## Facts

- FERC licensed Northern Indiana Public Service Company, LLC (NIPSCO) in 2007 to operate two hydroelectric dams on Indiana’s Tippecanoe River, requiring reservoir levels in Lakes Shafer and Freeman to remain within three inches of a target elevation except during abnormally high flows.
- During a 2012 drought, U.S. Fish and Wildlife Service (FWS) biologists observed extensive mussel mortality downstream, including endangered mussel species, and attributed part of the harm to low dam releases.
- FWS advised NIPSCO that increasing downstream releases to approximate “natural” flows would reduce ESA risk, but doing so would lower the lakes below the license’s three-inch band.
- NIPSCO sought a FERC license amendment. FERC proposed an operating plan that would reduce or cease generation-related diversions during drought while still keeping lake levels within the three-inch band.
- FWS issued a Biological Opinion finding FERC’s proposed amended operations were not likely to jeopardize endangered mussels, but included an incidental take statement with a “reasonable and prudent measure” (RPM) requiring NIPSCO to follow FWS’s natural-flow approach, which would significantly depart from FERC’s lake-level constraints.
- FERC adopted the Biological Opinion and amended the license, concluding ESA consultation obligations required implementing FWS’s RPM.
- A coalition of local entities and a conservation organization sought rehearing at FERC and then petitioned for judicial review challenging FERC’s orders and, through them, the Biological Opinion.

## Issues

1. Whether petitioners forfeited (failed to exhaust) challenges to the Biological Opinion by not raising them in a rehearing request before FERC.
2. Whether the agencies’ ESA analysis and supporting scientific judgments were arbitrary or capricious for the issues properly preserved.
3. Whether FWS and FERC adequately explained compliance with the regulation limiting RPMs in incidental take statements to “minor changes” that do not alter the basic design, scope, duration, timing, or location of the action.
4. If the explanation was deficient, whether the proper remedy was vacatur or remand without vacatur.

## Decision

- The court dismissed as unreviewable many objections to the Biological Opinion that were not raised before FERC on rehearing.
- On preserved challenges, the court upheld the agencies’ scientific and ESA determinations supporting the non-jeopardy conclusion.
- The court held FWS and FERC did not adequately explain why the RPM—effectively requiring a materially different operational regime—satisfied the “minor changes” limitation for RPMs.
- The court remanded to FERC without vacating the license amendment or the Biological Opinion due to the risk of conflicting regulatory obligations and the generally sound underlying analysis.

## Legal Principles

- Challenges to FERC orders must be presented to FERC on rehearing; objections not raised are forfeited in judicial review.
- Agency scientific judgments in ESA consultation are reviewed under the APA’s arbitrary-and-capricious standard and are upheld when supported by a reasoned explanation grounded in the record.
- An incidental take statement may include “reasonable and prudent measures” only if they involve “minor changes” and do not alter the basic design, location, scope, duration, or timing of the agency action. (50 C.F.R. § 402.14(i)(2)).
- When an agency’s defect is an inadequate explanation and vacatur would cause serious disruption or conflicting legal obligations, a court may remand without vacatur.

## Conclusion

The D.C. Circuit largely sustained the agencies’ ESA consultation and scientific analysis but remanded without vacatur because FWS and FERC did not sufficiently justify treating the imposed natural-flow RPM as a permissible “minor” modification rather than a substantial change to the licensed operating plan.


Shafer & Freeman Lakes Env’tl Conservation Corp. v. FERC, 992 F.3d 1071 (D.C. Cir. 2021)