[00:00:01] Speaker 00:
Case number 15-1118 at L. Amara, Maine, formerly known as Banger Hydro Electric Company at L, Petitioners, versus Federal Energy Regulatory Commission.

[00:00:11] Speaker 00:
Mr. Raskin for Petitioners, Amara, Maine, Utilities.

[00:00:14] Speaker 00:
Mr. Promper for Petitioners, Attorney General of Massachusetts, Customers.

[00:00:18] Speaker 00:
And Ms.

[00:00:19] Speaker 00:
Petzella for the Respondent.

[00:01:20] Speaker 02:
Morning.

[00:01:20] Speaker 08:
Good morning.

[00:01:21] Speaker 08:
My name's David Raskin.

[00:01:23] Speaker 08:
I'm representing the New England transmission owners who are petitioners.

[00:01:27] Speaker 08:
We raised two issues before the court.

[00:01:30] Speaker 08:
On the first issue, this case involves the commission's decision to change an existing rate under Section 206 of the Federal Power Act without first finding that the existing rate was outside the zone of reasonableness under the statute.

[00:01:47] Speaker 08:
Two cases in this circuit hold directly to the contrary.

[00:01:53] Speaker 08:
They are Papago Utility Authority Befirk and City of Winfield Befirk.

[00:02:00] Speaker 08:
In both of those cases involving different factual circumstances, the court held that the commission must first find that the rate is entirely outside the zone of reasonableness before it can act under section 206.

[00:02:16] Speaker 08:
The commission does not ask this court to overturn either Papago or Winfield.

[00:02:22] Speaker 08:
Neither case is cited in the commission's brief.

[00:02:26] Speaker 08:
They are asking you to disregard those holdings.

[00:02:29] Speaker 08:
We urge you not to because they are the law.

[00:02:33] Speaker 08:
There is a third principle that the Commission's decision violates based on longstanding law, and that is that Section 206 of the Federal Power Act requires a two-step process.

[00:02:46] Speaker 08:
First, the Commission must find that the existing rate is unjust and unreasonable, and then and only then can it proceed to the second stage and determine a single new just and reasonable rate.

[00:02:59] Speaker 08:
If the finding that a single rate is just and reasonable satisfies both prongs, there is no longer a two-step analysis under Section 206, in this case and in any other case.

[00:03:16] Speaker 08:
And therefore, the Commission needed to come to this Court and explain why this Court should overrule long-standing precedent that supports the fact that a two-step analysis is required.

[00:03:29] Speaker 05:
You know, we can't overrule precedent.

[00:03:32] Speaker 05:
Do you understand that?

[00:03:33] Speaker 05:
Yes, I do.

[00:03:34] Speaker 05:
Okay, thank you.

[00:03:36] Speaker 02:
Well, and in Papago,

[00:03:39] Speaker 02:
My reading of Papago is that they essentially did the two findings at the same time through the same study and rejected this argument that you have to sort of formalistically march through one rather than the other since you're going to do the same survey and then produce the information.

[00:03:53] Speaker 08:
That is not my reading of Papago, Your Honor.

[00:03:56] Speaker 08:
In Papago, the utility had waived its right to make a Section 205 filing.

[00:04:02] Speaker 08:
And therefore, the rate could only be changed pursuant to Section 206.

[00:04:08] Speaker 08:
Because that was the case, the court needed to search the record carefully and determine whether the existing rate was entirely outside the zone of reasonableness before it could be changed by the utility under section 206.

[00:04:21] Speaker 02:
They didn't make that right.

[00:04:22] Speaker 02:
The commission, and I'm reading from 956, the commission did not make such a finding.

[00:04:26] Speaker 02:
Because I thought it was going under right 205.

[00:04:30] Speaker 08:
That's correct.

[00:04:30] Speaker 08:
The factual circumstances are unusual.

[00:04:33] Speaker 02:
No, but then just the reality is that there you didn't have this sort of, you may have other challenges to whether they made a reasoned determination of unjust and unreasonable.

[00:04:42] Speaker 08:
Your Honor, it is unusual.

[00:04:43] Speaker 02:
This ordering thing just isn't a topical at all.

[00:04:45] Speaker 08:
I understand that it's unusual for the court to make a finding that the commission did not.

[00:04:50] Speaker 08:
But in the second half of the decision, the court searched the facts in great detail and determined that because the existing rate afforded a return on equity that was so low, I believe it was slightly above zero, that the existing rate was entirely outside the zone of reasonableness.

[00:05:08] Speaker 08:
And therefore, it could be changed under Section 206.

[00:05:11] Speaker 08:
In addition, the court held that because the Commission had found one ROE to be just and reasonable, other ROEs within its own unreasonable were not necessarily unjust and unreasonable, and that therefore contradicted one of the Commission's central tenets in this case.

[00:05:31] Speaker 08:
Later in Winfield, the court held that Section 206 provides a zone of protection for utilities.

[00:05:40] Speaker 08:
The court specifically recognized the importance of rate stability under the Federal Power Act.

[00:05:49] Speaker 08:
The electric power industry is the most capital intensive in the country.

[00:05:54] Speaker 08:
Utilities spend billions of dollars in investments on new facilities.

[00:06:00] Speaker 08:
And if the rates are subject to a hair-trigger change without a finding that they're outside the zone, you are undermining the need to raise investment capital on a consistent basis.

[00:06:12] Speaker 08:
And in fact, as a result of the commissions holding in this case, we now have four complaints pending against New England transmission owners, which will probably leave their ROE up in the air for a decade or more.

[00:06:30] Speaker 02:
Can I ask you about your argument that your rate was not unjust and unreasonable because it was within the new DCF zone?

[00:06:40] Speaker 08:
That's correct.

[00:06:41] Speaker 02:
Do you believe that any rate anywhere within that zone that the new DCF calculated was necessarily just and reasonable?

[00:06:49] Speaker 08:
Not unjust and unreasonable.

[00:06:51] Speaker 08:
Section 206 requires a threshold finding that the existing rate is not unjust and unreasonable.

[00:06:59] Speaker 08:
And the cases hold that if the existing rate is within the zone of reasonableness, it is not unjust and unreasonable for purposes of that threshold determination under Section 206.

[00:07:10] Speaker 02:
And your position is that not unjust and unreasonable is not the same as just and reasonable?

[00:07:16] Speaker 02:
Got a double negative there, which normally means the same.

[00:07:18] Speaker 05:
I'm not sure I followed what you said.

[00:07:21] Speaker 05:
It sounded to me like you misspoke, or I misheard.

[00:07:25] Speaker 05:
Your position is that 206 requires, firstly, finding that it is unjust and unjust.

[00:07:31] Speaker 05:
That's correct.

[00:07:32] Speaker 05:
That's what I meant to say.

[00:07:32] Speaker 05:
And I thought I heard you say it's not unjust.

[00:07:34] Speaker 05:
I'm sorry, I meant to say it is unjust.

[00:07:36] Speaker 08:
You may have misheard.

[00:07:37] Speaker 08:
Well, I gave away my case, and I apologize.

[00:07:39] Speaker 08:
I would like it back.

[00:07:43] Speaker 08:
It's semantics, I guess, and I can't disagree.

[00:07:47] Speaker 08:
There's a double negative there.

[00:07:49] Speaker 02:
But I really would like an answer to the question whether, once a DCF is calculated, every rate within that zone is just and reasonable, in your view.

[00:07:58] Speaker 08:
Yes, for purposes of the threshold analysis under Section 206.

[00:08:02] Speaker 02:
Is there a different just and reasonable for that than there is for, it's the same language throughout the statute.

[00:08:08] Speaker 08:
Well, it is the same language.

[00:08:10] Speaker 08:
But Section 205 does not require a two-step process.

[00:08:14] Speaker 08:
So how the zone of reasonableness is incorporated.

[00:08:17] Speaker 02:
I'm asking you whether it's just and reasonable.

[00:08:19] Speaker 02:
Yes, Your Honor, it is.

[00:08:20] Speaker 02:
Does that mean the same thing?

[00:08:23] Speaker 02:
every aspect of 206, both the first step and the second step?

[00:08:27] Speaker 08:
No, just the first step.

[00:08:29] Speaker 08:
We agree that in the second step, the commission has to determine a specific rate, and once it's determined that the existing rate is outside the zone of reasonableness, it has the discretion... But nothing within the zone of reasonableness, do they have discretion to decide that anything within the zone of reasonableness is not unjust and unreasonable?

[00:08:47] Speaker 05:
Well, they do not.

[00:08:49] Speaker 02:
Wow.

[00:08:50] Speaker 05:
Is that absolute necessary to your case?

[00:08:56] Speaker 05:
You made the absolute statement just then that anything within the zone of reasonableness, the commission cannot properly find that it's unjust and unreasonable.

[00:09:04] Speaker 05:
Am I correct in what you're saying?

[00:09:05] Speaker 08:
For purposes of the threshold analysis, I think that in the second step, the statute requires FERC to set a particular rate.

[00:09:14] Speaker 08:
It is a practical necessity that in setting a particular rate in the second step, they've got to pick a particular rate within the zone of reasonableness.

[00:09:24] Speaker 08:
And that's what they do, and we don't argue that that's incorrect, and that they have to pick the rate at the high end of the zone.

[00:09:31] Speaker 08:
We have never argued that.

[00:09:32] Speaker 02:
Now, they say the statute says you just have to charge a just and reasonable rate, correct?

[00:09:37] Speaker 08:
That's correct.

[00:09:38] Speaker 02:
So you could pick any rate within that zone, including even a higher one than they than the commission picks.

[00:09:44] Speaker 02:
And you would be consistent with the statute because you would be just charging a just and reasonable rate.

[00:09:49] Speaker 08:
Well, under Section 206, we don't get to pick a rate.

[00:09:53] Speaker 08:
Section 206.

[00:09:54] Speaker 02:
I'm asking whether you violate the statute by charging a rate that's within the zone of reasonableness.

[00:10:00] Speaker 08:
We do not violate the statute and the commission's decisions.

[00:10:04] Speaker 02:
So even if you pick one, the commission has said we think it should be, imagine they picked the midpoint here and you said thank you very much.

[00:10:10] Speaker 02:
We see that our 11.4 is within the zone of reasonableness.

[00:10:14] Speaker 02:
We're going with, we're sticking with that.

[00:10:16] Speaker 08:
That is not our position, Your Honor.

[00:10:17] Speaker 02:
But why isn't it your position?

[00:10:18] Speaker 02:
It would be just and reasonable.

[00:10:20] Speaker 08:
because we believe there is a difference between what the Commission has to find in the first step of the Section 206 analysis and what the Commission must find in the second step.

[00:10:31] Speaker 05:
There would be a range of rates that could be found to be just and reasonable.

[00:10:37] Speaker 05:
And then the Commission has to... The Commission has to, at the threshold, the Commission has to first find that the rate is not within that range of rates that's just and reasonable.

[00:10:46] Speaker 05:
Forget about the

[00:10:48] Speaker 05:
term of order about the zone.

[00:10:50] Speaker 05:
That's correct.

[00:10:51] Speaker 05:
So it's a different finding.

[00:10:53] Speaker 05:
It is a different finding, and if it were not a different finding section.

[00:10:57] Speaker 05:
Now if this were section 5, 205, then the commission can go straight to the step of finding a just and reasonable rate.

[00:11:03] Speaker 05:
Well it can.

[00:11:04] Speaker 05:
But since it's a 206,

[00:11:07] Speaker 05:
the commission has to go through this first step first under Papago and the other case.

[00:11:11] Speaker 05:
That's correct.

[00:11:13] Speaker 08:
That is our position.

[00:11:14] Speaker 08:
And we don't challenge the fact that the commission has to, and is statutorily directed, to find one single rate within the zone of reasonableness in the second step.

[00:11:23] Speaker 08:
If it couldn't do that, then it couldn't satisfy its responsibilities under the statute.

[00:11:28] Speaker 02:
Is it sufficient for them to say that, look, market conditions have changed materially since the original rate was set?

[00:11:35] Speaker 02:
It was just unreasonable when said the world has changed materially.

[00:11:40] Speaker 02:
We cannot rely on the process that produced that number.

[00:11:45] Speaker 02:
We need to do a new calculation.

[00:11:49] Speaker 02:
Would that satisfy the first step?

[00:11:52] Speaker 08:
Only if

[00:11:53] Speaker 08:
the DCF analysis showed that things actually had changed materially and the existing ROE was outside the zone of reasonableness.

[00:12:02] Speaker 02:
No, I want to be crystal clear here and I want to make sure we're very specific about the language we're using.

[00:12:07] Speaker 02:
So they say

[00:12:10] Speaker 02:
Market conditions have changed materially.

[00:12:13] Speaker 02:
We can no longer trust the process that produced that number that was just and reasonable at the time as still being just and reasonable today.

[00:12:22] Speaker 02:
So we are gonna calculate a new DCF zone, not gonna call it a zone of reasonableness, we're gonna call it a DCF zone.

[00:12:31] Speaker 02:
And on the basis of that calculation, determine that the old rate is unjust and reasonable and a new rate should be charged.

[00:12:39] Speaker 02:
Can they do that?

[00:12:40] Speaker 08:
Well, no, because the DCF zone is the zone of reasonableness.

[00:12:45] Speaker 08:
The commission has called it that, the statutory zone of reasonableness.

[00:12:50] Speaker 05:
The zone of reasonableness is not a statutory term, though.

[00:12:54] Speaker 05:
Statute doesn't require a zone of reasonableness.

[00:12:59] Speaker 05:
The case law, I mean, is just rampant.

[00:13:02] Speaker 05:
So it would be possible for the commission to render a decision, just as the presiding judge describes,

[00:13:08] Speaker 05:
that doesn't use the term zone of reasonableness, but could still find that the rate was unjust and unreasonable.

[00:13:14] Speaker 05:
Is that not the case?

[00:13:15] Speaker 08:
No, that's not the case.

[00:13:16] Speaker 08:
Why not?

[00:13:17] Speaker 08:
Hapagow and Winfield hold that a rate has to be entirely outside the zone of reasonableness.

[00:13:23] Speaker 05:
That is the law.

[00:13:24] Speaker 05:
So you would say the semantics of zone of reasonableness controls over the substance of a decision that said

[00:13:30] Speaker 05:
This rate is unjust and unreasonable because, and then went to the next explanation.

[00:13:34] Speaker 08:
So my argument is that what is unjust and unreasonable is not picked out of the air.

[00:13:42] Speaker 08:
What the DCF does is requires the Commission to do its math.

[00:13:46] Speaker 08:
so if the commission believes that uh... circumstances have changed and the rate may be ought to be changed the DCF and the zone of reasonableness tells whether or not that change is significant enough material enough to warrant making a change under section 206 and overriding the Papago and Winfield.

[00:14:08] Speaker 05:
I'm still not at all certain that I understand why the commission would have to use the term zone of reasonableness if it did an explanation of why the

[00:14:16] Speaker 05:
I'm not asking you to say that they did such an analysis here, but if they did, would it be invited simply for not using the term zone of reasonableness?

[00:14:33] Speaker 08:
I think it would, Your Honor.

[00:14:35] Speaker 08:
I'm not sure that's necessary to the holding in this court in this case, but I believe that that is part of the case law under the statute, that the zone of reasonableness is a critical concept, and it needs to be respected in setting rates under Section 206.

[00:14:54] Speaker 08:
But in this case, they didn't find any zone.

[00:14:56] Speaker 08:
They found that a particular rate, only one point, was just in reason.

[00:15:01] Speaker 08:
Thank you.

[00:15:02] Speaker 02:
Actually, I wanted to, you have a couple other arguments, and it's fine, you can go on with your time.

[00:15:07] Speaker 02:
You had this argument about notice about your incentive adders.

[00:15:11] Speaker 02:
Yes.

[00:15:14] Speaker 02:
Given that the commission's rule that the DCF zone, the top of that caps the ultimate rate, so the ROE plus the incentive adders can't go over the top, that was well established.

[00:15:27] Speaker 02:
I don't understand you to be challenging that rule

[00:15:31] Speaker 02:
in this case.

[00:15:32] Speaker 02:
So given that you knew that rule was there, they told you it was there, it would be unfortunate in this case, what more would you have argued if they had given you the notice you say you were entitled to to challenge the effect of the cap on your incentive adder?

[00:15:46] Speaker 08:
When the commission sets the cap on an incentive, it's only looking at one particular project.

[00:15:53] Speaker 08:
So at the time it establishes the incentive ROE, it looks at that project and determines whether or not the incentive puts the ROE above the high end.

[00:16:03] Speaker 08:
At the time the incentive is established.

[00:16:06] Speaker 08:
That does not mean that later when it has a 206 proceeding, that that incentive is subject to reconsideration when it becomes part of a rolled-in rate in which the overall ROE is not above the zone of reasonableness.

[00:16:19] Speaker 08:
And I would argue, Your Honor, that if the Commission

[00:16:23] Speaker 08:
continues to interpret the law that way, they're undermining the purpose of Section 219.

[00:16:29] Speaker 02:
So that sounds like a different argument.

[00:16:30] Speaker 02:
That was your argument about the specific project, no finding of the ability of the specific project.

[00:16:36] Speaker 02:
I'm asking about your notice argument.

[00:16:39] Speaker 02:
which is a procedural argument that you weren't given notice that your incentive adders might be clipped off in this process.

[00:16:47] Speaker 02:
And what I'm asking you is not about that argument, which I stroke as a different issue raised, but had you gotten the notice that you say you should have gotten about the potential impact on incentive adders, what would you have argued that you didn't already argue?

[00:17:05] Speaker 08:
We would have argued that

[00:17:07] Speaker 08:
Section 19 was enacted by Congress because there had been, for several decades, inadequate investment in new transmission facilities in this country.

[00:17:18] Speaker 08:
And Congress determined that incentives needed to be provided to get transmission utilities to build new transmission assets.

[00:17:26] Speaker 08:
The average age of our transmission grid is over 40 years today.

[00:17:30] Speaker 08:
And the New England TOs are in the middle of modernizing the one in New England.

[00:17:35] Speaker 08:
If the commission is going to grant an incentive, that's saying to investors, you are going to make more money.

[00:17:43] Speaker 08:
So come in and give us your money and invest in the transmission grid.

[00:17:47] Speaker 08:
If the commission turns around a year later and says, whoops, you're no longer above the high end, some or all of that incentive is gone, to someone who's made an investment in a long-lived assets, that's closer to bait and switch than an incentive.

[00:18:03] Speaker 02:
I thought you had made that argument to the commission on rehearing.

[00:18:07] Speaker 02:
Is that incorrect?

[00:18:08] Speaker 08:
We may have, yes.

[00:18:10] Speaker ?:
OK.

[00:18:12] Speaker 02:
Even if there was a notice violation, it was harmless because you made the argument to the Commission.

[00:18:16] Speaker 02:
You haven't told me yet what argument you would have made if given more notice that you didn't get to make.

[00:18:21] Speaker 08:
Well, I think the Commission didn't address the argument on the merits.

[00:18:24] Speaker 08:
The Commission simply found that it had been there earlier holding that it's capped at the high end.

[00:18:29] Speaker 08:
So the Commission never analyzed whether or not what they're doing is consistent with the policy under Section 219.

[00:18:36] Speaker 02:
That's a different argument than a notice, and that's just a lack of sufficient reasoning argument.

[00:18:41] Speaker 08:
I guess so.

[00:18:42] Speaker 02:
I think that's fair.

[00:18:47] Speaker 02:
Can you explain to me how it is, I take it your position is that

[00:18:52] Speaker 02:
You certainly don't disagree at least with the Commission's decision now in step two.

[00:18:57] Speaker 02:
They didn't do step one, but once we're in step two, they did the DCF zone, looked at the midpoint and said we can't rely on that.

[00:19:05] Speaker 02:
This time the DCF calculation can't be relied on to incorporate these anomalous economic conditions.

[00:19:12] Speaker 08:
And in light of the fact that all of the other models that the commission used showed higher.

[00:19:17] Speaker 02:
That was part of the evidence as to why they couldn't rely on the DCF calculation like they normally would.

[00:19:23] Speaker 02:
So why is it reason to rely on the top part of the DCF calculation to get you a rate?

[00:19:30] Speaker 02:
If the DCF calculation is flawed, because it's not incorporating information it needs to incorporate, what on earth makes the top quarter any less flawed?

[00:19:43] Speaker 08:
I think the Commission recognizes that you can't determine what the actual equity cost of capital is.

[00:19:53] Speaker 08:
The entire exercise is to attempt to infer something that you can't get from the marketplace itself.

[00:20:01] Speaker 08:
Unlike a bond yield, for example, of 7%, the cost of equity is not known.

[00:20:06] Speaker 08:
And so the commission uses tools to try and estimate that cost of equity.

[00:20:11] Speaker 08:
And the primary tool it uses is the DCF.

[00:20:15] Speaker 08:
At some point, the realities of the world have to coincide with the regulatory process.

[00:20:21] Speaker 08:
So the commission does the best it can in stage two to find a single ROE that is just and reasonable.

[00:20:28] Speaker 02:
But if everyone agreed, you agreed, and the commission agreed, the DCF just didn't work this time the way it normally does.

[00:20:34] Speaker 02:
And that's why they... So why would it work?

[00:20:37] Speaker 02:
Why should we trust the top quarter if we aren't trusting... Why should we trust that midpoint rather than the other midpoint?

[00:20:43] Speaker 02:
What reasoned explanation is there for thinking that was the right way to fix the problem?

[00:20:48] Speaker 08:
Because the ROE that they set at the high end of the mid-quarter was comparable to the model results from the cap end.

[00:20:57] Speaker 02:
No, it was not at all.

[00:20:59] Speaker 02:
No, it was not.

[00:20:59] Speaker 02:
No, the four methodologies they used all came in way lower than that.

[00:21:03] Speaker 08:
Oh, that's not true.

[00:21:04] Speaker 02:
I think every one of them came in lower than the rate you got.

[00:21:07] Speaker 02:
Do you dispute that fact?

[00:21:08] Speaker 08:
No, I do dispute that fact, yes, Your Honor.

[00:21:11] Speaker 08:
For sure.

[00:21:13] Speaker 02:
Do you say all four of them came in with a number?

[00:21:16] Speaker 08:
Maybe my memory is not that good.

[00:21:19] Speaker 08:
It might have been three out of the four.

[00:21:20] Speaker 08:
But clearly, the others were showing that the midpoint was too low.

[00:21:26] Speaker 02:
I got that they showed the midpoint too low.

[00:21:30] Speaker 02:
But I didn't read any of them as saying the top quarter midpoint.

[00:21:34] Speaker 02:
The top midpoint was where it should be.

[00:21:37] Speaker 02:
They were all under that.

[00:21:38] Speaker 02:
As I read the record, if you read the record differently, it would be very much helpful to know that.

[00:21:43] Speaker 08:
I do.

[00:21:44] Speaker 08:
And I'm going by memory, please.

[00:21:46] Speaker 08:
But my recollection is that it is.

[00:21:48] Speaker 02:
If you can let us know where you want to rebuttal, which numbers?

[00:21:51] Speaker 02:
were on both sides of the number you finally got that top quarter.

[00:21:55] Speaker 02:
So that was actually a midpoint.

[00:21:57] Speaker 08:
Can I make another point about the number we finally got?

[00:21:59] Speaker 08:
The commission changed methodologies in this case at the decisional level.

[00:22:05] Speaker 08:
Um, while it may look like they went out of their way to give us more, if you apply their old methodology, which had a much higher high end of the zone of reasonableness, you will see that the result is not very different from what we would have gotten if they had not challenged that before the commission.

[00:22:23] Speaker 08:
We did not for that very reason.

[00:22:27] Speaker 02:
All right.

[00:22:27] Speaker 02:
Thank you.

[00:22:28] Speaker 08:
Thank you.

[00:22:48] Speaker 06:
May it please the Court, David Pomper for Customers.

[00:22:52] Speaker 06:
For decades, FERC was married to a single way of setting base returns, the Discounted Cash Flow Method, DCF.

[00:23:02] Speaker 06:
As to increases, FERC faithfully followed the DCF up.

[00:23:06] Speaker 06:
We are here because for no clear reason FERC refused to follow the DCF down.

[00:23:11] Speaker 06:
It thereby violated the fundamental teaching of Hope Natural Gas, that returns should follow the market cost of capital as it rises and as it falls.

[00:23:20] Speaker 06:
DCF was FERC's way of quantifying that principle.

[00:23:26] Speaker 06:
The reason FERC relies on DCF is that it infers the cost of capital at any point in time

[00:23:32] Speaker 06:
from utility stock prices, which embody all information known to investors as to what capital costs at any point in time.

[00:23:41] Speaker 06:
And this complaint was brought to ask whether the cost of capital had declined since FERC relied on DCF to set the New England return a decade ago.

[00:23:56] Speaker 06:
To answer that question,

[00:23:58] Speaker 06:
FERC ran its own DCF analysis.

[00:24:01] Speaker 06:
Let's just start answering it.

[00:24:03] Speaker 06:
They analyzed 41 comparable risk utility stocks, discarded the lowest three results, and were left with an array of 38 DCF data points, clustered mainly around nine.

[00:24:15] Speaker 06:
But then FERC locked off the 21 lowest results, leaving it with a truncated distribution of only the 17 highest results.

[00:24:23] Speaker 06:
And it's set to return above all but three of those.

[00:24:26] Speaker 06:
So FERC hacked its DCF analysis into pieces and buried most of them, the parts most useful to customers.

[00:24:33] Speaker 06:
Now FERC tried to smooth over that burial by saying that, well, market conditions are anomalous in some ill-defined way, and by saying that customers had agreed market conditions were anomalous, which we had not.

[00:24:48] Speaker 06:
They speculated that that anomaly somehow distorted the DCF result.

[00:24:52] Speaker 06:
They didn't explain the cause.

[00:24:54] Speaker 06:
And so they cited low interest rates, but they didn't explain how those affected the analysis.

[00:25:00] Speaker 06:
So their analysis here is even more opaque than in Tennessee gas.

[00:25:04] Speaker 02:
Can you explain to me how the GCF would have incorporated the already low, super low, historically low, Treasury bond rates?

[00:25:14] Speaker 06:
The DCF is based on dividend yields, which consist of the dividends the stocks actually pay divided by the actual market stock price and growth estimates.

[00:25:25] Speaker 06:
The stock prices incorporate, efficiently, all relevant information.

[00:25:29] Speaker 06:
That's what Tennessee Gas is really all about.

[00:25:32] Speaker 06:
And so the interest rates known to investors, expected by investors, factor into the prices.

[00:25:39] Speaker 06:
And they factor into them in good times and bad.

[00:25:42] Speaker 06:
Firm.

[00:25:43] Speaker 02:
Was the Commission relying on the DCF and other cases around the same time without departing from it, even though the market conditions would have been exactly the same as other cases?

[00:25:52] Speaker 06:
Yes, Your Honor, and exclusively so.

[00:25:54] Speaker 06:
Perkins relied only on DCF for decades.

[00:25:56] Speaker 06:
He relied on it during the turbulent market period following September 11, 2001.

[00:26:01] Speaker 06:
That was the Public Service of Kentucky case.

[00:26:03] Speaker 06:
He continued relying on it on cases before, during, and after the 2008 financial crisis.

[00:26:08] Speaker 06:
In the Pacific Gas and Electric case, months before this case went to hearing, FERC relied exclusively on DCF, summarily, and summarily directed the utility to use the median of a DCF range distribution to be determined.

[00:26:21] Speaker 02:
Well, you say it was right before this hearing, but was it covering the same time period?

[00:26:25] Speaker 06:
That one was covering a period a couple years before, and then in the Seaway case, decided after this one,

[00:26:31] Speaker 06:
That relied on a study period that overlapped the one here.

[00:26:34] Speaker 06:
Three of the six months were in common.

[00:26:36] Speaker 06:
And in fact, the months seaway involved a slightly earlier period with slightly lower interest rates.

[00:26:41] Speaker 06:
And FERC again relied on the DCF without adjustment.

[00:26:46] Speaker 06:
FERC, of course, also relied on the DCF here to set the incentive cap.

[00:26:51] Speaker 06:
And FERC has never explained why DCF was reliable for that purpose, but not for purposes of setting the actual base return.

[00:26:57] Speaker 02:
I thought you would argue that it wasn't reliable for using the top quarter midpoint rather than the normal midpoint.

[00:27:06] Speaker 02:
because what they hear is that the normal midpoint isn't going to work, so we're going to take the top half, divide that in half, and use that as our, that midpoint.

[00:27:12] Speaker 02:
We're going to use the top half midpoint, so the top quarter is, I don't know how else to describe it, the top quarter midpoint.

[00:27:18] Speaker 02:
On what basis do they have to think that was reliable?

[00:27:23] Speaker 06:
Well, it's not clear, other than saying that DCF continues to work for that purpose.

[00:27:31] Speaker 06:
They, and now for a turn to

[00:27:33] Speaker 06:
for other methods that it had previously spurned to tell it to set the return above the midpoint.

[00:27:42] Speaker 06:
It had previously rejected each of those methods for reasons many of which continued to apply.

[00:27:48] Speaker 06:
And they never explained why they were more reliable now than they were then.

[00:27:53] Speaker 06:
But the only thing that says it took from those methods

[00:27:59] Speaker 06:
was that the return should be set someplace above the middle.

[00:28:02] Speaker 06:
It didn't look to see how far above they pointed.

[00:28:06] Speaker 06:
And in fact, if you go through them one by one, and you look at them critically following the logic that FERC applied in its decisions,

[00:28:15] Speaker 06:
None of them point unequivocally above the top quarter.

[00:28:20] Speaker 06:
They all, as a collectivity, point below the top quarter.

[00:28:26] Speaker 06:
And it may be useful to go through them one at a time.

[00:28:28] Speaker 06:
The state cases were really the most important thing.

[00:28:31] Speaker 06:
And there's no dispute, over the two-year period they freckled up at, they

[00:28:39] Speaker 06:
were generally in the low 10s, well below 10.5.

[00:28:42] Speaker 06:
And by the most recent information in the record, they were averaging 9.75.

[00:28:47] Speaker 06:
So well below the 10.57 that FERC said.

[00:28:51] Speaker 06:
Capital asset pricing model, FERC plainly relied on the median there, because it gave two different numbers for the midpoint.

[00:28:58] Speaker 06:
Excuse me, it relied on the midpoint.

[00:28:59] Speaker 06:
It gave two different numbers for the median.

[00:29:01] Speaker 06:
At the midpoint, it was 10.4.

[00:29:03] Speaker 06:
So again, below 10.57.

[00:29:06] Speaker 06:
And it would have been even lower had FERC applied the second stage GDP growth constraint that paragraph 113 of opinion 531b demand, logically.

[00:29:20] Speaker 06:
The risk premium produced a number slightly above 10.57, but it did so based on our math there.

[00:29:25] Speaker 06:
We've explained that in brief, and FERC has not had any counter to.

[00:29:30] Speaker 06:
And within that they're corrected, it points no higher than 10.22, and there are other errors which are driving it even lower.

[00:29:40] Speaker 06:
Expected earnings.

[00:29:41] Speaker 06:
The median of that distribution was 10.2.

[00:29:46] Speaker 06:
And FERC says, unbriefly, if any of these are above, then that's enough.

[00:29:50] Speaker 06:
That's a sufficient reason you can affirm at any independent ground.

[00:29:53] Speaker 06:
That's not what FERC's opinions say.

[00:29:55] Speaker 06:
FERC's opinions say they're all above, and it's not clear what they would have done had they realized that the CAPM, for example, points below the midpoint.

[00:30:09] Speaker 06:
So an explanation really is sorely needed as to why the DCF wasn't working here, and FERC hasn't given it.

[00:30:18] Speaker 06:
I would also point to footnote 306 of opinion 531.

[00:30:22] Speaker 06:
That framed the rules for subsequent cases, including the next New England complaint, which it set for here in the same day.

[00:30:29] Speaker 06:
And it said that we will consider every point in the DCF range.

[00:30:35] Speaker 06:
So how did FERC exclude all the options between the midpoint and the upper midpoint?

[00:30:41] Speaker 06:
Is this based on a formalistic rule that in regional cases, we only do midpoints?

[00:30:46] Speaker 06:
yet at the same time it said, we don't want to do midpoints.

[00:30:50] Speaker 06:
In Kentucky, it did do the midpoint, the midpoint of the full range, not the midpoint of half the range.

[00:30:54] Speaker 06:
And the reason it did that was because the endpoints of the full range

[00:31:02] Speaker 06:
emphasize the cost of the region's highest and lowest cost utilities.

[00:31:07] Speaker 06:
That logic does not carry forward as a basis for using the top quarter because the lower cost utilities in the region represented by the 21 data points that FERC buried are relevant to determining what will fix the region.

[00:31:19] Speaker 06:
FERC simply ignored that.

[00:31:21] Speaker 06:
Kentucky also says not to use the midpoint if the distribution is highly skewed, and adopted a test rescue based on the jumps between adjacent points.

[00:31:31] Speaker 06:
Applying that same test here to Burke's truncated 17-point distribution, it is highly skewed, so the midpoint doesn't follow from that either.

[00:31:39] Speaker 06:
And then in other cases, Burke had not used the

[00:31:44] Speaker 06:
midpoint, the upper midpoint, in any comparable circumstance.

[00:31:48] Speaker 06:
It had set returns all over the range, including in the prior New England case, including in the cases cited in Judge Santel's arrow decision last year.

[00:32:01] Speaker 06:
There's been no rule that we only do midpoints.

[00:32:04] Speaker 06:
And the only two cases for sites as having done midpoints did so because there was no other information on the record pointing to any other point in the range.

[00:32:15] Speaker 06:
So they're left with this formalistic rule.

[00:32:17] Speaker 06:
They sort of pantomime empiricism.

[00:32:20] Speaker 06:
But the decision is not empirical.

[00:32:22] Speaker 06:
It's based on this formalism that, well, we do midpoints, except maybe next time we won't.

[00:32:26] Speaker 06:
And we don't always.

[00:32:28] Speaker 06:
So it doesn't really hang together.

[00:32:31] Speaker 06:
There may be some basis on which FERC can rationalize this result, but they haven't done so yet.

[00:32:35] Speaker 06:
The court should bring in for more explanation.

[00:32:37] Speaker 05:
So the remedy you would seek is for us to set aside FERC's decision and remand it for the procedure?

[00:32:42] Speaker 05:
That's correct, Your Honor.

[00:32:44] Speaker 06:
OK.

[00:32:44] Speaker 06:
I see my time is up.

[00:32:46] Speaker 06:
I have to ask her any further questions.

[00:32:47] Speaker 06:
Otherwise, I would serve about two minutes for rebuttal.

[00:32:49] Speaker 02:
All right.

[00:32:49] Speaker 02:
Thank you.

[00:32:56] Speaker 01:
Good morning, Your Honors.

[00:32:57] Speaker 01:
Beth Pacella for FERC.

[00:32:58] Speaker 01:
I think I'll start with the customer issues first, since that's where we were, where we ended.

[00:33:04] Speaker 01:
Let me first start talking about why the commission chose 10.57 as the just and reasonable.

[00:33:10] Speaker 02:
Can I actually?

[00:33:11] Speaker 02:
I'm sorry.

[00:33:11] Speaker 02:
Of course.

[00:33:12] Speaker 02:
Just to back up.

[00:33:13] Speaker 02:
I worry some in this case that people aren't using the same language for the same meaning, or I'm misunderstanding the language, and it's probably more likely the latter.

[00:33:23] Speaker 02:
When you talk about the DCF zone,

[00:33:27] Speaker 02:
And do you talk about a zone of reasonableness?

[00:33:30] Speaker 02:
Are those necessarily the same thing?

[00:33:32] Speaker 01:
The commission uses the term zone of reasonableness in the DCF analysis.

[00:33:37] Speaker 01:
What that is is a zone of reasonable returns for proxy company utilities.

[00:33:42] Speaker 01:
So it's an industry zone of reasonableness.

[00:33:46] Speaker 01:
The commission determines the particular

[00:33:50] Speaker 01:
just a reasonable return on equity, base return on equity for the particular utility or utilities at issue before it, by looking at that zone as a broad zone, not as a zone of reasonableness that we use for other, like cost of service rate, the rate itself, but the component of the rate, it uses it, it then takes that and looks at the circumstances related to the particular utility or utilities before it.

[00:34:14] Speaker 01:
and determines within that zone of reasonable returns, industry returns, what the just and reasonable zone is for the particular utilities.

[00:34:22] Speaker 02:
So when the Supreme Court talks about zone of reasonableness, or some of our prior cases, I had read that as more just recognizing that

[00:34:30] Speaker 02:
the relevant factors will not commonly dictate a single number for FERC to pick, and that in fact, it's not that an entire calculated zone, the bell curve, whatever it ends up looking like, are all reasonable, but simply that there is room for judgment within, by the commission.

[00:34:45] Speaker 02:
Certainly, that's absolutely right, Your Honor.

[00:34:47] Speaker 05:
In the process of doing that,

[00:34:50] Speaker 05:
Do you dispute the proposition advanced by petitioner that under a 206 analysis, the Commission must first find the existing rate to be unjust and unreasonable, unjust or unreasonable or both, before moving to the definitive step of determining a new rate that is just and reasonable?

[00:35:10] Speaker 01:
I think in most circumstances, Your Honor, that is how it works, that it is a one-step, two-step.

[00:35:15] Speaker 01:
But in this circumstance, with the return on equity component of the rate of service, that is done in one step.

[00:35:24] Speaker 05:
I don't understand why that would not be required, or I don't understand if we can explain why that would not be required in any 206 analysis as opposed to a 205.

[00:35:35] Speaker 01:
I think that if you look at, which we cited in our brief, Public Service Company of New York, 642F2nd, 1335 at 1350-027, there the court said, that case shows that collapsing in the ROE context, the two steps of 206 into one is okay.

[00:35:54] Speaker 05:
Did the nation say that in this case?

[00:35:55] Speaker 01:
Did the commission say that?

[00:35:56] Speaker 01:
I'm sorry.

[00:35:57] Speaker 05:
Did the commission say that in this case?

[00:35:59] Speaker 01:
Yeah, sure.

[00:35:59] Speaker 01:
That's what the commission, what the court said there was, the commission's conclusion that only rates between 13.5.

[00:36:06] Speaker 05:
In the case before us, did the commission say why it was pre-termitting the first step of the 206 analysis?

[00:36:13] Speaker 01:
I don't know, I'm sorry, I don't know what you mean by pre-terminating, but the commission did it, what the commission said, yes, at opinion 531B at JA 116 to 17, paragraphs 32 to 33, the commission said, because the commission finds only a single base return on equity just and reasonable, showing that the return on equity methodology now produces a numerical value below the existing numerical value inherently establishes that- I'm sorry, which paragraph are you reading from?

[00:36:42] Speaker 01:
I'm not reading from paraphrasing what the paragraph, but it's at 5 30.

[00:36:47] Speaker 05:
You would tell us what the commission said.

[00:36:49] Speaker 05:
Sure, because we have to decide based on that.

[00:36:52] Speaker 05:
Not on post on justification.

[00:36:53] Speaker 01:
No, no, it's in.

[00:36:54] Speaker 01:
It's in 5 31 B J 1 16 to 17 paragraphs 32 to 33.

[00:37:12] Speaker 01:
And it's as well in 530 BJA 112 paragraph 24.

[00:37:16] Speaker 01:
But I think paragraphs 32 and 33 are more clear.

[00:37:28] Speaker 01:
So if you see in paragraph 32, the commission explains that it sets the numerical rate.

[00:37:35] Speaker 05:
Tell me what the commission said.

[00:37:37] Speaker 05:
I honestly don't have that JA in front of me right now.

[00:37:41] Speaker 05:
Oh, I'm sorry.

[00:37:42] Speaker 01:
I'm sorry.

[00:37:42] Speaker 01:
Of course, Your Honor.

[00:37:43] Speaker 01:
I apologize.

[00:37:43] Speaker 01:
JA 116, paragraph 32, the commission says,

[00:37:46] Speaker 01:
Quote, the commission has long required the use of DCF methodology to determine a zone of reasonableness with the lawful, just, and reasonable return on equity set at a single numerical point within that range based on the circumstances and record of that case.

[00:38:01] Speaker 01:
Therefore,

[00:38:02] Speaker 01:
When the commission finds a utility's base return on equity to be just and reasonable in a particular case, it finds only, and the commission emphasizes only, that's italicized, that single point to be just and reasonable given the facts and circumstances of the case.

[00:38:16] Speaker 01:
It doesn't find any other just and reasonable base ROE within the zone of reasonableness, either above or below, to be just and reasonable for that utility or group of utilities.

[00:38:26] Speaker 01:
Thus, and then it says,

[00:38:32] Speaker 01:
in that same paragraph, quote, it follows that showing the existing base return on equity established in the prior case is unjust and unreasonable merely requires showing that the commission's return on equity methodology now produces a numerical value below the existing numerical value.

[00:38:49] Speaker 01:
Thank you.

[00:38:50] Speaker 01:
And it goes on.

[00:38:51] Speaker 05:
You give it what I'm asking for.

[00:38:52] Speaker 01:
I appreciate it.

[00:38:53] Speaker 01:
Thank you.

[00:38:53] Speaker 01:
I appreciate that.

[00:38:54] Speaker 01:
Thank you.

[00:38:56] Speaker 01:
So the commission's point is, in this circumstance, both steps happen at the same time.

[00:39:02] Speaker 01:
And again, there is nothing in the statute that says you must do step one before step two.

[00:39:08] Speaker 01:
That's certainly not an explicit holding.

[00:39:09] Speaker 01:
The commission gets to interpret the statute.

[00:39:12] Speaker 02:
The statutory text is pretty close to saying that.

[00:39:14] Speaker 02:
Well, the commission has interpreted it.

[00:39:17] Speaker 01:
I did look at that as well, of course, Your Honor.

[00:39:19] Speaker 05:
Isn't your better position, rather than saying the statute doesn't require it to say that you did it, you simply

[00:39:26] Speaker 05:
You didn't leave out the same time.

[00:39:27] Speaker 05:
You simply that's right.

[00:39:30] Speaker 01:
Sure, that's exactly right.

[00:39:31] Speaker 07:
And I think that are you bound by prior judicial determinations?

[00:39:36] Speaker 07:
that require two steps, like in Winfield and Papago?

[00:39:41] Speaker 01:
In Winfield and Papago, the Winfield case was not a return on equity case, Your Honor.

[00:39:46] Speaker 01:
And Papago was.

[00:39:48] Speaker 01:
And if I can get to that in one second.

[00:39:50] Speaker 01:
And I want to get to that.

[00:39:51] Speaker 01:
But can I point out, yes, we are certainly bound, as is the petitioner, as petitioners are.

[00:39:56] Speaker 01:
And as I mentioned before, Public Service Company of New York said the commission's conclusion that only rates between 13.5% and 14.3% are just and reasonable.

[00:40:06] Speaker 01:
supports it, excuse me, fulfills the requirement of Section 5, which is the same thing as Section 206 here, on both necessary findings.

[00:40:15] Speaker 01:
So that case shows that the Commission can, in appropriate circumstances concerning ROE, can collapse, it's okay in the ROE context to make those findings through the same step because

[00:40:27] Speaker 01:
That's how the commission determines with the just and there's only one just and reasonable based ROE.

[00:40:32] Speaker 01:
So finding a new one means definitionally that the old one is no longer just and reasonable.

[00:40:37] Speaker 02:
I thought in Papago, the whole point was that they hadn't done it, and we figured out why it was OK.

[00:40:44] Speaker 01:
Papago, I think that's true, and your honor, and the other point of Papago, which is not as clear from the opinion if you don't work at FERC and understand, at the time of Papago, FERC determined return on equity completely differently.

[00:41:00] Speaker 01:
It didn't use proxy companies.

[00:41:02] Speaker 01:
It determined the base return on equity zone of reasonableness for a particular utility by using different analyses with the utility's own numbers.

[00:41:13] Speaker 01:
So there was no proxy done at the time.

[00:41:16] Speaker 01:
And so when the commission talked about the zone of reasonableness, when the commission talked about the zone of reasonableness in Papago, it really was the zone of reasonableness for that particular utility, because it was always using the utility's numbers.

[00:41:28] Speaker 01:
So when the court said finding that a particular

[00:41:31] Speaker 01:
ROE within that zone of reasonableness is no longer just and reasonable, but it sets a new ROE there.

[00:41:39] Speaker 01:
It didn't mean the other ones were no longer just and reasonable, because they really were potentially just and reasonable returns on equity for that particular utility.

[00:41:49] Speaker 01:
So it was done completely differently.

[00:41:51] Speaker 01:
Now the zone of reasonableness really doesn't mean the zone of reasonableness for the particular utility.

[00:41:55] Speaker 01:
It really just means in the industry.

[00:41:58] Speaker 02:
But I'm curious about your argument that any time you calculate a new DCF and you get a new point that you pick on there, it necessarily means the other one was unjust and unreasonable.

[00:42:11] Speaker 02:
What if they were only off by

[00:42:13] Speaker 02:
A tenth of a percent.

[00:42:15] Speaker 01:
I would imagine that there's a de minimis finding that's certainly not the circumstance we have here, and I don't know of any case, but sure, I mean, if there's a... Well, that's the rationale.

[00:42:24] Speaker 02:
The rationale is if we got one number, the other one must be unjust and unreasonable, and now you're saying, well, a tenth of a percent might not be, although a tenth of a percent can be an awful lot of money.

[00:42:33] Speaker 01:
That's really just me pontificating, I'm sure.

[00:42:35] Speaker 01:
Based on the Commission's precedent, there would be a new just and reasonable DCF, are we?

[00:42:40] Speaker 02:
So the old one was unjust and unreasonable, necessarily, even if it's off by a thousandth of a point.

[00:42:46] Speaker 02:
That's the problem with this notion that just because we calculated a new number, the old one was necessarily wrong because, again, the recognition of the zone of reasonableness, not the DCF zone, but a zone of reasonableness suggests that there is at least some margin for judgment in there so that you could actually have two numbers, both of which could be determined to be just and reasonable.

[00:43:10] Speaker 01:
Well, what the commission does in each case is look at the particular circumstances and

[00:43:14] Speaker 01:
So after it comes up with this zone, the DCF zone, it looks at particular circumstances in a case, and that, I guess, would leave open for the de minimis.

[00:43:23] Speaker 05:
Wouldn't you realize it would be a lot easier right this minute if the Commission had done the first step of the analysis explicitly and said this is unjust and unreasonable, therefore we can move to step two?

[00:43:32] Speaker 05:
I'm sorry, Your Honor.

[00:43:34] Speaker 05:
Why didn't the commission go through the two steps here?

[00:43:37] Speaker 01:
Because the point, as the commission explained, the way you find out whether the existing DCF ROE is just and reasonable, the particular base ROE is unjust and unreasonable, is by determining the new just and reasonable.

[00:43:53] Speaker 01:
You do a new analysis.

[00:43:54] Speaker 05:
So there's no difference between 206 and 205 as far as the analysis is concerned?

[00:43:59] Speaker 01:
The difference is the commission then will make a finding.

[00:44:02] Speaker 01:
The old one is unjust and unreasonable.

[00:44:05] Speaker 05:
Did they make such a finding here?

[00:44:06] Speaker 01:
The commission did.

[00:44:06] Speaker 01:
The commission found that it was the short in paragraphs 32 and 33.

[00:44:11] Speaker 01:
The ALJ found it as well, that the prior short.

[00:44:16] Speaker 01:
That finding is here in these orders.

[00:44:18] Speaker 01:
I don't think anybody disputes that.

[00:44:22] Speaker 02:
And then the other difficulty here is that

[00:44:27] Speaker 02:
The commission calculates this DCF and then says, actually, we can't really rely on the DCF to have captured anomalous economic conditions unspecified, although there's a reference to Treasury rates.

[00:44:43] Speaker 02:
There's no actual explication of what the anomalous economic conditions are.

[00:44:48] Speaker 01:
I would disagree with that, Your Honor.

[00:44:50] Speaker 01:
I think the Commission did explicitly rely it is the Treasury bond.

[00:44:53] Speaker 01:
I mentioned that.

[00:44:54] Speaker 02:
Well, where did it explain why this methodology, which for years it has said captures information in the market and was using at the exact same time, the exact same year for the same time periods in this case?

[00:45:09] Speaker 02:
was not reliable because it didn't capture treasury bonds.

[00:45:12] Speaker 02:
Did it in other cases capture treasury bonds?

[00:45:15] Speaker 01:
Let me first say so I don't forget to say this and I'll get right to that, Your Honor.

[00:45:20] Speaker 01:
The customers did not argue to the commission that

[00:45:24] Speaker 01:
that you can't rely on the upper portion of the DCF or any portion of the DCF because it's not reliable, because it is anomalous concerns.

[00:45:36] Speaker 01:
They argued the exact opposite.

[00:45:37] Speaker 01:
They never made that argument.

[00:45:38] Speaker 01:
The concern you have, Your Honor, was not presented to the Commission by the customers.

[00:45:43] Speaker 01:
They never argued you can't rely on the DCF.

[00:45:45] Speaker 02:
The whole rationale for the Commission's decision to not use the midpoint was that the DCF

[00:45:52] Speaker 02:
was not reliable in this case, that JA 127, it was wrong.

[00:45:57] Speaker 01:
And the customers said, commission's wrong about that.

[00:46:01] Speaker 02:
There's no anomalous concern here, and if there is, they said... No, but then if you take the commission at its word, then what on earth basis do they have for going, so let's just use the other end of that flawed set of numbers that we have, and let's just pick a different midpoint.

[00:46:17] Speaker 02:
Let's just pick a midpoint, because we like midpoints.

[00:46:20] Speaker 01:
And again, and it's important for purposes of the court's jurisdiction to address and to base their determination here on an argument that wasn't presented to the Commission.

[00:46:30] Speaker 01:
No one argued to the Commission.

[00:46:32] Speaker 02:
You can't, if you find that the DCF is not... The Commission has to have a reasoned analysis.

[00:46:38] Speaker 02:
No one has to say, by the way, you have to have a reasoned analysis.

[00:46:42] Speaker 02:
They have to have a reasoned analysis.

[00:46:44] Speaker 02:
And when they say the DCF is broken, so let's just do a different point on the DCF without any explanation as to how that was consistent or advanced the Bluefield Hope factors or why it was any less broken on that end than it was in the middle.

[00:47:02] Speaker 02:
That's a lack of reason decision making, isn't it?

[00:47:05] Speaker 01:
No, the commission's concern here only was that the possibly that the why it looked at these other analyses in the first place was that it was concerned that possibly the capital market conditions that were anomalous were not being incorporated into the DCF analysis.

[00:47:23] Speaker 01:
for purposes of using the midpoint of the entire zone.

[00:47:28] Speaker 01:
That was the commission's concern.

[00:47:30] Speaker 02:
And where do they explain, it may be or may not, I'm not an economics expert, but where do they explain why, given the nature of the design of the DCF and its long-standing assumption that it's incorporating market information

[00:47:46] Speaker 02:
Where do they explain why it couldn't be relied on this time in this case to have included those Treasury rates?

[00:47:52] Speaker 01:
I think the first, the Commission really just had a concern, and that was based on just the notion which is in, which the Commission talked about at opinion 531B at J127, paragraph 50, where it cited more in,

[00:48:06] Speaker 01:
for the proposition that all methods of estimating the cost of equity are susceptible to error when their underlying assumptions are anomalous.

[00:48:15] Speaker 01:
And so the commission said, and Morin, which the commission cited at 28, talked specifically about the DCF.

[00:48:24] Speaker 01:
Even the DCF analysis is susceptible to being skewed by anomalies.

[00:48:30] Speaker 02:
There's also- Sure, sure.

[00:48:32] Speaker 02:
Where do they say?

[00:48:33] Speaker 02:
which anomaly here and why treasury rates wouldn't be part of the ordinary stock market information that they are already incorporating by using this collection of information from existing utilities.

[00:48:47] Speaker 01:
The Commission explained that it was Commission explained

[00:49:01] Speaker 01:
It looked at, it talked about bond yields at 531 JA 70, no 285.

[00:49:07] Speaker 01:
And it talked about... It's a long way away from this now.

[00:49:12] Speaker 02:
That's a different opinion, in fact, altogether.

[00:49:14] Speaker 01:
Well, the two opinions go together, Your Honor.

[00:49:16] Speaker 02:
I understand, but that's an awful long way from explaining here that this, that Treasury was the singular anomalous condition when they talked about plural conditions, and they still, they can say all day, it was anomalous, but that doesn't, why is it anomalous?

[00:49:32] Speaker 02:
Why wouldn't the information factored in just like you normally assume that the market is efficient?

[00:49:39] Speaker 02:
And the numbers you collect are going to reflect all factors, including

[00:49:44] Speaker 02:
Well, you know, Treasury's really low.

[00:49:47] Speaker 01:
So I think the answer to that, Your Honor, is, again, what I was just talking about, how that record showed there, and also concerning model risk, which was addressed at 531JA 70-71, paragraph 145, note 286, and 531JA 22, paragraph 41, the Commission explained

[00:50:07] Speaker 01:
that, again, those things talk about how any model, including the DCF model, can be skewed.

[00:50:13] Speaker 01:
So the Commission's concern, again, and the Commission says this specifically at 531J70, paragraph 145, and 531BJ126, paragraph 49, that

[00:50:25] Speaker 01:
The concern here was it had less confidence that the midpoint of the zone accurately reflected the equity necessary to meet hope in Bluefield.

[00:50:34] Speaker 02:
You know, that's part of the problem.

[00:50:35] Speaker 02:
I mean, that's another one of the concerns I have, because in the rehearing decision, they say the DCF is the problem on 127.

[00:50:43] Speaker 02:
But in the initial decision, they said the midpoint is what we don't trust, a JA-70.

[00:50:48] Speaker 02:
So they weren't even consistent between the first decision and the rehearing decision as to what the problem was.

[00:50:54] Speaker 02:
I'm sorry, where is that in the hearing ornament, Your Honor?

[00:50:58] Speaker 02:
So JA-70 said the midpoints.

[00:51:01] Speaker 02:
And then 127, which says I read it, and again, tell me if I'm wrong, it sounds like we don't trust the part you were just telling me, we don't trust the DCF, that the DCF model can't be relied on when economic conditions are anomalous.

[00:51:18] Speaker 02:
Those are two different things.

[00:51:20] Speaker 01:
The commission's only concern.

[00:51:21] Speaker 01:
The commission said every model has problems.

[00:51:24] Speaker 01:
The commission did say that, and I'm sorry I don't have the paragraph cite for that.

[00:51:27] Speaker 01:
But the commission in these orders said every model has problems.

[00:51:30] Speaker 01:
Our preferred model remains the DCF analysis.

[00:51:33] Speaker 01:
It's still the best model.

[00:51:35] Speaker 01:
So when the commission had this concern that the midpoint might not satisfy the capital attraction standard of Bluefield and Hope,

[00:51:42] Speaker 01:
It said, you know what, we're going to just check.

[00:51:44] Speaker 01:
We're going to see.

[00:51:45] Speaker 01:
We're going to compare it to what state authorized returns on equity are and these other expected earnings and capital asset and the risk premium.

[00:51:55] Speaker 01:
And it looked at all those different things, and it saw that, wow, all of those things would provide a return on equity higher than the midpoint here, than 9.39.

[00:52:06] Speaker 01:
So all of the numbers were higher than the 9.39.

[00:52:08] Speaker 01:
Then the commission's next step was, OK,

[00:52:12] Speaker 01:
Now we know that maybe – now we know our concern that the midpoint of the DCF isn't sufficient is corroborated by these analyses.

[00:52:22] Speaker 01:
Now we're going to use – we're stepping back and we're going to look at our precedent.

[00:52:25] Speaker 01:
What do we do when we have to increase above the midpoint of the entire zone?

[00:52:31] Speaker 01:
The commission first said, well, we look at central tendency, and then it said – and we have these cases where our precedent shows that we use the midpoint of the upper half.

[00:52:41] Speaker 01:
actually use the central tendency in the cases that the commission cited, it was a single utility, so they used the median.

[00:52:46] Speaker 01:
But here, you use the midpoint, because this is a multi-utility return on equity.

[00:52:51] Speaker 02:
Where did they say that doing that would take care of the anomalous conditions unspecified, and would satisfy the whole blue field factors?

[00:53:00] Speaker 02:
I saw that nowhere.

[00:53:01] Speaker 02:
I saw them say, we don't trust the midpoint.

[00:53:05] Speaker 02:
The DCF can't be relied on like it normally is here.

[00:53:09] Speaker 02:
We like midpoints, let's pick a midpoint.

[00:53:12] Speaker 02:
That strikes me as the ultimate in arbitrary decision making.

[00:53:16] Speaker 02:
Have they said, and we think that will reflect the right information because it's in the vicinity of some of these other models, but they said no, we're not looking at those other models for picking our number, we just like midpoints.

[00:53:30] Speaker 01:
Your Honor, and the commission's like of midpoints as showing as

[00:53:37] Speaker 01:
appropriately being inclusive of the bottom number and the top number, and therefore encompassing all of the utilities that the return on equity will apply to.

[00:53:48] Speaker 01:
That's been affirmed by this Court.

[00:53:49] Speaker 01:
I mean, the Commission didn't just come up and say, hey, let's just pick the midpoint.

[00:53:53] Speaker 01:
I think that's what they said.

[00:53:54] Speaker 01:
They said, we like midpoints, and so we're going with the midpoint.

[00:53:58] Speaker 01:
the commission did that as well here.

[00:54:00] Speaker 01:
I mean, the commission just followed its precedent here.

[00:54:04] Speaker 01:
This isn't just out of the blue.

[00:54:06] Speaker 01:
The commission and consumers energy had a circumstance where it knew it needed to go above the midpoint of the zone and it applied the midpoint of the upper half of the zone and it did as well.

[00:54:19] Speaker 02:
I did explain there because

[00:54:21] Speaker 02:
didn't have, the DCF itself didn't capture the relevant information, didn't capture that they were anomalous, and that was the only record information they had to go on.

[00:54:32] Speaker 01:
No, that actually, it wasn't the only record they had to go on.

[00:54:36] Speaker 01:
If you look at SoCal Ed 92 FERC 61070 at

[00:54:41] Speaker 01:
61266, the commission had specific information.

[00:54:45] Speaker 01:
It said, given the conflicting evidence in the case on the issue of risk, we find that the updated financial data is the best quantifiable measure.

[00:54:52] Speaker 01:
So it was using updated financial data rather than the data that entities wanted them to use in the case.

[00:55:00] Speaker 01:
And so it had specific updated financial data.

[00:55:03] Speaker 01:
And then it determined at 61 to 66 to 67 that the appropriate return on equity for SoCal Edison should be above the midpoint of returns indicated for the comparison group.

[00:55:15] Speaker 01:
Therefore, we will establish SoCal Ed's return on equity at the midpoint of the upper half of the zone of reasonableness.

[00:55:21] Speaker 01:
And it's cited consumer's energy.

[00:55:22] Speaker 01:
So in circumstances where the commission knows it needs to go above the zone in a

[00:55:28] Speaker 01:
Since Consumers Energy, which was in 1998, the Commission uses the midpoint of the upper half of the zone.

[00:55:34] Speaker 01:
Petitioners are not citing any case post Consumers Energy, which the Commission did anything different.

[00:55:41] Speaker 01:
That's what the Commission does.

[00:55:42] Speaker 01:
So it was consistent with its precedent, and that precedent

[00:55:50] Speaker 01:
Using the midpoint has been affirmed by the score.

[00:55:52] Speaker 02:
In that case, specifically found that the DCF did not reflect market conditions.

[00:55:57] Speaker 01:
No.

[00:55:59] Speaker 02:
Yes, what the concern there was that the DCF zone did not show... Why would the top half, without further explanation, this could be explained, why would the top half, the top quarter reflect market conditions when the half does not?

[00:56:15] Speaker 02:
I think that... And particularly the whole Bluefield ones, which the Commission doesn't make any effort to say is what that number will satisfy.

[00:56:23] Speaker 02:
I would have thought that the companies would be saying it should be higher, that you can't just pick the midpoint.

[00:56:27] Speaker 02:
You have to explain that it satisfies Hope Bluefield.

[00:56:30] Speaker 02:
And in fact, even that midpoint doesn't.

[00:56:32] Speaker 02:
We need higher.

[00:56:33] Speaker 01:
This commission certainly addressed Hope and Bluefield.

[00:56:38] Speaker 01:
I mean, incredibly, and it mentioned all through these orders.

[00:56:42] Speaker 01:
So the commission had the whole capital.

[00:56:44] Speaker 02:
You have to say the number you pick is satisfying those.

[00:56:48] Speaker 02:
And I just, I didn't see it.

[00:56:49] Speaker 02:
Sure.

[00:56:49] Speaker 01:
Well, that's the whole purpose.

[00:56:50] Speaker 01:
The commission said we can.

[00:56:51] Speaker 01:
Well, well, your honor, I do disagree with that because the, the commission, the whole point in why

[00:56:58] Speaker 01:
It didn't rely just on the midpoint.

[00:57:01] Speaker 01:
The anomalous concerns was because... I get that completely.

[00:57:04] Speaker 02:
That's why it said the midpoint's no good.

[00:57:06] Speaker 02:
So then his job is to say, what will meet Hope Bluefield?

[00:57:09] Speaker 02:
And that requires an explanation as to how just picking this midpoint on the top half will satisfy Hope Bluefield.

[00:57:14] Speaker 02:
I don't know why the companies couldn't get up and say that midpoint wasn't high enough.

[00:57:18] Speaker 02:
In fact, our old rate was just unreasonable.

[00:57:21] Speaker 02:
And that's when the men hope we fail, and you drop the ball by not doing that.

[00:57:25] Speaker 01:
I think Your Honor wants something more exacting in return equity than you're going to get.

[00:57:30] Speaker 01:
It's based on proxy information.

[00:57:33] Speaker 01:
There is no exact.

[00:57:35] Speaker 01:
It's not like you know that if you order

[00:57:37] Speaker 01:
There are certain costs that a utility has that are specific, like your cost of labor.

[00:57:44] Speaker 01:
So you know exactly how many employees you have and how much you pay them, and you know exactly what that is, and you can pick that exactly.

[00:57:49] Speaker 01:
This is a bit more amorphous than that.

[00:57:51] Speaker 01:
It's all based on proxy.

[00:57:52] Speaker 07:
That's not against you, though.

[00:57:55] Speaker ?:
Exactly.

[00:57:55] Speaker 01:
No, I think in terms of the Commission... What do you do?

[00:57:58] Speaker 07:
You know, I noticed in your brief you don't address Papago.

[00:58:02] Speaker 07:
You don't address the City of Winfield.

[00:58:04] Speaker 01:
Sure.

[00:58:04] Speaker 07:
You don't address the... Sure we do, Your Honor.

[00:58:07] Speaker 07:
...Calpine.

[00:58:07] Speaker 07:
What?

[00:58:09] Speaker 07:
Well, I don't find it in your Table of Authorities.

[00:58:12] Speaker 01:
The City of Winfield, our point is, and I... But let me read this to you, and you tell me.

[00:58:20] Speaker 07:
This is a FERC opinion from 2009, and it says,

[00:58:24] Speaker 07:
that the courts in this commission have recognized there's not a single just and reasonable rate.

[00:58:29] Speaker 07:
Instead, we evaluate tariff provisions to determine whether they fall into a zone of reasonableness.

[00:58:36] Speaker 07:
There's a range.

[00:58:38] Speaker 07:
Now, if that's true,

[00:58:40] Speaker 07:
and the commission still adheres to that, then the fact that the commission comes up with a number of 10.57 doesn't make the existing rate of 11.14 unjust and unreasonable.

[00:58:54] Speaker 07:
That wouldn't follow.

[00:58:55] Speaker 07:
So what do you do with language like that?

[00:58:57] Speaker 07:
And that's not the only case that's

[00:58:59] Speaker 01:
No, there's myriad because those are not, but those are not return on equity cases, Your Honor.

[00:59:04] Speaker 01:
Other than Papago, which I've already explained, that was a different circumstance.

[00:59:08] Speaker 01:
I don't understand why that matters.

[00:59:14] Speaker 01:
There is, the commission has determined, and the commission in its discretion does get to, it's a rate matter.

[00:59:20] Speaker 01:
The commission has determined that return on equity does not have a zone of reasonableness.

[00:59:26] Speaker 01:
It has a particular point that is just unreasonable.

[00:59:29] Speaker 01:
The commission has interpreted that the 206 protection-

[00:59:32] Speaker 01:
No, no.

[00:59:33] Speaker 01:
What I mean is the Commission then has to use its judgment.

[00:59:37] Speaker 01:
Then I misspoke and I didn't misspeak.

[00:59:39] Speaker 01:
I misrepresented what I was trying to say.

[00:59:42] Speaker 01:
I just wasn't clear.

[00:59:43] Speaker 01:
My point is the Commission is using a proxy circumstance where it then has to use its own judgment

[00:59:49] Speaker 01:
as to where to place it.

[00:59:50] Speaker 01:
And here, the commission used its precedent.

[00:59:53] Speaker 01:
It followed its precedent, some of which is affirmed by this court, some of which just didn't come to court.

[00:59:59] Speaker 01:
And it followed its precedent.

[01:00:00] Speaker 01:
And there is not one case that petitioners are citing, post consumers, that sets the return on equity at a different point than at the midpoint of the upper half.

[01:00:12] Speaker 01:
This is how the commission's been doing it for decades.

[01:00:14] Speaker 07:
The 11.14, that came as a result of that.

[01:00:18] Speaker 01:
That was their prior just and reasonable base return equity based on the prior DCF zone of reasonableness.

[01:00:25] Speaker 01:
It was the midpoint of that zone.

[01:00:27] Speaker 07:
Was it a 205 proceeding?

[01:00:28] Speaker 07:
Was there a proceeding?

[01:00:29] Speaker 01:
Yes, it was, Your Honor.

[01:00:32] Speaker 07:
Yes.

[01:00:32] Speaker 07:
So the difference is that the 11.14 was set by the transmission owners and the 10.57 is set by the commission.

[01:00:45] Speaker 07:
That's the difference.

[01:00:47] Speaker 07:
That's wonderful.

[01:00:52] Speaker 01:
Yes, that is true.

[01:00:53] Speaker 01:
But the point is, in both circumstances, the commission determined the just and reasonable return on equity.

[01:00:59] Speaker 01:
For example, in the prior case,

[01:01:02] Speaker 01:
in which Bangor Hydro, I believe, is where it was decided the prior return on equity.

[01:01:08] Speaker 01:
In that case, if the petitioners had been trying to get the median rather than the midpoint, the commission, what just like happened in the SoCal Ed proceeding,

[01:01:18] Speaker 01:
This court affirmed the Commission's determination that everything within that zone is not just and reasonable.

[01:01:24] Speaker 01:
The Commission says that the midpoint is the just and reasonable point, not the median, or vice versa, depending on whether it's a one-utility return on equity or a multi-utility return on equity.

[01:01:34] Speaker 07:
I'm sorry, did the Commission do the BCA analysis in the 205 proceeding?

[01:01:36] Speaker 07:
Of course.

[01:01:37] Speaker 07:
And came up with a zone of reasonableness?

[01:01:40] Speaker 01:
Came up with a zone of industry.

[01:01:42] Speaker 07:
And what was that zone?

[01:01:46] Speaker 01:
I don't have that information.

[01:01:48] Speaker 01:
The zone was 7.3 to 13.1, and the zone here was 7.03 to 11.74.

[01:02:02] Speaker 07:
So how did the Commission determine that the 11.14 was just the reason?

[01:02:08] Speaker 01:
That was the midpoint of the 7.3 to 13.1 zone.

[01:02:12] Speaker 01:
There was no allegation here, just like there's been in no other proceeding before the Commission recently to address your concern, Your Honor, I believe.

[01:02:21] Speaker 01:
The first of all, the Seaway case is post this record and the Brooklyn Union gas case from this court indicates that it stands for the proposition that the court can't consider post record orders of the commission.

[01:02:34] Speaker 01:
We don't know what the commission will do on re-hearing.

[01:02:37] Speaker 01:
You don't know what...

[01:02:39] Speaker 02:
notes have been low for a very long time.

[01:02:41] Speaker 02:
They've been historically low for a very long time.

[01:02:43] Speaker 02:
So if DCF doesn't capture it, I'm shocked that you just keep using it.

[01:02:47] Speaker 01:
This is the first time that the allegation has been raised, Your Honor.

[01:02:51] Speaker 02:
I know, but don't you have identified the problems from the Commission on its own?

[01:02:54] Speaker 02:
Make sure it doesn't use it in other cases if it said it can't capture it?

[01:02:58] Speaker 01:
If the Commission doesn't consider that on its own in future cases, Your Honor, then that's something that, if it comes before this Court, this Court can address that.

[01:03:04] Speaker 02:
Or maybe the fact that the DCF

[01:03:05] Speaker 02:
was reliable the next month suggests that the explanation here is insufficient.

[01:03:10] Speaker 01:
But that's not something that under Brooklyn Union Gas, Your Honor, that this Court is allowed to consider.

[01:03:16] Speaker 01:
And then maybe frustrating, I'm sorry, but that is the Court's precedent.

[01:03:19] Speaker 01:
And I think it makes sense, because if the Commission made a mistake, my point is the Commission made a mistake in Seaway, not made a mistake in this case.

[01:03:27] Speaker 01:
And I'm not defending the Seaway orders here today.

[01:03:33] Speaker 01:
All right, thank you very much.

[01:03:34] Speaker 02:
We've kept you up for a long time.

[01:03:35] Speaker 01:
I appreciate it.

[01:03:36] Speaker 01:
There's nothing else the court wants me to address.

[01:03:39] Speaker 01:
Thank you.

[01:03:40] Speaker 01:
OK, thank you for your time.

[01:03:44] Speaker 08:
Okay, so I have your answer.

[01:03:46] Speaker 08:
But first, Your Honor, the NEDOs did not set the 11.14.

[01:03:51] Speaker 08:
The Commission set the 11.14 as a result of a litigated proceeding.

[01:03:56] Speaker 08:
The NEDOs asked for more.

[01:03:59] Speaker 08:
So there is no difference in that respect, except there was a 205 case instead of 206.

[01:04:05] Speaker 08:
Judge Millett, I would turn your attention to Joint Appendix, page 72 and 73.

[01:04:12] Speaker 08:
which are paragraphs 147 and 148 in opinion 531.

[01:04:17] Speaker 08:
The NEDO's risk premium analysis was found to determine the cost of equity between 10.7 and 10.8 percent, which is above the 10.57.

[01:04:30] Speaker 08:
The CAPN analysis determined a range of 7.4 to 13.3 with a midpoint of 10.4 and a median of 10.9.

[01:04:41] Speaker 08:
and the expected earnings analysis, a range of 8.1 to 16.1, with a midpoint of 12.1.

[01:04:49] Speaker 02:
Well, the state rose, so 89% of them were below 10.57, correct?

[01:04:55] Speaker 02:
On the state?

[01:04:56] Speaker 02:
Going down.

[01:04:57] Speaker 02:
89% were below 10.57.

[01:04:59] Speaker 08:
I don't know about that, but recall that the midpoint was... And then the median on expected earnings was 10.2.

[01:05:07] Speaker 02:
And the CAPM midpoint is 10.4.

[01:05:11] Speaker 08:
But the midpoint, you know, all I'm trying to say is that there were a number of these that were much higher than the 10.57 and as high as 12.1.

[01:05:20] Speaker 08:
The point on the state ROEs is that the midpoint was 939.

[01:05:25] Speaker 08:
The states were at 98 to 1074, and the Commission found that transmission is a riskier business.

[01:05:33] Speaker 08:
How can we be below the very lowest state?

[01:05:35] Speaker 08:
And so the commission made a judgment to move it up in the range.

[01:05:38] Speaker 02:
Do you even think that top midpoint was the right place for you to land?

[01:05:41] Speaker 08:
Well, we believe, Your Honor, that it should be less than .14 as a matter of law.

[01:05:46] Speaker 02:
And there was no explanation for why they were picking that midpoint instead of your higher number.

[01:05:52] Speaker 02:
I mean, that's the thing with them collapsing the two steps here and then just picking that number and not explaining it.

[01:05:57] Speaker 02:
I'm just surprised you haven't complained more about that.

[01:06:02] Speaker 08:
Maybe I'm not as good a lawyer as I should be, but seriously, the commission had to exercise a judgment.

[01:06:12] Speaker 08:
I think the key point here is this is trying to infer a number.

[01:06:16] Speaker 08:
There is no one correct number.

[01:06:18] Speaker 08:
And that is one of the reasons that they're finding that only 10.57 is just and reasonable.

[01:06:23] Speaker 08:
Doesn't really make a lot of sense economically or financially, as well as legally.

[01:06:28] Speaker 08:
Thank you.

[01:06:30] Speaker 08:
Any more questions?

[01:06:32] Speaker 08:
Thank you.

[01:06:32] Speaker 08:
Okay, thank you very much.

[01:06:43] Speaker 06:
Your Honor, there was a discussion earlier of the possibility of a de minimis standard.

[01:06:49] Speaker 06:
This is not such a case.

[01:06:50] Speaker 06:
Every basis point here is worth more than a million dollars out of rate bearers' pockets.

[01:06:54] Speaker 06:
So the commission really needed to articulate some basis for why it adjusted the return upwards by 118 basis points from the midpoint to the top quarter.

[01:07:05] Speaker 06:
And the idea that we just do midpoints doesn't cut it.

[01:07:09] Speaker 06:
Footnote 306 of opinion 531 is really pivotal.

[01:07:12] Speaker 06:
That's where the commission laid out guidance to future cases.

[01:07:16] Speaker 06:
And it said, we will consider every point in the range.

[01:07:19] Speaker 06:
And it cited precedent where the court had said that it can't be confined just to two points.

[01:07:23] Speaker 02:
Sorry, is that in the JA?

[01:07:25] Speaker 02:
I just don't have that one.

[01:07:26] Speaker 02:
Yes, it is.

[01:07:26] Speaker 06:
It's in the underlying order.

[01:07:28] Speaker 06:
It's footnote 306 of opinion 531.

[01:07:30] Speaker 02:
which a page are you on sorry.

[01:07:32] Speaker 02:
I don't have.

[01:07:34] Speaker 06:
It's okay.

[01:07:41] Speaker 06:
And the Commission also cited that consumer's energy that came up in the earlier questioning.

[01:07:48] Speaker 06:
The key point about consumer's energy is that the way the Commission did the DCF there is it averaged across the dividend yields of all the proxy companies and averaged across the growth rates for all the proxy companies.

[01:07:58] Speaker 06:
So it came up with a single DCF result.

[01:08:03] Speaker 06:
It didn't have an array of 38 data points, as we have here.

[01:08:06] Speaker 06:
The array that the commission has said provided them with robust information about the New England transmission owners.

[01:08:11] Speaker 02:
Well, I say we've done midpoint before.

[01:08:13] Speaker 02:
When we found problems with the DCF before, we've just picked the upper midnight midpoint in the past, too.

[01:08:20] Speaker 06:
that they've landed at a wide variety of places in the range.

[01:08:24] Speaker 06:
Only in circumstances, however, where it's not that they distrusted the DCF, they distrusted that the DCF was measuring the cost of capital for the particular company at issue or for the right period.

[01:08:35] Speaker 06:
So before this court Southern California Edison decision in 2013, they would adjust

[01:08:40] Speaker 06:
based on treasury trends between the DCS study period and the time that the rate was being set for.

[01:08:48] Speaker 06:
That's why you had that 74 basis point difference in setting the 11.14.

[01:08:52] Speaker 06:
The DCF finding in that case actually was 10.4.

[01:08:56] Speaker 06:
So they got help from that finding, strangely.

[01:09:01] Speaker 06:
The other basis, the most common basis on which they would adjust within the range was because of a finding that the proxy group was measuring a set of companies with a different risk than the utility at issue.

[01:09:11] Speaker 06:
And they sort of gestured toward that explanation here in opinion 531.

[01:09:15] Speaker 06:
They said, we can adjust when there's a different risk.

[01:09:18] Speaker 06:
But they backed off that in opinion 531B.

[01:09:21] Speaker 06:
They said that no, actually, this proxy group is risk representative.

[01:09:24] Speaker 06:
There's no dispute about that.

[01:09:25] Speaker 06:
And therefore, the precedent in consumers' energy and Southern California Edison for barring from the midpoint simply doesn't apply because we haven't represented a number here.

[01:09:36] Speaker 02:
Any other question?

[01:09:37] Speaker 02:
Thank you very much.

[01:09:38] Speaker 02:
The case is submitted.