Utility Wants Its $770,000 Back

ALBANY, N.Y. (CN) - An upstate utility claims in court that a state agency charged it more than $770,000 in special assessments for hydroelectric power from the Hudson River, without authority to do so.

Rochester-based New York State Electric and Gas Corp. sued the Hudson River-Black River Regulating District in Albany County Supreme Court.

It claims the defendant, a legislatively established public benefit corporation, lacked the authority to charge the fee the utility paid for a decade, and "thus has been unjustly enriched at NYSEG's expense and to NYSEG's detriment."

At issue are so-called headwater benefits: the potential for energy production at a downstream hydroelectric plant made possible by controlling river flow at a reservoir upstream. In the hydropower industry, the downstream plant that benefits from the release of stored water pays the reservoir owner an annual fee to cover construction costs and upkeep.

In New York, the Hudson River-Black River Regulating District has been charging utilities for the headwater benefits from dams and reservoirs built since the early 20th century to control runoff from the Adirondacks, which previously flooded areas along the Hudson River south to Albany and along the Black River west to Lake Ontario.

In 1930, the district built the Conklingville Dam on the Sacandaga River, a Hudson tributary in northern Saratoga County, creating the 42-square-mile Great Sacandaga Lake, the state's largest reservoir.

Downstream from the dam, NYSEG, a subsidiary of the Spanish utility Iberdrola, operates a hydroelectric plant on the Hudson north of Albany, and has been paying the district annual headwater benefits fees.

The company says in its complaint that the district was told in 1992 by the Federal Energy Regulatory Commission that it needed a license to continue to operate the dam.

The district received the license in 2002, after 10 years of negotiations with federal, state and local agencies, businesses and individuals keen on addressing issues associated with reservoir operations, natural resource protection, land use and recreation, according to information on the district's website.

With the license, NYSEG contends, the district "became subject to" the Federal Energy Regulatory Commission's "exclusive jurisdiction for, among other things, charges for headwater benefits arising from the district's regulation of water flows on the Conklingville Dam."

The commission's authority to levy headwater benefits charges is authorized by Section 10 of the Federal Power Act, according to the complaint, which claims that "FERC's approval must be obtained before any FERC licensee may charge another FERC licensee (such as a hydropower generator) for headwater benefits."

But the district "continued to charge NYSEG (and other hydropower licensees) for headwater benefits, as it did before becoming a FERC licensee," the complaint states.

That led to a challenge from another hydropower operator downstream from the Conklingville Dam, Fourth Branch Associates, now known as Albany Engineering Corp., which claimed that the district's headwater benefits charges were unlawful.

The NYSEG complaint details Albany Engineering's fight over the fees, both administratively via the commission and in the courts on appeal, and uses key rulings to bolster its allegations.

For instance, it cites a decision in 2008 by the U.S. Court of Appeals for the District of Columbia Circuit that the regulating district "never had [state law] authority to exact any compensation ... for headwater benefits" because the Federal Power Act pre-empts all such state assessments.

The district had pointed to New York environmental conservation law as its basis for assessing the headwater benefits fees, according to the complaint.

NYSEG also cites Albany Engineering's decision to go to Albany County Supreme Court to seek a refund of the headwater benefits charges it paid to the district.

Earlier this year, the court granted Albany Engineering's motion for summary judgment, noting that the D.C. Circuit "clearly stated that the assessment levied by the district ... was in violation of federal law."

The court awarded the company more than $516,000.

The district has filed a notice of appeal of the decision, NYSEG's complaint states.

The utility claims it overpaid the district $771,667.58, for fees paid between 2002 and 2008, and charges billed and still owed for 2009-12.

It wants the court to award the fees as damages.

"The D.C. Circuit has confirmed that, as a matter of law, the district lacked independent authority to assess those charges because the Federal Power Act pre-empts all state assessments for headwater benefits," the complaint states. "Further, as the FERC and this court have recognized, downstream hydropower licensees are entitled to seek refunds in the courts.

"Accordingly, plaintiff is entitled to be reimbursed, plus interest, for the amounts improperly charged to it by the district."

NYSEG is represented by Christopher Thomas, with Nixon Peabody, in Rochester.

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