On August 1, the Supreme Court of California upheld a decision by the Court of Appeal, which found that the Federal Power Act (FPA) preempts application of the California Environmental Quality Act (CEQA) when the state is acting on its own behalf as licensee of a hydroelectric project.

The case stems from the Federal Energy Regulatory Commission (FERC or Commission) relicensing proceeding for the Oroville Hydroelectric Project (Project) in Butte County, CA in which the California Department of Water Resources (DWR) is the FERC licensee. In 2006, DWR and relicensing stakeholders entered into a settlement agreement, which included provisions governing project operations, environmental protection, recreation, cultural resources, flood control, land use, and other issues that the parties proposed to be included in the FERC license. DWR filed the settlement agreement and a Preliminary Draft Environmental Assessment (PDEA) with FERC, which used the PDEA as a basis to prepare its own environmental impact statement (EIS) pursuant to the National Environmental Policy Act (NEPA). Butte and Plumas counties (Counties) participated in settlement discussions but ultimately declined to sign.

In 2008, DWR prepared an environmental impact report (EIR) in which it analyzed the same three project alternatives considered by FERC’s EIS. The EIR provided that DWR undertook the analysis as part of its application for water quality certification under the Clean Water Act, and because it could inform DWR’s decision, as a licensee, whether to accept the license. The EIR also included mitigation measures that DWR proposed to implement following FERC’s issuance of the license, including measures related to wildlife, noise, air quality, public health and safety, geology, and soils.

Following DWR’s certification and issuance of the EIR, the Counties filed petitions challenging its sufficiency and compliance with CEQA. The petitions sought orders setting aside DWR’s certification of the EIR, enjoining DWR’s operation of the Project and requiring that DWR “suspend all activity under the [EIR] certification that could result in any change or alteration in the physical environment” until certification of a sufficient EIR and “other equitable or legal relief that the Court considers just and proper.”

The trial court found the EIR sufficient and rejected the Counties’ claims. The Court of Appeal found that the Counties’ CEQA claims, to the extent they challenged the settlement agreement, were entirely preempted by FERC’s jurisdiction under the FPA and, to the extent they challenged the Water Board’s issuance of a water quality certification, were premature since the Water Board had not yet issued its water quality certification.

The Supreme Court of California undertook review to address two issues. First, whether the FPA preempts application of CEQA when the state is acting on its own behalf as the licensee of a FERC-regulated hydroelectric project; and second, whether the FPA preempts state court challenges to an EIR prepared pursuant to CEQA to comply with Section 401 of the Clean Water Act. The Supreme Court found that the second issue was not properly presented and declined to address it.

With respect to the extent to which the FPA preempts the application of CEQA where the state is the licensee, the court first discussed the long and well-established history of federal preemption with respect to licensing of hydroelectric facilities, citing First Iowa Coop. v. Federal Power Commission, 328 U.S. 152 (1946), and California v. FERC, 495 U.S. 490 (1990), which concluded that “state regulatory efforts that conflicted with the exclusive federal licensing authority granted by the FPA were preempted.” The court noted, however, that these cases did not consider “whether Congress intended to occupy the field to the extent of precluding a state from exercising authority over its own subdivision’s license application,” or the extent to which the FPA infringed upon “the state’s prerogative to govern the work of its own agency in a manner that does not conflict with federal law.”

The Supreme Court concluded that the Counties’ CEQA claims, to the extent they were being used to challenge and unwind the terms of the relicensing settlement agreement, were preempted by the FPA and that allowing such a challenge to stand “would raise preemption concerns to the extent the action would interfere with the federal process … or with FERC’s jurisdiction over the proceedings.” Though the Counties dropped their request for injunctive relief, the court noted that “[a] state court order granting the injunctive relief the Counties initially sought would stand as a direct obstacle to the accomplishment of Congress’s objective of vesting exclusive licensing authority in FERC.”

With respect to the Counties’ requests for “other equitable or legal relief that the Supreme Court considers just and proper,” the court considered the environmental sufficiency of the EIR itself, which DWR prepared pursuant to CEQA and intended to use in connection with certain project-related permitting, mitigation, and other decision-making. On this issue, the court found that the state was not preempted and that “DWR can undertake CEQA review, including permitting challenges to the EIR it prepares as part of that review, in order to assess its options going forward.” The court found that DWR’s CEQA review would not interfere with FERC’s jurisdiction or exclusive licensing authority, and that “these activities are a far cry from the conflicting state regulations imposed on private actors at issue in First Iowa and California v. FERC. Rather, the court held that “[a] CEQA challenge to the Department’s EIR is not inherently impermissible, nor is it clear that any mitigation measures will conflict with the terms of the license ultimately issued by FERC.”