D.C. Circuit Denies Review of FERC Orders in Hydro Project Relicensing

On January 18, 2019, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) denied a petition by the State of North Carolina to review two FERC orders involving the relicensing of the Yadkin River Hydroelectric Project (“Yadkin Project”) in North Carolina. The D.C. Circuit found substantial evidence supporting FERC’s decision to deny North Carolina’s allegations of misrepresentation by Alcoa Power Generating, Inc. (“Alcoa”), the license applicant, and to grant a new operating license to Alcoa for the Yadkin Project. The court also rejected North Carolina’s proposal to invoke the federal recapture provision of the Federal Power Act (“FPA”) to the state at Alcoa’s net investment plus severance damages.

In 1958, the Federal Power Commission issued Alcoa a fifty-year license to operate the Yadkin Project, comprising several hydroelectric dams on the Yadkin River in North Carolina. The Yadkin Project powered Badin Works, an aluminum smelting plant that provided jobs to North Carolina residents. Between 2002 through 2006, Alcoa engaged in the relicensing process for the Yadkin Project, during which Alcoa disclosed to FERC and the public that Alcoa was experiencing a reduction of power supply to Badin Works.

In 2009, North Carolina requested that FERC conduct a federal recapture of the Yadkin Project, pursuant to FPA section 7(c), for transfer to the State. Shortly thereafter, Alcoa announced the permanent closure of Badin Works. In July 2016, Alcoa informed FERC of its intent to sell the Yadkin Project to Cube Yadkin Generation LLC (“Cube”) and submitted an application for a license transfer. In September 2016, FERC issued Alcoa a new license and denied North Carolina’s recapture proposal. In December 2016, FERC approved the transfer of Alcoa’s license to Cube. In September 2017, FERC denied North Carolina’s petition for rehearing of the order issuing a new license. In November 2017, North Carolina petitioned the D.C. Circuit to review the two FERC orders. North Carolina alleged that Alcoa misrepresented that the Yadkin Project would resume supplying power to Badin Works, and that: (1) such misrepresentations served as patent deficiencies in Alcoa’s application; and (2) gained Alcoa an economic advantage by blocking other competitors from applying for the license.

In its opinion, the D.C. Circuit denied North Carolina’s petition for several reasons. First, the D.C. Circuit concluded that substantial evidence in the record contradicts the existence of any deficient or ill-intent in Alcoa’s application. The court found that Alcoa fully and accurately disclosed the circumstances involving Badin Works at every stage of the relicensing process. The D.C. Circuit upheld FERC’s decision to deny rehearing on this basis. Second, the D.C. Circuit addressed North Carolina’s claim that FERC dismissed its federal recapture proposal without a reasoned analysis. The court held that the plain language of the FPA limits federal recapture to projects that the federal government takes over and then maintains and operates. Under North Carolina’s proposal, the federal government would not maintain and operate the Yadkin Project, but would instead transfer it to North Carolina. Thus, the D.C. Circuit upheld FERC’s decision to deny this proposal based on the absence of any federal agency’s volunteering to take over the Yadkin Project. Finally, the D.C. Circuit addressed North Carolina’s assertion that FERC erred in its licensing decision by failing to consider the impact of job losses due to the Badin Works closure on employment in North Carolina. The D.C. Circuit noted that at the time of Alcoa’s license application, Badin Works accounted for only 2 percent of the Yadkin Project’s output. Thus, the court held that FERC properly considered this impact in its assumption that all of the Yadkin Project’s power would be sold into the open market.

The D.C. Circuit’s opinion is available here.