Court rejects new formula boosting FERC land use fees for hydro

A federal appeals court has granted an appeal by nine hydroelectric project licensees who challenged a sharp increase in government land use fees based on a new fee formula by the Federal Energy Regulatory Commission.

The U.S. Court of Appeals for the District of Columbia Circuit ruled Jan. 4 that FERC issued the updated land use fees without allowing notice and comments as required by the Administrative Procedures Act. It said the commission also improperly delegated the establishment of reasonable fees to other agencies, the U.S. Forest Service and the Bureau of Land Management. The court vacated FERC's 2009 update of its land use fees.

The court previously blocked imposition of the new fees pending a full hearing on the issues. The licensees include Idaho Falls, Idaho; Tacoma, Wash.; El Dorado (Calif.) Irrigation District; PacifiCorp; Portland General Electric Co.; Chelan County (Wash.) Public Utility District; Puget Sound Energy; Sacramento Municipal Utility District; and Turlock (Calif.) Irrigation District.

Prior to issuing the updated fee order, FERC had followed a 1987 regulation that, after hearings and comment, utilized a Forest Service-BLM schedule that set fees for linear rights-of-way (for roads, pipelines, and transmission lines) across National Forest System lands. Based on eight zones, "raw" land values ranged from $50 to $1,000 per acre. At that time, FERC concluded the formula was the "best approximation available" and rejected a U.S. Department of Agriculture index in which farm land values were much higher.

In 2008, the Forest Service and BLM modified their fee calculation significantly, utilizing a National Agricultural Statistics Service census of agriculture, which incorporated values of farm lands and buildings. The new schedule established 12 zones with values ranging from $250 to $100,000 per acre. FERC notified hydro operators in 2009 that it would use the new formula, which would cause land use charges "to increase substantially" for many projects.

FERC rejected the licensees' challenge, saying it did not create a new rule requiring notice and comment, but merely updated its fees based on the Forest Service-BLM changes. On appeal, the D.C. Circuit disagreed.

"FERC nowhere disputes the fact that the rental fees listed in its 2009 Update are the product of significant changes in the Forest Service's methodology for valuing linear rights-of-way," the court said. "Because FERC previously approved and used the old Forest methodology, its implicit acceptance of the new methodology in the 2009 Update marked a change in its own regulations. For FERC to make such a change, APA Section 553 required notice-and-comment rulemaking."

The court also ruled that FERC failed to make a finding, required by the Federal Power Act, that the new fee rules would result in reasonable annual charges that would seek to avoid increasing the price to electric consumers.

The nine licensees, who were represented by law firm Van Ness Feldman of Washington, said their new annual land use charges exceeded $8 million, nearly $5.5 million more than their bills the previous year and an increase of more than 200 percent. They noted there are another 300 licensees, who did not file an appeal, who are subject to increases.

As an example, their petition said charges for Portland General Electric's 173-MW Clackamas River project (No. 2195) increased to $1.05 million in 2009 from $137,431 in 2008. Charges for SMUD's 647.726-MW Upper American River project (No. 2101) increased to $634,780 in 2009 from $356,133 in 2008.

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