Last Friday, the D.C. Circuit torpedoed a hydroelectric license issued in 2013 to Alabama Power Company1 because the Federal Energy Regulatory Commission (FERC) and the U.S. Fish and Wildlife Service (USFWS) “declined to factor in the decades of environmental damage already wrought by exploitation of the waterway for power generation and that damage’s continuing ecological effects.”2 In doing so, the court rejected FERC’s attempt to follow its longstanding practice of limiting environmental review of past impacts by using existing conditions and operations as the environmental baseline.

The decision—American Rivers v. FERC—uses unusually sharp language to chastise FERC and USFWS for sloppy analysis, relying on weak or non-existent data, and failing to properly explain their reasoning. But it remains to be seen how far this case will shift the law regarding the use of environmental baselines under the Federal Power Act (FPA), the National Environmental Policy Act (NEPA), and the Endangered Species Act (ESA). Are the shortcomings in FERC’s analysis easily fixable on remand, or does this represent a fundamental shift in how the courts will view the relicensing of dams constructed long before enactment of the environmental safeguards of the 1970s and 80s?

THE D.C. CIRCUIT’S ENVIRONMENTAL BASELINE ANALYSIS

During the relicensing proceeding, FERC relied on “existing environmental conditions (i.e., continued project operation under the existing license) as a baseline against which to evaluate the potential environmental impacts of an applicant’s proposal and other reasonable alternatives.”3 Environmental groups opposed using existing conditions as the environmental baseline and pushed for NEPA and the ESA analysis that took account of past environmental impacts from project construction and operation.4

FERC defended its practice, citing opinions of the Ninth Circuit in 1999 and the D.C. Circuit in 2000:

In relicensing proceedings, the Commission uses existing environmental conditions (i.e., continued project operation under the existing license) as a baseline against which to evaluate the environmental impacts of an applicant’s proposal and other reasonable alternatives. This longstanding practice has been upheld by the courts, and Conservation Groups provide no persuasive arguments for changing this practice.5

In Friday’s case, however, the D.C. Circuit would have none of it. First, the court rejected the USFWS’ biological opinion (BiOp, a requirement under the ESA) because the agency’s analysis excluded historic impacts and thereby departed irrationally from the agency’s own ESA handbook and regulations.6 Next the court rejected FERC’s NEPA analysis, which relied heavily on the BiOp and was “fatally infected” by the failure to consider “the damage already wrought by the construction of dams . . . .”7 Finally, the court held that the analytical failures under NEPA and the ESA also violated FERC’s obligations under the FPA itself.8

Surprisingly, the D.C. Circuit’s scathing analysis did not discuss either of the two circuit court opinions (American Rivers, 9th Cir. 1999, and Conservation Law Foundation, D.C. Cir. 2000) that FERC relied on in justifying its exclusion of past impacts from the baseline. Nor had FERC, in the License Order, discussed the primary circuit court opinion (National Wildlife Federation, 9th Cir. 2008) on which the D.C. Circuit relied in its analysis of the Alabama Power baseline.9 As a result, determining how the new American Rivers decision changes the legal landscape created by the three preceding cases will require analysis by future courts. For now, here are four ways that courts might view the case’s effect on the environmental baseline issue in FERC relicensing.

1. OVERRULING D.C. CIRCUIT PRECEDENT?

In the License Order, FERC justified using existing conditions as the baseline in part by citation to the D.C. Circuit’s 2000 opinion in Conservation Law Foundation, in which the D.C. Circuit upheld FERC’s use of existing conditions as the baseline in a licensing proceeding.10 Though the Conservation Law Foundation baseline analysis dealt only with the FPA, not NEPA or the ESA, a later court might read the new holding that the faulty baseline under NEPA and the ESA “fatally infected” the FPA analysis, and conclude that Friday’s decision overrules Conservation Law Foundation on the baseline issue. On the other hand, a later court could also attempt to reconcile the two, perhaps by reasoning that existing conditions may suffice as a baseline for analysis under the FPA, but not NEPA or ESA.

2. CREATING A CIRCUIT SPLIT BETWEEN D.C. AND NINTH CIRCUIT? Both the License Order and Conservation Law Foundation relied on the Ninth Circuit’s 1999 opinion in another American Rivers case.11 Like Conservation Law Foundation, the 1999 American Rivers opinion analyzed the acceptability of FERC’s baseline mainly in reference to the requirements of the FPA, not NEPA or the ESA.12 If Friday’s opinion overruled Conservation Law Foundation on the baseline issue, a later court might also view it as inconsistent with the Ninth Circuit’s older American Rivers opinion, resulting in a direct split of authority between the Ninth and D.C. Circuits on the proper baseline in FERC licensing. Specifically, FERC’s approach to the environmental baseline would survive in the Ninth Circuit but be deeply suspect in the D.C. Circuit, until the Supreme Court had occasion to resolve the discrepancy. The FPA allows direct review of FERC orders in either the D.C. Circuit or the circuit where the licensee is located,13 so the split would make a tempting target for forum-shopping, especially regarding projects located in the Ninth Circuit.

3. FILLING A GAP IN NINTH CIRCUIT PRECEDENT? The Ninth Circuit in American Rivers only dealt with the baseline issue as a matter of FPA compliance; its NEPA analysis focused on whether FERC considered a reasonable range of alternatives, and the opinion did not analyze the ESA at all.14 The court then moved on to NEPA, but analyzed only whether FERC considered a reasonable range of alternatives—the Ninth Circuit said nothing about whether existing conditions could constitute an appropriate environmental baseline for NEPA purposes.15 The Ninth Circuit’s later decision in National Wildlife Federation, by contrast, faulted the ESA BiOp at issue for excluding past impacts from its environmental baseline, but also did not address NEPA.16 Thus, a later court might view Friday’s opinion as simply filling a gap left by the Ninth Circuit decisional law by answering the environmental baseline question with respect to NEPA.

4. BASELINE AS “RED HERRING”?

Finally, as the D.C. Circuit on Friday recognized at the outset, the environmental impacts of hydropower implicate “three intersecting statutory schemes”—the FPA, NEPA, and ESA—“all of which are designed to force federal agencies to carefully assess and address the environmental impacts of large-scale development projects.”17 One way to reconcile these leading cases may be simply that the courts will reject any license order that fails to seriously analyze past environmental conditions and impacts, and will therefore reject any attempt to rely on existing conditions as an environmental baseline if the effect is to paper over such a failure.

In Conservation Law Foundation, after upholding FERC’s use of an existing conditions baseline, the D.C. Circuit noted that “the baseline business has the whiff of a red herring.”18 In weighing FERC’s licensing decision against the standards of both the FPA and NEPA, the court reasoned that “[b]aseline or no baseline, the question is whether the Commission has fully examined options calling for greater or lesser environmental protection.”19

Thus, perhaps the most important aspect for the Conservation Law Foundation court was not the choice of baseline, but the rationality and completeness of the analysis.20 One can read the 1999 American Rivers and National Wildlife Federation similarly.21 Of course, this reading also suggests that FERC and resource agencies cannot shield themselves from analyzing a project’s past impacts—perhaps even long-past—by selecting current conditions as the environmental baseline in implementing the FPA, ESA, and NEPA in hydropower licensing proceedings.

All eyes now shift to FERC and USFWS on remand and re-consultation. What lessons will they take from the D.C. Circuit? Does this case mark a sea change in how the agencies analyze environmental impacts? Could that spill over into their selection of mitigation measures? Or must the agencies merely do a better job of explaining how past impacts fit into their analyses under these key statutes?