City of Ukiah, California, Petitioner, v. Federal Energy Regulatory Commission, Respondent,sonoma County Water Agency, Intervenor, 729 F.2d 793 (D.C. Cir. 1984)

Petitioner, City of Ukiah, appeals the Federal Energy Regulatory Commission's (the Commission) issuance of a permit to Sonoma County Water Agency to study the feasibility of operating a hydroelectric generating plant. Petitioner asserts both substantive and procedural objections to the Commission's decision. Because we find the Commission's decision procedurally sound and supported by substantial evidence on the record as a whole, we affirm.

The City of Ukiah (Ukiah) applied to the Commission on May 27, 1980 for a "preliminary permit" to study the possibility of operating a hydroelectric generating plant at Warm Springs Dam.¹  Sonoma County Water Agency (Sonoma), intervenors in this action, applied for the same permit on August 25, 1980. Under the Commission's regulations, the first-filed applicant is to be awarded the permit unless a subsequent applicant demonstrates an advantage in generating potential.²  Here, the Commission found that Sonoma had demonstrated a capacity to produce substantially more electricity than Ukiah. Accordingly, the Commission awarded the permit to Sonoma.³ 

The Commission's conclusion that Sonoma could generate significantly more electricity than Ukiah at Warm Springs Dam rests primarily on a contractual relationship between Sonoma and the Army Corps of Engineers (the Corps). In 1964, Sonoma entered into a contract (1964 contract) with the Corps to purchase three blocks of water storage space in the reservoir (Lake Sonoma) behind Warm Springs Dam. Joint Appendix (J.A.) 649-60.⁴  Most important for this case, the contract also gave Sonoma discretion to direct releases and regulate the use of stored water. J.A. 509, 653, 658.

In its initial decision, the Commission found that Sonoma, by virtue of "its authority to direct water releases from [Warm Springs Dam], has demonstrated ... the ability to produce substantially more power ... than ... Ukiah." City of Ukiah, 18 FERC (CCH) p 61,108, at 61,204 (1982) (Order Issuing Preliminary Permit and Denying Competing Application). The Commission also acknowledged Sonoma's claim that if it generated electricity at Warm Springs Dam, it would release excess water to increase power production. Id. at 61,203. Since there is a cost associated with releasing stored water, Sonoma noted that it would promote power generation only if it, and not Ukiah, received the benefits from the project.⁵  J.A. 71-72. Consequently, the Commission concluded that "Sonoma's control of water releases from Warm Springs Dam ... uniquely qualifies Sonoma as a superior applicant for a preliminary permit." Id.

Ukiah applied for a rehearing of this order on March 12, 1982.⁶  In its application, Ukiah argued that if Sonoma released water for power generation, Sonoma would be required to begin repayment of the project's costs. Ukiah thus asserted that even if Sonoma's contract with the Corps allowed Sonoma to release water for power generation, there would be a significant economic disincentive discouraging such releases.

In October 1982, following the issuance of the Commission's initial order, Sonoma and the Corps signed an amended contract (1982 contract). In the new contract, Sonoma agreed to purchase a fourth block of storage space and to begin paying the Corps for each block in 1993, 1996, 2001, and 2006 respectively, regardless of when consumptive use begins. J.A. 347-48; see id. at 511, 514. Also, Sonoma retained its discretion to direct releases from the Warm Springs Dam reservoir. J.A. 344-45. In considering Ukiah's rehearing application, the Commission noted that the 1982 contract "severs the relationship between payback of the project's costs and actual use of the stored water." City of Ukiah, 21 FERC (CCH) p 61,133, at 61,361 n. 2 (1982) (Order Denying Rehearing). The Commission determined that since Sonoma could release water without triggering its repayment obligation, no economic disincentive would discourage Sonoma from releasing stored water for power generation before the water was needed for consumption. Id. at 61,361. The Commission thus concluded that Sonoma had the "operational flexibility" regarding water releases to produce significantly more power at the dam than Ukiah, and rejected Ukiah's rehearing application. Id. at 61,361 n. 2.

On January 26, 1983, the Commission rejected Ukiah's second application for rehearing essentially for the same reasons that it granted Sonoma the permit in its initial decision. City of Ukiah, 22 FERC (CCH) p 61,063 (1983) (Notice Rejecting Application for Rehearing and Reconsideration). Ukiah has appealed the Commission's denials of rehearing as well as its initial issuance of the permit to Sonoma. Ukiah asserts that the Commission's issuance of the permit is not supported by substantial evidence and is procedurally flawed. After full consideration, we find that the Commission's decision is substantively and procedurally sound. Accordingly, we affirm.

Ukiah contends that the Commission's decision to grant Sonoma the permit was not supported by substantial evidence. Ukiah disputes the Commission's finding that Sonoma's contractual relation with the Corps gives Sonoma a comparative advantage in power generation. Ukiah argues instead that both applicants can produce essentially the same amount of power and that it, as the first-filed applicant, therefore deserves the permit.

Sonoma's contract will afford it an advantage in power generation if three conditions exist. First, Sonoma must have excess water in its storage space that could be released for nonconsumptive purposes. Second, the contract must give Sonoma the discretion to release its stored water for nonconsumptive purposes. Third, there must be no significant economic disincentive discouraging Sonoma from releasing its stored water for nonconsumptive purposes.

The first condition is an empirical concern and may be disposed of briefly. All parties to this litigation agree that Sonoma County probably will not require consumptive use of Sonoma's stored water until the 1990's. The last block of Sonoma's stored water is not scheduled for use until approximately 2010. J.A. 64. Thus, for about twenty-five years at least a portion of the stored water will be available for nonconsumptive releases.⁷ 

The second two conditions require an examination of Sonoma's contract and the Water Supply Act of 1958, 43 U.S.C. § 390b (1976) (Water Supply Act). Both inquiries may be considered questions of law. Danks v. Fields, 696 F.2d 572, 575 (8th Cir. 1982) (interpretation of a written document is question of law). We therefore are not limited to, and do not employ, the deferential arbitrary and capricious standard in reviewing these issues of law. Office of Communication of United Church of Christ v. FCC, 707 F.2d 1413, 1422-23 n. 12 (D.C. Cir. 1983).

Implicit in the Commission's decisions that Sonoma's contractual relations allowed it to produce more power than Ukiah is the view that the 1964 and 1982 contracts permitted Sonoma to direct water releases for nonconsumptive purposes. 18 FERC (CCH) p 61,108, at 61,203-04; 21 FERC (CCH) p 61,133; 22 FERC (CCH) p 61,063. We review this finding only with regard to the 1982 contract which superseded the 1964 contract.⁸  Article 1(b) (2) of Sonoma's 1982 contract gives Sonoma "the right to withdraw water from the lake, or to order releases ... by the Government ... subject to ... Article 1(c) and to the extent of water the aforesaid storage space will provide ...." J.A. 344. In Article 1(c), the government in turn reserves the right to control Sonoma's discretion to release its stored water essentially for four purposes: (1) flood control, (2) to meet authorized Project purposes such as maintenance of the Dam and fish population, (3) to preserve life and/or property, and (4) to ensure the repayment provisions of the contract are consistent with the Water Supply Act.⁹  J.A. 345. The contract, by its terms, does not prevent Sonoma from releasing stored water for nonconsumptive purposes. We see no reason to require the Commission to read into Sonoma's contract a prohibition against releases for nonconsumptive purposes generally or for power generation specifically.¹⁰  We therefore sustain the Commission's finding that Sonoma's contract gives it the discretion to release its stored water for nonconsumptive purposes, including power generation.

Finally, we address the Commission's conclusion that there is no economic disincentive that discourages Sonoma from releasing its excess water for power generation. As noted earlier, the Commission found no economic disincentive because the 1982 contract does not directly link Sonoma's repayment schedule with the actual date Sonoma first uses its stored water.¹¹  See supra p. 795. Ukiah argues, however, that even if no economic disincentive derives from the 1982 contract, the Water Supply Act requires repayment upon Sonoma's release of stored water for power generation.¹²  Ukiah's argument is based on section 390b(b), which provides in pertinent part:

[T]he entire amount of the construction costs ... allocated to water supply shall be repaid within the life of the project but in no event to exceed fifty years after the project is first used for the storage of water for water supply purposes, except that (1) no payment need be made with respect to storage for future water supply until such supply is first used, ....

43 U.S.C. § 390b(b) (emphasis added). Ukiah contends that Sonoma's release for power generation would constitute "first use of such supply," and thereby trigger Sonoma's initial repayment obligation. Brief for Petitioner at 61-69.

Sonoma, on the other hand, argues that section 390b(b) (1) refers to the first use of stored water for consumptive purposes only. Any other reading, Sonoma argues, would render the provision unduly restrictive. That is, if release of the stored water for nonconsumptive purposes triggered the repayment obligations, then releases for flood control, recreation, or downstream fish would bring heavy financial burdens upon Sonoma. The Commission implicitly agreed with Sonoma's position when it concluded, after considering Ukiah's arguments, that Sonoma's releases for power generation would not trigger repayment.

Sonoma's view of section 390b(b) (1) is supported both by the language and the context of the provision. The ambiguity in the text lies with whether the last two words of section 390b(b) (1) refer to use of the stored water for any purpose whatsoever: "(1) no payment need to be made with respect to storage for future water supply until such supply is first used." (Emphasis added). We believe that "first use" refers only to use for consumptive purposes. Our view derives from the fact that the Water Supply Act continually links repayment for storage space with use of the project for purposes of water supply.¹³  For instance, immediately preceding the disputed phrase, the statute provides that the fifty-year repayment period will not begin to run until the water is first stored for water supply purposes, as opposed to storage for any purpose.¹⁴  Section 390b(b) (1) itself speaks of first use of "storage for future water supply," not storage generally. This implies, we believe, that "first use" refers to the time when stored water is released for supply purposes and not for nonconsumptive purposes.¹⁵  In sum, we find no evidence that Congress wished to tie initial repayment to use generally and not to use for consumption.

This reading promotes the purpose of section 390b(b) (1) as indicated by its context. Section 390b(b) requires repayment for the construction of storage reservoirs for consumptive water supply within fifty years of the "plant-in-service" date.¹⁶  Subsection (1) of section 390b(b) eases the burden of repaying such construction costs within fifty years by providing that repayment need not begin until the stored water is used for its primary purpose of consumption. We will not read subsection (1) to increase Sonoma's financial burdens by accelerating its repayment obligation upon releases for nonconsumptive purposes.

In short, section 390b(b) (1) does not require Sonoma to begin paying for its storage space when it releases water for nonconsumptive purposes, including power generation. The Water Supply Act therefore imposes no economic disincentive that would discourage Sonoma from making discretionary releases of its stored water for power generation.¹⁷ 

We thus conclude that Sonoma has excess stored water to release for power generation, that Sonoma's contract allows it to release stored water for power generation, and that no severe economic disincentive would discourage Sonoma from making these releases.¹⁸  Given these three conditions, we find substantial evidence to support the Commission's conclusion that Sonoma's "contract provides [it] with the operational flexibility to enhance power generation at the dam in amounts significantly greater than Ukiah." 21 FERC (CCH) p 61,133.

Ukiah asserts a host of procedural objections to the Commission's disposition of its application. Brief for Petitioner at 37-59. After giving each objection full consideration, we find that none has merit. Indeed, we believe only two of Ukiah's procedural claims warrant discussion. These claims concern Ukiah's asserted right to a hearing and its allegation that the Commission made unlawful extra-record communications.

Ukiah argues that having "demonstrated the flaws in Sonoma's claims of superiority ... it was incumbent upon the Commission to hold an evidentiary hearing to further test and illuminate the factual predicate for those claims...." Brief for Petitioner at 37-38. Ukiah does not assert that its right to a hearing grows out of a regulation, statute, or the Constitution. Rather, Ukiah cites the judicially defined principle requiring the Commission to provide an adversarial hearing when genuine issues of material fact are in issue. Public Service Co. of New Hampshire v. FERC, 600 F.2d 944, 955 (D.C. Cir.), cert. denied, 444 U.S. 990, 100 S. Ct. 520, 62 L. Ed. 2d 419 (1979); Mobil Oil Corp. v. FPC, 483 F.2d 1238, 1259-60 (D.C. Cir. 1973). Even this principle, however, has been qualified: " [M]ere allegations of disputed facts are insufficient to mandate a hearing; petitioners must make an adequate proffer of evidence to support them." Cerro Wire & Cable Co. v. FERC, 677 F.2d 124, 129 (D.C. Cir. 1982). See also Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 524-25, 98 S. Ct. 1197, 1202, 55 L. Ed. 2d 460 (1978).¹⁹ 

Ukiah has been unable to specify any disputed issues of material fact. Ukiah does allege generally that Sonoma's receipt of the permit was unsupported by substantial evidence. In Section II, however, we found that the basis of the Commission's decision consisted of contractual and statutory interpretation. Both issues here are questions of law that do not require an oral hearing for proper resolution. We are thus required to affirm the Commission's decision that a hearing was not necessary in this case.²⁰ 

Ukiah also claims it was denied due process when the Commission's staff counsel orally requested and received information about the 1982 contract from Sonoma and the Corps. Specifically, Ukiah objects to three filings by Sonoma in response to oral requests for a copy of, and comments on, the proposed 1982 contract between Sonoma and the Corps. Ukiah also objects to a request by the Commission's staff counsel to the Corps for a copy of the final 1982 contract and accompanying comments. Ukiah further alleges it was error for the Corps to file the requested information.

Ukiah's main brief cites no statutory or regulatory provision violated by the Commission. Indeed, when we examine the Commission's regulations governing ex parte contacts and responses thereto, we find the Commission's activities well within its regulatory bounds. The communications with the Corps are exempt from the prohibitions on ex parte contacts under 18 C.F.R. 385.2201(b) (1) (1983). Since the Corps is a federal agency that has no official interest in this proceeding, it qualifies as an interceder. Id.²¹  The prohibitions regarding ex parte contacts are therefore not applicable to communications from the Corps.

Additionally, the three communications between Sonoma and the Commission's staff counsel were not unlawful. All the disputed filings were served on Ukiah when they were submitted to the Commission. Brief for Intervenor at 61; J.A. 247A, 286, 328, 366. Ukiah subsequently submitted responses to these filings. J.A. 287-309, 310-12. Thus, the disputed submissions by the Corps and Sonoma were not, in any real sense, ex parte. We respect the staff counsel's communication with Sonoma and its consideration of Ukiah's responses as a lawful inquiry necessary to an informed decision.²² 

We therefore find the Commission afforded Ukiah due process in its disposition of Ukiah's application. Having also found the Commission's decision to be supported by substantial evidence on the record as a whole, we accordingly affirm the Commission's awarding the preliminary permit to Sonoma.

Affirmed.