Case Information
*2 Before: G ARLAND , Chief Judge , W ILKINS , Circuit Judge , and E DWARDS , Senior Circuit Judge .
Opinion for the Court filed by Chief Judge G ARLAND .
G ARLAND ,
Chief Judge
: Congress has given the Federal
Energy Regulatory Commission (FERC) authority to regulate
the transmission and sale at wholesale of electric energy in
interstate commerce. 16 U.S.C. § 824(a), (b). FERC tasks
certain nоn-profit entities, known as regional transmission
organizations, with managing the transmission of electricity over
the electric grid and ensuring that energy is reliably available for
consumers. 18 C.F.R. § 35.34;
see Advanced Energy Mgmt.
Alliance v. FERC
,
This case concerns one element of PJM Interconnection’s
2014 tariff revisions: the estimated cost of new entry, which
approximates the revenue that a newly constructed power
generator would need to recoup its costs. Through a
complicated methodolоgy, which we fortunately need not test
the reader’s patience by explaining again, the cost of new entry
affects the prices paid to energy providers for electric cаpacity.
See TC Ravenswood, LLC v. FERC
,
I
We review FERC’s orders under the Administrative
Procedure Act, asking whether they are “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.”
Braintree Elec. Light Dep’t v. FERC
,
The petitioners acknowledge that “[t]he questions posed
here are purely factual issues,” and they challenge FERC’s
orders solely on the ground that they are unsupported by
substantial evidence. Petitioners’ Reply Br. 4. Our review in
these circumstances is “highly deferential, as issues of rate
design arе fairly technical and, insofar as they are not technical,
involve policy judgments that lie at the core of the regulatory
mission.”
Alcoa Inc. v. FERC
,
Having examined them in detail, we сonclude that none of the petitioners’ objections to the cost-of-new-entry figure that FERC approved can overcome our deferential standard of review.
1. The petitiоners’ first objection is that FERC lacked substantial evidence to approve the estimates of labor costs that formed part of the calculation of the cost of new entry. FERC’s labor-cost analysis relied principally on affidavits by Paul Sotkiewicz, an economist employed by PJM Interconnection. See Initial Order P 108; Rehearing Order PP 76, 78. Sotkiewicz concluded that a generic рower generator could be constructed in 360,000 labor hours, a figure he supported by pointing to, inter alia, three studies conducted by different consulting firms. See Sotkiewicz Initial Affidavit ¶¶ 38, 39 (J.A. 73-74); Sotkiewicz Answering Affidavit ¶¶ 5, 6 (J.A. 683). Thе petitioners attack Sotkiewicz’s reliance on each of those studies.
One of the studies, authored by the CH2M Hill engineering firm, had previously been submitted in a 2011 FERC proceeding. The petitioners maintain that this study lacks “probative value” because the prior proceeding was resolved by settlement before the Commission had an opportunity to make a final just-and-reasоnable determination. Petitioners’ Reply Br. 15. But the fact that the matter was settled does nothing to diminish the study’s reliability. Nor is there any requirement that witnesses cite only to studies that FERC has previously blessed.
The petitioners assert that a second study, prepared by
Sargent & Lundy, could not have contained the data Sotkiewicz
said it did. But consultants from the firm that commissioned the
Sargent & Lundy study filed an affidavit corroborating
Sotkiewicz’s representations.
See
Pfeifenberger & Zhou
Affidavit 23 (J.A. 639). Although the petitioners insist that the
affidavit is hearsay, hearsay can constitute substantial evidence
in an administrative proceeding.
See Lacson v. U.S. Dep’t of
Homeland Sec
.,
As to the third study, prepared by Stantec Consulting Services, the pеtitioners object on the ground that no witness with personal knowledge of that study appeared before FERC and that the report itself was not entered into the record. The petitionеrs cite no authority for the proposition that personal-knowledge testimony is required for reliance on an expert report in a FERC proceeding. Indeed, as we have just mentiоned, hearsay can be admissible in such proceedings. And although failure to include an underlying report in the record of an agency proceeding could be troubling in some circumstanсes, here FERC reasonably relied on Sotkiewicz’s assessment of multiple information sources -- “including a review of publicly-available data” -- of which the Stantec estimate was just one part. Rehearing Order P 76; see Initial Order P 108 (noting that “PJM reviewed the market monitor’s estimate of construction labor and found that it was consistent with public information on utility construction labor costs”); id. (citing Sotkiеwicz’s statement that “the values closely track data from the U.S. Bureau of Labor Statistics Quarterly Census of Employment and Wages”); Sotkiewicz Initial Affidavit ¶¶ 37, 41 (J.A. 73-75) (discussing Bureau of Labor Statistics data); Sotkiеwicz Answering Affidavit ¶¶ 5, 8 (J.A. 683-84) (same).
2. Next, the petitioners contend that FERC should have
accepted the labor-cost calculations of the petitioners’ expert,
Robert Uniszkiewicz, who, in their view, рossessed more
“expertise and experience regarding construction related
matters” than did Sotkiewicz. Petitioners’ Br. 52. But FERC
reasonably explained that it preferred Sotkiewicz’s analysis to
Uniszkiewicz’s because the latter had failed to account for
economies of scale. Rehearing Order P 77. This court “defers
to the Commission’s resolution of factual disputes bеtween
expert witnesses,”
Transmission Agency of N. Cal. v. FERC
, 628
F.3d 538, 551 (D.C. Cir. 2010) (quoting
Elec. Consumers Res.
Council v. FERC
,
The petitioners further argue that FERC should have held an
evidentiary hearing to adjudgе the comparative credibility of the
two experts. But the petitioners’ challenge -- based on their
claim of the superior expertise of their witness -- goes not to
Sotkiewicz’s crеdibility but to the weight of his evidence.
FERC did not abuse its discretion in deciding to rely on the
written record to resolve that question.
See Minisink Residents
for Envt’l Pres. & Safety v. FERC
,
3. Finally, the petitioners contend that FERC erred in approving another input to the estimated cost of new entry: the cost of capital. FERC approved the methodology that the Brattle Group, PJM Interconnection’s consultant, used to estimate this input. That mеthodology relied on a proxy group of eight energy companies, including publicly traded independent power producers, merchant generation companies that werе recently acquired by other companies, and recent merchant generation divestitures. See Samuel A. Newell et al., Cost of New Entry Estimates for Combustion Turbine and Combined Cycle Plants in PJM 34-37 & tbl.25 (May 15, 2014) (J.A. 159-62). The petitioners object to PJM’s reliance on this group, maintaining that the majority of new generator construction is instead financed by private-equity firms, which, they assert, require higher rates of return than publicly traded comрanies.
But “[m]erely because petitioners can conceive of a . . .
method that they believe would be superior to the one FERC
approved does not mean that FERC erred in concluding the
latter was just and reasonable.”
Wisc. Pub. Power, Inc. v.
FERC
,
II
For the foregoing reasons, the petitioners’ objections fail to undermine the substantial evidence supporting FERC’s approval of PJM Interconnection’s figure for the cost of new entry. The petitions for review are therefore
Denied .
Notes
[1] “‘Capacity’ is the ability to produce electricity. Purchasers of
capacity acquire the right to buy electricity in the future.”
Advanced
Energy
,