Chippewa and Flambeau Improvement Company v. Federal Energy Regulatory Commission

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 18, 2002 Decided April 18, 2003
No. 01-1329
C HIPPEWA AND F LAMBEAU IMPROVEMENT C OMPANY,
PETITIONER
v.
FEDERAL E NERGY R EGULATORY C OMMISSION,
R ESPONDENT
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
John A. Whittaker IV argued the cause for petitioner.
With him on the briefs was William J. Madden Jr.
Robert H. Solomon, Associate Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With him on the brief were Cynthia A. Marlette, General
Counsel, and Dennis Lane, Solicitor.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.

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Before: G INSBURG, Chief Judge, and EDWARDS and GARLAND ,
Circuit Judges.
Opinion for the Court filed by Chief Judge G INSBURG.
G INSBURG, Chief Judge: The Chippewa and Flambeau Im-
provement Company petitions for review of a series of orders
in which the Federal Energy Regulatory Commission con-
cluded that the Company must obtain a license under the
Federal Power Act for its Turtle–Flambeau reservoir on the
Flambeau River in northern Wisconsin. We reject the Com-
pany’s arguments that the reservoir is not subject to the
Commission’s jurisdiction and hence we deny the petition.
I. Background
In 1924 the predecessor of the Company filed with the
predecessor of the Commission a declaration of its intention
to create a reservoir for the purpose of developing power by
damming the headwaters of the Flambeau River. The Agen-
cy, finding both that the North Fork of the Flambeau River
was not ‘‘navigable’’ as defined in the Federal Power Act and
that the reservoir would not otherwise affect interstate com-
merce, declined to assert jurisdiction over the project. The
Company’s predecessor completed construction of the Turtle–
Flambeau storage reservoir in 1926.
Although the reservoir remained free from federal over-
sight until the issuance of the orders under review, the
Company has long been required to operate it in accordance
with the rules of the Public Service Commission of Wisconsin
and, more recently, pursuant to a 1990 Memorandum of
Understanding with the Wisconsin Department of Natural
Resources. Those authorities have required the Company to
make seasonal releases of water in order to control the risk of
flooding and to preserve natural resources. There is no
electricity-generating equipment at the reservoir, but the
required seasonal releases increase the generation of power
at downstream hydroelectric plants, eight of which are owned
by the principal shareholders in the Company.

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The current dispute has its genesis in the relicensing
proceedings of six downstream plants. In the course of those
proceedings the Commission staff determined that operation
of the Turtle–Flambeau reservoir increased total generation
at plants on the Flambeau River by 8.9 gigawatt-hours per
year, or between five and six percent of the total average
annual generation at those plants.
In light of this information, the Commission opened a
separate docket to consider whether the reservoir should be
licensed on the ground that the reservoir is ‘‘necessary or
appropriate in the maintenance and operation’’ of the licensed
power plants downstream. See 16 U.S.C. § 796(11). In the
orders under review, the Commission concluded that the
reservoir, because of the benefit it provides to plants down-
stream, is indeed ‘‘part of the complete unit of development
that includes those projects,’’ Chippewa & Flambeau Im-
provement Co., 95 F.E.R.C. ¶ 61,327 at 62,159, 2001 FERC
LEXIS 1278 (June 1, 2002) (Order Denying Rehearing), and
therefore is subject to licensing under the Federal Power Act.
The Company petitioned for review.
II. Analysis
The Company contends first that the Commission’s asser-
tion of jurisdiction over the Turtle–Flambeau reservoir is
precluded by the Commission’s pre-construction determina-
tion that it would lack jurisdiction over the same reservoir.
Second, the Company argues that the Commission failed
adequately to explain why the reservoir is ‘‘necessary or
appropriate’’ to the maintenance and operation of downstream
plants. Finally, the Company argues that the Commission
arbitrarily limited its analysis to the four projects closest to
the reservoir, and thereby inflated the effect that operation of
the reservoir has upon downstream power generation, mea-
sured as a percentage increase in power output.
A. Issue preclusion
In response to the Company’s suggestion that the Commis-
sion is bound by its previous determination that the reservoir
is not subject to federal licensing requirements, the Commis-

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sion maintains it is free to reexamine its findings in order to
take account of changes in the relevant facts and the govern-
ing law. See Nantahala Power & Light Co. v. FPC, 384
F.2d 200, 206 (4th Cir. 1967). The Commission points out
that its initial determination rested upon a more restrictive
definition of ‘‘navigable waters’’ than that subsequently
adopted by the Supreme Court in United States v. Appala-
chian Elec. Power Co., 311 U.S. 377 (1940). Under the
Commission’s earlier approach a river that could be made
navigable by improvements was not considered a navigable
waterway. As a consequence, neither the Turtle–Flambeau
reservoir nor the downstream power plants were subject to
licensing, and the Commission therefore had no occasion to
determine whether the reservoir might be ‘‘necessary or
appropriate’’ to the operation of a licensed plant.
Now, by contrast, it is undisputed that the Flambeau River
is ‘‘navigable,’’ and the Commission has licensed all the down-
stream plants (with the exception of one that is exempt).
Therefore, the Commission argues, the precise question at
issue — namely, whether the Turtle–Flambeau reservoir
should be licensed because it is necessary or appropriate to
the operation of a licensed plant — arose for the first time in
this proceeding, and the Commission is not bound by the
answer it gave to the jurisdictional question at an earlier
time. See, e.g., Clark–Cowlitz Joint Operating Agency v.
FERC, 826 F.2d 1074, 1079 (D.C. Cir. 1987) (en banc) (‘‘[a]
fundamental requisite of issue preclusion is an identity of the
issue decided in the earlier action and that sought to be
precluded in a later action’’).
In reply the Company relies upon an unrelated 1922 deci-
sion in which the Commission’s predecessor disclaimed juris-
diction over hydroelectric projects — notwithstanding the
presence upstream of a federally-licensed storage reser-
voir — on the ground that the Chippewa River was not
navigable. See Federal Power Comm’n, Second Annual Re-
port 61–62, 150–51 (1922). According to the Company, the
Commission’s action

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clearly demonstrate[s] that, even if the Commission
had jurisdiction over one component (i.e., over the
upstream storage reservoir or over the downstream
hydro projects benefitted by the storage reservoir) it
was not in the 1920s asserting jurisdiction over the
other component under a ‘‘complete unit’’ or any
other theory. Thus, even if Appalachian Power had
been the law in 1925 and the [Commission] had at
that time asserted jurisdiction over the downstream
hydroelectric projects on the Flambeau River based
on their location on ‘‘navigable waters,’’ the [Com-
mission] would not have asserted jurisdiction over
Turtle–Flambeau.
The Company’s argument asks too much of preclusion
doctrine. Issue preclusion, upon which the Company pur-
ports to rely, applies only to issues that were actually litigat-
ed in a prior proceeding; it is undisputed that the Commis-
sion has never, prior to the present proceeding, considered
whether the Turtle–Flambeau reservoir should be licensed
because of its possible effects upon federally-licensed projects
in the vicinity. With claim preclusion, the bar extends to
claims that could have been brought, but even that extension
avails the Company naught. In its 1925 order declining to
exercise jurisdiction, the Commission could not have ad-
dressed whether jurisdiction could be based upon the reser-
voir’s likely effects upon licensed plants because there were
no such plants in the vicinity. In sum, the Company’s
speculation as to what might have happened in the 1925
proceeding if the law or the facts had been different is
irrelevant.
At bottom, it seems the Company’s plaint — ‘‘the state has
satisfactorily overseen the safety of the reservoir for 75
years’’ — is merely that the reservoir should not be subjected
to regulation by the Commission after so many years of
uneventful freedom from its clutches. In the Federal Power
Act, however, the Congress did not intend ‘‘to create an
indefeasible private right springing from an initial exercise of
the Commission’s regulatory authority, that would survive
and remain immune from future regulation under any circum-
stances.’’ Nantahala, 384 F.2d at 209. We agree with the

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Commission that the Supreme Court’s decision in Appala-
chian Electric Power and its own subsequent licensing of
downstream power plants are changes in the circumstances
sufficient to justify the Commission’s taking a second look at
its jurisdiction over the Turtle–Flambeau reservoir.
B. ‘‘Necessary or appropriate’’
The Company contends that the Commission’s assertion of
jurisdiction was arbitrary and capricious because the Com-
mission did not adequately explain why Turtle–Flambeau is
‘‘necessary or appropriate’’ to the maintenance and operation
of any licensed project. First, the Company argues that
‘‘necessary’’ means ‘‘indispensable,’’ and there is no evidence
in the record suggesting that the downstream plants would
not be financially viable in the absence of the reservoir.
Second, the Company maintains that the Commission failed to
give weight to the ‘‘countervailing consideration’’ that no
agency has identified an environmental or safety need for
federal regulation. Finally, the Company protests that the
Commission has adopted a standardless, ‘‘we-know-it-when-
we-see-it’’ approach to jurisdiction by relying upon the per-
centage increase in downstream generation and its own ‘‘com-
mon sense judgment,’’ as the Commission put it, to identify
the ‘‘necessary or appropriate’’ components of a power pro-
ject.
In response, the Commission argues that it must be afford-
ed the latitude to make case-by-case determinations whether
a reservoir is ‘‘necessary or appropriate’’ to a licensed power
facility. The Commission notes that its orders in this and
other cases set out a series of relevant factors, including the
effect of the reservoir upon downstream generation and its
storage capacity, location, and purpose. By balancing these
considerations in light of the facts of the present case, the
Commission engaged, it says, in reasoned decisionmaking.
We agree. By enacting the ‘‘necessary or appropriate’’
standard, the Congress invested the Commission with signifi-
cant discretion. See Towns of Concord, Norwood, & Welles-
ley v. FERC, 955 F.2d 67, 76 (D.C. Cir. 1992) (‘‘necessary or
appropriate’’ standard in § 309 of Federal Power Act, 16

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U.S.C. § 825h, leaves determination ‘‘to the Commission’s
expert judgment’’). Perhaps if the statute simply required
that the reservoir be ‘‘necessary’’ to the operation or mainte-
nance of a power plant, then the Commission would have to
find that the downstream plants could not operate without it.
But the actual standard is ‘‘necessary or appropriate,’’ and
the Commission therefore may find that a reservoir is appro-
priate, even if it is not necessary, to that end.
A grant of discretion to an agency does not, of course,
authorize it to make an unprincipled decision, Pearson v.
Shalala, 164 F.3d 650, 660–61 (D.C. Cir. 1999), nor has the
Commission done so here. In a series of cases involving the
licensure of upstream reservoirs, the Commission has based
its jurisdictional determinations upon the extent to which
operation of the reservoir benefits downstream generation.
Thus, in the order under review, the Commission quoted its
decision in Union Water Power Co., 73 F.E.R.C. ¶ 61,296 at
61,824, 1995 FERC LEXIS 2446 (Dec. 8, 1995), to the effect
that ‘‘[i]f a non-federal dam and reservoir substantially bene-
fit generation operations, for example through the timing of
flow releases, these facilities are part of the complete unit of
development.’’ See also PacifiCorp, 98 F.E.R.C. ¶ 61,117 at
61,346, 2002 FERC LEXIS 191 (Feb. 1, 2002) (‘‘The issue
here is whether the Bear Lake Reservoir, as a whole, has a
significant positive impact on downstream generation such
that it should be licensed’’). In two other, more recent
decisions, the Commission held that adding 2.4 to 5 percent to
the total power output of plants downstream was a sufficient
effect to give it jurisdiction over a reservoir. Great Northern
Paper, Inc., 91 F.E.R.C. ¶ 61,035 at 61,124, 2000 FERC
LEXIS 793 (April 12, 2000); Georgia Pacific Corp., 91
F.E.R.C. ¶ 61,047 at 61,171–72, 2000 FERC LEXIS 806 (April
13, 2000). In this case, the impact was greater, reaching 7.25
percent, according to the staff study the validity of which the
Company does not challenge. In the absence of any other
evidence bearing upon the relationship between the reservoir
and plants downstream, it was reasonable for the Commission
to rely solely upon downstream benefits.

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Although some uncertainty is unavoidable when a decision
is remitted to agency discretion, we disagree with the Compa-
ny that the Commission’s decisions in this case and others
like it leave the owner of a reservoir in the dark about the
necessity to obtain a license under the Act. The Commission
has reasonably interpreted the Act to require licensure of a
reservoir that provides to a licensed power plant downstream
benefits substantial enough to be deemed ‘‘necessary or ap-
propriate’’ to the operation and maintenance of that plant.
And the Commission has found an increase in total generation
of 2.4 percent or more ‘‘substantial,’’ while considering an
impact of .06 percent insufficient. Chippewa & Flambeau
Improvement Co., 95 F.E.R.C. ¶ 61,017 at 61,037, 2001 FERC
LEXIS 728 (April 2, 2001). In this case the increase was
clearly above the line of demarcation, wherever it may lie
between 2.4 and .06 percent. The remaining uncertainty
within that range did not affect the Company.
The Company’s ‘‘countervailing consideration,’’ namely,
that neither the Commission nor any other agency has identi-
fied an environmental or safety concern not adequately ad-
dressed by state regulation, is not relevant to the statutory
inquiry whether the reservoir has a substantial effect upon
the generation of power. Nor does anything in the statute
require the Commission to explain the need for federal regu-
lation in each particular case. We note, however, that in light
of the coordination of the power plants’ operations with
releases from the reservoir, as acknowledged by the Compa-
ny’s counsel at oral argument, regulation of the reservoir by
the federal agency charged with oversight of the nation’s
power supply is hardly anomalous.
We conclude that the Commission’s case-by-case approach
to determining whether a reservoir is ‘‘necessary or appropri-
ate’’ to a licensed project, with the emphasis upon the effect
of the reservoir upon the generation of power, is reasonable
and consistent with the purpose of the Act. The Commission
adequately explained its application of that approach to the
facts of this case in the orders under review.

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C. ‘‘Unit of improvement or development’’
Finally, the Company contends the Commission, in deter-
mining what effect the reservoir has upon the generation of
power downstream, arbitrarily limited its analysis to the four
projects closest to the reservoir. There are eight power
plants on the Flambeau River and six more plants on the
Chippewa River downstream of its confluence with the Flam-
beau. According to the Company, if the Commission had
considered the increase in generation at all 14 downstream
plants, the percentage increase in total output attributable to
the operation of the reservoir would have fallen from more
than seven percent to about 1.25 percent — a mere half the
lowest figure the Commission has ever held sufficient to
warrant its asserting jurisdiction.
In support of its argument that the Commission must
consider all downstream benefits, the Company first notes
that the Commission considers all such benefits in determin-
ing, under another provision of the Act, how much a down-
stream plant must pay an upstream reservoir for the benefit
it receives through flow regulation. There is no inconsisten-
cy, however. For the purpose of compensating reservoirs,
the Commission understandably tries to determine the full
extent of direct benefits to all licensees because the Act
requires each licensee to make an ‘‘equitable’’ reimbursement
to the reservoir of operating costs. See 16 U.S.C. § 803(f).
In setting the boundaries of a ‘‘complete unit of improvement
or development,’’ on the other hand, the Commission’s task is
not to include every project that benefits to any degree from
the reservoir; to the contrary, the Act limits the unit to those
works for which the reservoir is ‘‘necessary or appropriate’’
or ‘‘used and useful.’’ 16 U.S.C. § 796(11).
Only somewhat more compelling is the Company’s point
that the Commission was unjustified in leaving out of the unit,
for the first time in its final order, four of the eight down-
stream projects on the Flambeau River. In its first three
orders the Commission considered the effect the reservoir
has upon all the Flambeau projects, as the staff study had
done. In the Order Denying Rehearing, however, the Com-

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mission divided those eight into more than one unit of devel-
opment and concluded that, ‘‘although the Staff Study found
generation increments at all eight downstream projects, we
need only find that Turtle–Flambeau provides a significant
increment of generation at the four-project upstream unit of
development.’’ Order Denying Rehearing at 62,161.
The Company posits that the Commission ‘‘truncated’’ the
‘‘unit of development’’ in its final order because, if the lower
Flambeau projects were considered part of the unit, their
proximity to the six Chippewa River projects would require
the inclusion of those projects as well (resulting in a greatly
reduced percentage effect upon generation).
The Commission’s motive is of no moment to the issue
before the court. The relevant question is whether the
Commission reasonably concluded that the four upper-
Flambeau projects comprised a single unit of development.
The Commission based that conclusion upon its finding that
the four uppermost projects, unlike the plants further down-
stream, are ‘‘physically and operationally interrelated.’’ Id.
The Act does not define a ‘‘complete unit of improvement
or development.’’ The Commission’s interpretation of that
phrase to encompass all projects ‘‘physically and operationally
related’’ is, therefore, entitled to our deference, as long as it
is consistent with the terms of the statute and not unreason-
able. Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 842–43 (1984). We think it is
consistent, and the Company does not argue otherwise.* Nor
does the Company argue persuasively that there is not sub-
stantial evidence to support the Commission’s finding the four
projects are operationally integrated. The Company does not
dispute that the four projects are all owned by the Flambeau
Paper Company, which operates them all for the same pur-
pose, namely, providing power to its mill. We therefore
* Although the Act provides that a ‘‘complete unit’’ consists of ‘‘a
power house’’ and appurtenant works, 16 U.S.C. § 796(11), the
Company does not challenge, and we therefore express no opinion
upon, the Commission’s decision to define the unit in this case as
encompassing more than one power house.

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uphold as reasonable the Commission’s determination that
the four projects immediately downstream of the reservoir
constitute a complete unit of development.
III. Conclusion
For the foregoing reasons, the Company’s petition for
review is
Denied.

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