By Bridget McDonald
On August 1, 2022, the California Supreme Court issued its highly anticipated decision in County of Butte v. Department of Water Resources. In a 5-2 opinion, a divided court held that the Federal Power Act (FPA) does not entirely preempt the California Environmental Quality Act’s (CEQA) application to the state’s participation, as an applicant, in the FPA’s licensing process for hydroelectric facilities. The Court agreed, however, that CEQA could not be used to challenge a settlement agreement prepared by the Department of Water Resources (DWR) as part of FPA proceedings conducted by the Federal Energy Regulatory Commission (FERC). Finally, the Court also held that claims challenging the sufficiency of an EIR that DWR prepared pursuant to that agreement were not preempted because DWR’s CEQA decisions concerned matters outside of FERC’s jurisdiction. [County of Butte v. Department of Water Resources, ___Cal.5th___, Case No. C071785 (Cal. Aug. 1, 2022).]
Statutory Background
The Federal Power Act
The Federal Power Act facilitates development of the nation’s hydropower resources, in part by removing state-imposed roadblocks to such development. Under the FPA, the construction and operation of a dam or hydroelectric power plant requires a license from the Federal Energy Regulatory Commission. A FERC license must provide for, among other things, adequate protection, mitigation, and enhancement of fish and wildlife, and for other beneficial public uses, such as irrigation, flood control, water supply, recreational, and other purposes. The FPA expressly grants FERC authority to require any project be modified before approval.
Federal Preemption
The Supremacy Clause of the U.S. Constitution provides that federal law is “the supreme Law of the Land.” Congress may explicitly or implicitly preempt (i.e., invalidate) a state law through federal legislation. Three types of preemption could preclude the effect of a state law: “conflict,” “express,” and “field” preemption. As relevant here, “conflict” preemption exists when compliance with both state and federal law is impossible, or where state law stands as an obstacle to achieving compliance with federal law. To prove a conflict exists, the challenging party must present proof that Congress had particular purposes and objectives in mind, such that leaving the state law in place would compromise those objectives. The inquiry is narrowly focused on whether the conflict is “irreconcilable”—hypothetical or potential conflicts are insufficient to warrant preemption.
Factual and Procedural Background
The California Department of Water Resources operates the Oroville Facilities—a collection of public works projects and hydroelectric facilities in Butte County. FERC issued DWR a license to operate the facilities in 1957. In anticipation of the license’s expiration in 2007, DWR began the license application process under the FPA in October 1999.
At the time DWR undertook the relicensing process, FERC regulations allowed applicants to purpose the traditional licensing process or an “alternative licenses process” (ALP)—a voluntary procedure designed to achieve consensus among interested parties before the application is submitted. The ALP requires stakeholders with an interest in the project’s operation to cooperate in a series of hearings, consultations, and negotiations, in order to identify and resolve areas of concern regarding the terms of the license. The process also combines the consultation and environmental review process required by the National Environmental Policy Act (NEPA), as well as the administrative processes associated with the federal Clean Water Act (CWA) and other applicable federal statutes. Ideally, ALP participants conclude the process by entering into a settlement agreement that reflects the terms of the proposed license. That agreement becomes the centerpiece of the license application and serves as the basis for FERC’s “orderly and expeditious review” in settling the terms of the license.
DWR elected to purse the ALP. FERC approved DWR’s request in January 2001. The ALP process consumed the next five years. ALP participants included representatives from 39 organizations, including federal and state agencies, government entities, Native American tribes, water agencies, and nongovernmental organizations. In September 2001, DWR issued a document combining a CEQA notice of preparation (NOP) and a NEPA “scoping document,” which sought comments on the scope of a preliminary draft environmental assessment (PDEA)—a document mandated by the ALP. DWR issued the PDEA for the Facilities in January 2005. Partially relying on the PDEA, FERC issued a draft environmental impact statement (EIS) in September 2006. And from April 2004 to March 2006, the ALP participants negotiated and ultimately signed a settlement agreement. The Counties of Butte and Plumas declined to sign the agreement because they were dissatisfied with its terms.
In May 2007, DWR issued a draft Environmental Impact Report (EIR) that considered the same project and alternatives that FERC considered in its draft EIS. The EIR characterized the project under review as “implementation of the settlement agreement,” which would allow “the continued operation and maintenance of the Oroville Facilities for electric power generation.” DWR undertook CEQA procedures because the State Water Resources Control Board (Water Board) required preparation and certification of an EIR under the Clean Water Act, and the CEQA process could inform whether DWR would accept the license of the terms of the settlement agreement, or the alternative proposed by FERC in the EIS (both of which were analyzed in the EIR). DWR issued a NOD approving the EIR in July 2008; and the Water Board certified the Project’s compliance under the CWA in December 2010.
At the Trial Court
In August 2008, the Counties of Butte and Plumas (Counties) filed separate petitions for writ of mandate challenging DWR’s compliance with CEQA in connection with the relicensing. The Counties raised similar claims regarding the adequacy of the EIR’s project description, analysis of environmental impacts and alternatives, and its adoption of feasible mitigation measures. In May 2012, after consolidating the two cases, the trial court rejected the Counties’ claims and found the EIR complied with CEQA. The Counties appealed.
Initial Review by the Court of Appeal and California Supreme Court
On appeal, the Third District Court of Appeal declined to reach the merits of the Counties’ CEQA claims. Instead, the court held the Counties’ actions were preempted because FERC had exclusive jurisdiction over the settlement agreement. The court also deemed the claims premature to the extent they challenged the Water Board’s certification, which had not been filed yet.
The Counties petitioned the California Supreme Court for review, which the Court granted in 2019. The Court subsequently transferred the matter back to the Third District for reconsideration in light of the Supreme Court’s decision in Friends of the Eel River v. North Coast Railroad Authority, 3 Cal.5th 677 (2017) (Friends of the Eel River). The Court in Friends of the Eel River held that the Interstate Commerce Commission Termination Act (ICCTA) did not preempt a state railroad authority’s application of CEQA to its own rail project, for such application “operates as a form of self-government” because the agency is, in effect, regulating itself.
Following the Supreme Court’s remand, the Third District Court of Appeal considered the Friends of the Eel River ruling, and ultimately reached the same conclusion: the FPA preempts the Counties’ challenge to the environmental sufficiency of the settlement agreement. Because FERC has sole jurisdiction over disputes concerning the licensing process, an injunction would be akin to prohibited “veto power.” In light of this preemption, the Third District maintained the FPA preempted the Counties’ CEQA challenges to the sufficiency of the EIR.
The California Supreme Court’s Decision
The California Supreme Court, again, granted the Counties’ petition for review to determine: (1) whether the FPA fully preempts application of CEQA when the state is acting on its own behalf and exercising its discretion in relicensing a hydroelectric dam; and (2) whether the FPA preempts challenges in state court to an EIR prepared under CEQA to comply with the CWA. The Court concluded the second issue was not properly presented and thus declined to address it.
Turning to the first issue, the Court agreed with the Court of Appeal that the Counties’ claims were preempted by the FPA to the extent they attempted to “unwind the terms of the settlement agreement reached through a carefully established federal process and seek to enjoin DWR from operating the Oroville Facilities under the proposed license.” As to the Counties’ claim against the EIR, the Court rejected the Third District’s finding that those were also preempt, instead concluding that nothing “in the FPA suggests Congress intended to interfere with the way the state as owner makes these or other decisions concerning matters outside FERC’s jurisdiction or compatible with FERC’s exclusive licensing authority.”
The FPA Does Not Categorically Preempt CEQA
To consider whether Congress intended for the FPA to categorically preempt CEQA, the Court applied a presumption that “protects against undue federal incursions into the internal, sovereign concerns of the states.” In the absence of unmistakably clear language, the Court would presume that Congress did not intend to deprive the state of sovereignty over its own subdivisions to the point of upsetting the constitutional balance of state and federal powers, or intend to preempt a state’s propriety arrangements in the marketplace, absent evidence of such a directive.
Here, the FPA’s Savings Clause does not evince an “unmistakably clear” intent by Congress to preempt California’s environmental review of its own project, as opposed to its regulation of a private entity. The issue here rests on whether Congress intended to preclude the state from trying to govern itself—therefore, it would be contrary to the “strong presumption against preemption” to assume the existence and/or scope of preemption based on statutory silence. In particular, neither the FPA’s legislative history nor its language suggests that Congress intended it to be one of the “rare cases” where it has “legislative so comprehensively” that it “leaves no room for supplementary state legislation” on the issues at bar.
The fact that the FPA has a significant preemptive sweep says nothing about congressional intent to prohibit state action that is non-regulatory. Instead, CEQA operates as a form of self-government, therefore, application of CEQA to the public entity charged with developing state property is not classic “regulatory behavior,” especially when there is no encroachment on the regulatory domain of federal authority or inconsistency with federal law. Rather, application of CEQA here constitutes self-governance on the part of a sovereign state and owner.
FPA Does Preempt CEQA Claims Against DWR and FERC’s Settlement Agreement
Although the FPA does not categorically preempt CEQA, that does not mean that no applications of CEQA are preempted. To the contrary, CEQA—in this instance—cannot be used to challenge the terms of the settlement agreement.
The overriding purpose of the FPA is to facilitate the development of the nation’s hydropower resources by centralizing regulatory authority in the federal government to remove obstacles posed by state regulation. Therefore, a CEQA challenge to the terms of the agreement would raise preemption concerns to the extent the action would interfere with the federal process prescribed by the ALP or with FERC’s jurisdiction over those proceedings. Were the Court to enjoin DWR from executing the terms of the agreement, the injunction would stand as a direct obstacle to accomplishing Congress’ objective of vesting exclusive licensing authority in FERC.
FPA Does Not Preempt CEQA Review of DWR’s EIR
While the Court of Appeal correctly held the FPA preempted the Counties’ challenge to the environmental sufficiency of the settlement agreement, the appellate court erred in also finding the FPA preempted the Counties’ CEQA challenge to the environmental sufficiency of the EIR.
Here, the EIR explained that the project subject to CEQA was the implementation of the settlement agreement. It therefore analyzed the environmental impact of the settlement agreement, as well as the alternative FERC identified in the related EIS. At this stage, review of DWR’s EIR would not interfere with FERC’s jurisdiction or its exclusive licensing authority. Federal law expressly allows applicants to amend their license application or seek reconsideration once FERC has issued a license. There is no federal law that limits an applicant’s ability to analyze its options or the proposed terms of the license before doing so. Accordingly, DWR can undertake CEQA review, including permitting challenges to the EIR it prepares as part of that review, in order to assess its options going forward. Nothing about DWR’s use of CEQA is incompatible with the FPA or FERC’s authority.
Moreover, any preemption concerns related to DWR’s ability to adopt additional mitigation measures in the EIR are premature. At this stage, the Counties challenge only the sufficiency of the EIR. They do not ask the Court to impose or enforce any mitigation measures, much less any that are contrary to federal authority. Therefore, a CEQA challenge to DWR’s EIR is not inherently impermissible, nor is it clear that any mitigation measures will conflict with the terms of the license that FERC ultimately issues. If anything, federal law provides avenues for DWR to employ the mitigation measures identified in the EIR. If FERC concludes those measures interfere with the agency’s federal authority, it has the discretion to dictate the scope and extent of those measures in the license it issues.
For these reasons, the majority affirmed the Third District Court of Appeal’s ruling that the Counties could not challenge the environmental sufficiency of the settlement agreement or seek to unwind it, for doing so would pose an unnecessary obstacle to the exclusive authority Congress granted to FERC. That rationale does not, however, extend to the Counties’ challenge to the environmental sufficiency of the EIR, insofar as a compliant EIR can still inform the state agency concerning actions that do not encroach on FERC’s jurisdiction. Nothing precludes courts from considering a challenge to the sufficiency of an EIR in these circumstances and ordering the agency, such as DWR, to reconsider its analysis.
The Concurring and Dissenting Opinion
The Chief Justice of the Court, who also authored the Friends of the Eel River opinion, concurred, and dissented. The Chief Justice agreed that any CEQA challenge to FERC’s licensing process, including the settlement agreement, was preempted. The Chief Justice disagreed, however, that broader CEQA challenges were not similarly preempted.
The dissenting opinion reasoned that, in addition to “field” and “conflict” preemption, state law that presents an obstacle to the purposes and objectives of federal law would be similarly preempted. Here, CEQA presents an obstacle to the FPA given standing federal precedent and the statute’s “savings clause.” The FPA’s licensing process notably includes “CEQA-equivalents” via the ALP and NEPA, but does not contemplate the delays created by state court review of CEQA litigation.
Moreover, CEQA is subject to “field” preemption because CEQA does not involve state regulation of water rights. While federal FPA preemption cases addressed state-operated projects, the concept of “field” preemption is broad enough preempt all state regulation, regardless of who the operator is.
With respect to the Friends of the Eel River decision, the dissent explained that the opinion portrayed an example of “self-governance” when it held CEQA was exempt from ICCTA preemption. Because the ICCTA sought to deregulate railroads, and thus allow greater “self-governance” by railroad operators, the state’s voluntary compliance with CEQA was not preempted. In contrast here, the FPA’s purpose and objectives is to vest exclusive regulation of hydroelectric facilities to FERC and to exclude all state regulation, with the exception of water rights. Unlike the ICCTA, the language of the FPA made it “unmistakably clear” that all state regulation of hydroelectricity facilities (except regulation of water rights) is preempted.
Finally, the dissent noted that the majority’s “partial preemption” determination was unworkable. Finding DWR’s CEQA compliance deficient would still not impact FERC’s decision to issue a license. Instead, forcing DWR to perform additional analyses, or consider additional mitigation or alternatives, would be an impractical paper-generating exercise. As the majority acknowledged, FERC retains complete discretion to deny or alter the terms of a license, regardless of whether those changes are necessary to comply with CEQA. Therefore, requiring CEQA compliance would merely be redundant given the environmental studies FERC performed pursuant to NEPA.
Post-Script
On August 24, 2022, the Supreme Court modified its opinion following a letter signed by numerous CEQA practitioners, which asked the court to correct an erroneous statement in its opinion about the topics an EIR is required to discuss. The Court’s opinion previously stated that an EIR was required to discuss the “economic and social effects of [a] project.” Following the practitioners’ letter, the Court corrected the opinion to remove this phrase from its list of mandatory EIR discussions, but noted that an EIR may—but is not generally required to—discuss such topics.
Conclusion and Implications
The Supreme Court’s long-awaited, but divided decision, clarifies the scope of CEQA and its concurrent relationship to federal environmental statutes. Here, the Court demonstrated that federal preemption must be explicit. Absent unmistakably clear language from Congress, federal statutes should not interfere with a state government’s right to self-govern—particularly in matters concerning environmental protection. However, the scope of state regulation is not unlimited. Where such regulation would interfere with jurisdiction plainly vested in federal agencies, a state statute cannot serve as an obstacle thereto.
The Supreme Court’s opinion is available at: https://www.courts.ca.gov/opinions/documents/S258574.PDF
