Conservation groups, the United States Department of Interior, and the Oregon Department of Fish and Wildlife (collectively, petitioners) challenged the Federal Energy Regulatory Commission's (FERC) relicensing of two dams operated by the Eugene (Oregon) Water and Electric Board (EWEB). The petitioners alleged that FERC's renewal of the licenses violated the mandates of the Federal Power Act (FPA)[1] and the National Environmental Policy Act (NEPA)[2] by failing to evaluate properly the impact of the hydropower projects on the McKenzie River ecosystem in central Oregon. The petitioners also sought review of the license renewal based on FERC's failure to mitigate impact on fish and wildlife as required under section 803(j) and 811 of the FPA.[3]

The petitioners' first allegation was based on FERC's statutory construction of the FPA. As an agency interpretation of its own governing statute, FERC's construction of the FPA falls squarely under the Chevron doctrine.[4] Chevron requires a court to examine first "whether Congress has directly spoken [in the governing statute] to the precise question at issue."[5] If there is ambiguity in the statutory mandate, courts presume that Congress has delegated the authority to interpret the statute to the agency.[6] The agency's interpretation is entitled to deference "unless [the interpretation is] arbitrary, capricious, or manifestly contrary to the statute."[7]

The petitioners' main challenge under the FPA involved FERC's use of present environ-mental conditions "as a 'baseline' . . . to evaluate alternatives to the . . . relicensing proposal."[8] Petitioners advanced that the use of existing environmental conditions assured the success of EWEB's relicensing application. In order to overcome the presumptive deference of Chevron, petitioners needed to prove that the statutory framework of the FPA clearly mandates the use of a pre-project model of the ecosystem as a baseline. However, the Ninth Circuit held that "[t]he FPA . . . nowhere defines or even mentions the concept of an environmental baseline."[9] In fact, legislative history surrounding the Electric Consumers Protection Act (ECPA) [10] amendments to the FPA suggests that Congress intended the baseline to be factored from the contemporary level of development. Thus, absent a clear congressional mandate, the court simply deferred to FERC's interpretation.

The Ninth Circuit next noted that the second step of Chevron analysis would require the court to defer to FERC's interpretation of its statutory mandate unless it was plainly unreasonable. The very existence of the hydropower projects and the concomitant development fundamentally altered the environmental makeup of the McKenzie River Valley.[11] Indeed, it was unreasonable to require FERC to look back fifty years to construct a model of the environmental baseline to use in contemporary development planning.[12]

The court similarly found that the baseline used by FERC was not a violation of section 803(j) of the FPA.[13] Section 803(j) requires that "each license issued . . . shall include conditions for . . . protection, mitigation, and enhancement" of wildlife populations and habitats.[14] However, the Ninth Circuit found that although section 803(j) requires mitigation, it does not require FERC to accept every consulting agency recommendation. Essentially, should the court require FERC to accept all outside agency recommendations, it would subvert the balancing process established by the FPA. Therefore, the decision on how best to synthesize the recommendations of other agencies lies with FERC.[15]

The petitioners' final contention under the environmental baseline argument sprang from an expansive reading of Confederated Tribes and Bands of the Yakima Indian Nation v. Federal Energy Regulatory Commission (Yakima).[16] Yakima mandates that FERC consider the environmental impacts of relicensing and prepare an environmental impact statement (EIS) before reissuing a hydropower license.[17] The petitioners in American Rivers sought to apply the EIS requirement in the baseline context. However, the Ninth Circuit concurred with the D.C. Circuit's interpretation of Yakima in United States Department of Interior v. Federal Energy Regulatory Commission (DOI v. FERC).[18] DOI v. FERC limited Yakima to the proposition that "an agency must establish a record . . . [only to demonstrate that] it has considered all the factors required by the statute."[19]

The petitioners' arguments under NEPA focused on the procedural requirements of its statutory scheme. NEPA directs an agency to include "reasonable alternatives" to the proposed action in an EIS.[20] The petitioners argued that the no-action alternative should have encompassed a denial of the license to the hydropower projects. Unlike its de novo review under Chevron,[21] the court reviewed FERC's compliance with NEPA using the "rule of reason" standard.[22] The rule of reason dictates that FERC "need not consider an infinite range of alternatives, only reasonable or feasible ones."[23] Also, the EIS must merely "briefly discuss" the rejected alternatives and the reasons for their rejection.[24] The Ninth Circuit found that "[FERC's] analysis comfortably meets the 'discuss briefly' standard,"[25] thus satisfying NEPA's procedural requirements.

The final two issues addressed by the Ninth Circuit in American Rivers were issues of first impression that dealt with the statutory construction of FERC's duties under the FPA. The sections of the FPA at issue direct FERC to "protect, mitigate damages to, and enhance, fish and wildlife . . . affected by the development,"[26] and to "require the construction [at the licensee's expense] . . . [of] such fishways as may be prescribed by the Secretary of the Interior . . . ."[27] Once again, the Chevron doctrine applied to the agency interpretation of its statutory mandate. However, in analyzing these two sections of the FPA, the Ninth Circuit held that the statutory language was unambiguous. Therefore, the court only needed to address the question of whether FERC had acted within statutory guidelines.

Under section 803(j)(1), FERC is required to mitigate the impact of power projects on the natural environment and to provide for conditions that facilitate such protection.[28] The conditions are "based on recommendations received . . . from the National Marine Fisheries Service, the United States Fish and Wildlife Service, and the State fish and wildlife agencies."[29] However, this clear requirement is subjected to FERC's discretion under section 803(j)(2). Subsection 2 clearly provides FERC with the ability to reject the recommendations of the other agencies, so long as FERC makes findings supporting its decision. Quoting the D.C. Circuit's holding in National Wildlife Federation v. Federal Energy Regulatory Commission, the Ninth Circuit upheld the proposition that "the discretion ultimately vests in the Commission as to how to incorporate each recommendation."[30] Indeed, the court found that FERC had adequately addressed the recommendations of the Oregon Department of Fish and Wildlife in the final EIS, thus fulfilling its statutory obligation to afford "significant deference" to the resource agencies.[31] The Ninth Circuit determined that section 803(j) required nothing more.

The final point of contention in American Rivers stemmed from the fishway prescriptions offered by the federal resource agencies. The Ninth Circuit first relied on the reasoning of a virtually identical D.C. Circuit case to find that the petitioners had parens patriae and organizational standing.[32] Second, the court held that the issue of providing fishways was ripe even though certain aspects of the final licensing plan remained unresolved, as the finding "resolve[d] the issue [of] whether . . . conditions [were] mandatory."[33] With the procedural aspects of review satisfied, the court entered into its final Chevron analysis.

The Ninth Circuit held the implementation of the fishway recommendation to be required as a condition of FERC granting the license. This finding hinged on the clear statutory language of the Federal Power Act.[34] The Supreme Court held in Escondido Mutual Water Company v. LaJolla Band of Mission Indians (Escondido) that section 797(e) compelled FERC to "include the Secretary's conditions in the license even if it disagrees with them."[35] The Ninth Circuit concurred with the Supreme Court's Escondido analysis that there is no conflict between FERC's discretionary power under section 803(j) and a compelled acceptance of the Secretary's findings under section 797(e). Furthermore, the Ninth Circuit extended this logic to cover the mandatory acceptance requirement under section 811. The "clear congressional delegation . . . counsel[ed] a one-step Chevron inquiry."[36]

FERC finally argued that the Secretary of the Interior's recommendation did not meet FERC's definition of a fishway under section 811, and thus FERC could legitimately deny the condition. The basis for this claim was an aspect of the Escondido case. In Escondido, the Secretary of the Interior had attempted to place conditions on hydropower licenses for facilities outside of, but affecting, Indian Reservations. The Supreme Court held that section 797(e) of the FPA did not allow the Secretary to impose conditions on these facilities as if they were within reservations.[37] Because the proposed fishways in American Rivers did not exceed the statutory authority of section 811, and because the conditions imposed by the Secretary in Escondido exceeded the statutory authority of section 797(e), the court held this argument to be inapposite. Essentially, the Ninth Circuit rejected FERC's strained reading of legislative history that would have allowed the agency to impose its own definition of fishways.

In sum, the court rejected petitioner's contentions regarding statutory interpretation of the environmental baseline and the applicability of NEPA. The court nonetheless vacated the issuance of the license based on FERC's violation of the FPA section 811 and remanded the issue to FERC for resolution.