National Grid partially wins appeals court ruling in hydro case

A federal appeals court on March 7 supported in part an appeal brought by Niagara Mohawk Power d/b/a National Grid that challenged the authority of Hudson River-Black River Regulating District and the New York State Department of Environmental Conservation to assess costs associated with operating and maintaining certain dams and reservoirs in New York state.

National Grid argued that the District’s assessment authority is preempted by the Federal Power Act, and that the assessment scheme violates National Grid’s equal protection rights under the federal constitution and its rights against unlawful takings under the federal and New York constitutions. The district court that initially handled this case rejected National Grid’s preemption claims but abstained from exercising jurisdiction over the remaining constitutional claims, which are also pending in numerous state-court actions previously filed by National Grid.

“We agree that the assessment authority is not federally preempted, but conclude that the district court abused its discretion by dismissing National Grid’s remaining constitutional claims on abstention grounds,” said the March 7 ruling from the U.S. Second Circuit Court of Appeals. “Accordingly, we affirm the district court’s judgment as to preemption and affirm its dismissal of the New York Department of Environmental Conservation from this action, but vacate the judgment as to abstention. We remand the case to the district court for resolution of National Grid’s federal and state constitutional claims.”

A 1920s state approval covered the construction of the Conklingville Dam and the Sacandaga Reservoir, now known as the Great Sacandaga Lake Reservoir (collectively known as the GSL Project). In the 1990s, FERC decided that the project needed a federal license. At first, the District fought this change. Ultimately, however, after some negotiation, the District agreed to become a FERC licensee, and in 2000 signed a settlement with the federal government, the state government and local parties.

In 2002, FERC issued a license to the District for the dam and reservoir at the GSL Project. On the same day, FERC issued licenses to a hydropower company for four hydroelectric projects downstream from the GSL Project, on the Sacandaga and Hudson rivers.

National Grid (i.e. Niagara Mohawk) years ago sold off its hydroelectric stations, although it still owns several parcels of vacant land within the District’s boundaries that were assessed by the District for headwater benefits from the GSL Project (the Subject Parcels). Until at least 2009, the District assessed the Subject Parcels according to the original 1925 apportionment method, even though National Grid was no longer in the business of generating hydroelectric power. The Subject Parcels are currently vacant and undeveloped, and, according to National Grid, “are not hydroelectric generating properties, are not developable as such, and are not FERC licensed to be hydroelectric properties.” The District assesses the Subject Parcels based on their potential to utilize the headwater benefits.

Over the past decade, National Grid has brought twenty separate proceedings in three different New York state trial courts to challenge the District’s annual assessments of National Grid’s parcels in the Hudson River and Black River watersheds. In those actions, National Grid has alleged equal protection and takings claims under the New York and federal constitutions. In another suit brought in state court, National Grid alleged that the District breached the settlement between the District and the federal government by failing to conduct an appropriate reapportionment by a settlement deadline. These state-court proceedings are still pending.

In June 2008, National Grid moved in Hamilton County Supreme Court to consolidate them into a single action; the District opposed that motion, and, according to National Grid, the state court has yet to rule on it. In addition, National Grid alleges that some of its discovery motions also remain pending in the state court proceedings.

In 2006, Albany Engineering, a FERC licensee that owned and operated a hydroelectric project downstream from the GSL Project, and that was subject to assessments by the District, filed an administrative complaint with FERC. Albany Engineering argued that the District and other New York state agencies lacked authority under New York law to assess it for downstream benefits that the company received from the dam. The company asserted that a section of the Federal Power Act preempted the District’s headwater-benefits assessment method, and prevented New York from mandating compensation for costs other than those associated with “interest, maintenance, and depreciation” of its hydropower project.

FERC rejected that Albany Engineering argument. On appeal, the U.S. Court of Appeals for the District of Columbia Circuit held that FERC’s interpretation of the statute was “unreasonable” and remanded the case to FERC to consider appropriate remedies consistent with the appeals court ruling.

Apparently “inspired” by the D.C. Circuit’s Albany Engineering decision, in 2009 National Grid filed this case at the district court level, seeking a ruling that the District’s annual assessment scheme is “illegal, null and void” as it relates to the National Grid parcels and any assessments by the District must be limited to the regulation of irrigation and municipal purposes, noted the March 7 appeals court ruling.

The district court in 2010 granted a motion on National Grid’s federal preemption claims, but dismissed National Grid’s remaining constitutional claims on abstention grounds. In rejecting National Grid’s preemption argument, the district court held that because National Grid (unlike Albany Engineering) was not a FERC licensee, and because the Subject Parcels were not hydropower projects, the Federal Power Act did not preempt or in any way limit the District’s authority to assess the parcels.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.