On April 26, 2011, the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”) rejected a challenge by George C. Jepsen, Attorney General for the State of Connecticut and the Connecticut Office of Consumer Counsel (together, the “petitioners”) to ISO New England’s (“ISO- NE”) 2010 Budget. The DC Circuit denied the petition for review and concluded that FERC did not act arbitrarily or capriciously in approving ISO- NE’s 2010 budget, particularly considering: the (1) extensive vetting the company’s budget received from stakeholders and the independent Board of Directors, and (2) the fact that the FERC previously received and approved the consultant’s methodology who had found the 2009 executive compensation for ISO to be reasonable. This is the second consecutive year the DC Circuit has rejected a challenge to the ISO-NE annual budget.
On December 30, 2009, FERC accepted ISO- NE’s proposed tariff revisions to collect administrative costs for calendar year 2010. These costs include executive salaries and compensation which were at issue on appeal to the DC Circuit. FERC found that ISO-NE utilized a nationally recognized, independent consulting firm to evaluate the compensation that other entities offer, and the consultant found ISO-NE’s executive compensation was within a “reasonable range of competitive practices for functionally comparable positions.” In response to criticism that ISO-NE should tie executive bonus to ratepayer benefits, ISO-NE explained that it has a “pay for performance” compensation program where the board sets organizational goals for reliability, efficient and competitive markets, budget performance, and service excellence in stakeholder processes.
The DC Circuit rejected the petitioner’s argument that the 2010 ISO-NE budget, including executive compensation, was “just and reasonable.” The DC Circuit held that FERC did not act arbitrarily and capriciously by approving the 2010 ISO-NE budget without requiring submission of the independent consultant’s 2009 report. The DC Circuit also rejected the petitioners’ due process argument, as they could have argued on rehearing that ISO-NE should have been required to submit the 2009 report before approving the 2010 budget.
A copy of the DC Circuit’s opinion is available here.