[00:00:01] Speaker 00: Case number 15-1157, LSLSP Transmission Holdings LLC at L Petitioners versus Federal Energy Regulatory Commission. [00:00:12] Speaker 00: Mr. Engelman for Petitioners, Ms. [00:00:13] Speaker 00: Kafer for Respondent. [00:00:16] Speaker 05: Before we get started, you'll probably notice that there's only two of us here. [00:00:21] Speaker 05: Judge Wilkins had a death from the family and is out of town and will be listening to the oral argument on the tapes. [00:00:35] Speaker 04: of the three minutes for rebuttal. [00:00:37] Speaker 04: May it please the court? [00:00:39] Speaker 04: In 2011, FERC was compelled, said it was compelled to act under Section 206 of the Federal Power Act because companies like LS Power, my client, were being excluded from competition, depriving rate payers of the associated potential benefits that such competition would bring. [00:00:57] Speaker 04: We're here because FERC abandoned two of those foundational elements of Order 1000 when it came to the Southwest Power Pool. [00:01:05] Speaker 04: To ensure just and reasonable rates, FERC mandated a number of reforms in Order 1000, including a developer selection evaluation process to determine the developer that's entitled to use the regional cost allocation methodology for a transmission project that goes into the regional plan. [00:01:25] Speaker 04: In mandating that, FERC said that the evaluation criteria would evaluate the relative economics and effectiveness of performance of the alternative developers. [00:01:37] Speaker 04: This court upheld Order 1000 against 43 petitioners, many of them arguing that these things didn't affect rates. [00:01:46] Speaker 04: This court rejected that argument and said that Order 1000 had a direct connection to rates. [00:01:53] Speaker 04: The problem is when it got to implementation of Order 1000 in the Southwest Power Pool, it appears that FERC has abandoned that. [00:02:02] Speaker 04: And we say that because in its first order on the SPP compliance filing, which has a number of generic criteria, [00:02:10] Speaker 04: first said that the criteria as a portion do not properly measure the relative efficiency and cost-effectiveness of the proposed bid. [00:02:19] Speaker 05: Council, could you start with the Commission's argument that you lack standing to raise this issue? [00:02:27] Speaker 04: Well, the Commission has raised an argument that we lack standing because, at least in the Commission's position, because we don't have an outstanding bid. [00:02:39] Speaker 04: In the Southwest Power Pool, you have to be qualified to be a transmission developer. [00:02:43] Speaker 04: An affiliate of my client, a subsidiary of LSP Transmission, is qualified. [00:02:49] Speaker 04: We can bid on anything that is subject to Southwest Power Pool qualification. [00:02:54] Speaker 05: Is that the project in Western Kansas that you're talking about? [00:02:58] Speaker 04: It was. [00:02:58] Speaker 04: That project has since been competed and in fact ultimately withdrawn. [00:03:03] Speaker 05: Where did you raise that here? [00:03:04] Speaker 05: Did you raise that in your opening brief or your reply brief? [00:03:08] Speaker 04: We raised it in our reply brief because frankly we were surprised by the standing argument. [00:03:14] Speaker 04: We had sufficient standing with respect to Order 1000, and again this is the implementation of Order 1000. [00:03:19] Speaker 04: We had sufficient standing with respect to Order 1000 that we stood with FERC and they granted us some of their argument time as to why these things were important. [00:03:29] Speaker 04: So, and we fully participated in all of the, all of the stakeholder processes and then in the FERC proceedings related to the compliance filing that was required from Order 1000. [00:03:42] Speaker 04: FERC addressed some of our arguments, didn't address some of our arguments. [00:03:46] Speaker 04: And then when we came to appeal, they just go, well, you don't have standing because you don't have a project. [00:03:53] Speaker 04: Our response on the reply brief, because we were surprised, was, well, in fact, we were a participant in that. [00:03:59] Speaker 05: But beyond that... Did you submit an affidavit on that proposition? [00:04:04] Speaker 04: We did not submit an affidavit on that proposition. [00:04:06] Speaker 04: But the difficulty is, their argument is that all they did was change the criteria for selecting the developer. [00:04:16] Speaker 04: As Order 1000 made clear, [00:04:17] Speaker 04: We couldn't have been a developer before Order 1000. [00:04:22] Speaker 04: So our standing is that this rule was directly intended to benefit us. [00:04:30] Speaker 03: Are you a member of the SPP? [00:04:33] Speaker 03: And if so, what does that mean? [00:04:34] Speaker 03: And is that supposed to give you standing? [00:04:36] Speaker 03: And is that documented anywhere? [00:04:38] Speaker 04: We are a member of the Southwest Power Pool. [00:04:41] Speaker 04: It's required to be qualified. [00:04:43] Speaker 04: There's been no dispute that we're a qualified entity in SPP. [00:04:48] Speaker 04: We were one of the bidders on the project. [00:04:51] Speaker 04: We didn't prevail on that project, and again, it's since been withdrawn. [00:04:55] Speaker 03: So there's been... So my question was, are you member? [00:04:58] Speaker 03: You said yes. [00:04:59] Speaker 03: What does that mean? [00:04:59] Speaker 03: Did you have to pay for that or...? [00:05:01] Speaker 04: What does it entail? [00:05:03] Speaker 04: You do have to apply for membership. [00:05:05] Speaker 04: You do have to pay. [00:05:06] Speaker 04: I honestly don't know the amount that you have to pay, but that's one of the requirements to become qualified. [00:05:12] Speaker 03: And is that not, I take it, documented in this record? [00:05:15] Speaker 04: It is not documented in this record because again the record was mainly below as to setting up the rules. [00:05:24] Speaker 02: Is there somewhere below that we could look at, somewhere of public record that we could look at for that? [00:05:29] Speaker 04: That we're a member of SPP? [00:05:31] Speaker 04: No, because at the time the rules were being set up we weren't a member because there was no qualification policy. [00:05:38] Speaker 03: I understand you couldn't be until after, but there's none of the [00:05:42] Speaker 03: I'm just asking. [00:05:43] Speaker 03: No, there's not. [00:05:45] Speaker 05: Your client doesn't have any pending bids, proposals, right? [00:05:50] Speaker 04: There's nothing at SPP that's been subject to the competitive bid right now. [00:05:55] Speaker 05: Well, see, you would have standing. [00:05:57] Speaker 05: I mean, if you do submit a bid, if your client does submit a bid and loses because of these criteria, then you would have standing the challenge. [00:06:05] Speaker 05: But the commission's point is you're not there yet. [00:06:08] Speaker 04: The difficulty, Your Honor, is once these criteria are approved, then if we come back after they've been used in the way we say is improper, we're going to get a collateral attack argument that you should have appealed. [00:06:24] Speaker 05: I'm not sure about that, but I plan to ask the Commission that. [00:06:27] Speaker 05: But normally, the way this works is I would be surprised if the Commission has a different view about this. [00:06:33] Speaker 05: But I assume they will say, [00:06:35] Speaker 05: Then no, it's no collateral attack problem. [00:06:38] Speaker 05: You can challenge the legality of these criteria if they're applied to you and you are harmed as a result of them. [00:06:47] Speaker 05: If that was right, would you be satisfied? [00:06:50] Speaker 04: I don't believe it is correct. [00:06:54] Speaker 05: But soon for a minute I am. [00:06:56] Speaker 05: If that's correct. [00:06:58] Speaker 05: Would you take care of this issue? [00:07:03] Speaker 04: I don't think it does. [00:07:04] Speaker 04: Why? [00:07:05] Speaker 04: Because this is the implementation of Order 1000. [00:07:08] Speaker 04: And we need to get the rules right to begin with, because whether or not what you're suggesting is the criteria would be criteria that are, in our mind, completely inappropriate. [00:07:22] Speaker 04: And then we've got to make the decision on whether to bid and then challenge them down the road. [00:07:27] Speaker 04: when what we're doing is a follow-on of Order 1000. [00:07:30] Speaker 04: This is a compliance of Order 1000. [00:07:32] Speaker 04: And we definitely, there's no question we had standing for Order 1000. [00:07:35] Speaker 04: They never challenged it. [00:07:37] Speaker 05: They actually, as I said, gave us part of the- That doesn't make any difference. [00:07:41] Speaker 05: Article III standing is jurisdictional. [00:07:43] Speaker 04: Which is that we have to have suffered an injury and the injury is that that order? [00:07:48] Speaker 04: 1000 is not being implemented in the matter in which order 1000 was really how is it harming your client? [00:07:54] Speaker 05: That's the point. [00:07:55] Speaker 05: It might be illegal, but it has to cause a harm That's what article 3 standing is all about. [00:08:01] Speaker 05: It has to cause an injury to your client [00:08:04] Speaker 04: It causes an injury to my client because FERC is looking beyond its jurisdiction to make decisions about developers inconsistent with Order 1000. [00:08:17] Speaker 04: The very rule that they said was to benefit my client. [00:08:21] Speaker 04: This court in affirming Order 1000 cited to my client evidence from my client that was put into the record. [00:08:30] Speaker 04: So it directly injures us in the competitive process, the very entity that was there to protect ratepayers. [00:08:38] Speaker 03: Well, it seems like it sets up a regulatory regime that is not as hospitable to your client as you thought, and maybe as it should be. [00:08:49] Speaker 03: But that's a distinct question, I think, from the standing question of whether you're harmed and whether the harm is redressable by the relief that you seek. [00:08:59] Speaker 04: It sets up a regulatory regime that's inconsistent with the jurisdiction of the commission. [00:09:06] Speaker 03: That's your legal argument on the merits. [00:09:09] Speaker 03: The question about your skin in the game is a question about timing and a question about your standing. [00:09:19] Speaker 03: to raise that, and we understand your merits argument that they've done something that's not consistent with order 1000 and that you are absolutely within the group of transmission providers at which it was directed and that should be being welcomed. [00:09:35] Speaker 03: We understand that argument, but the question about what your skin is in the game right now is less clear. [00:09:42] Speaker 04: And again, there's a long line of court precedent, which we cited in our brief, that suggests if we don't appeal this now, once they apply it in the way that they've written it, we can't appeal it. [00:09:58] Speaker 05: That's why I asked you whether you would be satisfied if the Commission concedes when it stands up here that that's not the case. [00:10:06] Speaker 04: If that's the best I have. [00:10:10] Speaker 05: You want to move on to the other issue and the standing issue, if you would? [00:10:14] Speaker 05: That is the right of first refusal. [00:10:15] Speaker 05: The commission says that the right of first refusal you're complaining about here is a question of state law, not the tariff. [00:10:26] Speaker 04: Again, you have to go back to Order 1000 and what it required and what it removed, which was for jurisdictional tariff provisions. [00:10:36] Speaker 04: And so the question is, is it but for a question? [00:10:39] Speaker 04: But for the tariff provision that they put in, would there be competition? [00:10:43] Speaker 04: And could we participate? [00:10:45] Speaker 04: And the answer is yes. [00:10:47] Speaker 04: But for that tariff provision, SPP would be required to compete these projects. [00:10:52] Speaker 04: My client would be able to participate in those. [00:10:56] Speaker 04: This tariff provision says we can't do that. [00:10:58] Speaker 04: Now, what they base it on, we think that's an irrelevant issue as to Order 1000, because Order 1000 said you have to remove federal tariff provisions that grant a right of first refusal. [00:11:12] Speaker 04: This tariff provision, [00:11:13] Speaker 04: Leaving aside why it does it, but this terrorist provision gives projects to the incumbents. [00:11:20] Speaker 04: It's only this terrorist provision. [00:11:22] Speaker 04: The state law may ultimately prevent somebody from developing. [00:11:27] Speaker 04: And this court addressed that. [00:11:30] Speaker 05: Isn't that, that's the heart of your standing problem. [00:11:33] Speaker 05: I mean, the commission says, let me just, in the third order, the commission said, a right of first refusal based on a state law would [00:11:45] Speaker 05: removed from the commission tariff. [00:11:47] Speaker 05: So there isn't anything this court can do to provide a remedy for you, because you'll still have state law right of first refusal. [00:11:55] Speaker 04: We've never asked this court to address this state law. [00:11:58] Speaker 04: What we've asked is, what's that? [00:12:01] Speaker 05: But your injury has to be under Article 3. [00:12:03] Speaker 05: Your injury has to be, you do have an injury here, unlike your first claim. [00:12:08] Speaker 05: You do. [00:12:09] Speaker 05: But it has to be remedial. [00:12:11] Speaker 04: It is remedial, Your Honor. [00:12:14] Speaker 05: How can this Court remedy that? [00:12:16] Speaker 04: This Court can remedy that by removing the tariff provision, which Burke itself said was an improper. [00:12:21] Speaker 05: Won't there still be a state law right of first refusal? [00:12:24] Speaker 04: What's that? [00:12:25] Speaker 04: I'm sorry. [00:12:25] Speaker 05: There'll still be a state law. [00:12:26] Speaker 04: Correct and the provision in order 1000 you cited paragraph 381 It said that but you have to look back at what it was responding to it was responding to an argument from a transmission owner They said there's no such thing as a federal right of first refusal because they all derived from state law and first came back and said [00:12:45] Speaker 04: That argument is not availing because that will still be there. [00:12:50] Speaker 04: What we're addressing is what is in the federal tariff. [00:12:52] Speaker 04: And that's all we've asked, is remove it from the federal tariff. [00:12:56] Speaker 04: There will be competition and we'll participate. [00:12:59] Speaker 04: What happens down the road, this court said in South Carolina repeatedly, [00:13:05] Speaker 04: that there are two buckets, what FERC has jurisdiction over and what the states do, and they don't interact. [00:13:10] Speaker 04: Nothing that FERC was doing was countering what the state could do down the road, that those were two distinct things. [00:13:19] Speaker 04: Then on compliance, FERC goes, oh, state law [00:13:23] Speaker 04: Obviously, we can't do that. [00:13:26] Speaker 04: It backtracks on everything they said to this court in Order 1000. [00:13:30] Speaker 03: Am I right that the line you're drawing between the state law that is not preempted and the federal Order 1000 scope is that sure, a state can have as a matter of state law a right of first refusal, but it cannot thereby exclude those [00:13:52] Speaker 03: incumbents from having to bid competitively meet the criteria and only if they are the successful bidder on that do they get. [00:14:02] Speaker 03: regional cost sharing. [00:14:04] Speaker 03: Is that the nature of your argument? [00:14:05] Speaker 04: That's exactly what the argument is. [00:14:08] Speaker 04: And here's why it's important. [00:14:10] Speaker 04: Because what FERC said in order 1000 was that was important to rate payers. [00:14:14] Speaker 04: And what FERC said in response to our, when they changed their mind and allowed SPP to do this is we acknowledge the categorically excluding non-incumbent transmission developers from being designated to build these two categories. [00:14:30] Speaker 04: may undermine the ability of SPP's regional transmission process to identify the more efficient, cost-effective solutions, and may deprive states of information which they need. [00:14:41] Speaker 03: So a state, for example, can, I'm sorry to interrupt you, a state can bid, can choose to award a project to an incumbent under a state for right of first refusal. [00:14:51] Speaker 03: And it could choose, for example, to have statewide cost sharing. [00:14:55] Speaker 03: It could choose to have [00:14:56] Speaker 03: you know, just say whatever funding you can get, bidder, get it, but we're gonna give you this project. [00:15:02] Speaker 03: What it can't do in your view is participate under order 1000 in regional closure. [00:15:09] Speaker 04: Well, what it can't do is select the developer that gets that. [00:15:14] Speaker 04: So the answer is yes. [00:15:17] Speaker 04: And again, the reason this is important is because the state is, until somebody addresses it, [00:15:24] Speaker 04: may be within its rights to say what happens within its state. [00:15:27] Speaker 04: But these are regionally allocated. [00:15:29] Speaker 04: So if Oklahoma wants to impose what is a non-competitive rule and say only their incumbent developer can build there, the costs are going outside that state. [00:15:40] Speaker 04: And that's who FERC has to protect. [00:15:41] Speaker 04: And that's what Order 1000, why Order 1000 made the distinction between what FERC was doing and what the states were doing. [00:15:48] Speaker 04: And throughout Order 1000, they made that distinction. [00:15:51] Speaker 04: And then they come here to SPP and they shift [00:15:54] Speaker 04: the language from reference? [00:15:57] Speaker 05: Are you saying that the Commission could invalidate, could override the state law right of first refusal in those circumstances? [00:16:04] Speaker 04: No. [00:16:05] Speaker 04: What I'm saying is the Commission has a bucket of authority that relates to race. [00:16:09] Speaker 05: If you have an incumbent [00:16:11] Speaker 05: that wants to exercise its right of first refusal. [00:16:14] Speaker 05: Is there any circumstances under which, in a state with a right of first refusal, I don't understand how a non-incumbent, how this, the issue before us here could conceivably affect that? [00:16:27] Speaker 05: They... Yes, so the answer is... The non-incumbent could not get its bid approved. [00:16:36] Speaker 04: Well, that assumes that it's a firm right of first refusal. [00:16:41] Speaker 04: Yeah, that was my question. [00:16:42] Speaker 04: Well, we don't believe there are any. [00:16:44] Speaker 04: And there are multiple layers of this, Your Honor. [00:16:50] Speaker 04: First of all, it's never been tested. [00:16:51] Speaker 04: So we're shifting to FPP to decide what this rule means. [00:16:55] Speaker 04: None of these rules prohibit the competition. [00:16:57] Speaker 04: The question is, well, if it goes through competition, then there's [00:17:01] Speaker 04: The project in Kansas was a good example. [00:17:04] Speaker 04: It went from $15 million planning to $8 million. [00:17:08] Speaker 04: So there was a huge rate payer savings that was identified through competition. [00:17:12] Speaker 04: So if it goes through that, what project does the incumbent have to take? [00:17:17] Speaker 04: Does it have to take it with the cost caps and everything else, or does it get to go back to the $15 million? [00:17:22] Speaker 03: Let me just make sure that we understand one another. [00:17:28] Speaker 03: a state has right of first refusal under its own law, it could say to the incumbent who enjoys that right, you may have this project. [00:17:43] Speaker 03: In accepting the project, the most power we have to offer you is statewide cost sharing. [00:17:52] Speaker 03: Would you like the project? [00:17:54] Speaker 03: That incumbent might say, no, if I can't do regional cost sharing, it's not worth it to me. [00:17:59] Speaker 03: Right? [00:18:00] Speaker 03: Is that what you're envisioning? [00:18:01] Speaker 03: And then the powerful would turn around and say, okay, we're gonna, consistent with our having honored the state right of first refusal, we're gonna bid this regionally. [00:18:15] Speaker 03: up for and take the lowest bidder. [00:18:16] Speaker 03: So we've satisfied the state level right of first refusal by offering it to someone who, given the lack of federal regional cost sharing, doesn't want it. [00:18:26] Speaker 04: Is that what you're doing? [00:18:27] Speaker 04: It's just not clear to me entirely. [00:18:28] Speaker 04: The problem is that that's not the way it works. [00:18:32] Speaker 04: If SDP simply gives it to the incumbent due to this provision, they get regional cost sharing. [00:18:40] Speaker 03: Why? [00:18:40] Speaker 04: Because that's the way the rule is written and that's the problem. [00:18:43] Speaker 03: No, I'm saying, okay, I'm saying is your challenge that it should work the way I am describing it and that's what Order 1000 would require. [00:18:51] Speaker 03: That is how Order 1000 would, A, honor state law, not preempt state law, [00:18:56] Speaker 03: and be still hue to its commitment to its criteria for regional cost sharing? [00:19:05] Speaker 04: It's very close to what I'm saying, but we don't think the [00:19:12] Speaker 04: We don't think it's relevant what the state says, that it shouldn't go to the state first to determine whether they're going to allow their incumbent to have it. [00:19:22] Speaker 04: Pope has a bucket of authority, which is over here, and it said it wasn't dealing with the states, and they've shifted... They've chosen not to preempt the states also. [00:19:31] Speaker 03: And I guess the question is, and this is following up on Judge Taylor's question, if there is state authority to have such a right, and the state chooses to have such a right, and FERC has not preempted that right, then its discussion of federal, of rights of first refusal has to be within its jurisdictional federal arena. [00:19:51] Speaker 03: And I'm just trying to understand how that could be consistent with your position. [00:19:58] Speaker 04: Yes, consistent with my position, what FERC has the authority to do, and all it has the authority to do, is determine who has regional cost allocation. [00:20:08] Speaker 04: Throughout Order 1000, it said it had nothing to do with cycling. [00:20:12] Speaker 04: And our position is FERC should maintain that, and it shouldn't let the state decide who gets regional cost allocation. [00:20:19] Speaker 04: The way in which the tariff works is you have competition for that. [00:20:22] Speaker 04: SPP wants to avoid that and simply give the project to the incumbent with regional cost allocation, and we say that's inappropriate. [00:20:30] Speaker 04: You have to have the competition. [00:20:32] Speaker 04: If we lose, fine. [00:20:33] Speaker 04: If we win, we have regional cost allocation. [00:20:36] Speaker 05: Okay, thanks. [00:20:37] Speaker 05: We'll hear from the Commission now. [00:20:46] Speaker 01: Good morning, Your Honors. [00:20:47] Speaker 01: Holly Kafer for the Commission. [00:20:49] Speaker 01: It seems like I should start where you all started in the first instance with standing and I wanted to provide reassurance to you specifically judge table who asked whether the Commission would agree that there would be no collateral attack issue if our weighted until a [00:21:10] Speaker 01: right case where it has an injury, for instance, where an application is denied, and that is correct. [00:21:16] Speaker 01: We would not raise collateral attack there, and, you know, I think... In fact, you couldn't, right? [00:21:22] Speaker 05: I mean, they would have standing. [00:21:23] Speaker 05: They would have Article III standing. [00:21:25] Speaker 05: Right, and... If they lost a bid, and if it was attributable to the overweighting concern they have, they would clearly have Article III standing, right? [00:21:34] Speaker 01: I think that's correct, yes. [00:21:35] Speaker 05: Okay, all right. [00:21:36] Speaker 01: And I guess the only other thing on standing is that it's not clear to me that LS Power has demonstrated any harm from just that delay, which is something else we could look at. [00:21:48] Speaker 01: And of course, we cite Alabama Municipal Distributors Group in our brief 312F3rd, 470 for the proposition that even if there were the possibility of collateral attack, that wouldn't be enough to establish an injury here. [00:22:01] Speaker 01: On the topic of redressability, [00:22:04] Speaker 01: in their brief at page sixty-two and i think actually to this morning an argument as well. [00:22:09] Speaker 05: You're moving on to right of first refusal now? [00:22:10] Speaker 05: Is that what you're now talking about? [00:22:11] Speaker 05: Right, well... I mean isn't your point on standing with respect to the criteria, there's just no injury? [00:22:18] Speaker 01: I do think that the injury, the lack of injury does apply also to the right of first refusal. [00:22:28] Speaker 05: But that's what you're now moving on to, right? [00:22:30] Speaker 01: Right, so redressability [00:22:33] Speaker 01: applies only to the right of first refusal. [00:22:36] Speaker 01: That was the distinction that we drew. [00:22:39] Speaker 01: There was a lack of injury as to the entirety of the case. [00:22:43] Speaker 01: There's a lack of adjustability as to just the state and local law as the right of first refusal. [00:22:48] Speaker 01: And on that topic, I think it's pretty clear that Alice Power acknowledges that it's state and local law that would, in fact, prohibit it from owning and constructing a project. [00:23:00] Speaker 03: It's not the federal tariff itself. [00:23:04] Speaker 03: way of thinking about it that I was talking about with Mr. Engelman. [00:23:08] Speaker 03: I mean, my understanding was that it's not the state law that creates the harm, it's the way FERC is treating the state law and the extra mojo that it's affording the state law by saying, when a state does this thing, we too will treat it as [00:23:28] Speaker 01: complying as trumping the otherwise competitive process and that's that's going beyond state law so on that point I think the key is that LS power [00:23:46] Speaker 01: Sorry. [00:23:48] Speaker 01: Okay, I want to refer the court to Klamath Water Users Association, which we also cite in our brief, where the petition was dismissed because the harm actually arose from the independent authority of the states. [00:24:00] Speaker 01: What LS Power hasn't shown here is how prohibiting it from competing for a project which it could never build or construct harms it. [00:24:12] Speaker 01: In fact, I think suggestions were made in the record that that would save it. [00:24:17] Speaker 01: money in the end because it wouldn't be competing for a project that it could never construct. [00:24:22] Speaker 03: Well, I think its position, and I don't want to put words in Mr. Engelman's mouth, but I think its position is everybody wants regional cost sharing. [00:24:32] Speaker 03: FERC controls that, not the states. [00:24:36] Speaker 03: A state can say we honor your right of way, we honor your, you know, our licensing provisions have to be dealt with. [00:24:42] Speaker 03: Indeed, we even have a right of first refusal, which an incumbent in our state [00:24:47] Speaker 03: can call down. [00:24:48] Speaker 03: But the incumbent's gonna look at that and say, if that doesn't get me into the big league where I'm gonna get regional cost sharing, I don't particularly want it. [00:24:57] Speaker 03: And then the injury is redressable because then Mr. Engelman's clients are gonna say, you know what, we do because we can qualify for regional cost sharing because we can meet the competitive criteria. [00:25:07] Speaker 03: And that seems to me to be straight up redressable. [00:25:10] Speaker 01: My understanding is that in Southwest Power Pool, when a project is selected in the first half of its process where it identifies the actual project, the regional transmission solution, the more effective cost efficient solution, any project that comes out of that process is eligible for regional cost sharing. [00:25:35] Speaker 01: and that the regional cost sharing, that the competitive process. [00:25:38] Speaker 05: But what's opposed to the state with a right of first refusal and the incumbent, and as an incumbent, then what? [00:25:48] Speaker 03: Right, then you have to be eligible within FERC's terms to be a successful bidder on a project that is on the slate of potential projects, right? [00:25:59] Speaker 03: Those don't all get billed, they get billed only if they're bidded out. [00:26:03] Speaker 03: And the question is, can FERC then allow a state right of first refusal to trump [00:26:11] Speaker 03: the requirement that a bidder meet the competitive criteria. [00:26:17] Speaker 03: And I think that's a federal law issue. [00:26:18] Speaker 03: That is not a state law issue. [00:26:20] Speaker 01: It may be a federal law issue, and then we go back to what the scope of the case is, and that's compliance with Order 1000. [00:26:26] Speaker 01: And as Your Honor has recognized, Order 1000 expressly declined [00:26:30] Speaker 01: to preempt state law, and LS Power does not ask this court to declare any particular state law preemptive. [00:26:37] Speaker 03: And as I'm envisioning it, it does not require preemption of state law. [00:26:40] Speaker 03: State law is intact. [00:26:41] Speaker 03: State law just doesn't, the tail of state law doesn't wag the dog of federal eligibility in the way that the compliance order [00:26:52] Speaker 03: would allow it to. [00:26:55] Speaker 01: Again, the only harm that I can conjure, and I don't think that Alice Power has spoken directly to this, but the only thing that seems tied to the [00:27:07] Speaker 01: the point that you're making is the possibility that Ellis Power could compete for a project that it would never be eligible to build. [00:27:13] Speaker 01: Ellis Power has not addressed. [00:27:14] Speaker 03: No, no, no, they're saying we're gonna compete for a project because by confining the state right of first refusal to benefits that the state has the power to confer and shearing away from them benefits that only FERC would have the power to confer and that FERC may not, consistent with Order 1000, confer, [00:27:34] Speaker 03: they're gonna be a lot fewer takers, they're gonna be a lot fewer incumbents who wanna exercise their right of first refusal, in which case there will be plenty more projects for us to bid on. [00:27:46] Speaker 03: I think I take it that that's their position and that it's quite redressable. [00:27:51] Speaker 01: I guess I didn't see that position expressed in their briefs, Your Honor. [00:27:55] Speaker 05: Can you go back and just explain how this works? [00:27:58] Speaker 05: So at the first phase, they pick the project. [00:28:02] Speaker 05: And the projects they select in the first phase get cost share, right? [00:28:06] Speaker 05: Cost allocation. [00:28:07] Speaker 01: Right. [00:28:07] Speaker 05: Correct. [00:28:08] Speaker 05: Then they go to the second, and they pick who's going to build it, right? [00:28:12] Speaker 01: Right. [00:28:12] Speaker 05: OK. [00:28:13] Speaker 05: Now if there's an incumbent in a state with a right of first refusal, right? [00:28:17] Speaker 05: And that incumbent is going to get the project, correct? [00:28:26] Speaker 01: If certain requirements are met, yes. [00:28:32] Speaker 05: Well, can a non-incumbent compete against an incumbent in a state with a right of first refusal? [00:28:40] Speaker 01: I think it depends on so this is where we get into what the state law says actually matters and why we haven't addressed that today because we don't have a specific state law that is that we're trying to address here. [00:28:52] Speaker 01: I've seen some state laws that say and I think these are in LS powers statutory addendum that say things like [00:28:59] Speaker 01: if the project is solely located within the utility's retail service territory, then it has, and so that's why I'm saying there do seem to be some limitations on that. [00:29:09] Speaker 05: So is that why the commission's argument is still no injury at this point? [00:29:15] Speaker 05: Right? [00:29:15] Speaker 01: Right, right. [00:29:16] Speaker 05: And that's because of what? [00:29:18] Speaker 01: And that's because [00:29:20] Speaker 01: LS power needs to wait until it has under New York regional interconnect. [00:29:25] Speaker 01: It needs to wait until it has applied for a project and been denied. [00:29:30] Speaker 05: Um, and it applies for a project in a state with a right, a first refusal and the incumbent is also applying. [00:29:41] Speaker 05: Does it have any chance of getting that project? [00:29:46] Speaker 01: subject to whatever, let's just assume that that project falls within whatever the state law provides and then no, probably not. [00:29:53] Speaker 01: And so here's the decision point that they could appeal. [00:29:55] Speaker 05: So it's injured now, it can't apply in any state where there's an incumbent. [00:29:59] Speaker 01: It would be injured at the point where Southwest Power Pool makes the determination that a project will not be put into [00:30:07] Speaker 01: the transmission owner selection process for competition. [00:30:11] Speaker 01: And that's the decision point that Ellen's power could then challenge. [00:30:17] Speaker 03: How is it any riper then than it is now? [00:30:21] Speaker 03: What more facts have been developed at that stage? [00:30:23] Speaker 03: What more do we know about the operation of the rule? [00:30:26] Speaker 03: I mean, as you yourself said, a lot of people will have wasted a lot of time putting bids together and a lot of money putting bids together to get to that stage. [00:30:33] Speaker 03: If we just know as an operation of law, it's going to happen. [00:30:37] Speaker 01: Actually, no bids would have been put together at that point, because what I'm referring to is the point where Southwest Power Pool decides whether or not to put the project into competitive solicitation. [00:30:51] Speaker 01: So if it decides not to put the project into competitive solicitation because an incumbent is exercising a state right of first refusal, then no one would be preparing any bids for that project. [00:31:04] Speaker 03: Presumably that the incumbent will have [00:31:07] Speaker 03: together a package saying we want it and this is what we propose or not? [00:31:12] Speaker 01: The record hasn't really addressed what that process is. [00:31:17] Speaker 01: It could be a notification. [00:31:19] Speaker 01: We know that the state regional state committees, the RSCs, are heavily involved in working with SPP to determine the scope of state law and how that works in that process. [00:31:31] Speaker 01: There's a back and forth with SPP and its various committees to make that decision. [00:31:37] Speaker 01: So, and again, that is the point at which LS Power would be harmed and then could challenge it. [00:31:43] Speaker 03: Going back to the first question about the criteria and whether LSP has standing to challenge them as not sufficiently adhering to the cost priority, the priority that order 1,000 places on the cost to consumers. [00:32:05] Speaker 03: If they had promptly presented the contract on which they were bidding in their opening brief, would that give them standing? [00:32:19] Speaker 01: I don't think so. [00:32:20] Speaker 01: It seems like we may not have enough facts at this point to make the determination about whether that project they bid for is enough to establish injury. [00:32:32] Speaker 01: I'm particularly concerned that that project was ultimately canceled. [00:32:36] Speaker 01: And so that might have rendered, even if they did have standing at that point, that might have rendered the case moot. [00:32:43] Speaker 05: I mean, I thought maybe you were going to say we don't know whether the criteria were [00:32:51] Speaker 01: Well, and that's the other thing. [00:32:52] Speaker 01: Play a role in. [00:32:54] Speaker 01: Right. [00:32:54] Speaker 01: So there should be a report that discusses, I think, how the various bids lined up in that process. [00:33:04] Speaker 01: And Alice Power did not offer any arguments about how the criteria actually impacted its proposal and whether the impacts of the criteria line up with the arguments that it's making concerning the criteria here. [00:33:19] Speaker 01: We just don't know. [00:33:23] Speaker 01: Go ahead. [00:33:25] Speaker 01: Sure. [00:33:25] Speaker 01: I mean, perhaps we should move on to the merits. [00:33:28] Speaker 01: Sure. [00:33:29] Speaker 01: And, you know, I think the key point that I can make on Order 1000 is that Order 1000 was always limited. [00:33:36] Speaker 01: The key paragraph, well, it's actually in a footnote, is footnote note 231 at JA201, which makes very, very clear that state law is not preempted and that federal tariffs cannot create [00:33:52] Speaker 01: a right of first refusal, that's the federal right of first refusal, but references are still allowed. [00:33:58] Speaker 01: And that is really all that the commission has allowed here. [00:34:02] Speaker 03: And when you say references, tell me a little bit more about what FERC understands that to mean. [00:34:13] Speaker 01: exactly what happened here, and that is that the tariff can acknowledge that state law exists and that it has a role. [00:34:24] Speaker 01: What the Commission said is that it does have a role to play in [00:34:30] Speaker 01: in the process. [00:34:31] Speaker 01: And the other point that I wanted to make about order 1000, perhaps even beyond the reference to state law, is that even the limit on the federal right of first refusal, even the prohibition on the federal right of first refusal, was limited. [00:34:51] Speaker 01: And that's something that this court acknowledged to some extent in South Carolina. [00:34:55] Speaker 01: There was always [00:35:00] Speaker 01: The federal right of first refusal was retained for local projects and for certain projects invoking life reliability in Southwest Power Pool in Southwest Power Pool. [00:35:15] Speaker 01: in the orders that are currently here on review and on something that Alice Power does not challenge. [00:35:20] Speaker 01: Reliability projects with a short lead time are still subject to the federal right of first refusal, so Order 1000. [00:35:26] Speaker 02: Maidens upkeep upgrades also? [00:35:29] Speaker 01: Upgrades also, yes. [00:35:30] Speaker 01: Thank you, Your Honor. [00:35:30] Speaker 01: And that's all in South Carolina as well. [00:35:32] Speaker 01: And the point is that Order 1000 was never quite as expansive as I think Alice Power had hoped it might be. [00:35:40] Speaker 01: And that's what we see in the implementation here. [00:35:45] Speaker 03: If, just back to the merits on the five criteria, if the Southwest Powerful had adopted a point system that focused on minimizing the risk that a project would overrun its budget, would that system be consistent with Order 1000? [00:36:06] Speaker 01: It's difficult to say, but that sounds like a very narrow standard. [00:36:09] Speaker 01: The criteria that Southwest Power Pool actually adopted concerned things like reliability and design and other factors that do relate to costs, absolutely, but that take into account other aspects of the developer's knowledge and expertise experience. [00:36:33] Speaker 03: One thing that troubles me about the five criteria is it does seem like there's some double counting in terms of reliability in the [00:36:44] Speaker 03: in the criterion that's the most cost related, and in the criteria as a whole, there are already sort of belt and suspenders on you have to have some assurance against cost overruns and delays, and then the additional criteria seems are justified by the same reasoning. [00:37:04] Speaker 03: And so it seems very, very conservative. [00:37:07] Speaker 03: And just to put it out on the table, the concern I think is that [00:37:11] Speaker 03: FERC is reverting back to a situation in which the tried and true, the experience, those were the track record, AKA the incumbents are the ones that qualify under these criteria because there's so much waiting on avoiding various forms of unknowns or risk. [00:37:34] Speaker 03: Can you respond to that? [00:37:36] Speaker 03: Do you know what I'm referring to about the double counting in the assurances? [00:37:40] Speaker 01: Are you suggesting that there's double counting, let me just see if I can clarify, double counting within the five criteria, or are you referencing the qualification eligibility, that separate process? [00:37:51] Speaker 01: Within the five criteria. [00:37:52] Speaker 01: Within the five criteria. [00:37:54] Speaker 01: Well, one, I don't know that that's an argument that LS Power has made, but setting that aside, [00:38:02] Speaker 01: I do see each of the criteria as quite distinct. [00:38:07] Speaker 01: Reliability, quality, and general design are all one. [00:38:10] Speaker 01: That allows avoiding outages, among other things, which the commission found is directly tied to rates. [00:38:17] Speaker 01: Construction project management, showing that you have experience with that, [00:38:23] Speaker 01: shows that you would be able to avoid delays, which is directly connected to rates. [00:38:28] Speaker 01: Operations, maintenance, and safety. [00:38:31] Speaker 01: Here we're talking about restoring after an outage. [00:38:33] Speaker 01: The commission found that's directly connected to rates. [00:38:38] Speaker 01: And I think it's worth also considering two things in particular. [00:38:42] Speaker 01: One is that the Seventh Circuit did find that the criteria were all directly connected to rates. [00:38:47] Speaker 01: And LS power does not suggest that there's any distinction between the criteria here and those there. [00:38:53] Speaker 03: I guess more particularly what I'm thinking about is in calculating the expected cost, the industry panel is supposed to take all risks into account, so in the expected cost criterion. [00:39:05] Speaker 03: So cost analysis should include consideration of, quote, [00:39:08] Speaker 03: cost certainty. [00:39:10] Speaker 03: And if that's already counted in the cost analysis, then all these other things that you're talking about, risk of outages, project management, those seem to me to be more detailed ways of talking about cost [00:39:24] Speaker 03: So I guess the question is, and this is just sort of pushing what I take to be LSP's argument, they're saying you should be more focused on cost, and you're saying, well, all these other things have to do with cost. [00:39:36] Speaker 03: And maybe to put words into their mouth, they might say, well, in asking for certainty with respect to cost, you've already built in to your cost criterion what they argue are non-cost criteria. [00:39:52] Speaker 03: the general design, the avoidance of outages, the project management, it's gonna be on time. [00:39:57] Speaker 03: Those can be reduced to cost certainty, can they not? [00:40:01] Speaker 01: So if there's a concern that the process is duplicative, I guess the commission's response would be that that doesn't render it arbitrary and capricious or inconsistent with order 1000. [00:40:14] Speaker 03: Let me just push you a little bit more on that and then I'll let you sit down. [00:40:19] Speaker 03: To the extent that you have defended what they call non-cost criteria as in fact cost-related, the argument I take it is if we have unexpert people doing this, if we have poor management, if we have outages, those affect cost, right? [00:40:37] Speaker 03: And we care about that because we care about cost to consumers. [00:40:39] Speaker 03: We care about the quality of service at the cost. [00:40:43] Speaker 03: But if that's true, by your very reasoning, those things affect cost. [00:40:47] Speaker 03: A shorthand way of putting that is they bear on the certainty that that cheap bid that we're getting is real. [00:40:55] Speaker 03: But you've already said we're demanding cost certainty right up front. [00:41:00] Speaker 03: So then that feeds into their argument, yeah, so these are something else. [00:41:04] Speaker 01: I think that if you look at the record and see the discussion that's required from a bidder on each of the criteria, [00:41:11] Speaker 01: the purpose of the other four criteria is to require the developer to fully discuss how it's going to achieve the cost certainty that is required to be addressed in the actual rate analysis criteria. [00:41:28] Speaker 01: So the other point I would want to make is that, just real quickly, the last one, is that LS Power hasn't objected to the inclusion of [00:41:38] Speaker 01: some non-cost criteria to use its own language here. [00:41:42] Speaker 01: And so what we're really looking at then is whether it should be 22% or 75%. [00:41:45] Speaker 01: And to me, and particularly under Niagara Mohawk Power Corporation 452F3 822 at 828, they've already crossed that line in acknowledging that some non-cost criteria are acceptable. [00:42:05] Speaker 01: And then it's up to the Commission's expertise to determine how much. [00:42:08] Speaker 05: Okay. [00:42:09] Speaker 05: Thank you. [00:42:09] Speaker 01: Thank you. [00:42:11] Speaker 05: Mr. Ringelman, I think you are out of time, but we'll give you two minutes if you'd like it. [00:42:16] Speaker 04: I'll be very brief, thank you. [00:42:19] Speaker 04: On the right of first refusal, I think you can see it most clearly in the shift in FERC's language. [00:42:25] Speaker 04: In order 1000, it said reference state law. [00:42:28] Speaker 04: In the second order at JA 2472, it said recognize state law. [00:42:35] Speaker 04: In their brief, they said SPP must comply with state law. [00:42:39] Speaker 04: SPP does not have to comply with state law as to who gets regional cost allocation. [00:42:44] Speaker 04: FERC does, and that's our point. [00:42:46] Speaker 04: On the evaluation criteria, our concern is exactly as was identified. [00:42:52] Speaker 04: There's no substantial evidence. [00:42:54] Speaker 03: Wait a second, you said SPP doesn't have to comply with state law, FERC does? [00:42:59] Speaker 03: Is that your position or is that what you take the compliance order to require? [00:43:04] Speaker 04: I said SPP doesn't have to comply with state law in determining who gets regional cost allocation. [00:43:10] Speaker 04: That's a FERC issue. [00:43:11] Speaker 04: I'm sorry, I was trying to rush and I wasn't clear. [00:43:16] Speaker 04: What I'm saying is, whether it has a competition or not, that's a purely FERC issue. [00:43:23] Speaker 04: It is not a state law issue. [00:43:24] Speaker 04: Yet in their brief, they say SPP must comply with state law. [00:43:28] Speaker 04: SPP's not building a thing. [00:43:30] Speaker 04: It gives nobody a right to build a thing. [00:43:33] Speaker 04: It gives one party a right to regional cost allocation. [00:43:37] Speaker 05: Okay, just explain to us then once more, if they select in the first phase a project for regional cost allocation, right? [00:43:49] Speaker 05: And an incumbent with the state right of first refusal applies, how are you injured? [00:43:56] Speaker 05: Or how can we, not how are you injured, but how can we remedy that injury? [00:44:00] Speaker 05: Well, just answer that one. [00:44:01] Speaker 04: Yes. [00:44:02] Speaker 04: FERC is the only party that can determine who gets regional cost allocation. [00:44:06] Speaker 05: And what they've done is... But if your client can't get the project because there's an incumbent exercising its right of first refusal, [00:44:17] Speaker 05: Even if FERC can't do that, how is your client hard? [00:44:20] Speaker 04: But that's one of the problems we've identified is they've shifted from the state to decide later down the road after somebody has regional cost allocation to STP. [00:44:29] Speaker 04: As was said by FERC's counsel, if STP decides, then we may have an issue. [00:44:36] Speaker 04: But that shifts to the Federal Energy Regulatory Commission and then back up to this court to decide what state law means. [00:44:42] Speaker 05: But how does it harm your client if under state law you can't compete? [00:44:47] Speaker 04: If truly under state law we can't compete, we might not be able to compete. [00:44:57] Speaker 04: I mean, I'm sorry. [00:44:57] Speaker 04: I know you're harmed. [00:44:58] Speaker 04: We're being deprived. [00:44:59] Speaker 05: You're harmed, but what can we do about that? [00:45:01] Speaker 04: You can remove the provision, and then we can get the provision in the tariff that allows SPP to... But FERC says in its order that without regard to that, state law will still govern. [00:45:12] Speaker 04: But it said that in Order 1000 to say, nothing we're doing in Order 1000 is treading on state law. [00:45:19] Speaker 04: Now they're coming back and saying, oh, we can't do that because it would tread on state law. [00:45:23] Speaker 04: It's the exact opposite of what they told this court. [00:45:28] Speaker 05: Do you have one more sentence? [00:45:30] Speaker 05: Two more sentences? [00:45:32] Speaker 05: Go ahead. [00:45:32] Speaker 05: I took up some of your time. [00:45:33] Speaker 04: Go ahead. [00:45:34] Speaker 04: Yeah, I didn't have an opportunity to talk about the evaluation criteria, because we talked... Just take two minutes, or one minute. [00:45:41] Speaker 05: Go ahead. [00:45:41] Speaker 04: Okay. [00:45:41] Speaker 04: On the evaluation criteria, our issue is exactly as was asked FERC about, related to whether or not what are referred to as non-cost criteria, they go back and forth on whether they're cost criteria or non-cost. [00:45:55] Speaker 04: SPP says their cost, down the road actual cost. [00:45:59] Speaker 04: Okay, then they should be measurable. [00:46:01] Speaker 04: And then you can decide based on measurement. [00:46:03] Speaker 04: But then they back away and say that the non-cost categories work to mitigate the uncertainties inherent in the cost estimates. [00:46:11] Speaker 04: And what we're saying is none of those things are measuring things that are relevant to rate pairs, which is what order 1000. [00:46:18] Speaker 04: And the court is correct that the rate category encompasses all of those things. [00:46:23] Speaker 04: Evaluate the developer's cost to construct, own, operate, and maintain the selected product. [00:46:27] Speaker 04: That's in the rate category. [00:46:29] Speaker 04: So what we've asked consistently is, tell us how these other categories relate to that. [00:46:34] Speaker 04: We gave a specific example, none of which FERC replied to. [00:46:38] Speaker 03: What's your best case for the court requiring quantification rather than just non-arbitrary reasoning in its argument that these criteria relate to cost? [00:46:54] Speaker 04: I think the best case is, and we haven't asked for quantification. [00:46:59] Speaker 04: We've asked them to tie it to- Well, you said they should be measurable. [00:47:02] Speaker 04: They should be measurable in a way within first jurisdiction, which means something to rate payers. [00:47:08] Speaker 03: Well, I think their judgment is, and I have to say it's hard to question that, their judgment is things like experience, reliability, do cash out. [00:47:18] Speaker 03: I mean, if I'm a customer and I'm hiring someone to do some construction work, I don't just look at the bottom line number. [00:47:24] Speaker 03: I look at all those other kinds of things because otherwise I'm gonna end up [00:47:28] Speaker 03: with a mess. [00:47:30] Speaker 03: And so to the extent that that's their reasoning and you're pushing on that reasoning, you're saying, no, it has to be measurable. [00:47:36] Speaker 03: And maybe it's illuminating that I said quantifiable and you said no. [00:47:42] Speaker 03: What do you mean? [00:47:43] Speaker 04: What we are saying is it needs to be measurable in some way. [00:47:47] Speaker 04: What FERC's jurisdiction is limited, and this court said an agency would be arbitrary and capricious if it relied on factors outside that Congress didn't intend. [00:47:58] Speaker 04: Congress intended rates and matters affecting rates. [00:48:01] Speaker 04: And so what we're saying is tell us how these things affect rates. [00:48:06] Speaker 04: And then what the criteria are supposed to do is measure the relative difference between people as to how they affect rates. [00:48:13] Speaker 04: And that's the quantification. [00:48:14] Speaker 04: It's in their own rule. [00:48:15] Speaker 04: measure the relative economics. [00:48:18] Speaker 03: Isn't that just going to be somewhat, it's going to be measurable, but it's going to be in a more anecdotal, more qualitative way. [00:48:24] Speaker 03: This person has 15 years of experience and only one disaster. [00:48:28] Speaker 03: This other party has 10 years of experience, but has never had any mishaps, and you don't know in advance what you mean. [00:48:34] Speaker 04: But does any of that make a difference to rate payers? [00:48:38] Speaker 04: Yeah. [00:48:39] Speaker 04: It can. [00:48:40] Speaker 04: But the question is, is there a way to review that so that it does? [00:48:44] Speaker 04: And the problem in this case, there's no substantial evidence that they're going to review it in a way that it actually does have an impact on rate payers. [00:48:51] Speaker 04: And that's our whole thing. [00:48:52] Speaker 04: This is a substantial evidence. [00:48:54] Speaker 04: All we've asked is to send it back to FERC to get the substantial evidence. [00:48:59] Speaker 04: OK. [00:48:59] Speaker 04: Thanks.