Mountain Rhythm Resources, Mountain Water Resources, and Watersong Resources (collectively Mountain Rhythm) sought review of Federal Energy Regulatory Commission (FERC) orders dismissing their applications for licenses to build hydroelectric facilities on tributaries of the Nooksak River in Whatcom County, Washington. The proposed projects were located at least 45 miles (by river distance) from Puget Sound and 900 to 4000 feet above sea level (although Whatcom County borders on Puget Sound). FERC dismissed the permits because Mountain Rhythm failed to obtain state certification from Washington that the projects were consistent with the state's Coastal Zone Management Program (CZMP), which called for a Shoreline Management Act (SMA) permit from Whatcom County. The Ninth Circuit denied Mountain Rhythm's petition for review, ruling that 1) FERC's decision to rely on state coastal zone maps to require state certification was not arbitrary and capricious because FERC could properly consider the project sites in the state's coastal zone, 2) Mountain Rhythm's application for an SMA permit from Whatcom would not have been futile because Whatcom County may have issued a variance, and the application itself might have been valuable to the Department of Ecology (DOE) in its review of the project, 3) DOE did not waive its right to approve the projects' consistency with the CZMP because Mountain Rhythm failed to provide all of the necessary information, and 4) DOE's conditioning state certification of CZMP consistency on issuance of a County SMA permit did not interfere with FERC's authority to issue the relevant permits.

Under the Federal Power Act (FPA),[1] an individual who plans to construct a hydroelectric facility must first obtain a license from FERC.[2] Under the Coastal Zone Management Act (CZMA),[3] which protects certain coastline areas, FERC cannot issue a permit to a hydropower applicant unless the relevant state certifies that the project complies with the state's CZMP.[4] A state waives the right to object to an applicant's CZMP certification six months after the date of the application, as long as the application contains all necessary data and information.[5] Once denied by the state, an applicant may appeal to the Secretary of Commerce to establish that the proposed project does in fact comply with the CZMA.

The Ninth Circuit first addressed Mountain Rhythm's complaint that FERC's dismissal of its license applications was arbitrary and capricious because Washington's coastal zone impermissibly extended too far inland. Mountain Rhythm argued that the CZMA required that the coastal zone area only extend "to the extent necessary to control shorelands."[6] In dismissing this argument, the Ninth Circuit reasoned that the projects were located entirely within Whatcom County, which National Oceanic and Atmospheric Administration (NOAA) regulations permitted Washington to categorically designate as coastal zone area.[7] The Ninth Circuit further concluded that Mountain Rhythm could not challenge NOAA's approval of Washington's coastal zone by petitioning for review of FERC's denial of hydropower licenses. The Ninth Circuit reasoned that if Washington had denied certification of Mountain Rhythm's application for a FERC license, Mountain Rhythm could have properly petitioned the Secretary of Commerce to override Washington and determine that the projects were consistent with the CZMA nonetheless. As such, the court ruled that FERC acted
appropriately when it relied on Washington's coastal zone area mapping, which placed the project areas in the coastal zone.

Mountain Rhythm then argued that FERC's decision was arbitrary and capricious because the agency allowed Washington to condition consistency certification on Whatcom County's approval of an SMA permit, which Mountain Rhythm argued was futile because the County flatly prohibited any hydropower projects at the proposed site. The court dismissed this argument because Mountain Rhythm failed to even apply for an SMA permit from Whatcom County, so it could not be certain that the county would deny it. Second, the Ninth Circuit reasoned that even if rejected, Washington might still certify the projects if the county's objections to the project were unrelated to the coastal area. The court rejected Mountain Rhythm's argument that Washington could not require an SMA permit because a permit is not data or information, reasoning that an application for a permit might contain the data or information that Washington required to issue its consistency certification.

The Ninth Circuit next responded to Mountain Rhythm's argument that DOE waived its right to certify Mountain Rhythm's project because DOE did not respond to Mountain Rhythm's application within six months. Mountain Rhythm argued that even though the six-month time limit would not begin to run until the state application was complete, the County's SMA permit that DOE requested was not necessary information under Washington's CZMP. While the Ninth Circuit acknowledged that the state's CZMP did not explicitly require a County permit, the court reasoned that the requirement could be inferred because the CZMP called for a "comprehensive control program"[8] and the DOE gave prompt notice to Mountain Rhythm that the agency required a County SMA permit. The Ninth Circuit therefore held that it was not an abuse of discretion for FERC to require the County SMA permit before beginning the state's time limit for certifying Mountain Rhythm's project as consistent with Washington's CZMP.

The Ninth Circuit finally addressed Mountain Rhythm's argument that FERC's decision was arbitrary and capricious because conditioning FERC approval on a County SMA permit would impermissibly allow the County to interfere with FERC's exclusive authority to grant hydropower licenses. The Ninth Circuit noted that the CZMA explicitly stated that federal hydropower licenses must be consistent with coastal zone requirements.[9] Furthermore, the Ninth Circuit reiterated that Mountain Rhythm could override a state's consistency determination by petitioning the Secretary of Commerce to determine that the project complied with the CZMA.[10] Finally, the court concluded that the County SMA permit could not supplant FERC's authority to issue hydropower licenses because granting the SMA permit would not entitle a permittee to operate a hydropower plant nor would a County's denial of an SMA permit limit the Secretary of Commerce's ability to override a state consistency certification. The Ninth Circuit concluded that FERC did not act arbitrarily and capriciously when it denied Mountain Rhythm's application for a hydropower license because Mountain Rhythm failed to obtain state certification under Washington's CZMP.