9th Circuit Affirms North Umpqua Settlement and Forest Service Policy on 4(e) Appeals and NEPA Analysis

On September 1, the 9^th Circuit Court of Appeals issued an unpublished Memorandum opinion upholding the U.S. Forest Service’s (USFS) 2003 policy under which Federal Power Act §4(e) mandatory conditions are no longer considered agency “decisions” subject to the USFS appeals process or the requirements of the National Environmental Policy Act (NEPA). The litigation – an appeal of the Federal Energy Regulatory Commission’s (FERC) order approving the proposed settlement and issuing a new license for PacifiCorp’s North Umpqua Hydroelectric Project – challenged: (1) the USFS decision to no longer issue a Record of Decision for §4(e) conditions; (2) its reliance on FERC’s NEPA document in lieu of preparing an independent NEPA analysis for §4(e) conditions; and (3) the substance of the USFS §4(e) conditions themselves, specifically the decision not to seek to remove the Soda Springs dam. In its brief opinion issued less than one month after hearing oral argument, the 9th Circuit panel affirmed FERC’s license order and the collateral USFS policy.

The USFS policy challenged in this litigation was first issued on May 12, 2003. Under the policy, USFS implemented the following changes related to hydroelectric projects:

• §4(e) conditions are no longer considered agency “decisions” subject to notice, comment, and appeal under USFS regulations at 36 CFR Part 215;
• Development of §4(e) conditions no longer constitutes “independent agency action” and does not trigger independent NEPA analysis – USFS relies on FERC’s NEPA analysis to support §4(e) conditions;
• USFS adheres to the same schedule for filing preliminary and revised conditions as other federal agencies with mandatory conditioning authority (i.e., U.S. Fish and Wildlife Service, Bureau of Land Management, Bureau of Indian Affairs, and National Marine Fisheries Service); and
• USFS provides FERC with sufficient evidence and analysis to demonstrate that the proposed conditions are necessary for the adequate protection and utilization of the affected forests.

In its Memorandum opinion, the 9^th Circuit held that the USFS policy change was an interpretive rule and that no formal notice and comment was required prior to implementing the policy change. Moreover, the court held that USFS provided a legally sound and plausible explanation for its policy change, so it was not arbitrary and capricious. The court affirmed that USFS is not required to conduct independent NEPA analysis, noting that §4(e) conditions “are not an irretrievable commitment of resources.” Finally, the court determined that USFS’s decision not to remove Soda Springs dam was not arbitrary and capricious. Rather, the court found that the proposed settlement agreement’s broad array of environmental and habitat restoration measures met the §4(e) standard of providing “adequate” protection for the federal reservation.

Implications

The 9^th Circuit decision, while unpublished, resolves the challenge to the USFS §4(e) policy in the North Umpqua litigation. FERC’s decision to approve the proposed settlement and issue a new license will stand. The result affirms USFS’s flexibility to integrate development of §4(e) conditions into the FERC process by relying on FERC’s NEPA analysis, rather than undertaking an independent review. In addition, USFS has no obligation to provide a final appeal to those who object to its final §4(e) conditions. In combination with the newly enacted Energy Policy Act of 2005, which requires conditioning agencies to give “equal consideration to the effects of [a] condition on energy supply, distribution, cost, and use; flood control; navigation; water supply; and air quality (in addition to the preservation of other aspects of environmental quality),” USFS’s policy of increased reliance on the FERC process may result in a more balanced and responsive approach to the regulation of hydropower projects located on forest lands.