Richard Blumenthal , Attorney General for the State of Connecticut v. Federal Energy Regulatory Commission

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 C ONNECTICUT OFFICE OF CONSUMER
COUNSEL ,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION ,
RESPONDENT
ISO NEW ENGLAND I NC . AND NEW ENGLAND POWER POOL
PARTICIPANTS COMMITTEE ,
I NTERVENORS
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.

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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 B ROWN 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

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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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