[00:00:00] Speaker 02: The final case on calendar for argument today is Pacific Corps versus Sixkiller. [00:00:33] Speaker 02: Good morning, counsel. [00:00:35] Speaker 04: Good morning, your honors. [00:00:36] Speaker 04: May it please the court? [00:00:37] Speaker 04: My name is Dallas DeLuca. [00:00:38] Speaker 04: I represent Plaintiff Appellant Pacific Corps. [00:00:41] Speaker 04: I'd like to reserve six minutes of my time for rebuttal. [00:00:44] Speaker 02: All right. [00:00:47] Speaker 04: There are three points I believe we need to address today. [00:00:50] Speaker 04: First is subject matter jurisdiction under the Tax Injunction Act. [00:00:53] Speaker 04: Second is that Pacific Wars in-state customers who receive power from Chehalis are similarly situated to Pacific Wars out-of-state customers who are allocated that same power from Chehalis. [00:01:07] Speaker 04: And third is in the alternative that the district court erred in dismissing with prejudice. [00:01:12] Speaker 04: Before going into those three points, I just would like to set a little context here. [00:01:15] Speaker 04: Pacific Corps is not seeking an injunction to strike down the entire Climate Commitment Act. [00:01:20] Speaker 04: is a very narrow claim seeking to enjoin just the enforcement of the no-cost allocation strategy that ecology is imposed on the Chehalis facility. [00:01:31] Speaker 04: There will be many entities that are still subject to the Clean Climate Commitment Act. [00:01:35] Speaker 04: Second, that this case is very important in terms of closing a hole in the dormant commerce clause that the district court opened up. [00:01:43] Speaker 04: Under the district court's opinion, other states can do exactly what ecology is doing here, which is point to some pre-existing statute or pre-existing regulation and say, oh, we can therefore go forward and enact a new regulation that discriminates against out-of-state power consumers, therefore further fracturing the regional integration of the power grid and power generation, which is exactly what the Dormant Commerce Clause needs to protect. [00:02:12] Speaker 04: Another thing that is important here is we're protecting customers outside of Washington from the hoarding that Washington will do. [00:02:19] Speaker 04: So the Supreme Court has talked about the Dormant Commerce Clause preventing states from hoarding their resources, such as in Philadelphia versus New Jersey, where New Jersey was trying to hoard the resource of solid waste disposal sites. [00:02:31] Speaker 04: here by imposing a higher cost for shipping the power out of state versus keeping the power in state, the natural result will be that only Washington customers are allocated that power, which is exactly what's happened with the filing that Pacific Corps made on April 1st for what's happening for where the power will be allocated in the year 2026. [00:02:49] Speaker 03: So, Council, as I read Tracy, it suggests that what the Dormant Commons Clause is trying to protect is competition, right? [00:02:56] Speaker 03: And the way I see it is, how is [00:03:00] Speaker 03: cca energy competitive in competition with cita energy well there are they completely different markets and so they're not in competition direct competition with each other so the competition here so those are regulations are not regulating [00:03:19] Speaker 04: differently or different power. [00:03:20] Speaker 04: They're both imposing regulations on Pacific Corps and how it has its generation portfolio. [00:03:26] Speaker 04: So the competition that's being protected is twofold. [00:03:29] Speaker 04: One, just like in Maryland versus Louisiana, there are customers outside of Washington and customers inside of Washington receiving Chehalis power. [00:03:38] Speaker 04: And one is going to have to pay more than the other, and they're going to be disadvantaged. [00:03:40] Speaker 04: And that's what the Supreme Court stated in Maryland versus Louisiana, that out of state, customers there [00:03:47] Speaker 04: would be subject to the outer continental shelf first tax that the state of Louisiana was imposing while in-state customers were not. [00:03:55] Speaker 04: And that was a competition that they were protecting. [00:03:57] Speaker 04: The second competition is a competition of customers for lower cost power. [00:04:02] Speaker 04: And the parents' patriot for that is the regulatory commissions for the different states. [00:04:07] Speaker 04: So Pacific Corps has to go to each state and say, I am providing the lowest cost power to your states. [00:04:12] Speaker 04: So if, yes. [00:04:14] Speaker 03: The way I should retrace it though, it said if you remove the tax, then there'd be greater competition between the unbundled and bundled, correct? [00:04:21] Speaker 03: Is that how you retrace it? [00:04:24] Speaker 04: If you remove the tax, there would be greater competition in the segment of the market where the LDCs were competing with the independent power support. [00:04:33] Speaker 03: It wouldn't remove, it wouldn't create a greater competition among those two markets. [00:04:39] Speaker 04: I believe that they're saying that that was a smaller part of the segment and that there would be greater competition there or more equal competition there between LDCs and independent power producers to the extent that LDCs were competing with the independent gas suppliers for large customers like General Motors, Ford, Pontiac. [00:04:58] Speaker 04: But independent power producers were not competing with LDCs for the regulated customers. [00:05:03] Speaker 04: They're just not allowed to compete there whatsoever. [00:05:06] Speaker 03: So that's what I'm looking at. [00:05:07] Speaker 03: If the CETA energy is the ones that's going, is only in-state, correct, and CCA energy is going out-of-state, if you remove CCA, those two are not in competition with each other, correct? [00:05:23] Speaker 03: Just by its nature, in-state and out-of-state energy is not in competition with each other. [00:05:28] Speaker 04: It's the same energy coming from Chehalis, and CETA doesn't [00:05:32] Speaker 04: change like which energy is going where, it's an imposition on Pacific Core that by 2030, its total portfolio has to be carbon neutral. [00:05:43] Speaker 04: So they've got several wind facilities and hydro facilities in Lewis on the river in Washington. [00:05:52] Speaker 04: They could also bring power from out of state. [00:05:54] Speaker 04: So CETA is not changing or creating two different categories of power. [00:05:58] Speaker 04: It's just a different regulation imposed on top of Pacific Core. [00:06:01] Speaker 04: that by 2030, they have to have carbon neutrality. [00:06:04] Speaker 03: Well, isn't that what Tracy was? [00:06:05] Speaker 03: It's all energy. [00:06:06] Speaker 03: I mean, it's all the same. [00:06:07] Speaker 03: It's the same product at the end of the day, correct? [00:06:09] Speaker 04: It is the same gas, but it's how it's sold that's different. [00:06:14] Speaker 04: And there, there was a different bundled energy versus unbundled energy. [00:06:18] Speaker 04: Here, it's the same bundled energy. [00:06:20] Speaker 03: But from the customer's perspective, what was the difference? [00:06:22] Speaker 04: In Tracy or here? [00:06:24] Speaker 03: In Tracy, I'm sorry. [00:06:24] Speaker 04: Yeah. [00:06:26] Speaker 04: There, the customer didn't even have access to the unbundled power. [00:06:30] Speaker 04: So Mr. and Mrs. Smith in Vandalia, Ohio could not buy from an independent power producer. [00:06:36] Speaker 03: But what's the difference, though? [00:06:37] Speaker 03: It's just gas, right? [00:06:39] Speaker 03: At the end of the day, they're getting gas. [00:06:41] Speaker 04: Yes. [00:06:42] Speaker 03: So it's the same product from the customer's perspective? [00:06:46] Speaker 04: No, because from the customer's perspective, [00:06:49] Speaker 04: I go out as Mr. and Mrs. Smith in Vandalia, Ohio, and I only have one option. [00:06:55] Speaker 04: I can only buy bundled gas, transmission, distribution, generation, all together as one. [00:07:00] Speaker 04: I don't have the option to go buy from independent producers. [00:07:04] Speaker 04: And that's what the Supreme Court said there, that they were substantively different than General Motors who could go out and had enough resources to lay their own lines to the transmission network. [00:07:14] Speaker 04: that had the financial resources to withstand fluctuations in power costs. [00:07:19] Speaker 04: So they were substantially different. [00:07:20] Speaker 04: Here, Pacific, where there's regulated customers in Washington, are the same as the regulated customers elsewhere. [00:07:26] Speaker 03: They are having the same... Well, I thought under Washington, customers cannot get non-CETA regulated gas, correct? [00:07:36] Speaker 04: Well, Washington customers cannot get, well, it's electricity and... I'm sorry, electricity, fair. [00:07:45] Speaker 04: The electricity has to be compliant with CETA in 2030, but that's... So that's how I see it very similar to Tracy, right? [00:07:53] Speaker 03: In Washington, you can't buy non-CETA energy, and so it's a different market than any other market, and so therefore, the Dormant Commerce Clause doesn't apply. [00:08:04] Speaker 04: except that other states have laws very similar to CEDA. [00:08:07] Speaker 04: Oregon has what's called HB 2021 in ORS 469A.405 to.415 that is similar to CEDA in phasing out greenhouse gas emission generated electricity. [00:08:20] Speaker 03: So then is there a case that does that, that looks at to other states regulations to see if there's comparable regulation that then makes it, you know, what's not from the, from Washington's perspective and not substantially similar, but then you're suggesting we should look to other states regulations to see if they are in fact substantial. [00:08:37] Speaker 03: Is that correct? [00:08:38] Speaker 03: Is there a cases that do that? [00:08:39] Speaker 03: I just not seen that. [00:08:40] Speaker 04: That's what the Supreme court was directing the parties to do in Oregon waste systems or sort of Oregon department of environmental quality. [00:08:47] Speaker 04: I thought that's step two, though, if they are substantially similar. [00:08:50] Speaker 04: Well, because in there, they had decided that they were substantially similar because the only difference was cost. [00:08:56] Speaker 04: So your question earlier was, what's the difference between CETA electricity and non-CETA? [00:09:00] Speaker 04: And from a customer's perspective, nothing. [00:09:02] Speaker 04: There's nothing in the record. [00:09:03] Speaker 04: There's nothing out there that I'm aware of where a customer in Washington looks at their contract with Pacific Corps, which is called a tariff. [00:09:11] Speaker 04: It's approved by the Washington Utility and Transportation Commission. [00:09:14] Speaker 04: Nothing that says, oh, you are subject to CEDA. [00:09:18] Speaker 04: You're going to have to have this type of power. [00:09:20] Speaker 04: For the customer, it's completely blind. [00:09:22] Speaker 04: The customer doesn't know any difference. [00:09:24] Speaker 04: It's just possibly, it's not even guaranteed. [00:09:26] Speaker 02: It's not the customer. [00:09:28] Speaker 02: The focus is not the customer. [00:09:29] Speaker 02: The focus is on the providing entities and whether or not there is a, in the competition is being deterred by the [00:09:40] Speaker 02: So it's not the customer. [00:09:41] Speaker 02: It's not focused on the customer. [00:09:43] Speaker 02: It's focused on the competition and whether or not the out-of-state competitor is being unfairly burdened. [00:09:50] Speaker 04: Sure. [00:09:50] Speaker 04: So there's a couple of responses I'd like to have of that, that there is competition for this electricity from Chehalis. [00:09:57] Speaker 04: Chehalis is an important resource. [00:10:00] Speaker 04: It's a gas facility, which means it's peaking so it can supply power when demand peaks and when, say, wind or solar are not available. [00:10:08] Speaker 04: Under this, the State of Washington Utility and Transportation Committee is essentially competing as parents-patria with Oregon's Public Utility Commission, with Idaho, Wyoming, Utah, California, to provide the least cost power to their customers in their states. [00:10:25] Speaker 04: So if Pacificor has to go to Utah or Oregon and say, your power from Chehalis is going to be 20% more expensive than if I sell it in Washington, [00:10:35] Speaker 04: Utah and Oregon don't like that, and they're trying to compete for that same power. [00:10:40] Speaker 04: They say, okay, we don't want that power, and Washington gets it all. [00:10:43] Speaker 04: And that's exactly what's happening now, which is sort of a Pike effect, if we're gonna go on the Pike Road, that Pacific Corps, because of the CCA, on April 1st filed tariffs for 2026, reallocating all of Chehalis to Washington. [00:10:58] Speaker 04: So they're hoarding that resource. [00:11:00] Speaker 04: The other competition, I'm sorry. [00:11:01] Speaker 02: Council, do you take the position that this is a tax? [00:11:05] Speaker 04: I do not so going back to subject matter jurisdiction I raised it because I discovered this very late in the briefing and felt obligated under rule 3.3 the ethics rules under Bidart Brothers versus California the three-part test the first one how many people pay here it's a very narrow you don't have to explain I'm just wanted to know are you arguing that it's a tax or not so you're not arguing that this is a tax correct okay [00:11:31] Speaker 02: That's all I need to know. [00:11:32] Speaker 01: But the district court, you know, disagreed with you at the beginning of this and said these are not similarly situated and therefore did not evaluate the case further under the compensatory tax doctrine. [00:11:44] Speaker 01: If we agree with you hypothetically that these are similarly situated, then what would need to happen? [00:11:51] Speaker 01: It's not clear that you would necessarily win, but what would need to happen then? [00:11:54] Speaker 04: Well, we go back to the district court where the motion for preliminary injunction is denied as moot, and I'd refile that. [00:12:02] Speaker 04: And the burden on the compensatory tax doctrine would be on defendant to show under Oregon Waste Systems that the tax or the fee that's in-state that's not being charged to the in-state people, the Climate Commitment Act allowances, [00:12:18] Speaker 04: The amount saved there is equal to or less than the Climate Commitment Act being opposed on Addison. [00:12:25] Speaker 04: I phrase that horribly, so let me retry that. [00:12:28] Speaker 04: So under Oregon Waste Systems, if you want to do something discriminatory, you have to identify the in-state costs that you're compensating for. [00:12:35] Speaker 04: So Oregon waste systems there, as the Supreme Court said, Oregon had a very regulated domestic or in-state waste system. [00:12:43] Speaker 04: But what the state needed to do to impose a $2.25 fee versus an $0.85 fee is to identify what fees Oregon waste was already subject to that was equal to or greater than that $2.25 per ton imposed on the out-of-state waste. [00:12:59] Speaker 03: Do you think we need to actually get down to the dollar amount? [00:13:02] Speaker 03: I thought Oregon waste said that they could be roughly equivalent. [00:13:05] Speaker 03: They could be roughly equivalent, but here... So why wouldn't CCA and CETA be roughly equivalent? [00:13:10] Speaker 03: You know, they're both trying to decarbonize energy, right? [00:13:15] Speaker 04: Electricity. [00:13:16] Speaker 04: Because you have to get down to at least a rough amount of the dollar amount. [00:13:19] Speaker 03: Yeah. [00:13:20] Speaker 03: Okay. [00:13:21] Speaker 03: Why? [00:13:22] Speaker 04: I'm sorry. [00:13:22] Speaker 03: So go ahead. [00:13:23] Speaker 03: Go ahead. [00:13:23] Speaker 03: Sorry. [00:13:23] Speaker 04: So here, the only thing that was on the record on the preliminary injunction motion [00:13:27] Speaker 04: was that under CETA, Pacifico was going to pass along approximately $900,000 of cost from CETA for 2024-25. [00:13:35] Speaker 04: But we've got in the allegations of over $30 million that are going to have to be passed along to customers out of state for the year 2023 and for each subsequent year potentially, depending on the auction price. [00:13:46] Speaker 04: So the differences are vast. [00:13:48] Speaker 04: And also CETA, as related to Chehalis, doesn't even come into play until 2030. [00:13:55] Speaker 03: Well, can you describe why courts are competent to decide this? [00:14:01] Speaker 03: Congress can move and make a decision that this is inappropriate under the commerce clause, the affirmative commerce clause, the real commerce clause. [00:14:09] Speaker 03: But they haven't. [00:14:09] Speaker 03: And so why should we be deciding this and figuring out what's the rough equivalency and how much CCA is versus CETA is? [00:14:19] Speaker 03: It just seems like courts shouldn't be involved in things like that. [00:14:22] Speaker 03: Or we don't have competence to do it. [00:14:23] Speaker 04: I think the courts do. [00:14:25] Speaker 04: It's 150 years of stare decisis on Dormant Commerce Clause. [00:14:29] Speaker 04: The courts can be involved in this. [00:14:30] Speaker 04: I mean, we've got tons of cases on alcohol, milk, electricity as well, and other power where the courts say, this is what the rule is. [00:14:41] Speaker 04: And the Supreme Court doesn't get into numbers or the Ninth Circuit. [00:14:43] Speaker 04: They'll kick it back down to the district courts. [00:14:45] Speaker 04: So the courts do have competence. [00:14:47] Speaker 04: They can certainly look. [00:14:48] Speaker 04: It's coming on defendant to be able to say that this is roughly equivalent. [00:14:52] Speaker 04: I see them into situations. [00:14:54] Speaker 01: And what would that kind of litigation look like? [00:14:56] Speaker 01: Is that this expert testimony on how you value both the carbonization mandate on in-state consumers with the free caps? [00:15:05] Speaker 01: And you would have an expert who would say, listen, these numbers are very far apart. [00:15:09] Speaker 01: And they would have an expert that says, actually, they're very close. [00:15:12] Speaker 01: And somebody would then have to fact find or would have to decide that. [00:15:15] Speaker 04: Well, the numbers are already there because Pacific Core has to file in each state exactly every year or approximately every couple of years to say what their costs are for power. [00:15:25] Speaker 04: So in all the utility commission proceedings in the six states, they've already quantified that number. [00:15:30] Speaker 04: So as opposing councils pointed out, Pacific Core is appealing. [00:15:34] Speaker 04: commission decisions in several states where the commissions have disallowed the CCA cost. [00:15:40] Speaker 03: But I thought that it's the market overall, not just Pacific Corps, right? [00:15:45] Speaker 03: If you're asking if there's roughly equivalent these taxes, then it's not just what on you, it's on the overall market. [00:15:53] Speaker 04: So the overall market in each state is a captive market. [00:15:57] Speaker 04: So residents in Washington and Oregon and other places, you don't get to choose who your power company is. [00:16:03] Speaker 04: Exactly. [00:16:04] Speaker 04: So the competition is really between different states to see who can get the cheapest power for their customers. [00:16:11] Speaker 04: I think I missed your question. [00:16:13] Speaker 03: Well, you were just saying your response to, well, no fact finder has to figure out the cost here because we know the cost. [00:16:20] Speaker 03: But for you, for Pacific Corps, but we don't know the overall cost of the tax, which is what I think Oregon Waste is trying to [00:16:27] Speaker 04: Sure, we know the overall cost of the CCA because Pacific Core has to buy it, so they know exactly how much it costs. [00:16:34] Speaker 03: But it's just the cost of CCA to you, not the overall mark. [00:16:38] Speaker 03: Is there no one else that's subject to the CCA? [00:16:40] Speaker 04: There are tons of entities, anybody above 25,000, but in terms of utilities, it's really only Pacific Core that's shipping power out of state as a utility. [00:16:50] Speaker 04: Avista does a little bit, but it's really just Pacific Core. [00:16:54] Speaker 03: Okay, sorry. [00:16:55] Speaker 04: So I've got four minutes left. [00:16:56] Speaker 04: I'd like to reserve for a while. [00:16:58] Speaker 04: Thank you. [00:17:12] Speaker 02: Good morning, Council. [00:17:16] Speaker 00: Good morning. [00:17:17] Speaker 00: Chris Wrights on behalf of Washington State. [00:17:18] Speaker 00: May it please the court. [00:17:20] Speaker 00: What Pacific Corps is asking for in this case is a complete exemption from all state regulation of greenhouse gases for emissions that occur wholly within the state's borders as long as the power they produce at their in-state power plant is exported out of state. [00:17:35] Speaker 00: Pacific Core's efforts to obtain such a loophole under the Banner of the Dormant Commerce Clause fails for four reasons. [00:17:41] Speaker 00: First, Pacific Core is treated exactly the same as all other utilities and power plants in the state of Washington. [00:17:48] Speaker 00: in-state power and exported power are not similarly situated for Commerce Clause purposes. [00:17:53] Speaker 00: Third, CETA is centrally relevant to Washington's statutory regime here and it cannot be ignored from the analysis. [00:18:00] Speaker 00: And finally, the compensatory tax doctrine, as some of your questions pointed out, does not apply. [00:18:04] Speaker 01: I think you better focus on your point too, which is why are these, why is the power that's used in-state not dissimilarly situated from the power that's used out-of-state when it's [00:18:18] Speaker 01: all retail power and it's all the essentially fungible power as far as I can tell. [00:18:23] Speaker 00: Thank you, your honor. [00:18:25] Speaker 00: Yes, the in-state power and exported power are not similarly situated because the no-cost allowances at issue in this case, they're not a free pass for in-state power to avoid carbon regulation, quite the opposite. [00:18:38] Speaker 00: So the legislature, let me just address the two categories of power. [00:18:44] Speaker 00: in-state power is subject to CETA's decarbonization regime, which requires a dramatic aggressive reductions in the amount of carbon associated with that power, starting with the total elimination of coal power this year in 2025 from all power supplied to Washington customers, and then carbon neutrality by 2030 and full elimination of all carbon pollution from Washington's power supply by 2045. [00:19:08] Speaker 00: Now, this is a faster and more complete decarbonization than what's required economy-wide by the CCA's Cap and Invest program. [00:19:16] Speaker 00: Exported power, by contrast, is subject to none of CETA's aggressive decarbonization requirements. [00:19:21] Speaker 01: Right, but how does it make the power any different? [00:19:23] Speaker 01: I can see why you would need this kind of correction on the back end, if you will, to account for the state's [00:19:34] Speaker 01: aggressive in-state decarbonization mandates. [00:19:37] Speaker 01: I can see why you would need that, but the question is why wouldn't you analyze that as a compensatory tax as opposed to saying the power is different? [00:19:46] Speaker 00: Well, let me first address those different categories and then the compensatory tax doctrine. [00:19:52] Speaker 00: So in General Motors versus Tracy, Tracy looked at is the product the same or not, and then also are the markets the same. [00:20:01] Speaker 00: And there's some kind of overlap between those two analyses, but they're both highly relevant here and I think help address this concern. [00:20:09] Speaker 00: In Tracy, the court found that the products were different because you had this bundled product, which didn't have to do with the actual gas you were getting. [00:20:19] Speaker 00: It was still just raw gas. [00:20:21] Speaker 00: But the bundled product meant that you got not just the final distribution, but also earlier stages in the supply chain. [00:20:28] Speaker 00: So it was other factors related to how the gas is provided. [00:20:32] Speaker 00: And the court said... The product was the same, though. [00:20:35] Speaker 00: That's why in Tracy... In Tracy, the gas is the same, just like the electricity is the same here. [00:20:41] Speaker 00: But in Tracy, the court said, no, we have a different product. [00:20:44] Speaker 00: We have bundled product, which consumers can get in the captive market, whereas the out-of-state gas marketers were providing an unbundled product. [00:20:52] Speaker 00: So the court said, hey, that's two different products. [00:20:54] Speaker 00: They're not competing on that product. [00:20:56] Speaker 00: We have the same thing here, where we have electricity subject to CETA in state, [00:21:00] Speaker 00: which is one product, it's still just electricity, but it has an emissions profile associated with it that's CETA compliant and decarbonizing, whereas exported power has no carbon restrictions on it and is unbundled. [00:21:13] Speaker 00: So kind of like how consumers will sometimes pay more for green power versus not, it's a different product even though it's just electrons. [00:21:20] Speaker 03: But Washington consumers don't have a choice, right? [00:21:24] Speaker 03: So they have to have the CETA product, not the CCA product. [00:21:27] Speaker 00: That's right. [00:21:28] Speaker 00: That's right. [00:21:28] Speaker 00: But the exported power is in a different category, because those customers, wherever it goes, whether it's sold to the wholesale market, sold to Oregon or California, or sold to Idaho or Utah, it has no CETA compliance with it. [00:21:41] Speaker 00: And when it goes to jurisdictions that don't have any restrictions [00:21:45] Speaker 00: on carbon emissions. [00:21:46] Speaker 00: There's never any carbon emissions restrictions when it hits the end consumer. [00:21:51] Speaker 03: So as of today, the way that energy is made is different, you're saying? [00:21:56] Speaker 00: That's right. [00:21:57] Speaker 00: Because of CETA, CETA is in effect now, and it requires every utility serving Washington customers to have a plan in place to start decarbonizing. [00:22:07] Speaker 00: This year, they have to remove their coal-fired power from electricity that supplies Washington customers. [00:22:13] Speaker 03: The way I'm thinking is, tell me if I'm wrong, it's like you have apples and organic apples, right? [00:22:17] Speaker 03: To me, they're the same apple, but one is organic, because it's the way it's made and things of that nature. [00:22:23] Speaker 03: Is that similar to what you're saying here? [00:22:25] Speaker 00: That's an excellent analogy. [00:22:26] Speaker 00: Yeah, the CETA compliant power is the organic apple of electricity, and that's what Washington requires. [00:22:32] Speaker 00: Other states have, you know, council referenced some, that some other states have some kinds of restrict, like carbon portfolio standards, and they specifically only reference Oregon and California. [00:22:42] Speaker 00: But Pacific Core has a six-state service area that includes Utah and Wyoming and other states that don't have any restrictions at all. [00:22:52] Speaker 00: So they don't have an organic apple requirement there. [00:22:55] Speaker 00: So, if Pacific Corp were to get the relief they're seeking here, they'd be able to export as much power as they want from their power plant in Chehalis with all the emissions. [00:23:06] Speaker 03: Your friend said, though, other states do have this organic apple requirement, so then how do we factor that in so that they have to... [00:23:12] Speaker 00: Yes, so the only two states in Pacific Corps service area that do, that have significant portfolio standards are Oregon and California. [00:23:20] Speaker 00: And those standards differ significantly in their scope and structure as well as their stringency. [00:23:24] Speaker 00: CETA is more stringent and more aggressive. [00:23:27] Speaker 00: Oregon's, for example, requires at most a 10% reduction in greenhouse gases for their small utility. [00:23:32] Speaker 00: So there's a big exception there. [00:23:33] Speaker 00: Washington has no such exception. [00:23:35] Speaker 00: But more importantly, Utah and Idaho have no portfolio standards at all, and Wyoming's has a very vague portfolio standard that allows high emitting power such as that. [00:23:45] Speaker 00: So there is a loophole and a gap where Pacific Corps could, if even setting aside Oregon and California, they would be able to export to Idaho and have all their emissions here in Washington, essentially exporting their emissions to Washington, and then have no restrictions there. [00:24:03] Speaker 00: And, you know, going back to General Motors versus Tracy, the markets are also different. [00:24:11] Speaker 00: And that was another factor there in General Motors versus Tracy, because the captive in-state market in General Motors versus Tracy didn't compete with, you know, large producers like General Motors who could buy from anyone they wanted from the out-of-state gas producers. [00:24:26] Speaker 00: So there was no competition. [00:24:27] Speaker 00: And we have the same thing here, where we have captive in-state markets regulated in each state. [00:24:33] Speaker 00: Now, my friend suggested that somehow they're competing directly with each other, and that there's a competitive market between every state, with the utilities acting as parent's patriae. [00:24:44] Speaker 00: for as basically as buyers for their for their citizens and that's that doesn't really that's not really the case your honor because utility regulation is committed under the federal power act to states to regulate retail electricity so so congress has spoken [00:25:00] Speaker 00: and identify that states will do that. [00:25:02] Speaker 00: And states are not just focused solely on price. [00:25:05] Speaker 00: They are regulating numerous factors about how energy is produced and provided within states, including an energy policy regarding whether the electricity is bundled or unbundled, how it's produced, also its emissions profiles, things like CETA and these other portfolio standards that some states have adopted, but many have not. [00:25:22] Speaker 00: And also consumer protections, how many or how few consumer protections there are, what kinds of costs are recoverable, rate setting, and what is a fair economic return. [00:25:30] Speaker 00: And different states have slightly different standards for that. [00:25:33] Speaker 00: So there's many other factors going to play, and they're not simply competing. [00:25:39] Speaker 03: So in the state of – in Washington, Pacific – a customer can't compete for [00:25:44] Speaker 03: Puget Sound Energy versus Pacific Core Energy. [00:25:50] Speaker 03: Is that right? [00:25:50] Speaker 00: It's all geographically based? [00:25:51] Speaker 00: That's right. [00:25:52] Speaker 00: Yeah. [00:25:52] Speaker 00: Each utility has a monopoly, and that's why they're regulated by a commission. [00:25:57] Speaker 03: Right. [00:25:57] Speaker 03: Because the way I see Tracy was that it's trying to prevent in-state advantage to in-state customers. [00:26:07] Speaker 03: But here, given that Puget, which is not subject to CCA, is that correct? [00:26:13] Speaker 00: Well, that's not correct. [00:26:14] Speaker 00: And that was something I wanted to point out, that Puget Sound Energy, which has only customers in Washington state, it actually also has excess capacity and power plants it owns in Washington where it exports power out of state. [00:26:25] Speaker 00: They sell it to the wholesale market. [00:26:27] Speaker 00: And Avista, another investor-owned utility, is a multi-jurisdictional utility like Pacificor and also has power plants in Washington and exports out of state. [00:26:37] Speaker 00: So all of those utilities are subject to the same, they're subject to the CCA. [00:26:43] Speaker 03: So all in-state utilities are subject to the same regulation that Pacific Corps is subject to? [00:26:49] Speaker 03: Correct. [00:26:50] Speaker 03: Well, and I thought the whole purpose of the Dormant Commerce Clause is to not advantage in-state versus out-of-state consumers, but if everyone's under the same regulation throughout, then [00:26:59] Speaker 03: I don't see what we're doing here. [00:27:01] Speaker 00: Yeah, and in some ways this is an unusual commerce clause case. [00:27:03] Speaker 00: You'll notice most cases involve an out-of-state company alleging that they're being discriminated against. [00:27:08] Speaker 00: We don't have that here. [00:27:10] Speaker 00: Here we have a claim where Pacific Core is alleging that some of their business, their in-state business, is somehow being boosted and that their out-of-state business is being disadvantaged. [00:27:19] Speaker 01: But that's not really the standard dormant commerce clause theory, right, to say you're discriminating against interstate commerce even if the [00:27:28] Speaker 01: regardless of the location of the regulated entity. [00:27:32] Speaker 01: So that's still heartland dormant commerce clause. [00:27:36] Speaker 00: Well, yeah, because there's interstate commerce at play, then yeah, the commerce clause can come into play there. [00:27:42] Speaker 00: But you usually have different entities that are being discriminated. [00:27:46] Speaker 02: An out-of-state entity versus an in-state entity. [00:27:47] Speaker 00: Exactly. [00:27:48] Speaker 02: That's not what we have here. [00:27:49] Speaker 00: That was the point I was trying to make. [00:27:50] Speaker 00: And this court's decision in Dave versus Henry kind of stepped back to that level. [00:27:56] Speaker 00: to look at, hey, do we really have different treatment of these different classes at all to begin with? [00:28:01] Speaker 00: And in Dave vs. Henry, which just came out this March, this court found that the Arizona liquor regulations, they had this in-state presence requirement, which subjected a seller to the full set of Arizona liquor regulations. [00:28:17] Speaker 00: The in-state presence requirement, although it did require a company to have a brick and mortar store, [00:28:22] Speaker 00: was not discriminatory because it was open, equally open to companies from out of state and in state. [00:28:27] Speaker 00: You could look at this case the same way where the no cost allowances are equally available. [00:28:34] Speaker 00: They do require providing power to in state customers, but they're equally available to all utilities. [00:28:39] Speaker 00: and they're not discriminating specifically against between in-state and out-of-state classes. [00:28:45] Speaker 01: So how is this different than the camp, the Maine camp case, the Camp Newfound case where, right, where their Maine was essentially discriminating against camps that catered more to out-of-state people? [00:29:00] Speaker 00: Yeah, the major difference here is that in Camps Newfound, there was no different regulatory system that applied to the two classes of camps. [00:29:08] Speaker 00: So the camps in Maine that primarily serviced in-state residents, that had in-state customers, compared to the camps that primarily had out-of-state campers, [00:29:19] Speaker 00: They were all subject to the same regulations. [00:29:21] Speaker 00: So there was nothing remotely like CETA here, which subjects in-state power to a dramatically different landscape of carbon regulation compared to out-of-state exported power. [00:29:31] Speaker 01: What are the limits of this? [00:29:32] Speaker 01: Because imagine that Washington said, well, we would like people who are workers at Chehalis who are serving in-state to be paid a higher wage. [00:29:43] Speaker 01: And by the logic of the argument, we would say people [00:29:47] Speaker 01: who are buying power in state are buying greater equity-based power than people who are buying out of state. [00:29:53] Speaker 01: I mean, wouldn't your argument allow that kind of discrimination even for things like a wage or really any other aspect of a regulatory regime? [00:30:01] Speaker 00: Yeah, I think that's a helpful hypothetical, your honor, because it shows that at some point if the regulation that someone's arguing differently situates these two classes is so attenuated from what we're actually talking about, from the challenge statute, then it would not be enough to differently situate. [00:30:20] Speaker 00: So from the cases, we don't have a bright line test to distinguish between these. [00:30:25] Speaker 00: We have the rule that [00:30:26] Speaker 00: the two classes have to be similarly situated but treated differently in order to have discrimination. [00:30:33] Speaker 01: But I don't really see how you could distinguish between CETA and the law that increases the minimum wage for people who are producing in-state power. [00:30:43] Speaker 01: It seems to me those would be the same kind of thing. [00:30:46] Speaker 01: It's not changing the ultimate product in the way that organic fruits are, people understand those to be different. [00:30:54] Speaker 00: I think that relevance provides a guide, Your Honor. [00:30:57] Speaker 00: So for the in-state regulation to differently situate the two classes, I think it needs to be centrally relevant and it needs to be a significant regime. [00:31:08] Speaker 00: Here we have a significant statewide regime, CETA, that applies across the board. [00:31:13] Speaker 00: And it's centrally relevant. [00:31:16] Speaker 00: It's expressly referenced in the CCA's no-cost allowance provision. [00:31:20] Speaker 00: And indeed, it's mechanically a critical prerequisite. [00:31:23] Speaker 00: Power has to be subject to CETA before it can qualify for no-cost allowances at all. [00:31:29] Speaker 00: So that's built into the mechanism of the statute. [00:31:33] Speaker 00: and for good reason, that recognizes that it's not really the in-state location that is the reason why the CCA is drawing this distinction. [00:31:43] Speaker 00: It's CETA. [00:31:45] Speaker 00: And the reason CETA applies just to in-state power is just the nature of the electricity markets. [00:31:51] Speaker 00: Washington, when they're looking at regulating utilities, Washington has regulated utilities to the full borders of the state. [00:32:00] Speaker 00: But it can't regulate the power product that's going to consumers out of state. [00:32:06] Speaker 03: Why is that? [00:32:07] Speaker 03: That's what I was wondering. [00:32:08] Speaker 03: Could you solve everything, just make CETA? [00:32:10] Speaker 03: If energy is produced in state, can everything that's produced in state be subject to CETA? [00:32:15] Speaker 00: Yeah, so that would simplify our case. [00:32:19] Speaker 00: But the reason is because CETA doesn't regulate the power that's produced. [00:32:23] Speaker 00: CETA only regulates the product that's going to the consumer. [00:32:27] Speaker 00: So it regulates the utility providing the power product to the consumer. [00:32:32] Speaker 00: And that's what generates the complexity that we have in this case. [00:32:36] Speaker 00: CETA is, to the full extent of the state's authority, decarbonizing electricity's power grid. [00:32:41] Speaker 00: But because it's regulating utilities, [00:32:44] Speaker 00: It's not in terms of their provision of power and the power supply. [00:32:49] Speaker 00: It doesn't regulate the actual direct generation of greenhouse gases at power plants and other facilities. [00:32:56] Speaker 03: It kind of brings up what Tracy said, that of course we're not really competent to figure all this stuff out, and we should maybe stay away. [00:33:04] Speaker 03: Can I ask if we get to part two, if we say it is substantially similar, but then we look at the compensatory taxes? [00:33:10] Speaker 03: Based off of the record we have before us now, can we decide that issue? [00:33:14] Speaker 00: no your honor you can't and I think you're correct that that's a step to that you don't get to but if you did in addition there would be the other question of is there even different treatment to begin with under Dave versus Henry to consider but if you got there if you got past all that then then on remand yet the state could present a Compensatory tax and that would be more fact-intensive potentially but they are the point I want to make is that [00:33:37] Speaker 00: It's really not appropriate for comparing costs the way Pacific Corp would like to. [00:33:43] Speaker 00: I mean, these costs are not really knowable, right? [00:33:46] Speaker 00: It may all depend on how fast the energy transition takes place over many years and what kind of technological developments there are and what kinds of economic developments there are, both under CETA and the CCA. [00:33:56] Speaker 00: So it's not true that we have the costs and know what they are. [00:33:59] Speaker 00: Under CETA, that's going to be happening over time as decarbonization happens. [00:34:05] Speaker 00: And then under the CCA, [00:34:07] Speaker 00: It doesn't have a set price like a tax or a fee. [00:34:10] Speaker 00: It's a variable market pricing system as a cap and trade system. [00:34:13] Speaker 00: And what those costs are going to be are going to depend upon how demand changes as entities economy-wide decarbonize and what kind of demand there is for CCA compliance costs. [00:34:25] Speaker 00: So a conventional tax would be very unworkable here, even if we got there. [00:34:30] Speaker 00: What is aligned? [00:34:31] Speaker 01: Unworkable meaning it would be just difficult to figure out what the answer is. [00:34:36] Speaker 00: Yes, I think so. [00:34:38] Speaker 00: It would be expert testimony on estimates. [00:34:42] Speaker 00: It wouldn't be hard data. [00:34:44] Speaker 00: But what is available here is that the regulatory goals between CETA and the CCA are aligned. [00:34:51] Speaker 00: They're both decarbonizing at similar rates, and so there's a balance there. [00:34:54] Speaker 03: That's my thought. [00:34:54] Speaker 03: Why can't we just say that the regulatory goal is the same, that they're roughly equivalent, and then at step two say that that's fine? [00:35:02] Speaker 00: I think that potentially [00:35:03] Speaker 00: I haven't thought about that in a compensatory tax frame. [00:35:07] Speaker 00: But I think the fact that the regulatories are aligned shows why CETA is centrally relevant to differently situate these two classes. [00:35:16] Speaker 00: And if you have differently situated classes, then you don't get any further because you can't have discrimination between differently situated classes. [00:35:23] Speaker 00: Instead, you have different treatment for different types of classes. [00:35:26] Speaker 00: And that's what we had in TRACIE. [00:35:34] Speaker 00: Let me just check. [00:35:40] Speaker 00: I also want to point out that this court's lens crafter's decision from 2009 is also helpful, I think, in explaining that even if you don't have the same product in the same market, if you don't look at it that way, that you can still have differently situated classes due to the differential application of a regulatory regime. [00:35:59] Speaker 00: In Lenscrafters, we had opticians selling eyeglasses, and the court considered that they were differently situated than optometrists and ophthalmologists who were subject to California's licensing regime as health professionals. [00:36:12] Speaker 00: And they found, well, they're differently situated, so California could have differential regulation of those two classes. [00:36:21] Speaker 00: And then finally to help with kind of where the line is or the limiting principle on considering what kind of state regulation would be enough to differently situate. [00:36:31] Speaker 00: I think the day versus Henry case at the Arizona District Court and the fifth circuits wine country gift at baskets case that we reference. [00:36:39] Speaker 00: are helpful. [00:36:40] Speaker 00: And they look at, if you were to grant the relief that plaintiff is requesting, would it grant them dramatically greater rights than the in-state interest? [00:36:48] Speaker 00: And that's exactly what we have here in the district court below. [00:36:51] Speaker 01: I don't know that. [00:36:51] Speaker 01: I mean, that gets to the whole question, right, which is what would be... I don't think there... we would have to figure out whether the compensatory tax doctrine applies, but I thought your position would be this all is evened out. [00:37:04] Speaker 01: If you actually did the analysis, [00:37:06] Speaker 01: What the expert testimony would show is that this is just all evened out. [00:37:10] Speaker 00: Well, I think my point there, Your Honor, was that the in-state power that's decarbonizing under CETA and out-of-state power that's going to be subject to the CCA, they have a big-picture aligned goal of decarbonization, so you're going to see a big-picture general similarity there. [00:37:28] Speaker 00: I think that's true. [00:37:30] Speaker 00: However, here the point I was trying to make about the dramatically greater rights is just that, essentially, that there would be what Pacific Corps wants is a big loophole. [00:37:38] Speaker 00: And it's not that they're saying we want to have the same thing that's subject to instate, because their exported power is not going to be subject to CETA. [00:37:46] Speaker 00: They're not going to be decarbonized at that same rate. [00:37:49] Speaker 00: What they want is to say, under the dormant commerce clause theory, that somehow they would [00:37:54] Speaker 00: get a loophole where they have no regulation for that. [00:37:57] Speaker 00: And that, Dave versus Henry and Wine Country said, if that's the result that you get from granting the relief, that helps show you that they were not in the same position to begin with. [00:38:06] Speaker 00: And that's, so it's just indicative of the fact that the exported power is exempt from CETA while the in-state power is fully subject to decarbonization under CETA. [00:38:20] Speaker 02: All right, Councilor Yvick, see that your time, you want to wrap up? [00:38:23] Speaker 00: Thank you. [00:38:24] Speaker 00: Well, we would ask the court to affirm apologize. [00:38:26] Speaker 04: Thank you your bottle Thank you our couple things I'd like to address first off that the big loophole doesn't exist the big loophole is a product of the state of Washington's own decision in 2019 to implement the CEDA itself, so CEDA is implemented first the [00:38:47] Speaker 04: So the ab initio situation was that customers in Washington would eventually be subject potentially to higher prices because of CEDA. [00:38:56] Speaker 04: Later on, they imposed the CCA. [00:38:59] Speaker 04: States are not free to say, oh, we've got this preexisting tax and impacts or preexisting regulation and impacts just our citizens. [00:39:07] Speaker 04: Therefore, we can come along and have something different to come along to discriminate. [00:39:11] Speaker 04: If the state of Washington wants to refurbish all of its highway systems and they pay for that by 1% tax, [00:39:17] Speaker 04: on property taxes in the state of Washington. [00:39:19] Speaker 04: Then you realize it's not enough money and a couple years later they say we're going to toll our roads. [00:39:24] Speaker 04: But we're not going to toll our roads for people who pay Washington state property tax to pay for that. [00:39:29] Speaker 04: We're only going to tariff people that come from out of state and use our roads. [00:39:32] Speaker 04: They can't do that. [00:39:33] Speaker 04: That's a violation of the Dormant Commerce Clause. [00:39:35] Speaker 04: It interferes with the interstate commerce. [00:39:38] Speaker 02: What's your strongest case that addresses an in-state entity as opposed to two in-state entities as opposed to one in-state entity and one out-of-state entity? [00:39:49] Speaker 02: What's your strongest case? [00:39:50] Speaker 02: Because normally it involves an entity who is outside the state trying to do business in the state. [00:39:56] Speaker 02: Sure. [00:39:57] Speaker 04: Camp's newfound Owatonna. [00:39:59] Speaker 04: So there, you had an in-state entity that was being discriminated against because they were catering to out-of-state customers. [00:40:06] Speaker 02: It's the case that Judge Brist. [00:40:07] Speaker 02: Yes. [00:40:08] Speaker 02: OK. [00:40:09] Speaker 03: But you would agree, though, under the CCA and CETA, there's no in-state entity that's being advantaged, right? [00:40:18] Speaker 04: So under CETA, and the way they're advantaged. [00:40:20] Speaker 03: Under the entire regulatory regime, there's no in-state actor being advantaged. [00:40:26] Speaker 04: Sure. [00:40:27] Speaker 04: Every resident in Washington of Chehalis Power. [00:40:30] Speaker 04: Entity. [00:40:30] Speaker 04: Entity. [00:40:31] Speaker 04: Yeah, the producer side. [00:40:33] Speaker 04: What? [00:40:34] Speaker 04: Consumers. [00:40:34] Speaker 04: Well, on the producer side, [00:40:37] Speaker 04: No, but this is on the consumer side. [00:40:40] Speaker 04: Everybody's receiving Chehalis power has an advantage over everybody's receiving Chehalis power outside of Washington. [00:40:46] Speaker 02: What case takes it to the level of the consumer as opposed to whether or not the [00:40:51] Speaker 02: entity itself is being disadvantaged. [00:40:53] Speaker 02: What case can you cite to that? [00:40:56] Speaker 04: I'm sorry. [00:40:57] Speaker 04: Maryland versus Louisiana. [00:40:58] Speaker 04: I'm sorry to interrupt. [00:40:59] Speaker 04: Just a short time. [00:41:00] Speaker 04: Maryland versus Louisiana, where the Supreme Court said that out-of-state customers are going to be subject to the first use tax, while customers inside of Louisiana would not. [00:41:10] Speaker 04: Did that involve an out-of-state entity? [00:41:13] Speaker 04: Well, the plaintiffs and the defendants there are the states themselves, and there are a lot of other parties involved. [00:41:17] Speaker 04: So the discrimination there was that the tax, when it left [00:41:21] Speaker 04: Louisiana was going to be subject to a first-use tax, but if you used it within Louisiana, you would get an exemption from that. [00:41:27] Speaker 04: And therefore, customers of that tax would have an advantage over out-of-state customers. [00:41:31] Speaker 02: Under the Dormant Commerce Clause? [00:41:33] Speaker 04: Yes. [00:41:33] Speaker 04: And that was found to violate the Dormant Commerce Clause and was struck down. [00:41:36] Speaker 03: Can you tell me what's wrong with my analogy, the organic apples versus a regular apple? [00:41:41] Speaker 03: Why is this the same situation? [00:41:43] Speaker 04: I'm not quite sure where that one was going. [00:41:47] Speaker 03: Okay, so in my view, you know, if you believe the state's view that the CETA has decarbonized the production of energy so that it's kind of like an organic apple that's more green, whereas energy not subject to CETA, it doesn't have that advantage, and so they're a different product. [00:42:06] Speaker 04: So, because here the claim is very narrow. [00:42:09] Speaker 04: This is only about power from Chehalis. [00:42:11] Speaker 04: We're not talking about Pacific Core's entire portfolio. [00:42:15] Speaker 04: So, here it is the exact same apple. [00:42:17] Speaker 04: It's not a different apple. [00:42:18] Speaker 04: My good counsel from the other side keeps talking, I'm over time, but they keep talking about how [00:42:24] Speaker 04: there's a emissions profile. [00:42:25] Speaker 04: There's no such thing as an emissions profile. [00:42:27] Speaker 04: The emissions profile from Shehalis is going to be the same wherever it goes, because it's the same amount of carbon that's emitted per megawatt, regardless of where it goes. [00:42:36] Speaker 04: But how is Shehalis then complying with CETA then? [00:42:39] Speaker 04: It doesn't have to until 2030, which is the other point that even if you say that CETA has an effect, it's not here yet. [00:42:46] Speaker 04: And it may have no effect because of the price of gas goes up. [00:42:49] Speaker 03: But I'm sure you're doing research and figuring out how to be in compliance and you're spending a lot of money based off of that. [00:42:54] Speaker 04: But the cost doesn't go to the customer yet, because it can only go to the customer after it's used and useful. [00:42:58] Speaker 04: And the cost that's in the record is minimal for in-state compared to the dozens of millions for the power going out of state. [00:43:04] Speaker 03: When CETA applies, the way the energy is produced will be different. [00:43:07] Speaker 04: It could be, and it could be, and it also, the cost then, because we're talking about cost, everything that the district court, I'm way over time, but everything the district court and plaintiffs, I mean defendants talked about, the only difference is cost. [00:43:20] Speaker 04: When the only difference between the two sides, in-state and out-of-state, is cost, that's never seen in any of the cases as not being similarly situated. [00:43:28] Speaker 04: That always goes into the compensatory tax analysis. [00:43:34] Speaker 04: I'm way over time. [00:43:35] Speaker 02: I'm not way over time, but you're over. [00:43:37] Speaker 02: Thank you. [00:43:37] Speaker 02: Thank you to both counsel for your helpful arguments. [00:43:39] Speaker 02: The case just argued is submitted for decision by the court. [00:43:42] Speaker 02: We are in recess until 9 30 a.m. [00:43:45] Speaker 04: tomorrow morning.