Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-09-01220/USCOURTS-caDC-09-01220-0/pdf.json

Parties Involved:
Richard Blumenthal
Petitioner
Connecticut Office of Consumer Counsel
Petitioner
Federal Energy Regulatory Commission
Respondent
ISO New England Inc.
Intervenor for Respondent
New England Power Pool Participants Committee
Intervenor for Respondent

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 7, 2010 Decided July 16, 2010 

No. 09-1220 

RICHARD BLUMENTHAL, ATTORNEY GENERAL FOR THE STATE 

OF CONNECTICUT, AND CONNECTICUT OFFICE OF CONSUMER 

COUNSEL, 

PETITIONERS

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

ISO NEW ENGLAND INC. AND NEW ENGLAND POWER POOL 

PARTICIPANTS COMMITTEE, 

INTERVENORS

On Petition for Review of Orders of the 

Federal Energy Regulatory Commission 

Michael C. Wertheimer, Assistant Attorney General, 

Attorney General’s Office of the State of Connecticut, argued 

the cause for petitioner. With him on the briefs were John S. 

Wright, Assistant Attorney General, and Joseph A. Rosenthal. 

Beth G. Pacella, Senior Attorney, Federal Energy 

Regulatory Commission, argued the cause for respondent. 

USCA Case #09-1220 Document #1255601 Filed: 07/16/2010 Page 1 of 11
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With her on the brief were Thomas R. Sheets, General 

Counsel, and Robert H. Solomon, Solicitor. 

Before: SENTELLE, Chief Judge, and BROWN and 

KAVANAUGH, Circuit Judges. 

Opinion for the Court filed by Circuit Judge

KAVANAUGH. 

KAVANAUGH, Circuit Judge: This case arises because the 

State of Connecticut thinks that executives with ISO New 

England – a non-profit entity that administers New England’s 

wholesale electricity market – got too greedy when setting 

executive compensation.

Utility companies like ISO New England must file their 

proposed electric power tariffs – including their proposed 

executive compensation – with the Federal Energy Regulatory 

Commission for FERC’s annual approval. In late 2008, ISO 

New England submitted its 2009 executive compensation plan 

to FERC and supported that plan with an independent 

consultant’s report as to the reasonableness of the proposed 

executive compensation. Over the objections of the State of 

Connecticut, FERC then approved ISO New England’s 

executive compensation for 2009. In this Court, Connecticut 

raises a variety of procedural and substantive challenges to 

FERC’s approval – the core of Connecticut’s complaint being 

its view that ISO New England’s executive pay is too high. 

Although Connecticut’s concerns are not without some basis, 

our deferential standard of review requires that we deny the 

State’s petition. 

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I 

ISO New England is a private, non-profit utility company 

that administers New England’s energy markets. Under the 

Federal Power Act, companies like ISO New England must 

file their rates and service terms with the Federal Energy 

Regulatory Commission, which in turn must ensure that those 

rates and terms are “just and reasonable.” 16 U.S.C. 

§ 824d(a). 

In October 2008, ISO New England filed its proposed 

2009 rates with FERC and at the same time sought approval 

for its 2009 executive compensation plan. 

Acting on behalf of the State of Connecticut, the 

Connecticut Attorney General intervened in the FERC 

proceedings. Connecticut argued that FERC should hold an 

evidentiary hearing on ISO New England’s proposed 2009 

executive compensation. According to Connecticut, ISO New 

England did not provide sufficient evidence to demonstrate 

that its executive compensation plan for 2009 was just and 

reasonable. At the time of Connecticut’s initial filing, ISO 

New England had provided only the total amount of its 

proposed executive compensation package for all executives 

combined. 

In December 2008, in response to Connecticut’s filing, 

ISO New England provided FERC with additional 

information supporting its 2009 executive compensation plan. 

That submission included the 2009 estimated total 

compensation for 11 senior executives, ranging from 

$984,000 for ISO New England’s President to $319,000 for 

the Vice President of Information Services. The filing also 

contained a report produced by Mercer Consulting – an 

USCA Case #09-1220 Document #1255601 Filed: 07/16/2010 Page 3 of 11
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independent consulting firm – supporting the reasonableness 

of ISO New England’s estimated executive compensation. In 

addition, ISO New England’s supplemental filing explained 

the process it used to calculate proposed executive 

compensation, which included approval by ISO New 

England’s independent Board of Directors. 

FERC then approved ISO New England’s 2009 executive 

compensation plan. See ISO New England Inc., Order 

Accepting Tariff Revisions, 125 FERC ¶ 61,392 (2008). 

Connecticut filed a petition for rehearing. Connecticut 

argued that FERC should hold an evidentiary hearing to 

consider the merits of ISO New England’s executive 

compensation plan. The State also raised several objections 

to the Mercer analysis underlying FERC’s approval of the 

executive compensation plan. FERC denied Connecticut’s 

request for a rehearing. See ISO New England Inc., Order 

Denying Rehearing, 127 FERC ¶ 61,254 (2009). 

Connecticut now seeks review in this Court of FERC’s 

decision. 

II 

 Connecticut raises two distinct procedural challenges to 

FERC’s approval of ISO New England’s executive 

compensation plan. 

First, Connecticut argues that FERC must hold an 

evidentiary hearing to determine whether Mercer – the 

independent consultant that reviewed ISO New England’s 

proposed executive compensation – was biased. Connecticut 

suggests that Mercer’s sole motivation when reviewing ISO 

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New England’s executive compensation was Mercer’s desire 

to be rehired in the future. In Connecticut’s view, the issues 

raised by this alleged bias called for an evidentiary hearing. 

FERC’s choice whether to hold an evidentiary hearing “is 

generally discretionary.” Cerro Wire & Cable v. FERC, 677 

F.2d 124, 128 (D.C. Cir. 1982); see Moreau v. FERC, 982 

F.2d 556, 568 (D.C. Cir. 1993). It is well established in the 

context of FERC proceedings that “mere allegations of 

disputed facts are insufficient to mandate a hearing; 

petitioners must make an adequate proffer of evidence to 

support” their claim. Cerro, 677 F.2d at 129; see Braintree 

Elec. Light Department v. FERC, 550 F.3d 6, 13 (D.C. Cir. 

2008); Gen. Motors Corp. v. FERC, 656 F.2d 791, 798 n.20 

(D.C. Cir. 1981). 

Connecticut provides nothing more than a bald assertion 

that Mercer was biased. As the Commission rightly 

concluded in response to this contention: “Mercer 

Consulting’s motivations are no different from any other 

independent paid consultant’s, including any that” 

Connecticut itself “would hire.” ISO New England Inc., 

Order Denying Rehearing, 127 FERC ¶ 61,254, at ¶ 22 

(2009). Without more, Connecticut’s assertion of bias does 

not require FERC to hold a hearing. 

To bolster its plea for an evidentiary hearing on this 

ground, Connecticut cites this Court’s case law stating that 

“FERC may resolve factual issues on a written record unless 

motive, intent, or credibility are at issue or there is a dispute 

over a past event.” Union Pac. Fuels, Inc. v. FERC, 129 F.3d 

157, 164 (D.C. Cir. 1997). Connecticut argues that Mercer’s 

credibility is at issue and that resolution on a written record 

alone is not permitted. But Connecticut does not raise a 

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genuine issue of credibility, only an unsubstantiated general 

claim. Under our case law, that kind of bare allegation does 

not require an agency to conduct an evidentiary hearing. Cf. 

Braintree, 550 F.3d at 13; Cerro, 677 F.2d at 129. 

Second, Connecticut contends that FERC must hold an 

evidentiary hearing to assess the validity of Mercer’s 

methodology – in particular, Mercer’s choice of which 

companies to consider as ISO New England’s peers when 

Mercer determined the reasonableness of ISO New England’s 

executive compensation. The State asserts that Mercer used 

the wrong companies as a measuring stick – a point it raises in 

arguing for a hearing and in challenging the substantive 

reasonableness of ISO New England’s executive 

compensation (we address the latter point below). 

Connecticut says that the comparison companies had higher 

revenues and that their executive salaries thus provided an 

inaccurate basis for comparison. 

Even when there are disputed factual issues, FERC does 

not need to conduct an evidentiary hearing if it can adequately 

resolve the issues on a written record. See Ark. Elec. Energy 

Consumers v. FERC, 290 F.3d 362, 369-70 (D.C. Cir. 2002); 

Moreau, 982 F.2d at 568. FERC reviewed the filings in this 

case – which included a detailed justification of the 

composition of the comparison group – and determined that 

no evidentiary hearing was necessary to determine the validity 

of Mercer’s approach. Nothing in the record suggests that 

FERC’s decision to resolve the issue without a hearing was 

unreasonable. 

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III 

Connecticut also asserts that FERC’s decisonmaking 

process violates the Due Process Clause of the Fifth 

Amendment. 

First, in a constitutional spin on its plea for an 

evidentiary hearing, Connecticut contends that its due process 

rights were abridged by FERC’s refusal to hold such a 

hearing. Due process generally requires a “meaningful 

opportunity” to be heard before one is deprived of life, liberty, 

or property. BNSF Ry. Co. v. Surface Transp. Bd., 453 F.3d 

473, 486 (D.C. Cir. 2006) (quoting Mathews v. Eldridge, 424 

U.S. 319, 349 (1976)). But Connecticut was heard in this 

case; it had an opportunity to submit its objections, and FERC 

carefully considered them. This Court has never held that an 

in-person evidentiary hearing is constitutionally required 

whenever FERC makes decisions. Indeed, we have 

frequently suggested the opposite. See Moreau v. FERC, 982 

F.2d 556, 568 (D.C. Cir. 1993); Cerro Wire & Cable v. 

FERC, 677 F.2d 124, 129 (D.C. Cir. 1982). Connecticut 

provides no good reason for us to create a new due process 

right to an evidentiary hearing where none now exists. 

Second, Connecticut argues that it was denied due 

process because it did not have an opportunity to respond to 

ISO New England’s executive compensation filings before 

FERC issued its initial decision. But Connecticut had such an 

opportunity and took advantage of it when filing its petition 

for rehearing, which FERC in turn thoroughly considered. So 

this due process argument fails as well. 

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IV 

Connecticut separately contends that – regardless of 

whether an evidentiary hearing should have been held – 

FERC’s approval of ISO New England’s executive 

compensation plan was substantively unreasonable and thus 

arbitrary and capricious for purposes of the Administrative 

Procedure Act. Connecticut raises three separate substantive 

challenges to FERC’s approval of ISO New England’s 

executive compensation levels. 

First, as alluded to above, Connecticut argues that 

Mercer used the wrong companies when measuring the 

appropriateness of ISO New England’s executive 

compensation. According to Connecticut, ISO New 

England’s executive compensation was excessive when 

compared to that of similarly situated entities. 

ISO New England brings in annual revenues of around 

$128 million. Mercer based its review of ISO New England’s 

executive compensation on companies with revenues in the 

billions. Mercer reasoned that these higher-revenue 

companies constituted an appropriate comparison group 

because executive jobs at those companies matched the jobs 

at ISO New England in terms of sophistication and 

complexity. Moreover, Mercer observed that “ISO New 

England competes for executive talent in a broad labor market 

in the energy/utility industry, and for some [positions] . . . in 

the broader/general industry as well.” J.A. 263. Taking those 

considerations into account, Mercer concluded that ISO New 

England’s proposed “executive compensation is within a 

reasonable range of competitive practices for functionally 

comparable positions among similarly-situated entities.” ISO 

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New England Inc., Order Accepting Tariff Revisions, 125 

FERC ¶ 61,392, at ¶ 35 (2008). FERC accepted the 

comparison group based on Mercer’s detailed reasoning and 

concluded that ISO New England had “justified its proposed 

executive compensation package” and that ISO New 

England’s executive compensation was “just and reasonable.” 

Id. 

In this context, the proper level of executive 

compensation is more art than science. For purposes of the 

deferential arbitrary and capricious standard, even if we 

would have used a different comparison group, we cannot say 

that FERC’s decision to accept Mercer’s analysis was 

unreasonable. 

Second, Connecticut argues that FERC must base its 

approval of ISO New England’s proposed 2009 executive 

compensation plan on the actual compensation for its 

executives, not on estimated compensation. That argument 

contravenes our precedents. As we have said, “[s]tandard 

FERC ratemaking, in its most simple form, involves 

projecting a revenue requirement.” Interstate Natural Gas 

Ass’n v. FERC, 285 F.3d 18, 56 (D.C. Cir. 2002) (internal 

quotation marks omitted). And this Court has repeatedly 

validated that type of ratemaking approach. Cf. Williston 

Basin Interstate Pipeline Co. v. FERC, 165 F.3d 54, 56-57 

(D.C. Cir. 1999); American Pub. Power Ass’n v. FPC, 522 

F.2d 142, 143-47 (D.C. Cir. 1975). Albeit arising in a slightly 

different context, those precedents support FERC’s 

consideration of estimated executive compensation in this 

case. 

Third, Connecticut relatedly argues that FERC’s approval 

is unreasonable in light of the dramatic economic downturn in 

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late 2008. Connecticut suggests that ISO New England’s 

executive compensation levels should have gone down as 

well. In a play on President Kennedy’s famous observation, 

Connecticut asserts that a “declining tide should lower all 

boats.” Connecticut Br. at 10 (quotation omitted). 

FERC considered this argument and concluded that it 

was appropriate for ISO New England to base its executive 

compensation package “on the facts as they existed when” it 

drafted its executive compensation package in early 2008. 

ISO New England Inc., Order Denying Rehearing, 127 FERC 

¶ 61,254, at ¶ 22 (2009). FERC further noted that when ISO 

New England seeks “approval for executive compensation 

again” for 2010, “it may use any new benchmarks that have 

arisen due to the economic situation at that time.” Id. 

FERC, not the Judiciary, has the principal statutory role 

in determining the reasonableness of rates and proposed 

executive compensation for companies such as ISO New 

England. In exercising its authority, FERC allowed some lag 

time between the market downturn and adjustments to 

executive compensation. Although FERC could have 

clamped down more (or more quickly) on ISO New 

England’s executive compensation, our role is only to 

determine whether FERC’s contrary approach was so 

unreasonable as to violate the APA’s deferential arbitrary and 

capricious standard. In light of the judicial restraint we must 

exercise when applying that standard, we cannot say that 

FERC’s decision jumped the rails of reasonableness. 

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* * * 

 We deny Connecticut’s petition for review. 

So ordered. 

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