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Niagara Mohawk Power Corporation, Dba National Grid v. Hudson River-Black River Regulating District

March 7, 2012


The opinion of the court was delivered by: Gerard E. Lynch, Circuit Judge:


Niagara Mohawk Power Corp. v. Hudson River-Black River Regulating Dist.

Argued: December 2, 2011

Before: HALL, LYNCH, and LOHIER, Circuit Judges.

National Grid challenges the constitutional and statutory authority of the defendants-appellees to assess it for costs associated with operating and maintaining certain dams and reservoirs in New York State. Specifically, National Grid argues that the Hudson River-Black River Regulating District's assessment authority is preempted by the Federal Power Act, and that the assessment scheme violates National Grid's equal protection rights under the federal constitution and its rights against unlawful takings under the federal and New York constitutions. The district court (Mordue, C.J.) rejected National Grid's preemption claims but abstained from exercising jurisdiction over the remaining constitutional claims, which are also pending in numerous state-court actions previously filed by National Grid. We agree that the assessment authority is not federally preempted, but conclude that the district court abused its discretion by dismissing National Grid's remaining constitutional claims on abstention grounds. Accordingly, we affirm the district court's judgment as to preemption and affirm its dismissal of the New York Department of Environmental Conservation from this action, but vacate the judgment as to abstention. We remand the case to the district court for resolution of National Grid's federal and state constitutional claims.

Affirmed in part, vacated and remanded in part.

Plaintiff-appellant Niagara Mohawk Power Corporation, doing business as National Grid ("National Grid"), challenges the constitutional and statutory authority of defendant-appellee Hudson River-Black River Regulating District ("the District"), a New York public benefit corporation, to assess it for benefits that its property along the Hudson River receives from a dam and reservoir that the District operates. National Grid argues that the District's assessment and apportionment scheme is federally preempted by the Federal Power Act ("FPA"), see 16 U.S.C. §§ 803(f), 821, and that even if the assessment authority exists, all assessments made prior to 2010 violated National Grid's equal protection rights under the U.S. Constitution and constituted impermissible takings under the U.S. and New York State constitutions. The district court (Norman A. Mordue, Chief Judge) granted summary judgment for the defendants on National Grid's preemption claims but abstained from exercising jurisdiction over (and accordingly dismissed) the remaining constitutional claims, on the theory that they should more properly be addressed in National Grid's previously filed, pending state-court actions. Because the FPA does not preempt the District's authority under New York state law to assess National Grid as it did here, we affirm the district court's judgment as to federal preemption. We further find that National Grid has abandoned its appeal of the district court's dismissal of the New York State Department of Environmental Conservation ("DEC") from this action, and, in any event, that the district court's dismissal of the DEC was proper. However, because we conclude that abstention was not warranted as to National Grid's remaining constitutional claims, we remand those claims to the district court for resolution, expressing no view on their merits.


I. The Parties

A. Defendants-Appellees

Defendant-appellee the District is a New York State public benefit corporation, created in 1959 by legislation that combined two existing districts - the Hudson River Regulating District (formed in 1922) and the Black River Regulating District (formed in 1919). The District is charged with regulating the flow of those rivers as "required by the public welfare, including health and safety." See N.Y. Envtl. Conserv. L. § 15-2103(1); see also id. § 15-2139(2). New York law gives the District broad powers to carry out its mission, including the authority to build and operate reservoirs, issue bonds, and apportion costs on statutorily defined beneficiaries to finance the construction, maintenance, and operation of its reservoirs. Id. §§ 15-2103(1), 15-2109, 15-2111, 15- 2123, 15-2125, 15-2129, 15-2133.

The DEC is a New York state agency tasked with implementing and enforcing New York's Environmental Conservation Law. Among its duties, the DEC approves proposed apportionments certified by the District's board, id. § 15-2121(4), (5), and reviews "all necessary rules and regulations" that the board of the District has the "power to make," id. §§ 15-2109(1), 15-2109(3). The DEC does not set downstream-beneficiary assessment rates, nor is it authorized to audit or revise the apportionments set by the District.

In 1923, the New York State Water Control Commission, the DEC's predecessor, approved the Hudson River Regulating District's proposed General Plan for regulating the flow of the Hudson River and its tributaries. This plan provided, among other things, for the construction of the Conklingville Dam and the Sacandaga Reservoir, now known as the Great Sacandaga Lake Reservoir (collectively the "GSL Project"). New York law required that the Hudson River Regulating District "apportion [the] cost [of constructing the Great Sacandaga Lake Reservoir], less the amount which may be chargeable to the state, among the public corporations and parcels of real estate benefited, in proportion to the amount of benefit which will inure to each such public corporation and parcel of real estate by reason of such reservoir." N.Y. Envtl. Conserv. L. § 15-2121.

1. Assessment and Apportionment

From 1925 until 2010, the District (including its predecessor the Hudson River Regulating District) used the same method for assessing the beneficiaries of the GSL Project.*fn1 Under this method of apportionment for the upper Hudson River watershed area, the District attributed roughly 95% of the GSL Project's benefits to parcels of land with a fall (or "head") on the river, and that therefore either derived or had the potential to derive the benefit of increased water-power production from the GSL Project - regardless of whether the property was used for hydroelectric purposes or industrial purposes, or was undeveloped. Among these "head" parcels, the District further allocates costs based on the amount of "head" each landowner possesses on the assessed portion of the Hudson. The District allocates the remaining 5% of the project's benefits to municipalities along the river, which enjoy flood control, river-flow augmentation, and various sanitary improvements thanks to the GSL Project.

In the 1990s, the Federal Energy Regulatory Commission ("FERC") determined that the GSL Project required a federal license. Prior to that time, the federal government had expressly declined to require that the District secure a license for the project. But the government's approach shifted in the early 1990s, and federal regulators told the District that a federal license would now be necessary. At first, the District fought this change. Ultimately, however, after some negotiation, the District agreed to become a FERC licensee, and in 2000 signed an Offer of Settlement with the federal government, the Department of Environmental Conservation, and other agencies, businesses, and property owners. That agreement provided, inter alia, that the District would continue to fund its operations according to the apportionment scheme established under New York's Environmental Conservation Law, and that the District had a continuing "statutory right" under New York law "to implement changes to its benefits assessments through appropriate [] District procedures, which procedures are to be outside the jurisdiction of any new licenses for the subject projects." In addition, the agreement specified that the District had "initiated a reassessment procedure under Article 15, Title 21 of the New York State Environmental Conservation Law for the Hudson River," and that it would "publish a public notice of this reassessment procedure" and "make a good faith effort to complete the reassessment procedure in an expeditious manner, by June 30, 2000, or by the adoption of the next three-year budget, whichever first occurs." In 2009, the District finally undertook a reapportionment.

In 2002, FERC issued a license to the District for the dam and reservoir at the GSL Project ("the project dam and reservoir components (Conklingville Dam and Great Sacandaga Lake) of a unit of hydropower development that also includes a powerhouse and generating facilities"). On the same day, FERC issued licenses to a hydropower company for four hydroelectric projects downstream from the GSL Project, on the Sacandaga and Hudson rivers.

2. The District's Permitting System

In addition to its assessment and apportionment functions, the District regulates some of the land around the Great Sacandaga Lake, including by issuing access permits to nearby residents, businesses, and other groups for certain exclusive-access areas near the lake. The District charges fees for these permits. The District's Hudson River Area Budget is funded by revenues from these permits, annual assessments charged to statutory beneficiaries such as National Grid, and revenues from a hydroelectric site agreement with hydropower company Erie Boulevard Hydropower, L.P., for use of head and water rights at the Conklingville Dam.

B. Plaintiff-Appellant

National Grid is in the business of transmitting and distributing energy to customers in the Northeast. Until 1999, it owned and operated power-generation facilities, including seventy-two hydroelectric power stations in New York. The company has since sold off those hydroelectric-generating stations, although it still owns several parcels of vacant land within the District's boundaries that were assessed by the District for headwater benefits from the GSL Project (the "Subject Parcels"). Until at least 2009, the District assessed the Subject Parcels according to the original 1925 apportionment method described above, even though National Grid was no longer in the business of generating hydroelectric power. The Subject Parcels are currently vacant and undeveloped, and, according to National Grid, "are not hydroelectric generating properties, are not developable as such, and are not FERC licensed to be hydroelectric properties." The District assesses the Subject Parcels under N.Y. Envtl. Conserv. L. § 15- 2103 based on their potential to utilize the headwater benefits.

1. State-Court Actions

Over the past decade, National Grid has brought twenty separate Article 78 proceedings in three different New York state trial courts to challenge the District's annual assessments of National Grid's parcels in the Hudson River and Black River watersheds. In those actions, National Grid has alleged equal protection and takings claims under the New York and federal constitutions. In another suit brought in state court, National Grid alleged that the District breached the Offer of Settlement between the District and the federal government by failing to conduct an appropriate reapportionment by the Offer of Settlement's deadline.

As discussed below, these state-court proceedings are still pending. In June 2008, National Grid moved in Hamilton County Supreme Court to consolidate them into a single action; the District opposed that motion, and, according to National Grid, the state court has yet to rule on it.*fn2 In addition, National Grid alleges that some of its discovery motions also remain pending in the state court proceedings.

2. The Albany Engineering Case

In 2006, Albany Engineering Corporation, a FERC licensee that owned and operated a hydroelectric project downstream from the GSL Project, and that was subject to assessments by the District, filed an administrative complaint with FERC. Albany Engineering argued that the District and other New York State agencies lacked authority under New York law to assess it for downstream benefits that the company received from the dam. The company asserted, inter alia, that section 10(f) of the FPA, 16 U.S.C. § 803(f), preempted the District's headwater-benefits assessment method, and prevented New York from mandating compensation for costs other than those associated with "interest, maintenance, and depreciation" of its hydropower project. FERC rejected that argument, concluding that section 10(f) did not preempt the District's authority to "recover[] all of the costs of operating and administering a storage project that affects a variety of downstream uses within that state." Fourth Branch Assocs. (Mechanicville) v. Hudson River-Black River Regulating Dist., 117 FERC 61,321 ¶ 50 (2006). However, FERC also concluded that "assessments for interest, maintenance, and depreciation in respect to the Great Sacandaga Lake Project cannot be implemented solely pursuant to New York law but rather are subject to approval by [FERC]," and that "any headwater benefits determination made or approved by [FERC] . . . would have to encompass all of the hydropower projects that receive headwater benefits from the Great Sacandaga Lake Project." Id. ¶ 51; see also id. ¶ 54. But any such determination, according to FERC, would not include other entities that receive actual or potential energy benefits, such as mills and undeveloped parcels, or flood control benefits, such as municipalities, since [FERC has] no jurisdiction over charges assessed to entities other than hydropower project owners. The District is free to determine payments owing from these non-hydropower entities for any of its expenses, as well as payments from any beneficiaries, hydropower or otherwise, for operating expenses and any other items which are authorized under New York law and for which the Commission has no authority under section 10(f) to require licensees to reimburse upstream owners.

Id. ¶ 51.

On appeal, the U.S. Court of Appeals for the District of Columbia Circuit held that section 10(f) "must, in order to accomplish the full objectives of Congress, be understood to preempt all state orders of assessment for headwater benefits," and that FERC's interpretation of the statute was therefore "unreasonable." Albany Eng'g Corp. v. FERC, 548 F.3d 1071, 1073 (D.C. Cir. 2008). The court remanded the case to FERC "to consider appropriate remedies consistent with [its] holding." Id. Notably, the court pointed out that "[o]f course" the FPA does not "preclude[] every state exercise of power marginally related to federal hydropower licensees," and that the legislative history of the FPA makes clear that Congress intended for the statute to preempt states' "dual licensing authority" and regulation of "hydropower projects." Id. at 1075-76.

3. The Present Suit

Apparently inspired by the D.C. Circuit's Albany Engineering decision, in 2009 National Grid filed the present action in the Northern District of New York, seeking "judicial review, nullification, determination and/or declaratory judgment" that, inter alia, the District's annual assessment scheme is "illegal, null and void, as against [National Grid's] parcels," and "[t]hat the regulation of the subject navigable waters within the District's boundaries are wholly pre-empted by the [FPA], and thereby, any assessments by the District must be limited to the regulation of irrigation and municipal purposes." Am. Compl. ¶ 1.

National Grid asserted five causes of action, each seeking a declaratory judgment. National Grid asked the Court to declare:

(1) That the FPA "pre-empt[s] the regulation of navigable waterways for all purposes" other than "the regulation of irrigation and municipal uses," and that, because National Grid's Subject Parcels "are not used for irrigation or municipal uses," they may not "be subject to the District's assessments for any purpose." Id. ¶¶ 93-101.

(2) That under section 10(f) of the FPA, "the District can only assess for 'interest, maintenance and depreciation,'" Am. Compl. ¶ 104 (quoting 16 U.S.C. § 803(f)), and that because "the District treats National Grid's Parcels as hydroelectric sites, its assessments must be determined under [section] 10(f), or not at all," id. ¶ 108.

(3) That the District's assessment scheme violates National Grid's equal protection rights under the Fifth and Fourteenth Amendments of the U.S. Constitution, because "[t]he District's failure to limit its assessments to parcels benefited by irrigation and municipal uses (as required by the FPA) results in National Grid's Parcels being treated differently from other similarly situated parcels," id. ΒΆ 115, or, alternatively, because "even if . . . the District could assess National Grid's Parcels for purposes other than irrigation and municipal uses, the District's failure to apportion its operation costs over all ...

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