Revised Rules for Trial-Type Hearings: Room for Improvement

Hydro Review, pp.8-18

April 1, 2016

This article was first published in Hydro Review magazine, Volume 35, Number 3, April 2016. It is re-published here with permission from PennWell Corporation, publisher of Hydro Review magazine. Information about PennWell’s hydro information resources can be found at: www.hydroworld.com

By Michael Swiger, John Clements and Sharon White

The Energy Policy Act of 2005 (EPAct) improved the hydroelectric licensing process at the Federal Energy Regulatory Commission (FERC) by allowing a license applicant or any party to a licensing proceeding to challenge - through an expedited trial-type hearing - the factual basis for agency mandatory conditions and fishway prescriptions submitted for inclusion in the license. Trial-type hearings are conducted to resolve disputed issues of material fact pertaining to such conditions and prescriptions. Licensing parties may propose alternatives to preliminary agency mandatory conditions and fishway prescriptions, and agencies must accept a proposed alternative if it meets certain statutory criteria.

In 2005, the departments of Agriculture, Interior and Commerce issued interim final rules implementing the trial-type hearing and alternatives provisions of EPAct. Since then, about 20 hearing requests have been made, many of which have resulted in negotiated agreements with the departments and some of which have gone to hearing.

Ten years later, in March 2015, the departments issued revised interim final rules, which address matters left open in the interim rules, comments on the interim rules, and the departments’ experience implementing the rules. The revised rules took effect April 30, 2015. However, the departments requested public comments on how the revised rules may be further improved, with a deadline of June 1, 2015. Joint comments were filed by the National Hydropower Association (NHA), American Public Power Association, Edison Electric Institute, and Public Utility District No. 1 of Snohomish County, Washington. They acknowledged improvements but expressed concerns and proposed further modifications.

The interim rules

Under the Federal Power Act (FPA), the departments may submit mandatory conditions and fishway prescriptions to be attached to a FERC license. Under FERC rules, the departments are to submit preliminary terms and conditions within 60 days of FERC’s notice that an application is ready for environmental review. The interim rules do not alter FERC deadlines. After a department has submitted a preliminary condition or prescription, any party may, within 30 days, request a hearing on disputed issues of material fact underlying a condition or prescription and submit alternatives.

The department then has 30 days to decide whether to stipulate to some or all of the disputed facts and to file an answer to the hearing request. The departments will consider whether any proposed alternatives could preclude the need for a hearing. The department must accept an alternative condition if it is at least as protective of resources but more cost-effective or energy-saving. If a hearing is still needed, the department refers the case to an administrative law judge (ALJ).

The interim rules were devised to make the evidentiary hearing fit within FERC’s licensing time frames. The hearing process - which encompasses pre-hearing conferences, discovery, an evidentiary hearing with witnesses and cross-examination, and post-hearing briefs - was set at 90 days, an aggressive schedule. The ALJ’s decision must issue within 30 days from the close of the hearing or 90 days from issuance of the referral notice, whichever occurs first. The departments are bound by the ALJ’s findings of fact. The ALJ’s decision is not ripe for judicial review until the departments issue final conditions and FERC issues a license order.

Trial-type hearings, lessons learned

Most of the 20 requests for trial-type hearings were withdrawn when the parties reached settlement before the hearing. Three licensees - Avista Corp., PacifiCorp, and Public Service Company of Colorado - proceeded through the process and received an ALJ decision. In Avista, the agency issued revised conditions reflecting the ALJ’s decision. In PacifiCorp, the ALJ found that PacifiCorp proved its version of the facts regarding certain Section 4(e) issues but largely deferred to agency opinions on fish passage feasibility. PacifiCorp entered into a settlement calling for removal of the relevant dams. The FERC license proceeding is in abeyance pending further actions to implement the settlement. In PSC Colorado, the ALJ ruled in favor of the U.S. Forest Service on most disputed issues of fact and the service filed modified conditions that were incorporated into the new license.

Although a trial-type hearing can be a constructive tool, license applicants must appreciate the significant commitment required and thus may want to consider it as a last resort if settlement negotiations fail.1

Indeed, EPAct has created an incentive for the departments to collaborate with licensees in developing conditions to avoid the cost, delay and risk of a trial-type hearing. This risk has produced the most significant effect of EPAct thus far - the encouragement of settlement. In 16 of the 20 cases where a hearing request was made, the parties reached complete or partial settlement before a hearing commenced.

Experience also indicates it is nearly impossible to prepare a comprehensive, yet concise, hearing request in the 30-day period allowed. Parties should start preparing their hearing request at least six months in advance, based on potential issues that may be raised in the departments’ preliminary conditions and prescriptions. This preparation should include selection and narrowing of issues and discussion of potential experts. These efforts often will need to occur at the same time as ongoing settlement discussions.

Finally, parties and their counsel must be precise in defining disputed issues because there is no second chance to reframe an issue. Parties must be comprehensive in identifying disputed issues but not so over inclusive that it becomes overwhelming. It is important to settle as many issues as possible because there simply is not enough time to argue them all before the ALJ. Above all, parties should keep the issues focused because of the condensed schedule.

GAO report cited need for improvement

In August 2010, the Government Accountability Office (GAO) issued “Stakeholders’ Views on the Energy Policy Act Varied, but More Consistent Information Needed.” GAO said the prospect of trial-type hearings has resulted in more thoroughly researched agency conditions and prescriptions and departments issue fewer conditions and prescriptions to avoid a trial-type hearing.

GAO also found the departments accepted none of the 211 alternatives as originally proposed by licensees and other stakeholders but modified 140 department conditions and rejected 42 proposed alternatives. EPAct says the departments must explain why they reject alternative conditions, but GAO found they failed to do so when modifying conditions. GAO recommended that, when an agency has not adopted a proposed alternative, it must include in a written statement filed with FERC its reasons and whether a proposed alternative was withdrawn as a result of settlement. GAO also recommended the departments issue revised rules after an opportunity for public comment.

Revised rules, department response

Although the revised rules improve the ability of parties to dispute factual issues with agency conditions, they continue to include uncertainties and provisions that tip the scales in favor of the agencies.

Equal consideration in setting conditions

For example, the plain language of EPAct requires the departments give equal consideration to power and nonpower values in developing mandatory conditions, but the revised rules explicitly apply the requirement only when an alternative is submitted to a proposed condition. The departments can ignore negative impacts of their proposed conditions and prescriptions. The departments contend that absent a proposed alternative, there is not an adequate record for them to consider power and other economic values, but the ample information on public interest considerations compiled in the FERC record when preliminary conditions are proposed makes this contention unfounded.

Hearings on modified conditions and prescriptions

The revised rules continue silent regarding a party’s right to challenge an agency’s modified or final conditions that differ substantially from its preliminary conditions. This enables the departments to avoid a trial-type hearing by submitting innocuous or generally worded preliminary conditions or prescriptions, then, when the opportunity to request a hearing has passed, submit substantially different final conditions. A licensee may challenge the final condition or prescription by appealing the FERC license, but its opportunity for a trial-type hearing as to disputed material facts is lost.

The issue is not theoretical. In one case, the Forest Service did not include ramping rates in its preliminary 4(e) conditions but included them in its final conditions. The licensee filed a proposed alternative and hearing request, which the service rejected on the basis that the rules do not provide for challenges to final conditions. The revised rules acknowledge the problem but suggest only that there may be exceptional circumstances where new and unanticipated facts “necessitate a new preliminary condition or prescription.”

Nothing in EPAct compels such an unreasonable outcome. The statute refers to mandatory conditions and prescriptions without qualification. It follows that the rules should provide the opportunity for a trial-type hearing whenever a department’s final conditions or prescriptions rest on facts or justifications not previously provided.

Burden of proof

The revised rules also improperly assign the burden of proof to the party requesting a hearing. This is inconsistent with the Congressional intent in providing for hearings on issues of material fact that the departments need to justify their proposed conditions. It is also inconsistent with the Administrative Procedure Act, which places the burden of proof on the proponent of an order. In this case, the departments are the proponents of their mandatory conditions or prescriptions. An opposing party should not bear the burden of proof. The departments should be required to show that a preponderance of the evidence supports any disputed material fact supporting their proposed conditions and prescriptions.

Forum shopping

The revised rules do not include standards for selecting the venue for a trial-type hearing. The departments have selected venues that are convenient for the department but impose high cost, inconvenience, and logistical hurdles on the licensee and other parties. In one instance the hearing requested by a licensee based in the southeast for a project in the southeast was assigned to a Coast Guard ALJ in Portland, Ore. A hearing involving an Oregon project operated by an Oregon licensee with Washington, D.C., counsel was assigned to a judge in Sacramento, Calif. The rules should be revised to direct the judge to choose a location that balances the convenience of all the parties.

The departments have a similar undue influence over selection of an ALJ. The best way to eliminate the appearance and reality of bias would be for the departments to request that FERC appoint an ALJ because FERC is not a party to the trial-type hearing and FERC ALJs are more likely to have experience and technical expertise related to hydroelectric issues. A less desirable alternative would be for the departments to use a lottery system to ensure departmental ALJs are selected at random.

Definition of disputed issue of material fact

The revised rules state that issues of law or policy are not appropriate for ALJ resolution in a trial-type hearing, such as what types and levels of adverse effects to a species would be acceptable or what kinds of mitigation measures may be necessary to protect a resource. The departments have used this argument in ALJ hearings to try to exclude matters that are clearly factual in nature and have further argued that particular disputed facts are not material to a decision.

ALJs have consistently rejected these attempts to narrow the scope of or avoid hearings on disputed facts, for good reason. Although all conditions and prescriptions have a predictive element, any disputed issue of fact regarding the science behind a proposed condition is appropriate for determination by an ALJ. Additionally, if a department includes a factual justification for a condition or prescription, it cannot then argue that the fact is immaterial and inappropriate for resolution before an ALJ. Parties can expect continued efforts by the departments to reduce the scope of factual issues subject to ALJ oversight.

Settlement discussions

One beneficial change is a provision allowing a stay of the proceeding of up to 120 days to facilitate settlement negotiations on mutual agreement of the hearing requester and department. This gives parties more time to settle disagreements with reduced pressure to prepare for a potential hearing. However, the revised rules only allow a stay before a case is referred to an ALJ. This limitation is counter-productive because the hearing process, particularly the ALJ’s decisions regarding the scope of the hearing and its resolution of disputed issues of material fact, can create additional incentives and a factual basis for settlement discussions. The rules would be greatly improved by allowing a stay any time before the ALJ’s final decision.

Post-license conditions and prescriptions

The revised rules affirm the opportunity for a trial-type hearing and submittal of alternatives when a department exercises authority reserved during a FERC license proceeding to issue conditions during the license term. However, the preamble suggests this is the case only if a department did not submit conditions or prescriptions during the licensing proceeding. If they did, along with a reservation of authority to add to or modify them during the license term (which occurs in essentially every case), the revised rules appear to provide no right to a hearing regarding added or modified conditions. To be consistent with the intent of Congress, the rules should state that the hearing and alternatives process applies whenever a department exercises reserved authority during the license term to add to or modify its conditions.

Timing considerations

One important improvement is that the ALJ decision may be issued up to 120 days from when the case is referred, rather than the 90 days in the interim rules. The additional time has been allocated to five-day extensions of several steps in the process, such as submittal of witness and exhibit lists and testimony. Notwithstanding, the hearing time frames remain very condensed. Unless they are further modified, they will continue to cause undue hardship to the parties and impair their ability to exercise the statutory right to a trial-type hearing.

One such improvement would be providing parties 45 days instead of 30 days to file a hearing request and alternative conditions or prescriptions. Another would be to hold consecutive instead of simultaneous hearings when the issues of material fact related to the proposed conditions and prescriptions of different departments do not overlap. In the context of a multi-year FERC licensing process, there is no reason to think such measures would unreasonably delay licensing.

The revised rules also provide a new opportunity for a party who has participated in the trial-type hearing and filed an alternative condition or prescription to submit a revised alternative within 20 days of the ALJ’s initial decision to account for the ALJ’s findings of fact and provide input to the department’s final condition or prescription. This is a welcome development, but 20 days is a needlessly short period given that ALJ decisions are highly technical and lengthy. The departments allow themselves 60 days following receipt of a revised alternative to finalize their conditions and prescriptions and may extend that time at their discretion.

The commenters requested that the departments adopt their recommendations by Dec. 31, 2015, to provide regulatory certainty for future and pending license proceedings. However, there is no indication if or when the departments will respond.

Congress may be poised to remedy some of these problems. On July 30, 2015, the Senate Energy and Natural Resources Committee reported out the bipartisan bill, The Energy Policy Modernization Act of 2015, which contains provisions to improve the trial-type hearing and alternatives procedures. Most significantly, the bill would direct FERC ALJs to preside over the proceedings using FERC’s rules of practice and procedure, essentially invalidating the revised rules. To alleviate the severe time constraints of the revised rules, the bill would extend the time to request a trial-type hearing from 30 to 60 days after the department submits the condition and extend the overall trial-type hearing proceeding from 90 to 120 days.

The bill directs all disputed issues of material fact to be determined in a single trial-type hearing and authorizes the FERC ALJ to issue findings of fact on all disputed issues and conclusions of law necessary to make those findings. The bill also authorizes licensing parties to request a trial-type hearing and submit alternatives any time a department submits or modifies a condition or exercises reserved authority to do so during the license term. It clarifies that departments must give equal consideration to developmental and non-developmental values when submitting mandatory conditions and prescriptions, not just when they evaluate proposed alternative conditions. If FERC determines a final condition or prescription is inconsistent with law, it may refer the matter to the chairman of the Council on Environmental Quality.

Industry is closely watching these legislative developments, as many concerns will be resolved if the bill is enacted.

Note

1Swiger, M., and S. White, “Energy Policy Act of 2005 and the Interim Agency Rules,” Hydro Review, September 2011, bit.ly/1pst5pe.

Michael Swiger, John Clements and Sharon White are attorneys with Van Ness Feldman LLP and counsel to many FERC hydroelectric licensees and others with interests in hydroelectric projects.