[00:00:02] Speaker 00: Case number 14-1085 at L, American Transmission Systems Incorporated at L Petitioners versus Federal Energy Revotory Commission. [00:00:10] Speaker 00: Mr. Jaffe for the petitioners, Ms. [00:00:12] Speaker 00: Perry for the responder. [00:01:03] Speaker 02: Good morning. [00:01:04] Speaker 03: Good morning. [00:01:05] Speaker 03: May it please the court, Kenneth Jaffe on behalf of American Transmission Systems Incorporated and Public Service Electric and Gas. [00:01:14] Speaker 03: Since this case presents essentially the same issue as the last one, I would like to begin and probably end by correcting two misimpressions from the last argument and confirming one correct impression. [00:01:29] Speaker 03: The two misimpressions are the misimpression that the mobile CLA doctrine does not, by the terms that the Supreme Court has described it, apply both to rates and non-rates. [00:01:41] Speaker 03: I would also like to correct the misimpression that the contract provision here, the reservation by the PJM utilities of their existing construction rights, [00:01:51] Speaker 03: is an anti-competitive combination among horizontal competitors. [00:01:57] Speaker 03: And I would like to confirm the impression that FERC failed to apply the mobile Sierra test as the Supreme Court described it. [00:02:06] Speaker 03: On the first issue, as far as rates are concerned, I'd first like to point out, FERC did not base its ruling below on the notion that the Mobile Sierra Doctrine applies only to rates. [00:02:18] Speaker 03: So under Chenery, that can't say... Or did Chenery apply? [00:02:20] Speaker 05: You've told us that this is just de novo review by us of what the Supreme Court means. [00:02:25] Speaker 05: I don't know how Chenery can apply if they don't have any discretion to make the decision, and it's de novo review. [00:02:30] Speaker 03: regardless of whether you need to defer to them, Your Honor, they did make a decision, and in fact, they were explicit in their ruling, and you can find this on page. [00:02:39] Speaker 05: No, as you are the petitioners, you've made an argument, and you say, this is de novo review by the D.C. [00:02:44] Speaker 05: Circuit of whether the Supreme Court precedent requires application of mobile Sierra. [00:02:49] Speaker 05: That's how I understood your arguments, including your standard of review section. [00:02:54] Speaker 05: And if we were to say, [00:02:57] Speaker 05: If we were to say we think you're incorrect about Mobile Sierra, it does not apply by its terms outside this context. [00:03:07] Speaker 05: I don't see how it's a chennery problem when you've told us it's for us to decide de novo. [00:03:11] Speaker 05: Maybe I'm wrong, but I really don't quite get how that works. [00:03:14] Speaker 03: Your Honor, we respectfully submit that chennery still applies, even when the court does not have to defer to FERC. [00:03:20] Speaker 05: Do you have a case where it's been applied to something that we decide de novo? [00:03:24] Speaker 05: that the only issue was the interpretation of Supreme Court precedent? [00:03:29] Speaker 03: I don't have that case at the tip of my fingertips, Your Honor. [00:03:32] Speaker 03: But moving on, it is noteworthy that in the orders below, FERC explicitly said that the Mobile Sierra Doctrine applies to rates, terms, and conditions [00:03:44] Speaker 03: of valid contract, said that on page 76 of the joint appendix. [00:03:50] Speaker 03: And it was also correct, as Judge Wilkins noted, that the only reason we're here, the only reason FERC has any jurisdiction at all over these construction rights, is because this court determined in the South Carolina case that they are closely connected to rates. [00:04:07] Speaker 03: I believe it was closely effected, directly effected, because the CAISO governance case says that an indirect effect is not sufficient. [00:04:18] Speaker 03: So there needs to be a close connection. [00:04:21] Speaker 03: I would also note that FERC, on brief, both here and in the Oklahoma case, concedes that its ruling below recognized that mobile Sierra applies both to rates and non-rate conditions. [00:04:35] Speaker 03: And I'd also point to the language of the Supreme Court itself going back to the mobile gas case. [00:04:43] Speaker 03: where the court said that the respect for contracts that is reflected in the Mobile Sierra Doctrine applies to that the limitation on the commission's review to the power to review rates and contracts made in the first instance by pipelines or public utilities. [00:05:05] Speaker 03: I believe that's on page 341 of the Mobile Gas case. [00:05:09] Speaker 03: And finally on this point, if I could refer this court to the Atlantic City Electric case, based in 2002, where this court recognized that Mobile Sierra applied to provisions of the PJM tariff and agreements that allocated responsibility among the PJM utilities and PJM. [00:05:32] Speaker 03: Now, to be sure, the issue wasn't exactly the same as this. [00:05:36] Speaker 03: It concerned the right to submit filings under Section 205 of the Power Act, but it was a non-rate term relating to the allocation of responsibilities among the parties. [00:05:48] Speaker 03: With respect to the second misconception, the Supreme Court said explicitly in the Morgan Stanley case that mobile Sierra applies to all valid contracts unless the parties have opted out of it. [00:06:05] Speaker 03: The court said mobile Sierra, and I'm quoting, is the default rule. [00:06:11] Speaker 03: close quotes, unless the parties opt out of it. [00:06:15] Speaker 03: It didn't say that it only applies to certain types of contracts, that multilateral contracts among utilities are not covered. [00:06:24] Speaker 03: And as I noted, Atlantic City involved a multilateral agreement among the PJM companies and PJM. [00:06:34] Speaker 03: I guess the notion that this contract, including specifically the reservation of construction rights, is somehow anti-competitive, an attempt to exclude competitors of the original utilities, is just wrong. [00:06:52] Speaker 02: So Judge Posner just blew it on that? [00:06:54] Speaker 02: Because, I mean, you can say that. [00:06:56] Speaker 02: He said that's different from a contract in which the parties are seeking to protect themselves from competition from third parties. [00:07:02] Speaker 02: Cartels are the classic example of such contracts. [00:07:05] Speaker 02: That's how he described the basic. [00:07:07] Speaker 03: That was how he described the Midwest ISO agreement. [00:07:11] Speaker 03: concede that that agreement is similar to this one. [00:07:14] Speaker 03: But yes, Your Honor, Judge Posner was wrong. [00:07:16] Speaker 03: And he was wrong because he proceeded from that assumption as though to rule as though the Mobile Sierra Doctrine was limited to the facts of the Sierra Pacific case, that only if there is a challenge. [00:07:31] Speaker 02: I'm on a slightly different point, which is, was he wrong to characterize it that way? [00:07:35] Speaker 02: He went into [00:07:37] Speaker 02: He knows his antitrust. [00:07:39] Speaker 02: He went into no one likes to be competed against, a firm blessed with a right of first refusal, can exclude competition by exercising its option. [00:07:51] Speaker 02: All that's very problematic from his perspective and therefore, as he said, but why if the owners have made no effort to show that the right is in the public interest. [00:08:00] Speaker 02: So my question's just on the facts there. [00:08:03] Speaker 02: Is he wrong to think [00:08:05] Speaker 02: to describe it that way. [00:08:07] Speaker 03: Certainly he was wrong if that characterization of describing, he was not wrong to say that cartels aren't disfavored, but this was not an agreement to form a cartel. [00:08:19] Speaker 03: This was an agreement to take, there were a group of utilities, each of which had a franchise monopoly in its territory [00:08:27] Speaker 03: And what they agreed to do was open up competition to transfer portions of their responsibilities to a new independent entity. [00:08:37] Speaker 03: In an agreement, I point out that FERC accepted as just and reasonable, but that's beside the point. [00:08:43] Speaker 03: But this new entity was going to exercise responsibilities that formerly each of these utilities exercised on its own with no oversight at all by FERC. [00:08:54] Speaker 03: And the right of what FERC calls the right of first refusal, we think it's more accurate to call it the construction right, was a critical part of this. [00:09:04] Speaker 03: Because while PJM got the responsibility to plan the transmission system, that is to decide what [00:09:12] Speaker 03: new lines and substations were needed and where and when, it didn't have the wherewithal to build them. [00:09:19] Speaker 03: It relied on the transmission owners to do that. [00:09:23] Speaker 03: And so the transmission owner said, well, okay, we're the ones creating it. [00:09:27] Speaker 03: We have responsibility to make sure this works. [00:09:30] Speaker 03: We have the right and responsibility to build what you tell us to build. [00:09:35] Speaker 03: That is pro-competitive. [00:09:37] Speaker 03: It is not anti-competitive. [00:09:39] Speaker 03: And there was no restriction on others building. [00:09:42] Speaker 03: It was saying, when you say, we need, if they would tell my client, American transmission systems, there's a new line needed in your territory, otherwise reliability will suffer, we step on them and we build it. [00:09:56] Speaker 03: That is to make the whole thing work. [00:09:59] Speaker 01: But why is it pro-competitive if your client has a right of first refusal and somebody else wants to build it? [00:10:10] Speaker 01: I mean, the membership agreement sets in place a mechanism whereby PJM can, or the RTO can say this needs to be built [00:10:28] Speaker 01: But why does it matter who builds it? [00:10:31] Speaker 03: It matters, Your Honor, because as we've now seen in the year or two since Burke's new regime has come into place, deciding who builds it is a complicated, litigious process. [00:10:44] Speaker 03: And as a lawyer involved in that process, I'm not too upset about that. [00:10:50] Speaker 03: But the fact remains that the utilities and PJM who are forming this, when PJM said, we need you to build it, [00:10:57] Speaker 03: It said, we need you to build it by a time certain. [00:11:00] Speaker 03: Otherwise, there's an increased risk that the lights will go out. [00:11:04] Speaker 03: So having one entity in each area to look to and to assign the obligation to build that, the concomitant right is a small price to pay to make this whole thing work. [00:11:19] Speaker 03: And the record in this case is that it has worked extremely well. [00:11:24] Speaker 03: FERC did not point to a single thing that suggests that the public interest has not been well served. [00:11:32] Speaker 03: We told FERC. [00:11:34] Speaker 03: Well, that's not fair. [00:11:35] Speaker 05: They've got other companies coming in saying, we'd like to do it. [00:11:38] Speaker 05: We'd like to be able to build these things. [00:11:40] Speaker 05: We think we can do them efficiently. [00:11:43] Speaker 05: And the only reason we're not allowed to do it is because we don't have the right. [00:11:47] Speaker 05: Someone has a right of first refusal. [00:11:48] Speaker 05: That's not good for efficient markets. [00:11:51] Speaker 03: And that was the South Carolina case, Your Honor, where this court said that that was a valid basis for FERC as a general matter to prescribe construction rights. [00:12:03] Speaker 03: But FERC did not find, and this court reserved the question [00:12:08] Speaker 03: of whether contract rights had a role in that. [00:12:12] Speaker 03: Virk did not suggest in that case that the record was adequate to address the mogul Sierra question of whether the existence of the contract rights so severely harmed the public interest that they create an unequivocal public necessity to eliminate those rights. [00:12:30] Speaker 03: In fact, Virk explicitly said that the record is inadequate. [00:12:34] Speaker 03: for it to make that determination. [00:12:37] Speaker 02: If you won here, that's what would happen. [00:12:39] Speaker 02: It would go back to FERC to make that evaluation. [00:12:41] Speaker 03: It would go back to FERC to make that evaluation. [00:12:44] Speaker 03: And we think we would win. [00:12:45] Speaker 03: But that's not the issue here. [00:12:47] Speaker 03: Because from short circuit, the process. [00:12:48] Speaker 02: You want them to have to make it. [00:12:50] Speaker 02: And your point a second ago was about people gave up things as part of this agreement. [00:12:59] Speaker 02: And one of the things they got in return was the right of first refusal. [00:13:03] Speaker 03: That's one of my points, Your Honor, but it's more than that. [00:13:06] Speaker 03: It's not simply that the right of first, and again, we don't like calling it a right of first refusal because it's not the case that someone else could come in with a better mousetrap and we could just take it away from them. [00:13:18] Speaker 03: It is a right and obligation to build what PJM tells us to build. [00:13:22] Speaker 03: But you have more than that. [00:13:24] Speaker 03: It's more than that. [00:13:24] Speaker 03: It's more than that because the commitment of the transmission owners to build what PJM tells them, it's not a bug. [00:13:32] Speaker 03: It's a feature. [00:13:33] Speaker 03: It's something that makes the whole regional market work. [00:13:36] Speaker 03: because PJM can be assured that the system will remain reliable even though what was formerly a unitary vertically integrated process has now been split up and an independent entity is now in control of it. [00:13:51] Speaker 02: The theory I think FERC has is the more competition the better. [00:13:56] Speaker 02: Which is usually a correct theory of economics. [00:13:59] Speaker 03: I'm not going to re-argue that case generally, Your Honor. [00:14:02] Speaker 03: I think what is open is the question of whether that notion is sufficient under the public interest test, a question that FERC completely ignored here by creating additional roadblocks [00:14:15] Speaker 02: to the implementation of mobile Sierra in the first instance, the public interest in essence through the back door on the arm's length point. [00:14:22] Speaker 03: I don't think so. [00:14:24] Speaker 02: You're right without having the burden that you think they should have. [00:14:27] Speaker 02: But they certainly analyze things. [00:14:30] Speaker 02: And so I'm not [00:14:32] Speaker 02: They analyze things that seem like the same things they would analyze if they were doing the public interest analysis. [00:14:37] Speaker 03: Well, I would submit they did not. [00:14:38] Speaker 03: I think one of the things the public interest has to take into account is the stabilizing importance of contract rights and respect for those. [00:14:48] Speaker 03: And this court, in fact, recognized that in the Wisconsin public power case in 2007, where FERC did, in fact, consider [00:14:58] Speaker 03: the stabilizing effect, the importance to the negotiation. [00:15:01] Speaker 02: That's obviously the baseline against which they're assessing this, which is kind of obvious. [00:15:08] Speaker 02: There's a contract. [00:15:09] Speaker 02: And we don't like, as a general matter, to disrupt contracts. [00:15:12] Speaker 02: But we don't like this provision in the contract, because it does something that we think is any competitive. [00:15:18] Speaker 03: We concede, Your Honor, that if FERC goes back, because you direct them to actually apply mobility error rather than ignore it, [00:15:26] Speaker 03: that in considering the public interest question, FERC can take into account its views of the better way to do regional planning and construction. [00:15:35] Speaker 03: We don't dispute that. [00:15:37] Speaker 03: We would hope to show that the evidence in this case is that [00:15:41] Speaker 03: the existing regime or the previously existing regime does serve the public interest, and disrupting it does not – there is no serious harm to the public interest, no unequivocal public necessity that requires disrupting it. [00:15:58] Speaker 05: Now, speaking of disruption, what disruption happened to your agreements here? [00:16:04] Speaker 03: Well, the disruption that's happened to our agreements, obviously, is the transmission owners, as just Kavanaugh said, lost a bargain for right. [00:16:14] Speaker 05: The commission said, actually blessed your agreements, said nothing had to be removed. [00:16:18] Speaker 05: They're in compliance with order 1,000. [00:16:20] Speaker 05: And so there is no right of first refusal, other than the little edit to 1.5.6, which you've never challenged. [00:16:28] Speaker 03: Your Honor, with respect, that isn't right. [00:16:30] Speaker 03: What FERC did was it directed PJM to take out anything in the agreements that might be read or interpreted. [00:16:38] Speaker 03: And FERC and PJM changed slews of provisions. [00:16:42] Speaker 05: No, I think it only deleted what came in for in the compliance proceeding and said we're taking out one line out of 1.5.6 that FERC had already held didn't create a right of first refusal anyhow. [00:16:52] Speaker 03: And the other thing it did, Your Honor, in addition to making changes in schedule 12 of the PJM tariff, which I happen to have been involved in, it also established a whole new process for the assignment of responsibility, a competition kind of with open windows and the like, that is completely antithetical. [00:17:14] Speaker 05: I don't understand where that is in their decision. [00:17:16] Speaker 05: I read their decision, their clarification order, they say, [00:17:19] Speaker 05: You don't have to change it. [00:17:21] Speaker 05: PJM came in, took out one line out of 1.5.6, and they said, we hereby bless these. [00:17:26] Speaker 05: We don't see any rights of first refusal that violate order 1000. [00:17:29] Speaker 05: And you never challenged that. [00:17:31] Speaker 03: What they were looking at, Your Honor, was the world after PJM's compliance filing, where PJM had created a whole new procedure [00:17:40] Speaker 03: that left whatever provision. [00:17:42] Speaker 05: Where did it create? [00:17:43] Speaker 05: All I said was we took out one line out of 1.5.6. [00:17:45] Speaker 05: I don't know where this whole procedure is. [00:17:47] Speaker 03: Your Honor, they didn't need to address the particulars because they accepted them. [00:17:53] Speaker 03: But in other portions of the decision, they addressed things like exceptions PJM made to the process, such as for near-term needs. [00:18:02] Speaker 03: That was all part of a [00:18:04] Speaker 05: Was that part of a right of first refusal provision? [00:18:07] Speaker 03: It is, Your Honor. [00:18:09] Speaker 03: What section was that? [00:18:11] Speaker 04: What section of the agreement? [00:18:13] Speaker 03: Well, it's in section, in schedule six of the PJM operating agreement, provisions of which we relied on to establish our rights. [00:18:24] Speaker 05: I think, Your Honor, the important- Do you have a list somewhere in your brief of what those provisions are? [00:18:29] Speaker 03: Yes, our brief, Your Honor, refers both to provisions of the transmission owner's agreement and the operating agreement. [00:18:36] Speaker 03: I believe it's around pages 9 to 11 or so of our brief. [00:18:40] Speaker 03: But we don't go into those in detail. [00:18:42] Speaker 04: No, you don't argue about that they created a right of first refusal at all. [00:18:46] Speaker 04: You don't challenge that decision. [00:18:47] Speaker 03: No, we don't, Your Honor, because FERC's interpretation of those provisions was not what it rested on. [00:18:54] Speaker 04: Is this on your argument section or your brief or the background section? [00:18:57] Speaker 03: It's in the background section, because as I said, Your Honor, FERC did not rest its decision on interpretation. [00:19:04] Speaker 03: Appellate counsel now claims that it did in its attempt to question the court's jurisdiction. [00:19:09] Speaker 03: But if you look at what FERC actually said its ruling was based on, and you can find this on. [00:19:15] Speaker 05: Well, we look at all the decisions. [00:19:16] Speaker 05: We don't just look at the original one. [00:19:17] Speaker 05: We look at the rehearing order, which also included the clarification order. [00:19:21] Speaker 03: I think looking at the rehearing order would be extremely instructive, Your Honor, because on page 150 and 151 of the Joint Appendix, [00:19:29] Speaker 03: as is its want. [00:19:31] Speaker 03: FERC summarizes the basis of its ruling on the mobile Sierra issue. [00:19:35] Speaker 03: And what FERC says is we believe we have the discretion to decide not to apply mobile Sierra to this contract. [00:19:46] Speaker 03: And we base that on our view of what Morgan Stanley and NRG require. [00:19:51] Speaker 03: And then it goes on for seven single-spaced pages to attempt to defend what we think is indefensible. [00:19:59] Speaker 03: Nowhere. [00:20:00] Speaker 05: No, I understand that they spent a lot of time talking about whether Mobile Sierra should or should not, should or should not apply here. [00:20:08] Speaker 05: But to be injured, you have to have a right of first refusal that you lost as a result of this compliance proceeding. [00:20:15] Speaker 03: And we did, Your Honor, and that right of first refusal [00:20:19] Speaker 03: inherent both in provisions of the ownership agreement, in particular section 5.6 and 5.2 of the ownership agreement, which we've referred to generally in our pleadings to FERC around JA 6 and 7, if I recall. [00:20:37] Speaker 03: It's also inherent in provisions of the operating agreement. [00:20:40] Speaker 05: You did raise 5.2 in compliance order proceedings, the rehearing request, the clarification order, and it's just in the background. [00:20:48] Speaker 05: Here, I just don't see arguments that this contract, I see a ruling from FERC at the rehearing stage that there are no, these orders, after the delusion of 1.5, one line out of 1.5.6, are in full compliance with order 1000, no disruption, your agreements go forward exactly as planned. [00:21:06] Speaker 05: And with respect to the 1.5.6, they said that was never a right of first refusal anyhow, and they might be right or wrong about that contract interpretation issue, but you haven't challenged that. [00:21:17] Speaker 03: With all respect, that is what they ruled. [00:21:19] Speaker 03: That's what they now claim they ruled. [00:21:21] Speaker 03: In fact, FERC specifically said, and again, you can look, you don't need to reconstruct this because FERC summarized it all in the rehearing order. [00:21:30] Speaker 03: It described that it said specifically that provisions of the contracts may be read or interpreted to create rights of first refusal and PJM has to delete them. [00:21:42] Speaker 03: And then on page 158, FERC said, [00:21:46] Speaker 03: It refused to rule on an argument by PJM that the provisions do not constitute a right of first refusal. [00:21:55] Speaker 03: FERC simply did. [00:21:56] Speaker 05: Well, I'm reading 157, 158. [00:21:57] Speaker 03: We grant. [00:21:58] Speaker 03: I'm in both, Your Honor. [00:21:59] Speaker 03: First on 157. [00:22:00] Speaker 05: So here's my language, and you tell me why I'm wrong with it. [00:22:02] Speaker 05: We grant PJM's clarification. [00:22:04] Speaker 05: We find the directive in the first compliance order to remove or revise any provision that could be read as granting the federal right of first refusal does not require PGM to remove or revise the reliability default provisions that obligate an incumbent transition owner to build, which is what you were talking about is the whole thing at issue here. [00:22:24] Speaker 05: We don't have to remove it. [00:22:26] Speaker 05: So you don't have to address the alternative request, right? [00:22:29] Speaker 05: We don't need to do it. [00:22:30] Speaker 05: We said you don't have to remove this provision about your right and obligation to build. [00:22:35] Speaker 03: Is it still in the contract? [00:22:37] Speaker 03: The first reasoning there is that that provision itself, which by its terms says that there is an obligation to build. [00:22:45] Speaker 03: It doesn't speak explicitly to the right to build. [00:22:48] Speaker 03: And FERC said, well, we don't care. [00:22:49] Speaker 03: We want you to have the right. [00:22:51] Speaker 03: Excuse me, we want you to have the obligation. [00:22:53] Speaker 03: We want you on the hook. [00:22:55] Speaker 03: We just don't want you to have the concomitant right. [00:22:58] Speaker 05: So they've interpreted the contract, which they do, as not creating a right of first refusal. [00:23:02] Speaker 03: It's just an obligation on the bill. [00:23:03] Speaker 03: They didn't do that. [00:23:04] Speaker 03: What they did, and this goes, they don't repeat it here. [00:23:08] Speaker 03: You have to go back, unfortunately, to the original order. [00:23:10] Speaker 03: I believe it's around JA75. [00:23:12] Speaker 03: They never interpreted it. [00:23:14] Speaker 03: What they said is, well, in this primary power case, which did involve the interpretation of the agreement with respect to a subclass of projects, and I hate to use jargon here, but it's the so-called economic project. [00:23:29] Speaker 03: With respect to that case, they did interpret it. [00:23:33] Speaker 03: And they ruled that for economic projects, it did not create a right of first refusal. [00:23:38] Speaker 03: FERC managed to escape review of that in the PSEC case here. [00:23:42] Speaker 03: So that was never reviewed. [00:23:44] Speaker 03: So what FERC said is, well, you shouldn't read a negative pregnant into that. [00:23:49] Speaker 03: The fact that we found there to be no right of first refusal for economic projects doesn't necessarily mean you have rights of first refusal for other projects. [00:24:00] Speaker 03: Right. [00:24:00] Speaker 03: OK. [00:24:01] Speaker 03: So that's what the answer is there. [00:24:02] Speaker 03: It doesn't necessarily mean. [00:24:04] Speaker 03: But that's what the answer is. [00:24:05] Speaker 03: And then they said in Order 1000, we said that provisions that give you an obligation to build don't necessarily give you a right. [00:24:15] Speaker 03: They're two different things. [00:24:16] Speaker 03: Again, necessarily. [00:24:18] Speaker 03: But remember, in Order 1000, FERC explicitly said, we're not going to rule on Mobile Sierra. [00:24:24] Speaker 03: We don't have an adequate record to do it. [00:24:27] Speaker 03: So all we have is a contingent rule. [00:24:29] Speaker 03: We said, well, we don't necessarily rule. [00:24:32] Speaker 03: What is missing, nowhere in this agreement, is anything like the seven pages FERC spent on their legal interpretation. [00:24:41] Speaker 03: of taking apart or addressing our argument that read in context, in the context of this agreement and the party's negotiations, that the obligation to build does include a concomitant right. [00:24:56] Speaker 05: Right, so they failed to answer a contract argument that you raised. [00:25:00] Speaker 05: with respect to this. [00:25:04] Speaker 03: That is correct. [00:25:04] Speaker 03: They failed to answer it because for them, it was irrelevant to their ruling. [00:25:09] Speaker 03: They said, we either find or assume that there are rights of first refusal and they cannot stand under mobile Sierra. [00:25:18] Speaker 03: And that ruling is legally infirmed for the reasons we explained in our brief. [00:25:23] Speaker 05: No, but then when you sought re-hearing, you said you're wrong on mobile Sierra, but you didn't say, by the way, [00:25:28] Speaker 05: You need to recognize what this contract means. [00:25:31] Speaker 05: You were wrong to think that right not to build is not a right of first refusal, at least in this setting. [00:25:36] Speaker 05: You're wrong, and we made this argument, you didn't answer it. [00:25:39] Speaker 05: But that wasn't in your rehearing petition, and it's not in your opening brief, and it's... I don't know what to do about it. [00:25:44] Speaker 03: And again, the reason is because it wasn't the basis of Brooke's ruling. [00:25:47] Speaker 05: I don't... No, but it's a complaint you have with the ruling, because here's what happened. [00:25:50] Speaker 03: By the time you have this rehearing order... We don't have a complaint with the ruling on that basis, Your Honor. [00:25:55] Speaker 03: It is... [00:25:56] Speaker 03: I think I am forced to say that if you remand, as I believe you must, for FERC's failure to apply the Mobile Sierra doctrine correctly, it would then be open to FERC to address the interpretation question that was initially raised. [00:26:11] Speaker 03: But since that was not part of their ruling here, [00:26:14] Speaker 03: We, I submit, did not have to challenge it. [00:26:17] Speaker 03: I mean, this court has been very clear, I'm thinking back to I think it was an East Texas utilities case, that if FERC is going to assert that it made a ruling that somebody failed to challenge and on that basis the court lacks jurisdiction, FERC has to be very clear about what its ruling is and that it is resting on that. [00:26:37] Speaker 03: And I do not think it is at all conceivable. [00:26:40] Speaker 01: But why is it appropriate for us to assume jurisdiction and reach the merits? [00:26:45] Speaker 03: It is appropriate to assume jurisdiction. [00:26:49] Speaker 03: That's never appropriate. [00:26:51] Speaker 03: We don't need to assume jurisdiction. [00:26:52] Speaker 03: I think this court clearly has jurisdiction. [00:26:55] Speaker 03: We were aggrieved by FERC's directive to PJM and PJM's compliance with that directive to modify provisions in the agreement that say that we are no longer the prime builders. [00:27:10] Speaker 03: We don't longer have the right to build what PJM plans. [00:27:12] Speaker 03: Instead, it's an open process [00:27:15] Speaker 03: that has taken on a life of its own. [00:27:18] Speaker 03: That clearly aggrieves us, we submit, Your Honor, and establishes this Court's jurisdiction to review the basis for that ruling, which is FERC's misapplication of the legal standard articulated in Mobile Sierra. [00:27:32] Speaker 05: Go ahead. [00:27:33] Speaker 05: If, let's just assume, if there is no right of first refusal in your agreements, [00:27:42] Speaker 05: I know you don't even put that, but assume that were to be a legal determination. [00:27:49] Speaker 05: What capacity would we have to decide the mobile CR question in this case? [00:27:53] Speaker 03: If that were the case, if FERC were to make that ruling on remand, we would lose. [00:28:00] Speaker 03: But FERC never reached that. [00:28:02] Speaker 03: FERC said, you don't have to decide that, because even if you do have one, whatever rights you have under this agreement are not protected by Mobile Sierra. [00:28:14] Speaker 03: We don't have to find they do serious harm to the public interest. [00:28:17] Speaker 03: PJM changed them. [00:28:19] Speaker 03: PJM did. [00:28:20] Speaker 02: Why wouldn't we remand just to ask the question? [00:28:23] Speaker 03: I submit that would be, if you're going to remand, as I hope you will, I would think you would ask two questions, Your Honor. [00:28:29] Speaker 02: Why wouldn't we remand, just ask that one question? [00:28:31] Speaker 03: Well, I submit that that might not fit with judicial economy. [00:28:36] Speaker 03: That would be one question to ask at the same time we think it would be appropriate. [00:28:41] Speaker 03: Because in case FERC agrees with us when it finally addresses the merits, then it has to address the public interest question. [00:28:49] Speaker 03: It would seem that it should do both. [00:28:51] Speaker ?: OK. [00:28:51] Speaker 05: I'm sorry, why wouldn't you as a proponent of Mobile Sierra protection of a right to first refusal have the predicate obligation to show that you have a right of first refusal to be protected by Mobile Sierra? [00:29:03] Speaker 05: We believe we did, Your Honor, but didn't address that. [00:29:05] Speaker 05: Okay, but not at rehearing and not before this Court. [00:29:09] Speaker 03: But then, since FERC didn't address it, we were challenging FERC's ruling. [00:29:13] Speaker 03: And FERC's ruling was not premised on interpretation. [00:29:15] Speaker 03: We didn't challenge the clarification order. [00:29:17] Speaker 03: Well, the clarification order didn't hurt us. [00:29:19] Speaker 03: It didn't. [00:29:20] Speaker 03: It left in place. [00:29:21] Speaker 02: Because it said any. [00:29:22] Speaker 02: It didn't specify. [00:29:24] Speaker 03: And it left in place the provision that we billed our case on, or one of them. [00:29:28] Speaker 03: So how are we agreed by something that left it in place? [00:29:32] Speaker 03: We are aggrieved by an outcome, not a rationale. [00:29:34] Speaker 03: And the outcome was the provision is still there. [00:29:37] Speaker 02: Why don't we hear from the Commission? [00:29:38] Speaker 02: Thank you. [00:29:38] Speaker 02: Thank you, Your Honor. [00:29:49] Speaker 06: Good morning, Your Honors. [00:29:50] Speaker 06: Luna Perry for the Commission. [00:29:53] Speaker 06: It is simply not the case that the Commission did not make findings on the provisions that they relied upon as the rights of first refusal. [00:30:01] Speaker 06: I would direct your attention in the first place to the compliance order at Joint Appendix 67, paragraph 178. [00:30:09] Speaker 06: The commission states there, we start by addressing the issue of whether mobile Sierra protection applies to the provisions the indicated PGM transmission owners contend include a right of first refusal. [00:30:20] Speaker 06: Specific arguments regarding whether those provisions are properly read as including a federal right of first refusal are addressed in the following section. [00:30:30] Speaker 06: In the section following the one. [00:30:32] Speaker 05: I'm sorry, where are you reading from? [00:30:33] Speaker 05: I missed, I didn't hear you. [00:30:36] Speaker 02: I'm sorry. [00:30:36] Speaker 06: I didn't hear you. [00:30:37] Speaker 06: Paragraph 178. [00:30:38] Speaker 05: Paragraph 178. [00:30:39] Speaker 06: Paragraph 178. [00:30:39] Speaker 06: I was looking at the page, OK. [00:30:40] Speaker 06: J67, the joint appendix. [00:30:42] Speaker 06: And so there is the section discussing Mobile Sierra. [00:30:46] Speaker 06: And in the section immediately following that, as the commission stated, there are specific arguments addressed about whether they, in fact, do have a right of first refusal. [00:30:56] Speaker 06: In those paragraphs, which it starts at paragraph 221 on Joint Appendix 74, goes to paragraph 223 on Joint Appendix 75, they address the specific provisions that the petitioner is now attempting to rely on. [00:31:15] Speaker 06: In the first place, most notably as to the transmission owners agreement in paragraph 223, [00:31:22] Speaker 06: The commission rejected the argument that the petitioners had made that because they had an obligation to construct, that meant that they had a right of first refusal. [00:31:32] Speaker 06: Now, the petitioners didn't make any arguments whatsoever in their opening brief about the operating agreement. [00:31:40] Speaker 06: But the commission in this order interpreted section 1.5.6f, which Your Honor was referring to earlier, and noted that it was reaffirming its decision in primary power that 1.5.6f did not create a right of first refusal. [00:31:59] Speaker 06: And as Your Honor pointed out, when PJM came in on compliance and said, we are not removing 4.2.1 because it's not a right of first refusal, which the commission granted clarification of, PJM said, we are removing one sentence of 1.5.6f. [00:32:20] Speaker 06: The commission had found this is not a right of first refusal, but the commission had found that it was an ambiguous provision. [00:32:26] Speaker 02: Are you on JA 157 now? [00:32:30] Speaker 06: Yes, your honor. [00:32:31] Speaker 06: On hearing 158. [00:32:32] Speaker 02: Is that where you? [00:32:34] Speaker 02: We find that the directive in the first compliance order to remove or revise any provision that could be read is granting a federal right of first refusal does not require PGM to remove or revise the reliability default provisions that obligate an incumbent transmission owner to build. [00:32:51] Speaker 02: Is that the sentence? [00:32:52] Speaker 06: That's the Senate, your honor, and I'll note that it specifically first about way of doing what you just said. [00:32:58] Speaker ?: But [00:32:58] Speaker 06: Well, Your Honor, it specifically goes to section 4.2.1 and 1.7 of the operating agreements. [00:33:10] Speaker 06: Because if you look at footnote 250 at JA169, it refers to footnote 229 at JA168, where the commission sets out which provisions specifically it is talking about. [00:33:23] Speaker 06: And that is 4.2.1. [00:33:26] Speaker 06: of the transmission owners agreement and 1.7 of the operating agreement. [00:33:31] Speaker 06: And those are the specific provisions that the commission is finding do not have to be removed from the agreements because they are not rights of first refusal. [00:33:43] Speaker 02: They say inherent in the agreement is a right of first refusal. [00:33:47] Speaker 02: I think they said that. [00:33:49] Speaker 06: Your honor, they have to say inherent in the agreement is a right of first refusal, because they don't have anything that says that. [00:33:55] Speaker 02: Because it's not explicit. [00:33:56] Speaker 02: Yeah, inherent, so is it. [00:33:57] Speaker 02: I agree, but that's what they say, in that the response by FERC was to actually address the Mobile Sierra presumption on its directly. [00:34:09] Speaker 06: Absolutely, your honor. [00:34:09] Speaker 02: The commission addressed Mobile Sierra directly, but it also- Why did the commission just say that's irrelevant here, because there is no federal right of first refusal? [00:34:17] Speaker 06: Because, well, in the first place, Your Honor, they- I mean, no right of first refusal in this agreement. [00:34:23] Speaker 06: The Commission did both in this case. [00:34:25] Speaker 02: And this is an unusual case, because in other cases- I know, but it didn't- you understand that- am I correct? [00:34:31] Speaker 02: The Commission, under your theory, could have just said, we're asked to decide something that's not present here because the agreement does not have a right of first refusal and- Please stop. [00:34:44] Speaker 06: Well, Your Honor, before the Commission, in their compliance filing, the Petitioners... But can you just answer my question? [00:34:51] Speaker 02: The Commission could have said that, correct? [00:34:53] Speaker 06: Well, what I'm explaining, Your Honor, is in the compliance filing that the Petitioners originally made, they raised a number of provisions, all of which they claimed had some right of first refusal. [00:35:06] Speaker 06: And the commission addressed certain of them in the compliance order. [00:35:11] Speaker 06: The rest of them were never raised again on rehearing. [00:35:15] Speaker 06: They were never raised before this court on brief. [00:35:18] Speaker 06: And so there is no issue about that. [00:35:21] Speaker 02: I just was looking for a nice, clean sentence that said, we find that there's no right of first refusal in this agreement. [00:35:31] Speaker 02: Well, and what I'm saying, Your Honor, is there a sentence like that? [00:35:36] Speaker 06: There is a sentence in this order that says the provisions on which they are currently relying, the provisions that they have cited to this court and that they raised on rehearing are not rights of first refusal. [00:35:48] Speaker 02: I understand that. [00:35:49] Speaker 02: There is no sentence that says [00:35:51] Speaker 02: what I suggested, because their argument, and this may be a bad argument, but their argument is, even if there's no express provision implicit in this whole structure, is a right of first refusal inherent. [00:36:06] Speaker 06: I think so. [00:36:07] Speaker 06: That is precisely. [00:36:08] Speaker 02: And you think that's crazy. [00:36:09] Speaker 02: I understand that. [00:36:09] Speaker 02: But that's their theory. [00:36:11] Speaker 02: And the commission doesn't say, that's crazy. [00:36:13] Speaker 02: There is no right of first refusal. [00:36:15] Speaker 02: Instead, the commission spends paragraph after paragraph analyzing the issue discussed on the merits in the last case. [00:36:22] Speaker 06: It does that as well, Your Honor, but that argument, the inherent argument, is precisely the argument that the Commission was addressing with respect to 4.2.1, that just because you have an obligation to bill doesn't mean that you automatically have a right of first refusal. [00:36:37] Speaker 05: And in that regard... Just to clear up one thing, did they ever argue to the Commission that [00:36:44] Speaker 05: apart from the right to build, or not entirely grounded in the right to build, but grounded in the contract as a whole, the structure of the contract as a whole, there is a right of first recusal. [00:36:55] Speaker 06: Their argument to the commission was that it was inherent in their agreeing to take on the obligation to build that they would retain the right to build. [00:37:05] Speaker 06: That was the argument that they made to the commission, and that was the argument that the commission was responding to. [00:37:10] Speaker 06: In that regard, I would point out that if you compare what they, Section 4.2.1 in this case, which is that you can see in Joint Appendix, page 24, to, for example, the right of first refusal that's at issue in the prior case, in the Southwest Power Pool case, which you can see at the petitioner's brief in that case at page 11, [00:37:32] Speaker 06: that the Southwest Power Pole provision says, if a project forms a connection between facilities of a single transmission owner, that transmission owner will be designated. [00:37:42] Speaker 02: Why shouldn't we, if you're right on this, isn't the better course for us, because I think there's at least some uncertainty, simply to remand a commission to ask the question, how do you interpret this? [00:37:54] Speaker 02: Do you interpret it to have a right of first refusal or not? [00:37:57] Speaker 02: If you say no, then they can come argue about that. [00:38:01] Speaker 02: Isn't that as a matter of fairness and efficiency, both the proper way, a proper way to go, not the a proper way to go here? [00:38:12] Speaker 06: What's wrong with that? [00:38:12] Speaker 06: No, no. [00:38:13] Speaker 06: What's wrong with that, Your Honor, is if you look at every single provision they cited in their brief, if you look at- You think you've already done that, but somehow I can't find the sentence where you've done that. [00:38:25] Speaker 06: I've cited the sentences too, Your Honor. [00:38:27] Speaker 06: I would cite- Okay. [00:38:28] Speaker 02: Well, I'll look at them. [00:38:28] Speaker 02: You don't have to recite them. [00:38:29] Speaker 02: I understand. [00:38:31] Speaker 06: They are specific to, and on the clarification, you have to look at the footnotes to see that it's specific to 4.2.1, but it is there. [00:38:39] Speaker 06: You have to follow the trail, but it is specific to that provision. [00:38:47] Speaker 05: The other problem is, at least in the initial order, you acknowledge that these provisions are ambiguous. [00:38:53] Speaker 05: And that was the basis on which you had this order 1,000 plus, which is don't just delete rights of use or refusal, delete anything that someone might construe as [00:39:05] Speaker 05: a right of first refusal. [00:39:08] Speaker 05: And so I guess it does seem to be some disconnect between the ambiguity as to what these contract provisions provided that was the very predicate for launching into Mobile Sierra that you have in the initial decision, and then the sort of backing in through a clarification order [00:39:25] Speaker 05: To say what? [00:39:27] Speaker 05: There's never been any right or refusal at all. [00:39:31] Speaker 05: Did the clarification order present the contract interpretation question that would eliminate the ambiguity that you found in the initial order? [00:39:39] Speaker 06: The ambiguity, Your Honor, and actually you can see this if you look at this court's decision in public service electric and gas versus FERC, 783F, 3rd at 1273. [00:39:50] Speaker 06: What was ambiguous was section 1.5.6 F. [00:39:55] Speaker 06: And PJM solved that ambiguity by deleting that one sentence. [00:40:02] Speaker 05: On page 75 of your initial decision, you talk about these provisions, plural, of both the [00:40:10] Speaker 05: OATT and the agreements that could be read as supplying a federal right of first refusal for transmission projects. [00:40:16] Speaker 05: So that's more than one, that's plural, and it's in both sets of agreements that are at issue here. [00:40:22] Speaker 05: So you found ambiguity here, and so I'm then confused about how at the clarification stage, [00:40:30] Speaker 05: that ambiguity disappeared without explanation. [00:40:34] Speaker 06: Well, what the direction was to PJM was clarify any provision that is ambiguous. [00:40:42] Speaker 06: And what PJM did was come back on compliance. [00:40:44] Speaker 05: The Commission first found that more than one was ambiguous. [00:40:46] Speaker 05: It found that these things are all ambiguous. [00:40:49] Speaker 05: If I'm J75, we find that these provisions, not one, these provisions are ambiguous and open to interpretation. [00:41:00] Speaker 05: And we direct them to revise the provisions plural that could be read as creating a right of first refusal. [00:41:08] Speaker 05: So am I just misunderstanding? [00:41:11] Speaker 05: It sounds to me on page JA75 like the commission is finding ambiguity as to whether these create rights of first refusal. [00:41:19] Speaker 06: What the commission is doing is directing PJM to consider all of the provisions and change any of them that are ambiguous. [00:41:27] Speaker 05: That's the follow on. [00:41:29] Speaker 05: After it finds ambiguity, then it directs PJM. [00:41:33] Speaker 05: It doesn't say PJM thinks they're ambiguous, and so PJM should fix it. [00:41:38] Speaker 05: It says the commission finds these to be ambiguous, so PJM, you go fix it. [00:41:43] Speaker 05: Am I misreading that? [00:41:45] Speaker 06: That is what the commission held. [00:41:47] Speaker 06: And then it does, in that same paragraph, go on to talk about 1.5.6f. [00:41:53] Speaker 06: And if you look at the court's decision in public service electric and gas, there is a discussion about the fact that 1.5.6f was found ambiguous in the primary power proceeding, and that that prompted the direction for PJM to clarify the provisions. [00:42:12] Speaker 06: But in any event, Your Honor, [00:42:14] Speaker 06: I wouldn't say that it would be necessary for you if you are concerned about the right of first refusal issue to remand to the commission. [00:42:24] Speaker 02: Unnecessary is appropriate, or put another way, do you think it's inappropriate? [00:42:29] Speaker 06: You can affirm the commission, your honor, if you find that, even if there are rights of first refusal, the commission properly concluded that the mobile Sierra doctor did not apply. [00:42:40] Speaker 02: Okay, so let me ask you a couple questions on the merits, too, just to supplement your co-counsel from the prior case. [00:42:47] Speaker 02: So one of the Petitioner's Council's arguments was this was really a bargain for contract. [00:42:53] Speaker 02: Give and take, things were given up, rights were received. [00:42:57] Speaker 02: One of the rights that was received was the right of first refusal and therefore it's [00:43:05] Speaker 02: a mistake to say it's not arm's length. [00:43:06] Speaker 02: And it's also a mistake to think of it just as a single provision in isolation and therefore just apply the usual presumption. [00:43:13] Speaker 02: If you will say it's in any competitive, go through the public interest analysis. [00:43:18] Speaker 02: What's wrong with that? [00:43:19] Speaker 06: What's wrong with that? [00:43:20] Speaker 06: Your honor is this agreement is [00:43:23] Speaker 06: is identical in the relevant respects to the one that the Seventh Circuit was looking at in the Midwest Independent System Operator case. [00:43:32] Speaker 02: And the point is that... But the theory is that the Seventh Circuit, or their theory is, regardless of what the Seventh Circuit said, this is a contract with [00:43:42] Speaker 02: businesses that are giving things up and getting things in return in a contract negotiation. [00:43:49] Speaker 02: And therefore, FERC shouldn't have, and then to pick up on, I think what petitioner's counsel said in a rebuttal in the prior argument, FERC shouldn't have free reign to just come in and upset those contract rights, at least without going through the usual analysis of public interest. [00:44:07] Speaker 06: This contractor honor is important to bear in mind is like the one that was an issue in the Seventh Circuit, solely among the transmission owners. [00:44:16] Speaker 06: And the point that the Seventh Circuit made was they all have a common interest in agreeing to that. [00:44:21] Speaker 06: They're not giving anything up to make this agreement. [00:44:23] Speaker 06: They all want [00:44:25] Speaker 06: a right or first refusal. [00:44:27] Speaker 02: There's the new entity that's created, correct me if I'm wrong, that's going to have some of the controlling authority that each of the individual entities used to have in their own regions. [00:44:40] Speaker 02: Is that correct? [00:44:41] Speaker 02: So they're giving up some of that authority. [00:44:43] Speaker 06: What they're doing, in terms of preserving to themselves the right to construct, they all have a common interest in that. [00:44:51] Speaker 06: And there's no one involved in the bargain who has any incentive to bargain against that. [00:44:55] Speaker 06: Nobody is giving anything up or getting anything. [00:44:58] Speaker 06: They all have a single common interest in that particular decision. [00:45:03] Speaker 02: With these regional entities that were created, the individual entities that joined them were giving up some of the authority they previously had, correct? [00:45:16] Speaker 02: And before they did that, again, correct me if I'm wrong, they wanted something. [00:45:20] Speaker 02: And one of the things they got was, or bargained for, was for a right of first refusal. [00:45:26] Speaker 02: And you're saying they're just bargaining with themselves. [00:45:28] Speaker 06: Well, your honor, literally they are bargaining with themselves because this was a 1997 agreement that was entered into solely among the transmission owners for the purpose of creating the independent system operator. [00:45:42] Speaker 06: The independent system operator didn't exist in June of 1997 when they signed this contract. [00:45:48] Speaker 06: It wasn't even conditionally approved until November of 1997. [00:45:52] Speaker 06: So they literally were bargaining with no one but themselves. [00:45:56] Speaker 06: And this is exactly the same situation. [00:45:58] Speaker 02: If that's all true, and I take your point, it's very easy for FERC to come in and say that's not in the public interest. [00:46:03] Speaker 02: So they lose, as opposed to us creating doctrines where the presumption applies, and then it doesn't apply, and it might apply [00:46:12] Speaker 02: Their point, I think, and the prior petitioner's point is let's just have a simple doctrine where contracts are given protection for it can upset those contracts when they go through the public interest analysis. [00:46:24] Speaker 02: That's a clean, simple rule. [00:46:26] Speaker 02: What's wrong with that? [00:46:28] Speaker 06: What's wrong with that, Your Honor, is that the Commission looked at Morgan Stanley, and Morgan Stanley quite plainly says, if there is reason to doubt that the premise underlying mobile Sierra exists, that there were fair arms length negotiations, the Commission should not presume that the contract is just and reasonable. [00:46:47] Speaker 02: On the arms length point, though, weren't they referring to something a little, you know, traditional? [00:46:51] Speaker 02: contract law exceptions. [00:46:53] Speaker 02: I don't think they're referring to something like this necessarily. [00:46:56] Speaker 02: I guess that's the ambiguity. [00:46:57] Speaker 02: We don't know what they're referring to. [00:46:58] Speaker 06: Well, not at all, Your Honor. [00:47:00] Speaker 06: If you look at page 547 in Morgan Stanley, the court starts out with the, to be sure, FERC has authority to set aside contracts where there are traditional grounds for aggregation, such as fraud or duress. [00:47:13] Speaker 06: They go on to say, in addition, [00:47:17] Speaker 06: If there are problems with the negotiations caused by the illegal action of one of the parties, Burke should not apply the mobile Sierra presumption. [00:47:32] Speaker 06: So what they're saying is, yes, you can set aside a contract for these traditional grounds of abrogation, but then there's no contract. [00:47:41] Speaker 06: There's no issue about whether Mobile Sierra applies. [00:47:44] Speaker 06: But they go on to say, if there is reason to question what happened in the negotiations, you still have a valid contract. [00:47:51] Speaker 02: They don't say that. [00:47:52] Speaker 02: They say it was caused by illegal action of one of the parties. [00:47:57] Speaker 06: But you have to remember, they're talking about illegal action that was in another market. [00:48:02] Speaker 06: But they're just talking about illegal action that affected the contract negotiations. [00:48:07] Speaker 06: And you can see this at 554 to 555. [00:48:11] Speaker 06: And so what they're saying is you have reason to question what happened in the negotiations because of activity in another. [00:48:18] Speaker 06: It doesn't invalidate the contract. [00:48:20] Speaker 06: You still have a contract. [00:48:22] Speaker 06: You just should not presume that that contract is just and reasonable. [00:48:26] Speaker 06: And the commission interpreted this as being a directive that, in the event that you have a circumstance where you have reason to think that the premise underlying the mobility or doctrine does not apply, the commission should not apply the presumption in the first case. [00:48:41] Speaker 06: And you never get to the issue of whether it's contrary to the public interest or not. [00:48:45] Speaker 02: All right. [00:48:47] Speaker 02: Your argument on the merits and Mr. Fulton's as well, so I think we have that covered. [00:48:51] Speaker 02: Thank you. [00:48:53] Speaker 02: Thank you. [00:48:53] Speaker 02: And we'll hear rebuttal for a couple minutes. [00:49:06] Speaker 03: Your Honor, I'd just like to make two quick points since we have been hearing a lot about this. [00:49:11] Speaker 03: First, with all due respect to FERC counsel, the court in Morgan Stanley did not say that FERC is free to inquire into whether the premises [00:49:22] Speaker 03: of the mobile Sierra presumption are applicable in every single case. [00:49:27] Speaker 03: What they said, as Judge Kavanaugh noted, was that if there is any illegal activity, and this was a market manipulation case, they said market dysfunction is not enough to deny application of the public of the presumption of justness and reasonableness. [00:49:46] Speaker 03: It's only if market dysfunction is due to illegal activity [00:49:51] Speaker 03: There is nothing that suggests that a group of utilities sitting in rooms in the Hotel DuPont for months on end, as I can recall, to negotiate the terms of creating an independent system operator to meet FERC's non-discrimination objectives [00:50:09] Speaker 03: is in any way illegal or improper. [00:50:12] Speaker 03: It is not even anti-competitive, as I discussed at length. [00:50:15] Speaker 03: If it were the case that FERC could inquire in every instance as to whether the premises of sufficient arm's length negotiation, what the court called the common sense notion, [00:50:28] Speaker 03: underlying Mobile Sierra. [00:50:30] Speaker 03: If they could inquire in every case whether that applied, that is the very opposite of a presumption. [00:50:37] Speaker 03: You're no longer presuming a contract is just and reasonable. [00:50:40] Speaker 03: You have to prove it in every case. [00:50:42] Speaker 03: That's not what Weinstein says a presumption is all about. [00:50:46] Speaker 03: Final point, our position on the contract is not that there's some brooding omnipresence that it's inherent here. [00:50:54] Speaker 03: There are specific provisions of the transmission owners agreement and the operating agreement that read together in the circumstance of their negotiation and filing with FERC that create both the right and obligation to construct. [00:51:10] Speaker 03: As I discussed that length, FERC never addressed that argument in this case. [00:51:16] Speaker 03: And it's – but it's not simply a gestalt brooding on the presence. [00:51:21] Speaker 03: It's specific provisions that are in the joint appendix and the appendix. [00:51:24] Speaker 02: There's nothing as specific as we see in some of the other agreements, correct? [00:51:27] Speaker 03: Well, there are some specific provisions, for example. [00:51:30] Speaker 02: There are specific provisions, but as specific. [00:51:34] Speaker 03: I would suggest that if you look, for example, as FERC did not do at the provisions of the Transmission Owners Agreement, where they specifically say, we reserve all rights we do not specifically give to PJM, including the right to build our facilities, as well as own, merge, et cetera. [00:51:53] Speaker 03: long leap to say that we are reserving the right to construct what PJM directs us to do. [00:51:59] Speaker 03: Which provision is that? [00:52:00] Speaker 03: It's in the appendix, Your Honor, page 15. [00:52:04] Speaker 04: Is that the apparatus agreement or the? [00:52:06] Speaker 03: Sorry, it's the transmission owners agreement, consolidated transmission. [00:52:10] Speaker 03: Which section of it? [00:52:13] Speaker 03: 5.2 and 5.6 together. [00:52:16] Speaker 02: Okay. [00:52:17] Speaker 02: Thank you Your Honor. [00:52:17] Speaker 02: Thank you, the case is submitted.