Rainsong, a private hydropower developer, applied for a license to build a small hydroelectric power plant on Lena Creek in the Olympic National Forest in Washington. The Federal Energy Regulatory Commission (FERC) denied the application based on its determination that the power plant would be inconsistent with the purposes of the federal reservation as set out in the 1990 Forest Resource Management Plan. Rainsong's project would consist of "a 10 foot high, 120 foot wide concrete dam . . . [requiring] a 2,300 foot long steel pipeline and a 1,500 foot long penstock . . . and other facilities." FERC decided that the construction would "impact the pre-construction scenic beauty" of the area and would interfere with the management plan's requirement that Lena Creek be preserved for "an experience mostly free from the sights and sounds of other people . . . in a Primitive or Semi-Primitive setting." Rainsong Co.
Section 4(e) of the Federal Power Act (FPA) provides that FERC may issue licenses "within any reservation only after a finding . . . that the license will not interfere or be inconsistent with the purpose for which such reservation was created or acquired." In 1986, Congress amended the FPA with the Electric Consumers Protection Act (ECPA) to ensure that FERC considers environmental factors in hydropower licensing. FERC interpreted the amended section 4(e) as requiring a two-step analysis. First, it would determine if the project was consistent with the purposes of the reservation. If so, the Commission then would move on to the second step required by the 1986 amendment: balancing development and non-development factors in deciding whether or not to grant the license request.
Rainsong, however, contended that the analysis involved only one integrated step: FERC was required to weigh the benefits of hydroelectric power against the dam's environmental impacts in making its initial licensing decision. The Ninth Circuit, deferring to FERC's interpretation of section 4(e) as requiring a two-step analysis, held that the plain meaning of the statute required a threshold determination of consistency with the purposes of a forest reservation before balancing developmental and nondevelopmental purposes in deciding whether to issue a license.
However, the Ninth Circuit held that FERC's reliance on the Forest Service's definition of the purpose of the reservation was an impermissible interpretation of its statutory mandate. Although the FPA does not tell the Commission how to determine "the purpose for which [a] reservation was created or acquired" in relying on the Forest Plan to make its determination of the purposes of the forest reservation, FERC interpreted not only section 4(e), but also the National Forest Management Act (NFMA). The Ninth Circuit held that FERC must consider the statutorily prescribed purposes of the national forests in its section 4(e) consistency determinations. Although FERC may look to Forest Plans for the balancing portion of the statute, the plans are not determinative of the purposes of the forest reservation. In United States v. New Mexico,  the Supreme Court held that the only purposes for which national forests may be reserved are for "securing favorable conditions of water flows," and furnishing a "continuous supply of timber." FERC was required to make a further inquiry into the purposes of reservation in that section 4(e) requires FERC to give "equal consideration to the purposes of energy conservation, the protection, mitigation of damages to, and enhancement of, fish and wildlife . . . , the protection of recreational opportunities, and the preservation of other aspects of environmental quality."  The Ninth Circuit remanded the license application to FERC, ordering the Commission to make an independent determination as to whether "the license will not interfere or be inconsistent with the purpose for which" Olympic National Forest "was created or acquired."