Law Center. The Federal Energy Regulatory Commission (FERC) is represented by Jared B. Fish and other legal counsel from Washington, D.C. Respondent-intervenors include the Nevada Irrigation District and Yuba County Water Agency, represented by Van Ness Feldman, LLP. Additional amici curiae include the Chamber of Commerce of the United States and various hydropower associations, represented by attorneys from Troutman Pepper Hamilton Sanders LLP.

The legal opinion from Circuit Judge Friedland clarifies that Section 401 of the Clean Water Act empowers states to impose conditions on federal licenses for hydroelectric projects to ensure compliance with state water quality standards. This provision underscores the role of state authority in managing water resources in relation to federally regulated projects.

In the consolidated cases, petitions for review challenge FERC's decisions that the California Water Resources Control Board waived its authority regarding hydroelectric projects' federal relicensing. FERC determined that the State Board coordinated with the Nevada Irrigation District, Yuba County Water Agency, and Merced Irrigation District to delay certification and avoid decisions on certification requests, resulting in a failure to act and a waiver of authority under 33 U.S.C. 1341(a)(1). However, it was concluded that FERC's findings of coordination lacked substantial evidence, leading to the granting of petitions for review and vacating FERC's orders.

The Clean Water Act emphasizes the importance of state responsibilities in regulating water quality, asserting that states serve as the primary defense against water pollution (Keating v. FERC). Section 401 mandates states to provide water quality certification before federal licenses for activities that may discharge into navigable waters can be issued. States have the authority to establish stricter water quality standards, and any limitations in state certification are conditions on federal licenses (PUD No. 1 of Jefferson Cnty. v. Wash. Dep't of Ecology). To prevent indefinite delays in federal licensing, Section 401 sets a one-year deadline for state action, after which certification authority is waived (Alcoa Power Generating Inc. v. FERC). FERC interprets this period as a maximum of one year, with significant implications for hydroelectric project licensing, which can last up to fifty years. If a state waives its certification authority, projects may remain noncompliant with state water quality standards for decades.

California's water quality certification process often exceeds a one-year timeline due to the California Environmental Quality Act (CEQA) requirements. These mandates necessitate a comprehensive environmental impact analysis before the State Board can grant a certification, as outlined in Cal. Pub. Res. Code 21100(a). The law designates project applicants as 'lead agencies' responsible for preparing CEQA documentation, while the State Board serves as the 'responsible agency' required to evaluate this documentation before making a decision. For complex projects, completing the CEQA process can take over a year, complicating timely certifications. If the necessary CEQA materials are submitted late, the State Board must deny the certification request unless the applicant withdraws it. Consequently, a practice has emerged where applicants withdraw and resubmit their requests to restart the one-year review period, allowing more time for compliance. This practice has been accepted by FERC, despite concerns about potential delays in federal licensing. However, in 2019, the D.C. Circuit ruled that California and Oregon had effectively waived their certification authority by repeatedly engaging in this withdrawal-and-resubmission process, interpreting it as a failure to act under Section 401, as seen in Hoopa Valley Tribe v. FERC.

FERC revised its stance following the Hoopa Valley decision, asserting that states waived their Section 401 certification authority by engaging in coordination with project applicants on the withdrawal and resubmission of certification requests, even without a formal contract. This led to petitions for review of three FERC orders determining that California waived its authority to issue water quality certifications for the Yuba-Bear Project, the Yuba River Project, and the Merced Projects. 

In 1963, FERC granted a fifty-year license to the Nevada Irrigation District (NID) for the Yuba-Bear Hydroelectric Project, which NID sought to renew in 2011, with the original license expiring in 2013. NID has since operated under interim licenses, which do not require state-imposed conditions due to the pre-Section 401 licensing. On March 15, 2012, NID requested water quality certification from the State Board, indicating its role as Lead Agency for CEQA compliance. Although the State Board confirmed the request was pending, NID failed to complete the necessary CEQA evaluation. 

By December 2019, the State Board was still awaiting NID to initiate the CEQA process. On March 1, 2013, just before the State Board's deadline, NID withdrew and resubmitted its certification application, reiterating its lead agency status. The State Board acknowledged this, setting a new deadline of February 28, 2014. FERC subsequently released a draft environmental impact statement noting these developments. The State Board provided comments indicating that the CEQA process had not begun and anticipated that NID would withdraw and resubmit its applications if the certification was not ready by the deadline. NID continued to withdraw and resubmit its certification requests annually from 2014 to 2018 without preparing a CEQA evaluation.

The State Board acknowledged each withdrawal-and-resubmission of certification requests and communicated new deadlines for certification action. In 2019, the State Board denied NID's final request for Section 401 certification without prejudice, citing the incomplete CEQA process as the reason. Subsequently, NID sought a declaratory order from FERC, claiming that the State Board had waived its Section 401 certification authority, which FERC granted, reasoning that an explicit agreement to withdraw and refile was unnecessary for a waiver finding. FERC noted that the State Board had acquiesced to NID's repeated withdrawals and resubmissions, indicating coordination between the parties. Evidence included the State Board's comments on FERC’s draft environmental impact statement, which anticipated NID's actions. FERC also referenced California regulations that support the withdrawal-and-resubmission practice and highlighted the State Board's lack of dispute regarding NID's claims that the Board had sufficient information to act.

Additionally, FERC's findings regarding the Yuba River Project mirrored those of the Yuba-Bear Project. YCWA, which had previously been granted a fifty-year license for the Yuba River Development Project, filed for a new license in June 2017. After submitting a request for water quality certification on August 24, 2017, YCWA was reminded by State Board staff about the impending deadline for certification action. The staff indicated the need for YCWA to submit a withdrawal-and-resubmission application due to the absence of a final CEQA document. YCWA planned to comply and submitted the withdrawal-and-resubmission letter on August 3, 2018, which the State Board acknowledged, setting a new certification action deadline for August 3, 2019.

YCWA did not prepare a CEQA evaluation, and by December 2019, a State Board report indicated it was still awaiting the start of the CEQA process. Following the D.C. Circuit's Hoopa Valley decision, the State Board denied YCWA's request for certification due to its inaction on CEQA. YCWA sought a declaratory order from FERC, asserting that the State Board had waived its Section 401 certification authority. FERC agreed, noting evidence of coordination between the State Board and YCWA, particularly regarding YCWA's application withdrawal and resubmission as a means to circumvent the one-year statutory deadline. FERC cited California regulations that codified this practice and the State Board's lack of dispute over claims that it had sufficient information to act.

Similar circumstances surrounded the Merced Projects, for which FERC had issued licenses to MID and PG&E in the 1960s. As with the Yuba projects, the Merced Projects are under interim licenses while relicensing is pending. MID and PG&E submitted requests for water quality certifications in 2014, with the State Board warning of a one-year action deadline and the necessity of CEQA compliance. In April 2015, a State Board member urged MID to withdraw and resubmit its application before the deadline. Despite this, MID did not commence the required CEQA evaluation, and by December 2019, the State Board reported it was still awaiting the start of the CEQA process for the Merced Projects. Between 2015 and 2018, MID and PG&E repeatedly withdrew and resubmitted their certification requests, prompting the State Board to acknowledge these actions and reiterate compliance warnings. Ultimately, after the Hoopa Valley ruling, the State Board denied MID's requests for certification based on its failure to comply with CEQA.

MID requested a declaratory order from FERC asserting that the State Board had waived its Section 401 certification authority for the Merced Projects. FERC agreed, using reasoning similar to its prior decisions regarding the Yuba-Bear Project and Yuba River Project. FERC cited the prolonged process of applicants withdrawing and resubmitting applications over four years and an April 2015 email from State Board staff as evidence of a coordinated effort to reset the statutory one-year deadline, thereby delaying action on the certification request. FERC emphasized that California regulations allowed this practice and noted the State Board's failure to request additional information on the certification requests. Consequently, FERC determined that these withdrawals and resubmissions did not restart the review clock because the State Board conspired with the applicants to avoid timely decisions.

The State Board and several environmental organizations challenged FERC's orders in court, which reviews FERC decisions for arbitrariness, capriciousness, abuse of discretion, lack of substantial evidence, or noncompliance with the law. "Substantial evidence" is defined as relevant evidence that a reasonable mind might accept as adequate for a conclusion, and if evidence allows multiple interpretations, FERC's findings must be upheld. However, evidence cannot be based on uncertain or speculative inferences.

FERC's position on withdrawal-and-resubmission evolved after the D.C. Circuit's Hoopa Valley decision, which involved PacifiCorp's licensing process for Klamath River dams. In that case, PacifiCorp negotiated with California and Oregon, resulting in an agreement to withdraw and resubmit certification requests annually to prevent action on them, effectively stalling federal licensing until certain conditions were met. The Hoopa Valley Tribe, downstream from the dams and not part of the agreement, petitioned FERC, arguing that the states had waived their certification authority.

FERC upheld its longstanding position that the withdrawal and resubmission of water quality certification requests restart the one-year review period for states. However, the D.C. Circuit ruled that California and Oregon exhibited 'deliberate and contractual idleness' by delaying their decisions on certifications, leading to a waiver of their authority under Section 401. Following this ruling, FERC adopted a practice of finding waivers in cases where applicants withdrew and resubmitted requests, applying this to both formal agreements and informal coordinated plans. FERC distinguishes between coordinated withdrawal-resubmission schemes, which it views as a waiver of state authority, and unilateral withdrawals by applicants, which do not trigger waiver. If a state merely accepts a withdrawal without coordination, it retains its power to act. FERC's position is that coordination indicates an intention to avoid the one-year deadline. Despite FERC's interpretations, the evidence presented did not substantiate claims of coordination by the states, leading to the conclusion that FERC's findings lack substantial support. Furthermore, interpretations of Section 401 by the Environmental Protection Agency (EPA) are given precedence over those by FERC.

In the case of Alcoa Power Generating Inc. v. FERC, the D.C. Circuit addressed the implications of the EPA's 2020 rule interpreting the waiver provision in Section 401 of the Clean Water Act, which was subsequently proposed for revision. The court noted that the California State Water Board anticipated that the Nevada Irrigation District (NID) would withdraw and resubmit its application for certification, rather than face a denial without prejudice. FERC's reliance on the State Board's comments indicated that the Board expected NID to act in this manner, suggesting no collusion to delay certification but rather a response to NID's failure to initiate the California Environmental Quality Act (CEQA) process. The State Board indicated readiness to deny the certification if NID did not withdraw and resubmit, contradicting any notion that the Board sought to engineer delays. The court highlighted that it did not need to consider the EPA’s prospective interpretations of Section 401 or the State Board’s arguments regarding the application of FERC's standards because it vacated FERC’s orders based on substantial-evidence grounds. Furthermore, the evidence pointed to NID's non-compliance with CEQA as the root cause of any delay, not actions taken by the State Board. FERC's speculation about the State Board's motivations for preferring a withdrawal-and-resubmission process over a denial without prejudice was noted but not substantiated.

No evidence indicates that the State Board sought to evade judicial review. The absence of necessary CEQA documentation from the Project Applicants suggests that a state-court challenge against a denial would likely fail. According to California Code Regulations, if CEQA documentation is lacking, the certifying agency must deny certification without prejudice. The State Board's comments indicate consent to NID's decision to withdraw and resubmit certification requests. FERC's finding of coordination is inadequately supported, relying mainly on an email exchange where a State Board staff member reminded YCWA of the missing final CEQA document and suggested a withdrawal and resubmission. This reflects a standard practice among project applicants who have not met CEQA requirements, rather than a coordinated action. The State Board was prepared to deny certification but preferred to process a withdrawal if YCWA chose that route, indicating that both options would yield similar practical outcomes. A similar reliance on an email in the Merced River Project order does not substantiate FERC's waiver finding, as it also occurred under circumstances of non-compliance with CEQA, leading to an expectation of withdrawal and resubmission by MID.

The State Board appeared prepared to deny certification requests in line with state regulations if the Merced Irrigation District (MID) did not withdraw and resubmit their applications. There was no evidence suggesting the State Board intended to delay decisions or had any motive to coordinate a withdrawal-and-resubmission strategy. Previously, the State Board was the lead agency under CEQA for the Merced Falls Project before PG&E transferred its license to MID. The Federal Energy Regulatory Commission (FERC) did not provide evidence supporting a waiver determination for the Merced Falls Project nor argued for its different treatment compared to the Merced River Project.

The State Board's engagement in the relicensing process was evident through its participation in the pre-application phase, submission of comments on FERC's environmental analyses, and regular updates on certification requests. In contrast, the Project Applicants operated under interim licenses without state water quality conditions and had an incentive to delay the certification process, as it could impose stricter environmental regulations. FERC's evidence regarding the withdrawals and resubmissions did not demonstrate the State Board's involvement in a coordinated delay; such actions were unilateral on the part of the applicants. California regulations acknowledge the practice of withdrawal and resubmission in response to non-compliance with CEQA but do not prescribe it as a strategy for avoiding denial. FERC's claims regarding the State Board's failure to dispute the Project Applicants' assertions about having sufficient information mischaracterized the record, as the State Board had not contested the applicants' fulfillment of minimum filing requirements for certification requests.

The State Board consistently informed NID, YCWA, and MID that it lacked the necessary CEQA evaluation to grant their certification requests, as required by California law. Consequently, the Project Applicants withdrew and resubmitted their requests to avoid a denial without prejudice, which the State Board was prepared to issue due to the incomplete CEQA evaluation. While the applicants could have opted to force a denial and potentially challenge it in court, they preferred the withdrawal-and-resubmission approach, likely to mitigate risks associated with a denial affecting investor decisions and jeopardizing their federal license. The State Board's acceptance of this maneuver does not constitute a coordinated scheme to evade statutory deadlines, as per FERC's coordination standard. The Fourth Circuit's recent ruling in a similar case supports this view, emphasizing that mere routine communications do not demonstrate substantial coordination. Therefore, FERC's findings of coordination were insufficiently supported, leading to the conclusion that FERC's orders lack substantial evidence, resulting in their vacating and remanding for further proceedings.