[00:00:02] Speaker 00:
Case number 16-1015, Erie Boulevard hydropower LP petitioner versus the Federal Energy Regulatory Commission.

[00:00:12] Speaker 00:
Mr. Levinbook for the petitioner, Ms.

[00:00:15] Speaker 00:
Greilander for the respondent, Mr. Brody for the intervener.

[00:00:20] Speaker 01:
Mr. Levinbook, good morning.

[00:00:21] Speaker 01:
Good morning.

[00:00:22] Speaker 01:
May it please the court, Ariel Labenbach, for the petitioner.

[00:00:24] Speaker 01:
I've asked to reserve two minutes for rebuttal.

[00:00:28] Speaker 01:
In our briefs, we've set forward a number of independent reasons why the orders on review can't stand.

[00:00:33] Speaker 01:
But today, subject to the court's questions, I'd just like to focus on the two most straightforward ones.

[00:00:39] Speaker 01:
First, the commission still does not acknowledge, let alone explain, its departure from its 2012 order, a final order that both granted credits to Erie and expressly rejected the district's attempts to later, quote, raise any legal or equitable ground for limiting the extent of such credits.

[00:00:55] Speaker 01:
Second, having disregarded its own final order in 2012, the commission then did precisely what its regulations and other prior orders forbid.

[00:01:05] Speaker 01:
It gave effect to a settlement that it had never approved.

[00:01:07] Speaker 01:
So turning to the first issue.

[00:01:10] Speaker 01:
In 2012, after a three-year investigation, the commission retroactively determined Erie's headwater benefits liabilities to the penny.

[00:01:18] Speaker 01:
In paragraph 44 of its July 2012 order, the commission then held that, quote, to the extent that any downstream project owner made payments exceeding those amounts, those overpayments equitably should be offset against future charges.

[00:01:32] Speaker 06:
When it determined that amount, was it by use of the general rule?

[00:01:36] Speaker 01:
No, it was not.

[00:01:37] Speaker 01:
Well, yes, in 2012 it was by use of the general rule that it determined those obligations that are set forth in the 2012 order.

[00:01:45] Speaker 01:
Now, having set forth what those numbers are, in the paragraphs, in the five paragraphs following the one that I just quoted, which is paragraph 44, the commission then laid out exactly how those credits should be calculated.

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In paragraph 47, it even gave an example of how to do the very simple math equation that it ordered.

[00:02:03] Speaker 01:
Now, during the investigation that led to that order, the district had asked the commission to defer consideration of whether and how credits would be granted, and it purported to, quote, expressly reserve the right to raise any legal or equitable grounds for limiting the extent of such credits.

[00:02:18] Speaker 01:
But in paragraph 30 of the 2012 order, which you'll see at JA409, in plain, unambiguous language, the commission expressly rejected that reservation.

[00:02:28] Speaker 01:
This is what it wrote.

[00:02:28] Speaker 01:
Quote, this determination, that is the determination of to whom credits were due and how they would be calculated.

[00:02:35] Speaker 01:
Quote, must be made in the present order.

[00:02:36] Speaker 01:
That's paragraph 30 and the underlying text preceding it, and it could not be clearer.

[00:02:41] Speaker 01:
The commission in order.

[00:02:42] Speaker 04:
But they said we can't determine how much anybody owes until we go through this credit process, this calculation process.

[00:02:49] Speaker 04:
And then once we do that, it said in paragraph 45 that we need essentially

[00:02:57] Speaker 04:
There needs to be a process now by the commission, which you seem happy to go through, that said, because some companies may have already obtained refunds from the district through court action or other means.

[00:03:10] Speaker 04:
Doesn't that leave the door open for exactly what happened here?

[00:03:13] Speaker 01:
It does not, Your Honor.

[00:03:15] Speaker 01:
You accurately quoted the order.

[00:03:17] Speaker 01:
It says, here is how you should calculate credit.

[00:03:20] Speaker 01:
So it makes two determinations.

[00:03:21] Speaker 01:
It says, one, all downstream project owners are entitled to credits.

[00:03:24] Speaker 01:
And two, it says, here's how you figure out what those credits are.

[00:03:27] Speaker 01:
And then it says specifically what the open information is.

[00:03:30] Speaker 01:
And the only piece of open information is, did you get refunds?

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Or was money that a downstream project owner already paid to the district, was that already returned?

[00:03:40] Speaker 01:
That's it.

[00:03:41] Speaker 01:
Now, to be clear, what we saw in July of 2012 came after a six-month period where a preliminary draft had already been distributed to the parties.

[00:03:51] Speaker 01:
So the parties already knew what was coming in that order.

[00:03:54] Speaker 01:
And the district wrote a letter that you see at J8428, and they said, please hold off.

[00:03:58] Speaker 01:
Please don't determine any of these things right now.

[00:04:01] Speaker 01:
We may want to raise some reason for limiting this besides the refund.

[00:04:05] Speaker 04:
But they also said, look, the amounts that have been paid,

[00:04:08] Speaker 04:
There's open information.

[00:04:09] Speaker 04:
Amounts that have been paid are not a matter of record in this case, 45, and so that's why it said refunds are other, you know, legal actions are other means.

[00:04:18] Speaker 04:
I mean, with leaving open the ability to inquire into whether there were reasons to

[00:04:25] Speaker 04:
change what these payments were, that there's already been, things have happened, they don't know about it, they can't foreclose it, and so they're just leaving open the door to figure out, fine, we did our math, here's what it should have been, now what will equitably need to be done to adjust past payments has yet to be determined.

[00:04:45] Speaker 01:
With respect, Your Honor, it is true that they left open what the numbers are in the simple math equation that they ordered.

[00:04:53] Speaker 04:
No, more than that.

[00:04:54] Speaker 04:
More than that.

[00:04:55] Speaker 04:
More than how those numbers should be enforced, because part of what those numbers are could be affected by whether there had already been prior litigation affecting those amounts.

[00:05:08] Speaker 01:
Well, Your Honor, I don't think anyone disputes that there was no refund paid here and that there was no money that had been collected that was returned, which are the phrases that the Commission uses not once, but it uses them at least a half a dozen times, not only in the paragraphs from 44 to 49, but then the Commission actually orders the parties

[00:05:27] Speaker 01:
In paragraph in the director's order, paragraph B, this is specifically the information that you need to exchange.

[00:05:33] Speaker 01:
And again, it goes to actual money that changed hand.

[00:05:36] Speaker 01:
It doesn't go to precisely what the district rate didn't raise, which is any other legal or equitable ground for changing the equation that was proposed.

[00:05:44] Speaker 04:
But they're not changing the equation here.

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They're making a determination as to equitably what should happen given the prior settlement agreement.

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They're not saying that the amount of the credits changes.

[00:06:00] Speaker 04:
They're just saying you've already gotten the remedy you chose in this case.

[00:06:06] Speaker 01:
Well, that may be what they've said, but I think our first issue is that is in conflict with what they said they were going to do in 2012, and they don't actually address the language that they use there.

[00:06:17] Speaker 01:
But even I would say.

[00:06:19] Speaker 04:
And to be clear, because this gets a – forgive me, I just got a little confused in the briefs.

[00:06:23] Speaker 04:
In 2012, is it your position that when they made these statements, they were fully aware

[00:06:30] Speaker 04:
that there had been the settlement agreement between Erie and the Commission and what it entailed.

[00:06:39] Speaker 01:
I think the commission has spoken out of both sides of the mouth with respect to what it was aware of.

[00:06:44] Speaker 01:
So, you know, in... I'll let them explain.

[00:06:46] Speaker 04:
Please tell me your understanding.

[00:06:48] Speaker 01:
It's my understanding that they were aware of it as it had been pointed out to them in 2007.

[00:06:53] Speaker 01:
And in fact, in the 2007 order, and this is the second point I was going to turn to, when the commission said, we don't enforce private agreements with respect to headwater benefits, they were talking about

[00:07:03] Speaker 01:
this specific agreement.

[00:07:05] Speaker 01:
So they absolutely had them in front of it in this proceeding.

[00:07:09] Speaker 01:
But I think the more important point as regards to the 2012 order is if they didn't have it in front of them, it's because the district failed to raise it.

[00:07:16] Speaker 01:
The district could have raised it.

[00:07:18] Speaker 01:
They could have said, before this order goes final, we want you to consider this.

[00:07:22] Speaker 01:
They shouldn't.

[00:07:23] Speaker 01:
They're not entitled to credit.

[00:07:24] Speaker 04:
To the extent you want to read the 2012 order as making a determination that that settlement agreement is irrelevant,

[00:07:31] Speaker 04:
We'd have to know that they had that in mind specifically when they use the language that you're citing to us.

[00:07:39] Speaker 04:
Will we not?

[00:07:40] Speaker 01:
Well, I think our contention is if it's an order that made the prior settlement irrelevant, it was the 2007 order that did that.

[00:07:48] Speaker 04:
Not the 2012 order.

[00:07:49] Speaker 01:
Excuse me, correct.

[00:07:50] Speaker 01:
The 2012 order is the order that did two operative things.

[00:07:53] Speaker 01:
One, it granted credits to the area.

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And the second thing is it put the district on notice.

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If you want to raise any basis for limiting these credits and the refund equation that we proposed, speak now or forever hold your peace.

[00:08:04] Speaker 01:
And the district didn't do that.

[00:08:05] Speaker 01:
And the commission still hasn't addressed that.

[00:08:08] Speaker 01:
Maybe the commission had some reason for belatingly letting them make this point.

[00:08:11] Speaker 01:
But since they haven't acknowledged that, they haven't given us this reason.

[00:08:14] Speaker 01:
But Judge Millett, to go to your point,

[00:08:16] Speaker 01:
with respect to the commission's actions in saying that this order should not be relevant to this determination.

[00:08:23] Speaker 01:
Again, I point this court to paragraph 35 of the 2007 order, which is at JA 835, and this is what they wrote.

[00:08:32] Speaker 01:
The commission held that the very settlement at issue here, quote, was not submitted to the commission for approval and does not reflect the commission determination of the charges Erie should pay.

[00:08:41] Speaker 01:
And then it made clear in paragraph 53, which is at J839, that, quote, it is not for the commission to enforce the representations made by the parties in settlement provisions it hasn't approved.

[00:08:53] Speaker 01:
Now, contrast that with what the commission has said in this very court that it did in the orders that are on review.

[00:08:59] Speaker 01:
This is what it says on page two of its brief.

[00:09:01] Speaker 01:
They held that the 2006 settlement, quote, governed Erie's headwater benefits liability for the years 2002 through 2008.

[00:09:09] Speaker 01:
You can't square those two things.

[00:09:11] Speaker 01:
In 2007, speaking about this very settlement, they said this does not reflect a determination of what you should pay.

[00:09:18] Speaker 04:
Can I just ask you a kind of macro question?

[00:09:21] Speaker 01:
Yeah, yes, please.

[00:09:25] Speaker 04:
If the commission were to order that the district had to give these offsetting credits, what remedy does the district have for losing its part of the bargain in the settlement agreement?

[00:09:41] Speaker 01:
Well, I think that in the commission determination granting those credits, the district may well have objected and said, you shouldn't grant these credits.

[00:09:49] Speaker 04:
Then I'm done going forward.

[00:09:49] Speaker 04:
If you were to prevail.

[00:09:51] Speaker 01:
Yes.

[00:09:52] Speaker 04:
What could the district do?

[00:09:53] Speaker 04:
Because at that point, the quid pro quo of the prior settlement agreement, they've lost the quid.

[00:09:58] Speaker 04:
And you guys still have all your benefits, including the reservoir operating agreement.

[00:10:02] Speaker 04:
So what's their remedy?

[00:10:04] Speaker 01:
Well, Your Honor, there may not be a remedy, but the reality is when parties sleep on their rights, sometimes they're not satisfied with the outcome.

[00:10:10] Speaker 04:
Well, I don't think they would have slept on their rights because they wouldn't have lost their half of the consideration unless and until if this court were to say that they got it wrong.

[00:10:20] Speaker 04:
So I don't think they've slept on any rights.

[00:10:22] Speaker 01:
I'm sorry, perhaps I misinterpreted your question.

[00:10:24] Speaker 01:
If this Court remands and the Commission makes a new determination with respect to credits, I think in that litigation there would be a dispute over, for example, collateral estoppel and whether the fact that the District's failure to appeal in 2007, the order that said the Commission doesn't approve this, or its failure to appeal or even seek rehearing in 2012.

[00:10:45] Speaker 04:
injured by that decision back then.

[00:10:47] Speaker 04:
It clearly hasn't been injured by the commission.

[00:10:51] Speaker 04:
The commission hasn't taken away the value of its settlement agreement up to this point now.

[00:10:57] Speaker 04:
Now if your position is that the law requires the commission to take the quid away from that agreement.

[00:11:05] Speaker 04:
And so I'm just trying to figure out is this that you guys get your cake and eat it too, you get all these credits and you still get to keep all your part of the bargain under the settlement agreement, or do you lose

[00:11:15] Speaker 04:
your bargain under the settlement agreement.

[00:11:17] Speaker 01:
You know, it's not our contention that the entire settlement agreement, for instance, becomes void, because all we're talking about is the intersection of federal law with a certain part of the settlement agreement.

[00:11:27] Speaker 04:
Not a certain part, it's the entire, it's what they got in that settlement agreement, right?

[00:11:31] Speaker 04:
You guys got these benefits under this Reservoir Operating Agreement and continue, if I'm correct, until 2021.

[00:11:38] Speaker 04:
All right, and so they're gonna be bound by all that, but what you were supposed to give them, which was we accept how much we've paid, we will not litigate it, we will not dispute it, you get to keep your, the $7 million difference that you're fighting around here, you get to keep that, it's gone.

[00:11:59] Speaker 01:
Yes, Your Honor, that is the outcome here.

[00:12:01] Speaker 01:
But again, I would point the court to what happened in 2007.

[00:12:04] Speaker 01:
In 2007, excuse me, really in 2006, not months after this agreement was signed, Erie intervened in this proceeding.

[00:12:13] Speaker 01:
Erie intervened in Albany's action to seek a declaration that federal law preempted state law.

[00:12:19] Speaker 01:
And it was in the course of that intervention that the district said,

[00:12:23] Speaker 01:
No, no, no.

[00:12:24] Speaker 01:
2006 settlement, you guys made an agreement.

[00:12:26] Speaker 01:
You wouldn't challenge any of these assessments.

[00:12:29] Speaker 01:
And the commission ruled in our favor and said, no, federal law trumps.

[00:12:33] Speaker 01:
We did not approve this agreement.

[00:12:35] Speaker 01:
So it's not binding on actions before us.

[00:12:37] Speaker 01:
They didn't appeal that.

[00:12:38] Speaker 04:
As to prospectivity, but at that point, you had a final, closed, unappealed state court judgment adopting that settlement agreement, making it, like I said, a final unappealed

[00:12:53] Speaker 04:
order of a court.

[00:12:54] Speaker 04:
You guys have never appealed and never challenged.

[00:12:57] Speaker 04:
And I think there's precedent from this court that says whatever preemption there might be that applies prospectively doesn't go back and unravel final closed state court judgments.

[00:13:07] Speaker 01:
So they wouldn't have been on notice to challenge anything.

[00:13:10] Speaker 01:
I think my point is a more limited one.

[00:13:13] Speaker 01:
In the Albany proceeding, there were two different issues going on in front of the commission.

[00:13:18] Speaker 01:
The first one is Albany's argument with respect to preemption, but the second was, among other things, the district objected to Erie participating in this, and the commission dealt with both of those at the same time.

[00:13:27] Speaker 01:
and the commission made a determination that Erie was entitled to be before the commission with respect to headwater benefits assessments, not only going forward, but headwater benefits assessments beginning with when the license was issued.

[00:13:37] Speaker 04:
Now, again- Can you make clear, because I wasn't, I couldn't find in the record what you all were actually arguing in the Albany proceeding.

[00:13:44] Speaker 04:
Were you specifically arguing that Albany's right and that undoes our final closed unappealed

[00:13:53] Speaker 04:
Settlement agreement.

[00:13:55] Speaker 04:
Were you making the argument that we're now hearing?

[00:13:57] Speaker 01:
No, I don't believe we affirmatively made that argument.

[00:14:01] Speaker 01:
I think we intervened to be a party to the proceeding with respect to whatever Commission determinations were there.

[00:14:06] Speaker 04:
Sure, but so what did you argue should be the outcome as to what what did Erie argue that the outcome should be as to it with given given that the settlement agreement?

[00:14:15] Speaker 04:
What notice did you give the district?

[00:14:17] Speaker 01:
And I'm sorry, I may not recall correctly, so I don't want to misspeak.

[00:14:21] Speaker 01:
If I recall correctly, we didn't make any affirmative representations with respect to the settlements.

[00:14:27] Speaker 01:
This came up with the shoe on the opposite foot.

[00:14:30] Speaker 01:
The district invoked the settlements and said, you have no business being here at all because your assessments have already been set by this agreement.

[00:14:37] Speaker 01:
And it was in the context of rejecting that assertion by the district that the commission made the ruling and the language that I've quoted.

[00:14:44] Speaker 01:
And again, it was the district's

[00:14:46] Speaker 01:
failure to appeal that because remember we're not just now talking about the order we're talking about a regulation the regulation says is it possible for y'all to provide us with a copy of What you all submitted in the Albany case?

[00:14:58] Speaker 01:
It's not in the record right now.

[00:15:00] Speaker 01:
We could certainly go or if it is I miss it.

[00:15:02] Speaker 05:
Thanks All right, we'll give you a couple of minutes to reply.

[00:15:07] Speaker 01:
Thank you.

[00:15:08] Speaker 01:
I appreciate it.

[00:15:09] Speaker 05:
Mr. Rylander

[00:15:24] Speaker 03:
Good morning.

[00:15:25] Speaker 03:
May it please the court, Elizabeth Rylander for the commission.

[00:15:28] Speaker 03:
The heart of Erie's case here seems to be that its expectations in 2012 were not satisfied in 2015.

[00:15:35] Speaker 03:
But as the court seems to have discerned correctly, Erie and the district settled the issue of payments for the early years in which FERC had jurisdiction over the dam and the lake by signing a settlement and getting it approved by a state court judge in 2006.

[00:15:51] Speaker 03:
That settlement

[00:15:53] Speaker 03:
broadly released any claims that Erie might have in the future, and Ferg reasonably held the parties to the bargain they struck in that settlement.

[00:16:02] Speaker 04:
How do you get around their argument that you had no business giving any legal relevance to that settlement agreement, given that it wasn't approved by the Commission?

[00:16:14] Speaker 03:
The settlement didn't have to be approved, Your Honor, because it was not a settlement made before Ferg.

[00:16:18] Speaker 03:
This settlement was made in state court, it settled issues of state law, it resolved state litigation, and it was submitted to FERC merely in response to FERC's inquiry as to what money had changed hands.

[00:16:33] Speaker 03:
So in 2012, when FERC was examining who had paid

[00:16:37] Speaker 03:
who had paid money to the district to satisfy state law headwater benefits assessments.

[00:16:43] Speaker 03:
This piece of evidence came to FERC to say that for these years 2002 to 2009,

[00:16:49] Speaker 04:
Erie and the district had a prior agreement and that both parties were already... By the time of this decision, the commission isn't just saying that's interesting.

[00:17:00] Speaker 04:
The commission is saying the existence of that settlement has such consequence in our decision making that we are going to enforce it as the equitable resolution of this case.

[00:17:13] Speaker 04:
How does that intersect with your Regulation 602?

[00:17:17] Speaker 03:
With regulation 602 rule 602 does not actually apply in this case because rule 602 applies to settlements that are made before the commission had the parties reached a settlement before the commission in response to the remand orders in 2009.

[00:17:32] Speaker 03:
or had the parties reached a settlement before the commission when asked to individually contact the district and establish who had paid what to whom, that might have fallen under Rule 602.

[00:17:43] Speaker 03:
But this 2006 settlement was made, again, in state court before a state judge, and it was not anything that FERC ever passed on.

[00:17:50] Speaker 04:
But then you all said, I mean, you all, the commission said in 2007, you heard them quote, quote, it's not for the commission to enforce the representations made by parties in settlement provisions over which the commission has no authority.

[00:18:03] Speaker 04:
but isn't that effectively what the commission did here, was give effect to and an imprimatur to and legal consequence to that settlement agreement?

[00:18:13] Speaker 03:
FERC respected the bargain that was made.

[00:18:16] Speaker 03:
Erie's counsel represents that FERC submitted something in paragraph 35, but paragraph 35 just explains the result, I'm sorry, paragraph 35 of that 2007 order.

[00:18:28] Speaker 03:
Paragraph 35 just explains that

[00:18:31] Speaker 03:
that the 2006 settlement resolved state law issues and doesn't speak to what FERC's responsibilities are or to what FERC ended up doing in the future under Section 10F of the Federal Power Act.

[00:18:46] Speaker 04:
Well, but you do say it doesn't reflect the Commission determination of what ERI should be paying, right?

[00:18:50] Speaker 03:
No, it doesn't.

[00:18:52] Speaker 03:
It does not reflect a commission determination of the charges that ERI should pay under Section 10F, which is a whole different analysis than what the state charged ERI under its own law.

[00:19:04] Speaker 03:
The New York's Environmental Conservation Law and the Federal Power Act say completely different things.

[00:19:09] Speaker 03:
So FERC acknowledged in this paragraph that the parties had settled this issue under the Environmental Conservation Law, but it did not

[00:19:17] Speaker 03:
settle or even begin to address what the Federal Power Act analysis might produce.

[00:19:22] Speaker 03:
And in fact, the Federal Power Act analysis did produce very different numbers, or we wouldn't all be here today.

[00:19:29] Speaker 06:
You just said it didn't determine the numbers, and then the numbers were very different.

[00:19:34] Speaker 06:
Can you clarify that?

[00:19:35] Speaker 03:
Of course, Your Honor.

[00:19:36] Speaker 03:
So the 2006 settlement resolved, there are two statutes at work here.

[00:19:41] Speaker 03:
New York's environmental conservation law under which the district charged headwater benefits under state law for many years, and Federal Power Act section 10F.

[00:19:52] Speaker 03:
Following this court's decision in Albany Engineering, Federal Power Act section 10F became the only applicable authority under which headwater benefits assessments could be made.

[00:20:03] Speaker 03:
However, this prior settlement had spoken to headwater benefits, but not as FERC is required to administer its own statute.

[00:20:17] Speaker 03:
The 2006 settlement speaks to headwater benefits as the state of New York was administering its own statute prior to this court's preemption finding.

[00:20:28] Speaker 03:
So they're really not the same thing.

[00:20:32] Speaker 03:
It is possible.

[00:20:33] Speaker 03:
And I think the petitioner's briefs reflect some confusion on this fact.

[00:20:37] Speaker 03:
It is possible for parties to resolve the issue of headwater benefits under Section 10F by settlement.

[00:20:45] Speaker 03:
That's in FERC's regs section 11.14.

[00:20:48] Speaker 06:
That would have been subject to Rule 602.

[00:20:50] Speaker 03:
That would be subject to Rule 602, yes.

[00:20:52] Speaker 03:
That's not what happened.

[00:20:52] Speaker 03:
That is not what happened here.

[00:20:54] Speaker 03:
It could have happened following this court's preemption finding, but it did not happen.

[00:20:58] Speaker 06:
But what I thought I heard you say was that the Commission didn't determine what would be due under, say, the general rule.

[00:21:07] Speaker 03:
Oh, yes, Your Honor, the Commission did determine that.

[00:21:09] Speaker 06:
Okay.

[00:21:11] Speaker 06:
And then decided not to require the parties to implement that.

[00:21:16] Speaker 03:
The commission's orders under review here are titled orders at calculating dates.

[00:21:23] Speaker 03:
So what the commission did was it determined every downstream beneficiary's liability for headwater benefits under section 10f.

[00:21:32] Speaker 03:
And then it established the date on which prior payments to the district would fully offset

[00:21:38] Speaker 03:
the federal benefits going forward.

[00:21:40] Speaker 03:
At what point the downstream beneficiaries did not already have credit, as it were, with the district.

[00:21:49] Speaker 03:
Erie Boulevard's case is different because Erie Boulevard went to state court, as did Albany Engineering.

[00:21:57] Speaker 03:
Erie Boulevard signed a settlement that in exchange for valuable compensation, some of which is at issue in this case, some of which is not,

[00:22:05] Speaker 03:
Um, fully resolve the issues of state law head water benefits for those years.

[00:22:11] Speaker 03:
And as Judge Malik pointed out earlier in this earlier in this argument.

[00:22:16] Speaker 03:
There is an established, you know, a package of... Yes, of course.

[00:22:20] Speaker 03:
Yes, a bargain for exchange.

[00:22:23] Speaker 03:
And FERC saw fit not to disturb that in both in view of equity and in view of... So determine what the federal rule would have required if applied.

[00:22:38] Speaker 06:
and then decided as a matter of equity not to apply.

[00:22:41] Speaker 06:
To say because the parties have entered into this settlement, we'll just stand by and let them govern.

[00:22:48] Speaker 03:
Your Honor, I would disagree somewhat with the idea that FERC didn't apply the federal rule.

[00:22:53] Speaker 03:
Section 10F requires FERC to establish headwater benefits calculations, headwater benefits assessments, and FERC did that.

[00:22:59] Speaker 06:
And what was that number roughly?

[00:23:01] Speaker 03:
Excuse me?

[00:23:01] Speaker 06:
And what was that number roughly?

[00:23:03] Speaker 03:
For Erie, I believe it was $1.8 million.

[00:23:07] Speaker 03:
Okay.

[00:23:09] Speaker 06:
Determined that and then did not require a credit to that extent.

[00:23:15] Speaker 03:
Correct.

[00:23:16] Speaker 03:
When FERC looked at who had paid what money to whom, it looked at Albany Engineering and said Albany Engineering has gone to state court, received a judgment, it's received refunds,

[00:23:27] Speaker 03:
All the engineering is done.

[00:23:29] Speaker 03:
It looked at other downstream beneficiaries and said they went to state court and they were unsuccessful.

[00:23:33] Speaker 03:
We can apply the offset here.

[00:23:35] Speaker 03:
With Erie, Burke looked and said, oh, there's a settlement there.

[00:23:39] Speaker 03:
They've resolved this themselves.

[00:23:40] Speaker 03:
They've gone to state court.

[00:23:42] Speaker 03:
They've made a deal.

[00:23:43] Speaker 03:
And it's not our place, it is not our place to upset that deal by changing it retrospectively.

[00:23:49] Speaker 06:
So as you read the Albany Engineering decision of this court, FERC has no affirmative obligation to make sure that downstream parties are not overburdened relative to the standard intent.

[00:24:04] Speaker 03:
By overburdened, FERC is obligated to make sure that the payments under Section 10, that the assessments under Section 10F are fair.

[00:24:14] Speaker 03:
And FERC took on, in this case, the obligation to ensure that the resolution of the dueling payments between state and federal law were equitable.

[00:24:26] Speaker 03:
And in this case, FERC determined that what was equitable was that it was the whole Erie Boulevard to the bargain it struck in 2006.

[00:24:35] Speaker 06:
I suppose there's been no bargain.

[00:24:41] Speaker 06:
overture to the Commission, but it came to your attention that Erie had probably overpaid relative to the federal standard.

[00:24:51] Speaker 06:
Is there any case in which the Commission has proceeded and opened a matter without a complaint?

[00:24:59] Speaker 03:
I'm not aware of any, Your Honor.

[00:25:06] Speaker 03:
Thank you very much.

[00:25:07] Speaker 03:
Mr. Brody?

[00:25:17] Speaker 02:
May it please the Court, Frederick Brody of the New York State Attorney General's Office for the Regulating District.

[00:25:24] Speaker 02:
Let me address first Justice Ginsburg's line of questioning.

[00:25:29] Speaker 02:
Erie's appeal conflates two successive events in the headwater benefits process.

[00:25:35] Speaker 02:
First is the calculation of headwater benefits charges.

[00:25:39] Speaker 02:
FERC's regulations provide detailed instructions on how to do that.

[00:25:43] Speaker 02:
In this appeal, nobody disputes the calculation of headwater benefits charges.

[00:25:48] Speaker 02:
The dispute arises at the next stage.

[00:25:52] Speaker 02:
FERC had to make an equitable ruling

[00:25:54] Speaker 02:
on whether to apply individual credits and defenses against those charges.

[00:26:00] Speaker 02:
In doing so, FERC exercised its equitable discretion to take into account Erie's settlement from 2006.

[00:26:08] Speaker 02:
Now, to stress, FERC made an equitable determination.

[00:26:13] Speaker 02:
Among other things, it did not credit

[00:26:18] Speaker 02:
prior payments up to, or rather it credited prior payments up to the section 10th amount, so that Erie would not make a double payment of the 10th benefits.

[00:26:29] Speaker 02:
But then it gave effect equitably to the rest of the settlement.

[00:26:34] Speaker 02:
The district, to address a question of Judge Millitz and Mr. Lavinbach's answer, did not sleep on its rights.

[00:26:41] Speaker 02:
In October 2012, Erie attacked payments under the settlement as unauthorized and demanded more than $9 million in credits.

[00:26:51] Speaker 02:
That's 358 to 359 of the joint appendix.

[00:26:55] Speaker 02:
In response, the very next month, November 2012, the district filed the settlement with FERC

[00:27:02] Speaker 02:
and asked FERC to consider it when determining Erie's claims.

[00:27:07] Speaker 02:
That's 347 to 348 of the Joint Appendix.

[00:27:13] Speaker 02:
And the district again raised the settlement as a defense in 2014 and asked FERC to determine its effect.

[00:27:20] Speaker 02:
That's at page 290 of the Joint Appendix.

[00:27:23] Speaker 02:
Now why didn't we raise it earlier?

[00:27:25] Speaker 02:
Because again, and this goes back to my first point, there was a headwater benefits investigation going on.

[00:27:32] Speaker 02:
And the investigation determines physical facts.

[00:27:36] Speaker 02:
Were there benefits?

[00:27:37] Speaker 02:
How big were they?

[00:27:39] Speaker 02:
And this was conducted by Oak Ridge National Laboratory.

[00:27:42] Speaker 02:
What we're talking about here is a legal defense, the payment, an equitable offset that is not within the province of Oak Ridge National Laboratory or the commission doing its mathematical calculation under section 1111 of FERC's rules.

[00:27:58] Speaker 04:
What do I do about the fact that, as I read the statute, FERC's discretion to exercise equity is

[00:28:08] Speaker 04:
in determining the amounts for interest, maintenance, and depreciation.

[00:28:11] Speaker 04:
The equity is tied to calculations of those amounts.

[00:28:17] Speaker 04:
And the equity here that was exercised, I think admitted by all, way overshot by seven-ish million dollars, cause for interest, maintenance, and depreciation.

[00:28:31] Speaker 02:
Well, no, Your Honor, I respectfully disagree.

[00:28:36] Speaker 02:
What was enforced here, again, was a deal of the parties, as Your Honor perceives, where there was valuable consideration in the form of an extremely valuable extension of a flow agreement where the district was required to regulate the flow of the river in a way that benefited Erie financially.

[00:29:01] Speaker 02:
And the district has been performing that.

[00:29:05] Speaker 02:
It's performing it now, at this moment.

[00:29:07] Speaker 02:
It's been performing it since 2006.

[00:29:10] Speaker 04:
What would happen if they were right, if their argument were to prevail, what is your view of what happens to your obligations under the settlement agreement to perform year half of it?

[00:29:22] Speaker 02:
What happens is, well, Mr. Lavinbuck said we would lose it.

[00:29:27] Speaker 02:
We would lose that consideration that we had given over to Erie by regulating... So does a settlement agreement survive without that consideration?

[00:29:36] Speaker 02:
Well, the release survives because there is a severability clause in the settlement.

[00:29:43] Speaker 04:
And the settlement says that even if you fight... So you're admitting here that if they win, they get their cake and eat it too?

[00:29:49] Speaker 04:
I don't know.

[00:29:50] Speaker 04:
They get their cake and eat it too.

[00:29:51] Speaker 04:
They get their credits and they get all their benefits under the settlement agreement.

[00:29:55] Speaker 04:
I don't know why your argument wouldn't be without consideration the whole contract including the severability clause fails.

[00:30:01] Speaker 02:
What I wanted to point out is that Mr. Lattenberg's result is inequitable.

[00:30:06] Speaker 02:
So it would fly in the face of TANF.

[00:30:07] Speaker 04:
What might be inequitable in

[00:30:10] Speaker 04:
a broader BlackSlaw dictionary sense of that term, but whether it's inequitable under the statute, which seems to tie equity to those particular types of payments is a harder question.

[00:30:22] Speaker 02:
And secondly, if ERI is successful in striking down part of the settlement, there's still a release.

[00:30:29] Speaker 02:
It releases all claims, demands, causes of action of any sort or effect.

[00:30:34] Speaker 02:
So the fact is that ERI has gained a right, but in 2006,

[00:30:39] Speaker 02:
in a negotiated deal, represented by able counsel, they gave up the right to enforce that right.

[00:30:45] Speaker 04:
No, I get that, but what I'm saying is if they're right in this litigation, they did get to continue to challenge that amount, and then they say they would get the seven-ish million dollars in credits, and if that were to happen,

[00:30:59] Speaker 02:
If that were to happen, it would be a disaster for the district.

[00:31:04] Speaker 04:
Would you consider yourself bound by the settlement agreement to give them their benefits?

[00:31:14] Speaker 02:
We are performing the agreement.

[00:31:17] Speaker 02:
We have performed the agreement.

[00:31:18] Speaker 02:
We believe the agreement should be upheld.

[00:31:21] Speaker 02:
But if your honor, again, if your honor severs it,

[00:31:25] Speaker 02:
and strikes down part of it.

[00:31:27] Speaker 02:
The release still remains, so this court shouldn't give eerie relief, because it's released all its claims.

[00:31:35] Speaker 06:
Mr. Berry, following up on something Judge Malutz said just a moment ago, where in, where did the Commission, as far as you can tell, invoke this equitable power as an alternative to, rather than within the calculation of the general rule?

[00:31:56] Speaker 02:
as an alternative.

[00:31:57] Speaker 06:
Well, you said the, pardon me, Judge, let's suggest that the equitable power was in the calculation in determining what was the bottom line of the general rule.

[00:32:08] Speaker 06:
I think that's correct.

[00:32:10] Speaker 06:
Is that a suggestion?

[00:32:11] Speaker 04:
No, it was just whether they should give them the credits.

[00:32:14] Speaker 04:
I thought it was how they were using equity.

[00:32:15] Speaker 04:
The calculation number, I don't mean to speak for you guys, was set.

[00:32:19] Speaker 04:
No one disputes the one-ish million, 1.6 or 8 million.

[00:32:23] Speaker 04:
And it's just whether they're entitled to the credits.

[00:32:26] Speaker 04:
And that was the equitable termination.

[00:32:27] Speaker 06:
That's my question, but I'm sorry if I misspoke.

[00:32:30] Speaker 06:
I'll divert this to the petitioners.

[00:32:32] Speaker 02:
Well, let me just go back to Section 10F, which says that the licensee shall reimburse the owner for such part of the annual charges for interest, maintenance, and depreciation thereon as the commission may deem equitable.

[00:32:47] Speaker 02:
So when you do equity, you take into account all of the facts and circumstances.

[00:32:53] Speaker 02:
And one of the facts and circumstances is this release

[00:32:56] Speaker 02:
And one of the facts and circumstances is this agreement.

[00:33:01] Speaker 02:
So the commission certainly was reasonable in construing its jurisdiction under section 10f of the Federal Power Act to enable it to do equity in this case.

[00:33:12] Speaker 02:
And certainly the release, as a matter of law, not equity, bars what Yuri is doing in this very court.

[00:33:19] Speaker 02:
They're coming in and trying to enforce a claim, a demand, a cause of action.

[00:33:25] Speaker 02:
of any type and they should not be allowed to do that because they have released that right back in 2006.

[00:33:32] Speaker 05:
All right, thank you.

[00:33:35] Speaker 02:
Thank you, Your Honor.

[00:33:37] Speaker 05:
Does Mr. Lamb's book have any time left?

[00:33:40] Speaker 01:
Okay, why don't you take two minutes?

[00:33:43] Speaker 01:
Thank you, Judge Hanson.

[00:33:44] Speaker 01:
I'm going to keep this very brief.

[00:33:46] Speaker 01:
Two points.

[00:33:46] Speaker 01:
The first one is, I think it's incredibly important to focus on what the agency said it did below.

[00:33:51] Speaker 01:
We've heard assertions today that what the agency was doing was some sort of remedial, equitable exercise of power.

[00:33:58] Speaker 01:
That is not at all what they said below.

[00:34:01] Speaker 01:
It's not even what they said in their briefs.

[00:34:03] Speaker 06:
Well, that's the point as to what they did say.

[00:34:04] Speaker 01:
Okay, what they did say.

[00:34:07] Speaker 01:
So if we look at paragraph 11 of the August 2015 order, which is JA-216, I'm just, for brevity, I'm gonna try and read them into the record and then I'll explain them.

[00:34:16] Speaker 01:
Paragraphs 11.

[00:34:17] Speaker 04:
Sorry, is that the rehearing or the initial one?

[00:34:19] Speaker 01:
So in the initial order, paragraphs 11 and 19 to 20, the commission recites what the district was asking them to do, which was to determine that there was no overpayment.

[00:34:30] Speaker 01:
So the logic is not, you're entitled to credits, but we're not going to give them to you.

[00:34:35] Speaker 01:
But rather, what the district said was, no, there are no credits because there was no overpayment.

[00:34:40] Speaker 01:
And there was no overpayment because the 2006 settlement, established by agreement, erases payments to the district.

[00:34:46] Speaker 04:
It's reasonable.

[00:34:47] Speaker 04:
I'm sorry, go ahead.

[00:34:49] Speaker 06:
You were going to read something or point to something.

[00:34:51] Speaker 01:
Oh, I did.

[00:34:51] Speaker 01:
I'm sorry.

[00:34:52] Speaker 01:
It's paragraph 11 of the 2015 order, which is a JA 216.

[00:34:56] Speaker 01:
Right.

[00:34:56] Speaker 01:
OK.

[00:34:57] Speaker 01:
The commission is reciting what the district is asking them to do, which is determined that no credits are due not because you shouldn't give them to them out of some equity, but rather because there was simply no overpayment in the first place because

[00:35:13] Speaker 01:
the correct amount was paid because, quote, the 2006 settlement established.

[00:35:16] Speaker 06:
Are you introducing anything in paragraph 11 to the commission, or is it kind of the same anxiety that the commission is reciting the district's point?

[00:35:24] Speaker 01:
Yes, it is, Your Honor.

[00:35:25] Speaker 01:
And the reason I point that out is because when we see on page two of the commission's brief here what they say, which is that they determined that, quote, the settlement governed Erie's headwater benefits liability for the years 2002 to 2008, when they say that on page two of their brief here,

[00:35:42] Speaker 01:
they are making clear that what they've done is adopt the argument that was put forward by the district.

[00:35:48] Speaker 04:
Now, the reason... I'm sorry, I just wanted to get to paragraph 19.

[00:35:52] Speaker 04:
They say under these circumstances, it's reasonable and equitable to hold Erie Boulevard into the district to the bark when they struck regarding these payments.

[00:36:01] Speaker 04:
Is that not an exercise of equity?

[00:36:03] Speaker 01:
Well, it is not an exercise of equity for the following two reasons, and this is what I want to make clear.

[00:36:08] Speaker 01:
It is not as though they have determined there was a violation of Section 10F and are exercising some remedial power.

[00:36:15] Speaker 01:
They say everywhere in the orders below and in their briefs that they don't believe there was a violation.

[00:36:19] Speaker 01:
So what they say they're doing is they're exercising their equitable rights under 10F, which says that they can determine headwater benefits assessments as they deem equitable.

[00:36:28] Speaker 01:
But that is itself subject to two very important restrictions.

[00:36:31] Speaker 01:
The first one is, even in the exercise of equity, they can only order payments that deal with interest maintenance and depreciation.

[00:36:37] Speaker 01:
But the second, and I think this is the key one here, is that they have a regulation that says how they carry out their equitable task.

[00:36:45] Speaker 01:
That's 18 CFR 11.11.

[00:36:50] Speaker 01:
So it is not as though the Commission gets to say, well, our general rule would give us the number we give in 2012, but we've decided to disregard it.

[00:36:58] Speaker 01:
That's not how it works.

[00:36:59] Speaker 01:
They don't get to disregard the regulation simply because they don't like it.

[00:37:03] Speaker 01:
That's reinforced, then, by what we saw in the 2007 order.

[00:37:13] Speaker 01:
It's not so much what they should have done, because they did do it.

[00:37:17] Speaker 01:
In 2012, they gave us the results of the general rule.

[00:37:21] Speaker 01:
What they should have done is follow through with the general rule and not, at a later proceeding, then adopt the settlement that they hadn't approved, which they concede they could not have approved.

[00:37:32] Speaker 04:
If the day before the commission came down with its calculation on how much y'all actually owed, the 1.6 or 8 million, the day before,

[00:37:46] Speaker 04:
You and the district interviewed a settlement and said, we don't care what FERC's gonna do, we need to move on, and we've really got this really great deal, we'd love to get from you this reservoir operating agreement with the flow that's gonna help us.

[00:37:58] Speaker 04:
So as between you and us, here's what we agree to pay, the nine-ish million that you actually agreed to pay in the settlement agreement, and we're done.

[00:38:06] Speaker 04:
We're not gonna deal with anything FERC says, we're done.

[00:38:11] Speaker 04:
Would that have been enforceable?

[00:38:13] Speaker 04:
Or would you still have been the next they'd be able to go?

[00:38:16] Speaker 04:
FERC said we only owe one.

[00:38:17] Speaker 01:
I think it raises a difficult question.

[00:38:18] Speaker 01:
It's not initiated here for the following reason.

[00:38:21] Speaker 01:
Under these circumstances, FERC would have known that what they were being asked to approve was a settlement of headwater.

[00:38:27] Speaker 04:
No, no, you're not asking them to approve it.

[00:38:28] Speaker 04:
You two judge it.

[00:38:28] Speaker 04:
Just as here you do a private settlement agreement, you're not submitting it to FERC.

[00:38:32] Speaker 04:
OK.

[00:38:33] Speaker 04:
It's just you're agreeing that whatever decision FERC comes down with tomorrow, we're ignoring it.

[00:38:39] Speaker 04:
Yeah, I don't think... Would that be a valid settlement, or would you be able to get out of it the next day?

[00:38:43] Speaker 01:
I do not believe that would be a valid settlement as regards issues within the exclusive jurisdiction of the commission.

[00:38:50] Speaker 01:
I think that rule of law you see applied in other areas of law where you have a federal government approval required for parties to reach a settlement.

[00:38:58] Speaker 04:
Now, there are aspects of this agreement... Where does the federal law

[00:39:03] Speaker 04:
as opposed from the rules.

[00:39:04] Speaker 04:
You're talking about the rule?

[00:39:05] Speaker 04:
Where does the federal statute say that parties can't resolve past liabilities?

[00:39:11] Speaker 04:
I'm not talking about prospective liability.

[00:39:12] Speaker 04:
I'm only talking about past liabilities.

[00:39:14] Speaker 04:
Can't resolve that privately.

[00:39:19] Speaker 04:
in a situation like this, and to just avoid all this agency litigation as well as court litigation.

[00:39:23] Speaker 01:
In this situation, the relevant part of the statute is the part that said, the commission shall determine.

[00:39:28] Speaker 01:
And as I think Judge Brown pointed out in her concurrence in Albany Engineering, it is a little odd that the regulations allow the parties to reach private settlements.

[00:39:37] Speaker 04:
OK, so your position that your settlement agreement was just void of an issue, you just couldn't have it.

[00:39:41] Speaker 04:
You can't have that consideration.

[00:39:42] Speaker 01:
No, that is not our position.

[00:39:45] Speaker 01:
As I think I mentioned, our position is the settlement agreement is binding on the parties within the scope that it can be binding on them, which is to say,

[00:39:52] Speaker 01:
with regards to all things that don't happen in front of the commission.

[00:39:55] Speaker 01:
So Judge Millett had asked me or had asked one of my colleagues whether or not there was any consideration on the other side if we prevail here.

[00:40:02] Speaker 01:
Well, I mean, there certainly was.

[00:40:03] Speaker 01:
We could not go to state court to seek relief as, for example, Albany Engineering did.

[00:40:08] Speaker 01:
And while I recognize, I am not suggesting that that consideration might be equivalent to what we received.

[00:40:13] Speaker 01:
My point is the agreement is not void.

[00:40:16] Speaker 01:
And it is not as though there was no consideration received on the other side.

[00:40:20] Speaker 01:
Now, the outcome that we have here, I think, should not have been any surprise to the district because the Commission had long told them even before we signed this agreement, we are not going to enforce agreements on headwater benefits that you don't submit to us for approval.

[00:40:36] Speaker 01:
They said that in 2003.

[00:40:37] Speaker 01:
They said it in six and in seven and in nine and in 12.

[00:40:40] Speaker 01:
They couldn't have been surprised.

[00:40:42] Speaker 01:
And they had numerous opportunities to appeal that determination.

[00:40:46] Speaker 01:
And they didn't do that.

[00:40:48] Speaker 01:
And I think that's the reason now that they're unhappy with the result that would follow if the commission is held to its regulations and past orders, which is what we would ask.

[00:40:55] Speaker 06:
In the proceeding before the commission in which a settlement agreement is submitted under 602 for approval and approval is forthcoming,

[00:41:04] Speaker 06:
Are there then possible later opportunities for the commission to enforce that agreement?

[00:41:11] Speaker 06:
The agreement's been approved.

[00:41:12] Speaker 06:
One party comes in and says the other's not living up to it.

[00:41:15] Speaker 06:
The commission can enforce that, right?

[00:41:17] Speaker 01:
Correct.

[00:41:18] Speaker 06:
It is my understanding that when that happens... No, we have an agreement not submitted in a proceeding before the commission.

[00:41:23] Speaker 06:
An agreement resolving state litigation.

[00:41:27] Speaker 06:
And the commission's not in a position to enforce that agreement, is it?

[00:41:31] Speaker 01:
It's not in effect.

[00:41:32] Speaker 06:
There's a violation of the agreement.

[00:41:33] Speaker 06:
That's not their province to enforce it.

[00:41:35] Speaker 01:
That is exactly right.

[00:41:36] Speaker 01:
And that's not me speaking.

[00:41:38] Speaker 01:
That's the commission speaking.

[00:41:39] Speaker 06:
So you just said the commission was enforcing this agreement after saying they wouldn't.

[00:41:43] Speaker 06:
But they're not enforcing it.

[00:41:44] Speaker 06:
They're simply deferring to it as an equitable matter.

[00:41:48] Speaker 06:
Well, when I said they're enforcing it.

[00:41:49] Speaker 06:
It remains within the state of New York to enforce the agreement.

[00:41:52] Speaker 01:
Sorry, my only point was, when I said they're enforcing it after they said they wouldn't, with respect to this very agreement, they said they were not going to enforce this agreement.

[00:42:02] Speaker 06:
If there's a violation of the agreement, there isn't a violation.

[00:42:05] Speaker 06:
And if there were, they wouldn't be enforcing it.

[00:42:08] Speaker 06:
As you just said, it would be up to the state for it.

[00:42:10] Speaker 01:
Well, I certainly agree that there hasn't been a violation of the agreement.

[00:42:13] Speaker 01:
I think that they think they were giving legal effect to it.

[00:42:15] Speaker 01:
I think they were doing so wrongly.

[00:42:16] Speaker 01:
But even under their own understanding of what they were doing, I think that would be inconsistent with their regulations and prior orders.

[00:42:25] Speaker 05:
All right.

[00:42:25] Speaker 01:
Thank you.

[00:42:27] Speaker ?:
Thank you.