[00:00:00] Speaker 00:
Case 14-1063, Louisiana Public Service Commission Petitioner, the Federal Energy Regulatory Commission.

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Mr. Bonfen for the petitioner, Ms.

[00:00:12] Speaker 00:
Perry for the respondent, Mr. Knob for the intervener.

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Good morning.

[00:00:44] Speaker 02:
Good morning.

[00:00:44] Speaker 02:
May it please the court.

[00:00:46] Speaker 02:
My name is Mike Fontham.

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I represent the Louisiana Public Service Commission.

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In this case, FERC held on June 1, 2005, that the energy system agreement rates were unduly discriminatory.

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There was no remedy until June 1, 2007.

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On remand, this court, well, when the case was appealed to this court, the court overruled the delay.

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And on page 383 of the decision, it said, we grant the petition with respect to the commission's decision to deny refunds and to implement a prospective remedy commencing in 2007 based on 2006 data.

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but on remand for corrected only seven months of the two-year delay, leaving basically 17 months in place.

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What I'd like to do is I'd like to trace quickly, hopefully, the origins of the rationale that the Court is seeing this time.

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And then I will respond to the other arguments that the respondent and the interveners are making.

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But I think it's important to note that FERC did, in opinion 480, say that it was going to make the remedy effective in 2006.

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But it changed that.

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In opinion 480A, it said the remedy will be implemented on a prospective basis after a calendar year of data becomes available.

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This court reversed the decision to implement a remedy on a prospective basis commencing in 2007 and remanded.

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When the case went back to FERC... I guess there's a huge difference in how everyone interprets that opinion.

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But did we reverse it and say that that's not appropriate, that that can't be done, or did we say there needed to be a better explanation?

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I think it's a remand in which there could have been conceivably some better explanation.

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But, Your Honor, I don't believe that we are into it.

[00:03:12] Speaker 05:
Because what FERC says on remand and what they say in their briefing before us is that

[00:03:21] Speaker 05:
just because this disparity is recognized as effective on I guess it's June 1st of 2005.

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that disparity then needs to be remedied as of that time.

[00:03:39] Speaker 05:
But that's different than saying that a remedy has to be in place as of that date for disparities that occurred prior to that date, which is your argument.

[00:03:51] Speaker 02:
No, Your Honor, we never said that, and we don't say that.

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We said that a remedy, a formula, Judge Rogers has written a decision on how rate formulas work, a formula should be put in place commencing June 1, 2005.

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That establishes the rate.

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The data is not the rate.

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The data can come from 2004, it can come from estimates, it can come from any number of places, but the formula should go into effect in 2005.

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You can look in the Joint Appendix at how they put the system agreement in, in 1983.

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And it starts on page 444.

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In 1983, the rates started based on 1981 data.

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Then, on June 1, 1982 data went into the formula.

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Every formula rate, everybody gets their money right away.

[00:04:50] Speaker 05:
But it's based on the previous... But this remedy is remitting a disparity.

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And you don't know that there's going to be this unwarranted, undue discriminatory disparity until after the disparity occurs, right?

[00:05:06] Speaker 02:
No.

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In opinion 480, FERC said it's not going to go away.

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The disparities are going to continue.

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In 480A, it said the disparities are going to continue.

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Energy made filings with FERC that said the disparities are going to continue.

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And that is not FERC's rationale that we have to wait to see if a disparity occurs.

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What FERC did was it went back to opinion 480 and it acted like it was giving refunds.

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that the 2007 payment is a refund for 2006, and the 2008 payment is a refund for 2007.

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That's what a payment would be.

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If you had a payment in 2007 to remedy 2006, that's a refund.

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FERCUS said multiple times the bandwidth tariff does not involve refunds.

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That's in the comp- both of the compliance orders say that.

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You can look at page 168 of the appendix.

[00:06:07] Speaker 05:
So, so if, if, if, if FERC were to do, or we were to order for FERC or FERC were to decide on its own to do what you're saying on June the 2nd of 2005,

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What remedy, what time period are they remedying?

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They're remedying going forward.

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What do you do in setting rates?

[00:06:34] Speaker 05:
So they're remedying the disparity that is occurring on June 2nd, 2005?

[00:06:40] Speaker 05:
Yes, sir.

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They're not really a disparity that occurred prior to know, sir, not unless they say we're going to give a refund for 2004 the form.

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So if they're remedying an error to the so you agree, then that pursuant to order for 80 opinion for

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FERC's responsibility is to correct errors as of June 1st, 2005.

[00:07:08] Speaker 05:
Yes, sir.

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Not errors, not disparities that occur prior to that.

[00:07:13] Speaker 02:
Oh, no, no.

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But we did say, because on June 1, 2005, how did they set the rate that was unduly discriminatory?

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Data from 2004.

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The unduly discriminatory data was from the prior year setting the rate on June 1, 2005.

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We said, do it the way you've always done it with the system agreement, the exact same way.

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What you do in rate making is you say, we have to estimate what the rates need to be going forward.

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The normal way to do that is to use a prior recent period, which is deemed to be representative

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of what the rates would be going forward.

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In rate making, this is everywhere.

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In rate making, the utility can say, well, there's going to be a known and measurable change so we can adjust to that if they want.

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But third, when it has set these formula rates, and I was in the case where the Fifth Circuit approved this, they said, well, the benefit of this is they're going to use actual data from the prior year to set the rate going forward.

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This rate, this system agreement, in 1983, on January 1st, when it was made effective, nobody waited for a year to send a bill or two.

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And forecast formula rates were almost every day.

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Probably the majority of utilities in the country.

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Nobody waits a year.

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But this was created to solve a specific problem, which was unwarranted disparities.

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What if there was no disparities in 2004?

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Everybody's production costs were really important.

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If there was no disparities, they would have used 2004 data.

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I'll promise you that.

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But the idea of it is you're setting a rate going forward.

[00:09:07] Speaker 05:
And the use of the former morning data... Well, I'm not sure I understood your answer to my question.

[00:09:13] Speaker 02:
Okay, what?

[00:09:14] Speaker 02:
I'm sorry, Your Honor.

[00:09:16] Speaker 05:
If there were no disparities in 2004... There would be no payments.

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But it would simply be saying 2005... So it would be irrelevant that there was a disparity from June 1st, 2005 through the end.

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Well, that is correct, if the 2004 data would use, and that would be because... That's not the way that the formula works.

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Your Honor, this is important.

[00:09:47] Speaker 05:
The formula's not before us.

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The formula's been approved.

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The Fifth Circuit and others have... I mean, we've approved in the Fifth Circuit as approved.

[00:10:00] Speaker 02:
yes your honor and you know what they actually what what well you haven't approved the bandwidth formula because the bandwidth formula was just inserted into this rate but I need to make this very clear your honor the fact this has been held a hundred many many many times the fact that you're using past data to set the rate

[00:10:29] Speaker 02:
That is not, it does not mean you're setting anything for the prior year.

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You're setting it for this year going forward using representative data to set what you think will be needed in the future year.

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And you know, Service Schedule MSS-1, Service Schedule MSS-1 works the same way, only it doesn't accomplish

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the elimination of undue discrimination.

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You don't know what the loads are going to be next year, but they use the past year's loads.

[00:11:01] Speaker 05:
I understand that completely, but I guess I think that only gets you so far.

[00:11:07] Speaker 02:
Well, it gets me this far.

[00:11:10] Speaker 02:
What utility has ever, using a formula rate based on the past year, what utility has ever waited two years?

[00:11:18] Speaker 02:
There is none.

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Nowhere in the United States has that ever happened.

[00:11:22] Speaker 02:
What time, as Burke ever said to anybody else except the LPSC, we're going to wait for a year of data to be accumulated, and then we'll start your remedy.

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And this argument that the 2007 was for 2006, what is that?

[00:11:38] Speaker 02:
That's a refund.

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A payment in 2007 to correct the disparity in 2006 is a refund.

[00:11:46] Speaker 05:
FERC is saying it's not a refund, it's essentially an insurance policy.

[00:11:52] Speaker 02:
Well, they don't have that in their rationale.

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And really, FERC didn't say that in the brief, the interveners did.

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But they have one time in opinion 480 where they used the term insurance policy.

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And it was responding to Energy's argument that their resource plan was going to solve the problem.

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And Ferg said, well, if it does, there won't be any payments.

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But the Federal Power Act doesn't say establish an insurance policy.

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And I had an insurance policy on my home when Katrina hit.

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The insurance company paid me off at the time of the loss.

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not two years later.

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That's, you know, you can't, and let me make another point if I could, because I'm getting a little discombobulated.

[00:12:38] Speaker 05:
You've got good insurance then.

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I have good insurance, they came out, they looked at it.

[00:12:43] Speaker 05:
Just because they wait two years doesn't mean it's not still insurance.

[00:12:46] Speaker 02:
Well, but if they waited two years, they would have a lawsuit against them and they'd have to pay interest.

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And, you know, this whole

[00:12:57] Speaker 05:
That's still, you could still get your interest, right?

[00:13:01] Speaker 02:
We can't, well, let's look at it.

[00:13:04] Speaker 02:
The bandwidth formula went in in 2007.

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It wasn't the one adopted for 2006.

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It was a new one.

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Energy changed it.

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They took $30 million away from us.

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It became effective May 30th, 2007.

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that it says on, you can look in the Joint Appendix 867 to 876, the pages that are the formula rate that were inserted into the tariff as of then contained amendments.

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And at the bottom of each page, it says effective May 30, 2007.

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When FERC approved their first payments, it said, these are effective June 1, 2007.

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It didn't say they're effective in 2006.

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And when we asked for interest in both compliance orders, FERC said, these payments are not refunds.

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They're prospective, just like other FERC formulas.

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They started the rate in 2007.

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And the court said they implemented a prospective remedy commencing in 2007 based on 2006 data.

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But if it's a refund under FERC policy, you pay interest.

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And Entergy made its filing and said, well, we don't have to pay interest because this roughly equalizes costs going forward, not backward.

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And FERC accepted that.

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This roughly equalizes costs going forward, not backward.

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So if it's not a refund, FERC has said over and over, it's not a refund.

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The bandwidth tariff does not involve refunds.

[00:14:51] Speaker 02:
Joint appendix 168, the compliance order, paragraph 51.

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Joint appendix 314, the reading and hearing order, paragraph 32.

[00:15:02] Speaker 02:
Their arguments to not provide interest, it is not a remedy for the prior year.

[00:15:08] Speaker 02:
It's a prospective remedy going forward.

[00:15:12] Speaker 02:
So on June 1, 2005, they said a remedy is needed.

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They put in a prospective remedy going forward on June 1, 2007.

[00:15:22] Speaker 02:
On the remand, they corrected seven months.

[00:15:25] Speaker 02:
They didn't correct 24 months.

[00:15:28] Speaker 02:
So we are currently out a remedy.

[00:15:33] Speaker 02:
Now, if you went back and you said, okay, Ferg, you've got to give interest for that delay between 06 and 07, between 07 and 08, between 08 and 09, between 09 and 10, you know, for all those years when the LPSC was really getting a delayed payment, not a retroactive remedy, you know, that would partially solve the problem.

[00:15:55] Speaker 02:
But the insurance policy, you know, on my home,

[00:15:59] Speaker 02:
The roof blow-up blew off.

[00:16:01] Speaker 02:
Would my company be able to change the insurance policy after my roof blew off to not cover roofs?

[00:16:11] Speaker 02:
That's what they did in 2007.

[00:16:13] Speaker 02:
They ended a whole new formula.

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They decided to put in labor ratios and use their service company labor in those labor ratios.

[00:16:24] Speaker 02:
It changed the tariff significantly.

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And FERCA allowed them to put it in, allowed them to make it effective immediately.

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If we were dealing with a situation where they were providing a remedy for 2006 and 2006 had already occurred, they couldn't do that.

[00:16:43] Speaker 02:
That's retroactive rate make.

[00:16:45] Speaker 02:
But they could do that in this case because starting June 1, 2007 is when the rate started.

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And it's when the remedy started.

[00:16:54] Speaker 05:
But, I mean, FERC has discretion despite the notwithstanding the general prohibition against retroactive rate making to fashion a remedy in response to correcting an error that was acknowledged by the court in the litigation over that remedy, right?

[00:17:16] Speaker 02:
Your Honor, FERC, I don't think FERC has a discretion in 2007

[00:17:23] Speaker 02:
when it is applying a refund to enforce a rate for 2006 to say, OK, you can now change the terms.

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That's a violation of the rule against retroactive rate making.

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And that actually was what they originally said about using 2004, that you can't do that.

[00:17:45] Speaker 02:
But the problem with that was that they do do that every day.

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And in the case that Judge Rogers and Judge Kavanaugh sat on, the interruptible load delay, what did FERC do on remand?

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They changed the data for the prior year.

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because that's what the court told them to do.

[00:18:06] Speaker 02:
They had interruptible loads for the previous 12 months, and FERC delayed the remedy by saying, well, we have to wait.

[00:18:13] Speaker 02:
And as the interruptible load goes out in the future months, we'll let them take it out.

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That was Energy's attempt to delay that one.

[00:18:21] Speaker 05:
But in that case, you knew at that moment how to take out the interruptible load because that had been baked into the formula.

[00:18:32] Speaker 05:
So you could excise that.

[00:18:35] Speaker 05:
No, you don't know on... You don't know how much is going to be used, but you know what your capacity is.

[00:18:42] Speaker 02:
Yes, but it's the load that you don't know, and the load is what they corrected.

[00:18:47] Speaker 02:
And what they said was, well, we'll see what the loads are, and then we'll put those loads in to change that way.

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Whereas, for all rate making, what they do is they change the prior data.

[00:19:01] Speaker 02:
And the court reversed that.

[00:19:03] Speaker 02:
And actually, the court said it doesn't really matter whether you're talking about a deferred billing or you're talking about a prospective tariff.

[00:19:12] Speaker 02:
It doesn't really matter.

[00:19:13] Speaker 02:
You allowed energy to charge unduly discriminatory rates after the date of your decision on April 1, 2004.

[00:19:23] Speaker 02:
And you cannot do that.

[00:19:25] Speaker 02:
Well, in this case now,

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FERC allowed energy to continue charging unduly discriminatory rates from June 1, 2005 to June 1, 2007.

[00:19:38] Speaker 02:
All of the costs happened, all of the rate payers paid up, and there was no remedy.

[00:19:46] Speaker 02:
The remedy started June 1, 2007.

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And I request the court to ask them, what other rate ever did a utility have to wait a year to get its money?

[00:20:01] Speaker 07:
Or two?

[00:20:03] Speaker 07:
Why don't we hear from counsel?

[00:20:05] Speaker 02:
OK.

[00:20:05] Speaker 02:
Thank you, Your Honor.

[00:20:06] Speaker 07:
And we'll hear from you in rebuttal.

[00:20:09] Speaker 02:
Probably be good for your ears for now.

[00:20:16] Speaker 07:
Good morning.

[00:20:17] Speaker 08:
Good morning.

[00:20:18] Speaker 08:
Luna Perry for the commission.

[00:20:21] Speaker 08:
The commission has been quite clear from the beginning in 480 about how the bandwidth remedy works.

[00:20:30] Speaker 08:
And from 480 and going forward and in these orders before the court today, the commission has said that data in one year is accounted for under bandwidth payments in the following year.

[00:20:45] Speaker 08:
And those are prospective payments.

[00:20:47] Speaker 08:
Because you have to have the year of data, you have to get the Form 1, you have to make the calculations, and the payments start as soon as possible thereafter.

[00:20:57] Speaker 08:
But you heard counsel.

[00:21:00] Speaker 07:
So explain to me, if the agency decided as of 2005 that there was this unlawful disparity, isn't that when a remedy has to be provided?

[00:21:19] Speaker 08:
Well, the Commission found, Your Honor, that reallocating costs that occurred before June 1st, 2005 would constitute a retroactive remedy, essentially a refund, because there had been no finding prior to June 1st, 2005 that disparities in the production costs were unjust and unreasonable.

[00:21:42] Speaker 08:
And so therefore, beginning with June 1st, 2005, the Commission began to look at the disparities in production costs and to provide payments under the bandwidth remedy for those disparities.

[00:21:56] Speaker 07:
So in the remand that both sides seek on the refund issue, is that issue open?

[00:22:02] Speaker 08:
Yes, Your Honor.

[00:22:03] Speaker 08:
And the thing to recall in that regard is that the refund effective period in this case runs from September 2001 to May of 2003.

[00:22:12] Speaker 08:
And we discuss this in our brief at pages 32 and 33.

[00:22:17] Speaker 08:
So this has nothing to do with whether they get refunds under the statute.

[00:22:21] Speaker 08:
This has to do with whether after the refund period, they can then get bandwidth payments for

[00:22:28] Speaker 08:
production cost disparities in 2004 and in the first half of 2005.

[00:22:32] Speaker 07:
Okay, but let me just ask you to deal with the hypothetical for a moment.

[00:22:37] Speaker 07:
If the petitioner were to recover the remand, the refunds that it seeks, that would not

[00:22:49] Speaker 07:
is the question, would that provide the full remedy that the petitioner is seeking in this case?

[00:22:58] Speaker 07:
No, Your Honor, it would not.

[00:22:59] Speaker 07:
That's right.

[00:22:59] Speaker 07:
It would not.

[00:23:00] Speaker 07:
All right.

[00:23:00] Speaker 07:
So we're back to where we started.

[00:23:03] Speaker 07:
So the commission says in June of 2005, in my language, Louisiana has been paying too much.

[00:23:13] Speaker 07:
And normally, you know they're paying too much because you look at the rate they've been charged, right?

[00:23:22] Speaker 07:
And that rate was set based on the prior year data estimating what the rate would be in 2005.

[00:23:34] Speaker 07:
Right?

[00:23:35] Speaker 07:
Your Honor, that is not the way the bandwidth remedy works.

[00:23:39] Speaker 07:
I understand it isn't, but what I'm getting back to is the decision of the commission under the Federal Power Act that as of June 2005, again in my terms, Louisiana was paying too much.

[00:23:55] Speaker 07:
So there had to be adjustments made.

[00:24:00] Speaker 07:
So if I'm Louisiana and I'm paying hypothetically,

[00:24:05] Speaker 07:
I don't know, $30 million.

[00:24:06] Speaker 07:
And that's too much.

[00:24:10] Speaker 07:
Why do I have to continue to pay in 2005 that $30 million?

[00:24:18] Speaker 07:
Because under the bandwidth remedy, what I'm getting is relief, arguably, for 2006, but not for 2005.

[00:24:30] Speaker 07:
And if the whole premise of setting the 2005 rates was looking at the data in 2004, why can't I get a remedy against that $30 million I'm paying for the 2005 period?

[00:24:47] Speaker 07:
That's the only question I have.

[00:24:50] Speaker 07:
And I looked at the orders.

[00:24:54] Speaker 07:
And you can tell me where the best responses are.

[00:24:59] Speaker 07:
used your brief as a lead in trying to understand that, where you recount what Louisiana's arguments are, and then the commission says, we reject it.

[00:25:09] Speaker 07:
And I understand that.

[00:25:11] Speaker 07:
But I'm trying to understand why, when you get down to what I'll call the hard numbers.

[00:25:18] Speaker 07:
I understand the theory of a bandwidth remedy, but I don't understand how that fits with

[00:25:27] Speaker 07:
the harm that has been suffered, where they're entitled to relief from that harm?

[00:25:36] Speaker 08:
They're entitled to relief from the harm, Your Honor, from production cost disparities that exceed the bandwidth.

[00:25:42] Speaker 08:
And this is where the insurance policy point comes in.

[00:25:46] Speaker 08:
OK, but you agree the Commission didn't use that.

[00:25:48] Speaker 08:
That's energy's word, right?

[00:25:50] Speaker 08:
Not at all, Your Honor.

[00:25:51] Speaker 08:
Where did the Commission talk about it?

[00:25:53] Speaker 08:
In 480, paragraph 44, we're joined appendix 65.

[00:25:58] Speaker 08:
480A, paragraph 26, and we're joined appendix 123.

[00:26:03] Speaker 07:
Hold on, I'm on page 65.

[00:26:06] Speaker 07:
Paragraph 44.

[00:26:07] Speaker 07:
I'm looking at it.

[00:26:12] Speaker 08:
It's explaining why the fact that they have a plan to try to adjust

[00:26:20] Speaker 08:
the production cost disparities by reassigning generations.

[00:26:24] Speaker 07:
Right.

[00:26:25] Speaker 07:
And it says, in effect, we're accepting energy's view that this is like an insurance policy.

[00:26:32] Speaker 07:
All right?

[00:26:33] Speaker 07:
And I mean, the hypothetical of the private home and a roof goes off and you get paid for it.

[00:26:38] Speaker 07:
You don't have to wait until the next roof goes off.

[00:26:41] Speaker 07:
But in any event, I just need to understand that in sort of lay terms.

[00:26:47] Speaker 07:
Because I thought the strongest arguments that the commission made were, for example, in paragraph 37.

[00:26:58] Speaker 07:
And then, where's the other one?

[00:27:02] Speaker 07:
paragraph 34, but I don't see the direct response.

[00:27:08] Speaker 07:
I mean, you could say that the bandwidth remedy is simply not going to give me any relief for the $30 million I paid in 2005.

[00:27:18] Speaker 07:
And if that's the way the commission designs it, that's the way the commission designs it.

[00:27:24] Speaker 07:
But as I understand it, that's still open for question.

[00:27:29] Speaker 07:
In other words, if the commission can explain it, fine, you may prevail.

[00:27:33] Speaker 07:
It may prevail.

[00:27:34] Speaker 07:
But that's where I'm having a little problem here.

[00:27:38] Speaker 08:
Well, Your Honor, I would like to make the point first that the reason why you're not seeing a direct response to that argument in the commission orders is because it was not raised to the commission on rehearing.

[00:27:48] Speaker 08:
And we made this point at pages 37 to 40 of our brief.

[00:27:52] Speaker 08:
And if you look at the reply brief filed by the Louisiana commission,

[00:27:56] Speaker 08:
at page 26, they essentially admit that they didn't raise it on rehearing and they have various reasons why they didn't need to do that, which I can go through those reasons and tell you why they don't apply, but that is why you don't see a direct response to that in the commission orders because it wasn't, if, for example,

[00:28:15] Speaker 08:
If you take the May 2007 order that he was just talking about in his initial arguments, and you look at their rehearing requests, which the argument about implementation is in your joint appendix at 337 to 342, you don't see any mention of that in the rehearing requests.

[00:28:35] Speaker 07:
But even in your own brief, you acknowledge, and Judge Wilkins was talking with counsel about this, that in our 2008 decision,

[00:28:44] Speaker 07:
We sent back to the Commission this question.

[00:28:50] Speaker 07:
Exactly, Your Honor, and what has to do with... So it was before the Commission.

[00:28:55] Speaker 07:
I mean, it's not a surprise.

[00:28:56] Speaker 07:
We sent it back to the Commission.

[00:28:58] Speaker 08:
Well, the commission responded to, if you look at the arguments that were made on rehearing, what was argued on rehearing was that the commission has consistently ruled since 480 that this is a prospective remedy.

[00:29:11] Speaker 08:
And if it's prospective remedy, that means it doesn't start until the payments start.

[00:29:16] Speaker 07:
And the commission directly responded to those arguments.

[00:29:18] Speaker 07:
This is your understanding of what we said in 2008, that

[00:29:25] Speaker 07:
We remanded the Commission's determination that the remedy would be effective for calendar year 2006 with equalization payments based on 2006 disparity beginning in 2007 when the Commission found that the system agreement rates were unjust and unreasonable on June 1, 2005.

[00:29:44] Speaker 07:
So, I mean, we send it back to the Commission.

[00:29:46] Speaker 08:
Your Honor, in paragraphs 33 and 34 of the Remands Order, which is a Joint Appendix at 16.

[00:29:54] Speaker 08:
Right, that's where I am.

[00:29:55] Speaker 08:
The Commission discusses how it views what it did here as being consistent with what was done in the remands of the interruptible proceeding.

[00:30:04] Speaker 08:
The commission addressed that issue and the point was that in the interruptible proceeding it was a monthly calculation and the unjust and unreasonable finding was in March and the new calculation was made effective as of April, the next monthly calculation.

[00:30:25] Speaker 08:
And because that also was a specific entry into an already existing formula rate, it was a much less complicated procedure than what we're talking about here, which is another point I would like to make.

[00:30:39] Speaker 08:
Because this wasn't raised to the Commission, it didn't come up.

[00:30:43] Speaker 08:
But you have to also consider how similar this situation would be if we did what the petitioner wants to what this court found we could not do in the City of Anaheim decision that we discussed in our brief.

[00:30:57] Speaker 08:
In City of Anaheim, the Commission found that a rate was unjust and unreasonable in 2006.

[00:31:02] Speaker 08:
It approved a compliance filing setting a new rate in 2007.

[00:31:08] Speaker 08:
And this court said, you cannot make the new rate retroactive to the unjust and unreasonable finding.

[00:31:15] Speaker 08:
The statute won't permit it.

[00:31:17] Speaker 08:
And that's precisely what the petitioner is asking for here.

[00:31:20] Speaker 08:
They're asking for, as the petitioner argues, the first compliance filing setting the bandwidth tariff was not approved

[00:31:29] Speaker 08:
by the commission until June 9th of 2006.

[00:31:34] Speaker 05:
And they're asking... But their argument is in that the rate that should be used is whatever it was, ET 26 or the filings that are referred to in opinion 48, right?

[00:31:52] Speaker 05:
They're saying that that should be considered, I guess for lack of a better word, the file rate.

[00:31:57] Speaker 08:
Right, Your Honor, but the problem, as the Commission found, is that was never a filed rate.

[00:32:02] Speaker 08:
It is, in fact, just two evidentiary exhibits.

[00:32:06] Speaker 08:
They're at JA-609 and JA-614.

[00:32:09] Speaker 08:
I invite you to look at them.

[00:32:10] Speaker 08:
It took an entire litigated Commission proceeding and an appeal to this Court to reduce those evidentiary exhibits to a filed tariff.

[00:32:19] Speaker 08:
implementing the bandwidth tariff.

[00:32:21] Speaker 08:
I mean, it was a very complicated process to get the bandwidth tariff in place.

[00:32:26] Speaker 05:
But this court, in an opinion, these are all running together either earlier this year or late last year, and the Fifth Circuit, have both

[00:32:38] Speaker 05:
called that, referred to that as the file tariff rate, right?

[00:32:48] Speaker 05:
And you're calling it the file tariff rate.

[00:32:52] Speaker 05:
Not the original one, opinion 480, but the subsequent one.

[00:33:01] Speaker 05:
So I guess the implementation of the bandwidth remedy

[00:33:07] Speaker 05:
You are referring to that in this court has referred to that as a file rate, right?

[00:33:14] Speaker 08:
What has been referred to as the filed rate is the rate that was first accepted by the commission on June 9, 2006, the second compliance filing April 2007, and then it was affirmed by this court in 2009.

[00:33:30] Speaker 08:
That's the filed rate.

[00:33:32] Speaker 08:
The ETR 2628 evidentiary exhibits were never the filed rate.

[00:33:37] Speaker 05:
What those cases said about... I understand that.

[00:33:41] Speaker 05:
I don't want to hijack this argument, but I'm going to need you to explain this to me like I'm an eight-year-old.

[00:33:52] Speaker 05:
What is the Commission's position with respect then to if the first file rate is in June of 2006, you're saying?

[00:34:04] Speaker 08:
That's right, Your Honor.

[00:34:05] Speaker 05:
What is the Commission's position with respect to using that rate to calculate the bandwidth remedy for the time period?

[00:34:21] Speaker 05:
that precedes it.

[00:34:23] Speaker 05:
So June 1 of 2005 to June whatever of 2006.

[00:34:30] Speaker 05:
What is your position as to what you're doing there and what the legal justification is to do that?

[00:34:37] Speaker 08:
The legal justification, Your Honor, is the fact that this court in the 480 appeal found that it was legal error for the commission to wait until 2006 to implement the remedy.

[00:34:51] Speaker 08:
And to correct that legal error, the commission implemented the remedy as of June 1, 2005.

[00:34:57] Speaker 08:
And so our legal error gave us the ability to use the only filed tariff that has ever been in place for the bandwidth remedy

[00:35:06] Speaker 08:
retroactively to, as the applicable tariff, to calculate those rates.

[00:35:11] Speaker 05:
So this is an appropriate exception to the file rate?

[00:35:16] Speaker 08:
Exactly.

[00:35:16] Speaker 08:
It's because of the court remand and our efforts to address the legal error that the court identified.

[00:35:28] Speaker 05:
Isn't there tension between that position and referring to this as an insurance policy?

[00:35:36] Speaker 08:
Well, no, Your Honor, because the bandwidth remedy is still being implemented the same way.

[00:35:40] Speaker 08:
I mean, we're implementing prospectively, but just prospectively now from June 1st, 2005, as opposed to January 1st, 2006.

[00:35:48] Speaker 08:
As the Commission said, all they did was move the remedy back seven months to make sure that every production cost disparity that post-dated June 1st, 2005 was actually addressed by bandwidth remedy payments.

[00:36:04] Speaker 05:
And so it's not a refund.

[00:36:06] Speaker 08:
It's not a refund, Your Honor.

[00:36:08] Speaker 08:
It's a prospective payment, but the data for one year is accounted for in the payments that are made the subsequent year.

[00:36:16] Speaker 05:
How is it a prospective payment?

[00:36:18] Speaker 05:
How is that payment that's made to remedy the disparity from June 1, 2005 through June of 2006, how is that a prospective payment?

[00:36:32] Speaker 08:
It's a prospective payment, Your Honor, because the way the insurance policy functions is you wait to see whether there are production cost disparities in a particular year.

[00:36:44] Speaker 08:
If they are, you have to wait until the form one in the next year to figure out whether there were production cost disparities.

[00:36:53] Speaker 08:
Once you do that, as soon as possible thereafter, there are payments made to address the disparities.

[00:37:00] Speaker 08:
And therefore, it's a prospective remedy, but it is addressing cost disparities that occurred in the previous year.

[00:37:08] Speaker 05:
It's prospective, but also looking back at the same time?

[00:37:17] Speaker 08:
It's a prospective remedy.

[00:37:19] Speaker 08:
The payments are made prospectively.

[00:37:21] Speaker 05:
Don't we need a time machine to do that?

[00:37:23] Speaker 08:
No, you're right.

[00:37:24] Speaker 08:
The payments are made prospectively, but they are addressing or accounting for production cost disparities that occurred in the prior year.

[00:37:41] Speaker 05:
My eight-year-old self doesn't really understand that.

[00:37:44] Speaker 05:
I guess that's not really a question.

[00:37:52] Speaker 05:
mean we understand that we owe the commission a lot of deference here, especially in rate making and setting remedies, et cetera.

[00:38:12] Speaker 05:
But I guess I would like to make sure that I understand the Commission's position here and how it fits into the various legal doctrines.

[00:38:24] Speaker 05:
And it gets confusing.

[00:38:29] Speaker 05:
because it doesn't seem that what the commission is doing at various stages of this litigation and then when you compare this litigation to other litigations that the terminology that it uses is always consistent or that the rationales for

[00:38:53] Speaker 05:
paying interest or not paying interest, et cetera, are always consistent.

[00:39:00] Speaker 05:
And I'm really sincerely seeking your help with that.

[00:39:05] Speaker 08:
Well, on the question, let me again reiterate that

[00:39:11] Speaker 08:
All of this argument about that the commission always applies the formula rate differently, and they always apply it to the prior year, this was not made on rehearing, and the commission never had an opportunity to address that in the orders.

[00:39:25] Speaker 08:
And that's a jurisdictional bar to consideration of that argument, and the commission had no ability to answer it.

[00:39:31] Speaker 08:
But with regard to the interest, for example, what the commission did was originally the request for interest was made because it was a refund.

[00:39:44] Speaker 08:
And the commission said it's not a refund and we're making the payments as soon as possible after the information is known.

[00:39:51] Speaker 08:
And therefore, we don't think interest is appropriate.

[00:39:54] Speaker 08:
But later on, in subsequent proceedings, the commission said, because there's been such a large delay, the payments weren't actually made promptly afterwards.

[00:40:04] Speaker 08:
And so we're going to allow interest to compensate for the extensive delay in these proceedings and people getting their final payments under the bandwidth.

[00:40:13] Speaker 08:
And so there's really no, there wasn't any difference.

[00:40:17] Speaker 08:
There were different reasons why the commission denied the interest to start off with and why the commission granted the interest later on, which is just purely how long these proceedings have gone on and how long people have been waiting for their payments when it was intended that they would get their payments promptly following the calculation of the disparities.

[00:40:40] Speaker 04:
Do you think the Commission had discretion – just want to make sure I have this nailed down – discretion to do it the way petitioners wanted, or do you think you're legally barred from doing that?

[00:40:50] Speaker 08:
I don't believe they could have done it the way petitioners want, Your Honor, because of the City of Anaheim issue.

[00:40:56] Speaker 08:
Because as of June 1, 2005, there was no bandwidth tariff in place.

[00:41:02] Speaker 08:
And there wasn't one in place until June 9, 2006.

[00:41:05] Speaker 08:
And so the City of Anaheim says, just because you find a rate unjust and unreasonable, that doesn't mean you can make the new rate, whenever you approve it, retroactive.

[00:41:16] Speaker 08:
An electrical district, too, which the court relied on, the city of Anaheim says, in their same situation, the commission... Because it severs, I mean, it distinguishes refunds from the setting of the rate, right?

[00:41:30] Speaker 08:
But Electrical District also said in that case, too, the commission tried to make a rate set later on retroactive to its unjust and unreasonable finding.

[00:41:41] Speaker 08:
And the court in Electrical District said the statute doesn't require that.

[00:41:45] Speaker 08:
It takes time, just like it takes time for a court to figure out how to manage an injunction.

[00:41:53] Speaker 08:
They don't have to put the injunction in place the moment they decide that there's something unlawful going on.

[00:41:59] Speaker 08:
They have to figure out what to do.

[00:42:00] Speaker 08:
And the same thing is true under the statute.

[00:42:03] Speaker 08:
That it doesn't mean that as of the date you have an unjust and unreasonable rate, you have to have in hand the replacement rate.

[00:42:11] Speaker 08:
And that that replacement rate, this is what City of Anaheim says, is only in place once it's fixed, prospectively, from that date.

[00:42:21] Speaker 08:
And so I don't believe that the Commission could have made this rate effective as of June 1, 2005, under that precedent.

[00:42:31] Speaker 08:
But again, because this wasn't raised on the hearing, the Commission never addressed these arguments in the orders.

[00:42:37] Speaker 08:
But in my view, the Commission legally could not have made this rate effective as of June 1, 2005.

[00:42:51] Speaker 08:
Any further questions?

[00:42:55] Speaker 07:
Anything you need to tell us?

[00:42:58] Speaker 07:
Not that I can think of, Your Honor.

[00:43:02] Speaker 07:
Thank you very much, Council.

[00:43:03] Speaker 07:
Always helpful to look for.

[00:43:05] Speaker 07:
Thank you.

[00:43:06] Speaker 07:
Council for intervener.

[00:43:16] Speaker 07:
Good morning.

[00:43:17] Speaker 03:
Good morning.

[00:43:19] Speaker 03:
Judge Rogers, you asked should a remedy have been in effect beginning June 1st, 2005 and thereafter.

[00:43:31] Speaker 03:
My response is that a remedy has been provided beginning June 1st and every year thereafter.

[00:43:37] Speaker 03:
A remedy has been calculated based on the actual disparities that occurred in 2005 and paid pursuant to the disparities that occurred in 2005.

[00:43:50] Speaker 03:
Likewise, for the disparities in 2006, at the end of the year, as soon as the data was available, the disparities were calculated, the differences outside the bandwidth were calculated, and a remedy was provided

[00:44:01] Speaker 03:
for 2006, same for 2007, for 2008.

[00:44:05] Speaker 03:
There's been no gap in remedies from 2005 to 2004.

[00:44:09] Speaker 07:
So just as a practical matter, so I understand, if I in 2005, Louisiana paid $30 million and it's determined later that I should have only paid

[00:44:21] Speaker 07:
That's right.

[00:44:22] Speaker 07:
Then in 2006 I would get a payment of five or I'd get a credit against.

[00:44:28] Speaker 03:
That's correct.

[00:44:29] Speaker 07:
Which is it a payment or a credit?

[00:44:31] Speaker 03:
Well if you paid too much you'd be get a payment if you didn't pay enough you'd actually have to make a payment.

[00:44:36] Speaker 03:
I mean, if some other party exceeded the bandwidth remedy, you might make a payment.

[00:44:41] Speaker 03:
So you can either receive payments or make payments depending on your situation.

[00:44:46] Speaker 03:
And indeed, there can be situations where one party is outside the bandwidth.

[00:44:50] Speaker 03:
Say, for example, their rates are too high.

[00:44:52] Speaker 03:
Everybody else has rates within the bandwidth.

[00:44:54] Speaker 03:
Even though they're within the bandwidth, they may make payments to the entity outside the bandwidth.

[00:44:58] Speaker 03:
But nonetheless, my point is, there's never been a period here, a gap, where a remedy was not available.

[00:45:03] Speaker 03:
The Commission exercised its discretion to choose a methodology where it evaluated whether payments would be needed in a particular year, because this is a remedy where payments may not be needed in any, in every year.

[00:45:14] Speaker 03:
And indeed, this is a remedy where in one year, one client may receive a payment, one company, the next year, a different company may receive a payment.

[00:45:21] Speaker 03:
So they chose to wait until the end of each year to see what remedy is required.

[00:45:26] Speaker 03:
And then as soon as the data is available, they provided the remedy.

[00:45:31] Speaker 03:
And Mr. Fontham said he dared us to point to any other rate that works like this rate.

[00:45:37] Speaker 03:
And I would say there is another rate that works like this rate.

[00:45:39] Speaker 03:
It's in, actually, the Interchieft System Agreement, Schedule MSS 7.

[00:45:44] Speaker 03:
And it was involved in a similar situation where you don't know till the end of the year if the payments will be necessary and so forth.

[00:45:51] Speaker 03:
That service agreement dealt with the introduction of Interchieft Gulf States into the system agreement.

[00:45:59] Speaker 03:
And some of the companies were concerned that by bringing in Gulf states, it may affect their fuel cost and purchase power cost and their allocation of these costs.

[00:46:09] Speaker 03:
So they included this service schedule so that after the fact, at the end of the year, they would go back and determine were these costs affected by the introduction of heterogeneous Gulf states, and if so, payments were made to address that issue.

[00:46:23] Speaker 03:
Now, it turns out that service schedule was never used because, in fact, payments were never required.

[00:46:27] Speaker 03:
But nonetheless, there is a service schedule that operates like an insurance policy in the same industry system agreement.

[00:46:34] Speaker 03:
That service schedule has subsequently expired.

[00:46:36] Speaker 03:
It had a 10-year duration on it.

[00:46:42] Speaker 03:
I actually have no other comments unless you have questions of me.

[00:46:46] Speaker 07:
Thank you.

[00:46:47] Speaker 03:
OK, thank you.

[00:46:47] Speaker 07:
All right, we'll hear from petitioner.

[00:46:56] Speaker 02:
I want to make something very clear.

[00:46:58] Speaker 02:
We did not take the position that you have to use the prior year data.

[00:47:05] Speaker 02:
As the intervenors say in their briefs, they could have had an estimate with a true up.

[00:47:10] Speaker 02:
And that would have provided a remedy right away for what would happen going forward.

[00:47:17] Speaker 02:
It just happens to be for practice and the practice in the system agreement that the estimate is the prior year data to set a rate going forward.

[00:47:28] Speaker 02:
Now, it just can't be true that the 2007 payments were for 2006.

[00:47:36] Speaker 02:
We fought that battle and we lost.

[00:47:38] Speaker 02:
We went to FERC and we said, if these 2007 payments are for 2006, we get interest.

[00:47:46] Speaker 02:
And that is the only way you can give a full economic remedy to provide interest, because there's a delay between the time the ratepayers had to pay the costs and the time they give the refund for the prior year.

[00:48:01] Speaker 02:
And FERC practice policy regulation says that takes interest.

[00:48:07] Speaker 02:
FERC's response based on energy argument was, oh, no, this is a prospective remedy.

[00:48:14] Speaker 02:
And the payments roughly equalize costs going forward.

[00:48:21] Speaker 02:
Now, they're here, basically, have it both ways.

[00:48:25] Speaker 02:
Oh, it's prospective, but it's also backwards.

[00:48:29] Speaker 02:
But it's only one remedy.

[00:48:31] Speaker 02:
It's only one set of payments.

[00:48:33] Speaker 02:
It can't go both ways.

[00:48:36] Speaker 02:
And the other thing is, if it were a remedy to true up things to a rate that existed in 06,

[00:48:45] Speaker 02:
You wouldn't be able to change it in 07.

[00:48:49] Speaker 02:
You can't change the insurance policy applicable to a prior year loss.

[00:48:53] Speaker 02:
You can't change a rate applicable to a prior year loss.

[00:48:58] Speaker 02:
You can change a rate going forward.

[00:49:03] Speaker 04:
Council emphasized the Anaheim case.

[00:49:06] Speaker 04:
Can you respond to that?

[00:49:07] Speaker 02:
Yes, Your Honor.

[00:49:09] Speaker 02:
And if we had asked for a refund for 2004, Anaheim would be applicable.

[00:49:14] Speaker 02:
But we didn't.

[00:49:15] Speaker 02:
We asked for a formula rate going forward.

[00:49:18] Speaker 02:
We suggested

[00:49:19] Speaker 02:
that they should do it in the same way that they've done system agreement rates forever using the prior data as the basis to set the prospective rate.

[00:49:30] Speaker 02:
And, you know, but you can use estimates.

[00:49:34] Speaker 02:
They could go back and right now they could, as of June 1, 2006, put in a remedy based on what actually happened.

[00:49:41] Speaker 02:
It wouldn't even need to be an estimate.

[00:49:44] Speaker 02:
But they never gave a remedy for 06.

[00:49:47] Speaker 02:
They never did.

[00:49:47] Speaker 02:
Even on remand, they didn't.

[00:49:49] Speaker 02:
And by the way, take a look at the order on remand and see if you can find a rationale in there for someone to bring up how rates work and all that sort of thing.

[00:50:00] Speaker 02:
There's no rationale in there.

[00:50:02] Speaker 02:
But if you want to look in the appendix at 444,

[00:50:06] Speaker 02:
You'll see that we very methodically laid out exactly how the system agreement rates have always operated, that the rates started in 1983 based on prior year data.

[00:50:21] Speaker 02:
And, you know, that is not retroactive, that is not a problem under Anaheim.

[00:50:27] Speaker 02:
Now, Judge Rogers has said, when you set formula rates, the formula is the rate, not the data.

[00:50:33] Speaker 02:
FERCUS said, when you set formula rates, the formula is the rate, not the data.

[00:50:39] Speaker 02:
There are, you know, we cite a ton of cases in our brief that using prior year data in a formula rate is not retroactive.

[00:50:50] Speaker 02:
FERCUS held it.

[00:50:51] Speaker 02:
This court has held it.

[00:50:53] Speaker 02:
I mean, it's just a bogus, totally bogus argument that it would be retroactive to do that.

[00:50:59] Speaker 02:
But if they didn't want to do that, they could have put it in based on estimates, as the interveners agreed.

[00:51:06] Speaker 02:
And the unduly discriminatory rate was paid based on 2004 data in 2005.

[00:51:15] Speaker 02:
So, you know, how can it possibly be that you can't fix it?

[00:51:21] Speaker 02:
And the other thing, Judge, you know, how can you take $30 million away, $30-plus million away, starting May 30, 2007, on a 2006 refund?

[00:51:36] Speaker 02:
You can't.

[00:51:37] Speaker 02:
What we're saying to you is, yeah, they made this statement in Opinion 480.

[00:51:43] Speaker 02:
They changed it in 488.

[00:51:45] Speaker 02:
They super changed it in the compliance orders when they said, this is a going forward remedy, not a remedy for the past.

[00:51:53] Speaker 02:
And now we're back here with this order on remand, you know, saying, oh yeah, 480 gave you a remedy that was effective in 06, which absolutely categorically never happened.

[00:52:08] Speaker 02:
It never happened.

[00:52:10] Speaker 05:
So what do you think is the proper characterization of the remedy, just so that I understand?

[00:52:16] Speaker 02:
We think that the remedy that they gave us was a prospective formula rate that began on June 1, 2007.

[00:52:26] Speaker 05:
What do you think is the proper characterization of the remedy that you want?

[00:52:31] Speaker 02:
We want for it to be instructed as the Federal Power Act instructs it to set a rate that would be thereafter observed and enforced.

[00:52:42] Speaker 02:
The Supreme Court of the United States says a rate is a price paid.

[00:52:47] Speaker 02:
They said that on review of that demand response case that came out of this court.

[00:52:52] Speaker 02:
And they said they had to define rate, was FERC setting a retail rate or not.

[00:52:57] Speaker 02:
And they said a rate is a price paid.

[00:53:00] Speaker 02:
It's a sum.

[00:53:01] Speaker 02:
It's an amount paid.

[00:53:04] Speaker 02:
It's not collection of data.

[00:53:07] Speaker 02:
And you can do rate making in any number of ways.

[00:53:10] Speaker 02:
You can say, OK, it's $5 a kilowatt.

[00:53:14] Speaker 02:
You can set a fixed rate, which is the way it used to be done.

[00:53:18] Speaker 02:
But FERC wanted to have automatic changes, automatic adjustment clauses.

[00:53:24] Speaker 02:
And the Fifth Circuit approved that.

[00:53:26] Speaker 02:
You don't have to file every time the rate changes.

[00:53:30] Speaker 02:
But FERC said you're going to have to use FERC Form 1 data in general in those formula rates, which always comes from the prior year.

[00:53:38] Speaker 02:
And utilities, file a rate, put in the FERC Form 1 data, start collecting the money.

[00:53:45] Speaker 02:
And also, Judge, you know, the analogy, you don't know what's going to happen in 2006.

[00:53:50] Speaker 02:
It's an insurance policy.

[00:53:52] Speaker 02:
Do you know when you set a rate to collect costs, what the costs will be in 2006?

[00:54:00] Speaker 02:
No, you never do.

[00:54:02] Speaker 02:
That's in the future.

[00:54:03] Speaker 02:
What you have to do is come up with a method to approximate those costs.

[00:54:09] Speaker 02:
So what rate making does is it says, OK, we need a test year.

[00:54:15] Speaker 02:
And that test year is usually the most recent test year.

[00:54:18] Speaker 02:
And we will use that to say what's likely to happen starting June 1, 2005.

[00:54:24] Speaker 02:
and will set a rate using that data, and that will, whether it matches up or not.

[00:54:30] Speaker 02:
And there are cases on this from the 1980s in this court.

[00:54:34] Speaker 02:
Whether it matches up or not, the data still served as a proxy for what the actual costs are going forward.

[00:54:43] Speaker 02:
There's nothing retroactive about that.

[00:54:45] Speaker 05:
But they chose to use actual costs.

[00:54:48] Speaker 05:
And that's already been approved by the court.

[00:54:51] Speaker 02:
I mean, that should say it.

[00:54:52] Speaker 02:
Whoa, whoa, whoa, whoa.

[00:54:52] Speaker 02:
When was that approved by the court?

[00:54:54] Speaker 02:
Well, yes, they chose to use actual costs in the system agreement.

[00:55:00] Speaker 02:
But when the system agreement went into effect on January 1st, 1983, the data in there was 2001 data.

[00:55:10] Speaker 02:
So the 2001 data put into the formula, it establishes the rate, first month, Louisiana has to pay.

[00:55:18] Speaker 02:
Second month, Louisiana has to pay.

[00:55:20] Speaker 02:
Then on June 1st, 1983,

[00:55:24] Speaker 02:
They switched to the 1982 Form 1 data.

[00:55:29] Speaker 02:
That then is replaced into the formula rate.

[00:55:32] Speaker 02:
It sets the rate for June, July, August, September.

[00:55:35] Speaker 02:
And those were the rates that we were facing in the case.

[00:55:39] Speaker 02:
And on June 1, 2005, that's how the rate was set.

[00:55:43] Speaker 02:
We had formulas.

[00:55:45] Speaker 02:
This past cost data was going into those formulas.

[00:55:49] Speaker 02:
And it was setting, though, a prospective rate

[00:55:53] Speaker 02:
And if you wanted to change the rate, you would only be able to apply it going forward.

[00:56:01] Speaker 02:
Now, coming up with this argument, well, if you use the pass, that would be retroactive.

[00:56:06] Speaker 02:
That was the argument in the Interruptible Load case that you all decided, two of you, decided in 2007 that we can't go back, Anaheim, whatever.

[00:56:17] Speaker 02:
That was what they were saying.

[00:56:18] Speaker 02:
The court threw that out in two seconds.

[00:56:22] Speaker 02:
Because the court knew you can go back.

[00:56:25] Speaker 02:
And when the case went back to FERC, they went back.

[00:56:28] Speaker 02:
And they took the loads out of the past data, even though you don't know what the loads will be going forward.

[00:56:35] Speaker 02:
And they applied those changed loads to the previous year's costs.

[00:56:43] Speaker 02:
And that was what FERC called giving immediate relief.

[00:56:48] Speaker 07:
All right.

[00:56:49] Speaker 07:
I think we have your argument.

[00:56:50] Speaker 02:
Thank you, Your Honor.

[00:56:51] Speaker 02:
I appreciate the indulgence.

[00:56:53] Speaker 02:
I mean, it is worth explaining, though.

[00:56:56] Speaker 02:
I agree.

[00:56:57] Speaker 07:
Thank you.

[00:56:59] Speaker 07:
We'll take the case under advisement.