[00:00:02] Speaker 04:
Case number 17, that's 1275.

[00:00:39] Speaker 02:
This case is about presumptions.

[00:00:54] Speaker 02:
Under Section 205, the utility has the right to state the rate it demands for its services.

[00:00:59] Speaker 02:
And if someone thinks the utility should demand a different rate, they must first persuade FERC that the utility's rate is not just or reasonable.

[00:01:06] Speaker 02:
The scheme that FERC has approved for the New England capacity market turns Section 205 upside down.

[00:01:12] Speaker 02:
Under FERC's scheme, the utility must submit its bid, its demand, for review by the market monitor, who is a private contractor employed by the market operator of the ISO.

[00:01:22] Speaker 02:
The market monitor then reviews all of the costs and assumptions that underlie the utility's bid,

[00:01:27] Speaker 02:
and it can reject the rate demanded by the utility and submit a different bid to FERC under Section 2 of that.

[00:01:32] Speaker 03:
Council, may I ask a couple questions regarding your brief?

[00:01:37] Speaker 03:
In page 12, you say if the plant's capacity market revenues are sufficiently high to cover the power plant's costs, less whatever revenue the power plant anticipates from other sources, the power plant would continue to operate.

[00:01:51] Speaker 03:
Didn't you mean plus whatever revenue the power plant anticipates from other sources?

[00:01:56] Speaker 02:
No, Your Honor.

[00:01:57] Speaker 02:
So the way capacity market bids work essentially is that the capacity revenue is designed to make the plant whole sufficient to recover its costs after accounting for revenue that the plant receives from other markets such as the actual sale of its electricity.

[00:02:12] Speaker 03:
Yes, so that would be plus whatever revenue the power plant anticipates from other sources, not less.

[00:02:17] Speaker 02:
No, because when the plant makes its bid, it says, OK, I'm going to get this much revenue from another source, and then this is the amount left that I need to recover in order to make sure I cover my costs.

[00:02:26] Speaker 02:
And that remainder is the amount that I'm going to demand from the capacity mark.

[00:02:29] Speaker 03:
But economically, if the plant's capacity mark revenues are sufficiently high to cover the power plant's costs, let's suppose they're not.

[00:02:39] Speaker 03:
Oh, are you saying they have to be

[00:02:42] Speaker 03:
adequate to cover the power plant's costs without regard to whatever revenue the power plant gets from other sources?

[00:02:48] Speaker 03:
No, Your Honor.

[00:02:49] Speaker 03:
So then that's got to be plus because you're going to stay in business.

[00:02:52] Speaker 03:
If you get $10 from

[00:02:57] Speaker 02:
Let me provide an example and that would help.

[00:02:59] Speaker 02:
So let's suppose that my costs are $10 and I look forward and expect that from the actual sale of my electricity I'll receive $5 from the energy market later on.

[00:03:09] Speaker 02:
Well now I have $5 of cost that I haven't been able to

[00:03:12] Speaker 02:
sort of anticipatorily recover from the energy market.

[00:03:15] Speaker 02:
And so my bid for the capacity market will reflect that gap.

[00:03:18] Speaker 02:
So you've got $5.

[00:03:19] Speaker 02:
So I've got $5 left.

[00:03:20] Speaker 03:
And that's why it's... So five and five is plus, not less.

[00:03:23] Speaker 02:
Well, it costs the $10 less the expected revenues of $5 equals $5, which is the remaining money it needs from the capacity market.

[00:03:30] Speaker 03:
We're probably saying the same thing.

[00:03:31] Speaker 03:
I still think it's plus.

[00:03:32] Speaker 03:
Now, there's another problem I have in your brief, which I think is almost a little slippery.

[00:03:37] Speaker 03:
You talk at one point in your brief, you refer to the burden of proof

[00:03:42] Speaker 03:
in 205 and 206 as the burden of proof.

[00:03:47] Speaker 03:
And in fact, the burden of proof is different in 205 than it is in 206.

[00:03:54] Speaker 03:
And your brief treats them as if they're the same.

[00:03:58] Speaker 03:
Well, I think what... It is true.

[00:04:00] Speaker 03:
They're different.

[00:04:01] Speaker 03:
The burden of proof is on you in 205 and on the government in 206.

[00:04:07] Speaker 02:
That's right.

[00:04:09] Speaker 03:
And you suggested it was the same burden.

[00:04:11] Speaker 02:
Well, under Section 205, Your Honor, when we come in with a rate, we need to establish that it's just and reasonable.

[00:04:17] Speaker 02:
That's right.

[00:04:17] Speaker 02:
But as long as it's within the zone of reasonable... Oh, no, I know that.

[00:04:20] Speaker 03:
I'm just talking about burden of proof.

[00:04:22] Speaker 02:
That's right.

[00:04:22] Speaker 03:
It's our burden to establish... In your brief, you suggested the burden of proof was on the government in both cases, and it's not so.

[00:04:29] Speaker 03:
The burden of proof

[00:04:31] Speaker 03:
is on the government in 2006, but the burden of proof is on you in 2005.

[00:04:35] Speaker 02:
That's true, except in this sense, Your Honor, which is that if the agency doesn't make any finding of unjustness... That goes to the rule, that doesn't go to the burden of proof, that goes to the standard.

[00:04:46] Speaker 02:
You misstated the burden of proof.

[00:04:47] Speaker 02:
OK, well, I apologize, Your Honor.

[00:04:49] Speaker 02:
Certainly what I mean is that under Section 205, the utility's rate, so long as it's within the zone of reasonableness, is accepted as a just and reasonable rate, even if it's not the most reasonable or the best or the most accurate under Section.

[00:05:01] Speaker 02:
Unless there's.

[00:05:02] Speaker 02:
That goes to the standard, not the burden of proof.

[00:05:04] Speaker 02:
Fair enough, Your Honor.

[00:05:06] Speaker 01:
I don't understand the government to contest that it's advantageous for you to be under 205

[00:05:15] Speaker 01:
and get the benefit of merely having to establish that it's within that realm of reasonableness.

[00:05:22] Speaker 02:
I agree, Your Honor.

[00:05:23] Speaker 02:
The government does not convince that.

[00:05:24] Speaker 01:
But maybe the government will have a chance to speak to that.

[00:05:28] Speaker 02:
Well, we're happy to provide the assumptions and methodologies that support our bid and our rate demanded and

[00:05:36] Speaker 02:
and have that be subject to the commission's review.

[00:05:39] Speaker 02:
That's what we're asking.

[00:05:39] Speaker 03:
There's another question I have about the brief.

[00:05:41] Speaker 03:
There is a dispute between the parties as to what happens in the situation.

[00:05:47] Speaker 03:
Your hypothetical in which there you bid 15.

[00:05:52] Speaker 03:
The monitor says eight is all you're entitled to.

[00:05:58] Speaker 03:
And the clearing price is 10.

[00:06:01] Speaker 03:
That's your hypothetical.

[00:06:03] Speaker 02:
That's right.

[00:06:05] Speaker 03:
Now, you said in your brief under those circumstances, you're out.

[00:06:11] Speaker 03:
You can't any longer participate because the clearing price is below the bid that you put in.

[00:06:21] Speaker 03:
The government said not true.

[00:06:22] Speaker 03:
You have an option.

[00:06:23] Speaker 03:
You could have actually agreed to sell capacity at 10.

[00:06:29] Speaker 02:
I don't think there's a dispute about that.

[00:06:31] Speaker 02:
Let me clarify any misunderstanding.

[00:06:33] Speaker 03:
I'm sure as hell there's a dispute in the briefs.

[00:06:35] Speaker 02:
Well, we're not out in the sense that we could go ahead and accept the eight.

[00:06:39] Speaker 03:
Well, no, no, you said under the rules of the ISO, you're out.

[00:06:42] Speaker 03:
No, under the rules of the ISO, we can accept the eight.

[00:06:45] Speaker 03:
Wait a minute.

[00:06:46] Speaker 03:
Did you not say in the brief under the rules of the ISO, you're out?

[00:06:50] Speaker 03:
I don't have it right in front of me, but I'm certain you said it.

[00:06:54] Speaker 02:
Well, I'm not sure which passage your honor is referring to.

[00:06:59] Speaker 02:
My explanation is that we can accept the eight, but the point is that it's way more thicker.

[00:07:07] Speaker 03:
Wait a minute.

[00:07:08] Speaker 03:
Are you saying that, unfortunately, I don't have the page in front of me, but I'm actually certain you said, you said twice in your brief that under the rules of the ISO,

[00:07:21] Speaker 03:
You must leave the market at that point.

[00:07:24] Speaker 03:
Because it's way below what our... No, no, okay.

[00:07:26] Speaker 03:
Then you said you must leave.

[00:07:27] Speaker 03:
The government says that's not true.

[00:07:30] Speaker 03:
You have an option of taking the $10 price.

[00:07:32] Speaker 02:
Well, I think the passenger, Your Honor, Mr. Frank, is on page 21.

[00:07:36] Speaker 02:
We say if the auction is run with that $8 proxy bid, the fourth and final bid selected in the auction will be the $10 bid, along with the $3 and $6 bids in the $8 proxy bid, and so we'll set the clearing price at $10.

[00:07:48] Speaker 02:
The plant would be forced to retire since $10 is less than the supplier's original $15 bid.

[00:07:52] Speaker 02:
And what we mean by that is it's not what the stand understands it's cost to be.

[00:07:56] Speaker 03:
Well, but elsewhere you said it actually under the rules of the ISO.

[00:08:02] Speaker 03:
You had to put it.

[00:08:03] Speaker 03:
You couldn't.

[00:08:04] Speaker 02:
Am I not correct?

[00:08:07] Speaker 02:
It may be.

[00:08:09] Speaker 02:
OK, I see the sentence you're referring to on page 20, Your Honor.

[00:08:15] Speaker 02:
I apologize, that's not accurate.

[00:08:18] Speaker 02:
The rule is we can accept the $8, but it's way below our cost, and so we will retire.

[00:08:24] Speaker 00:
So I read it the same way Judge Silverman did.

[00:08:28] Speaker 00:
So just to make sure we understand, you put in a retirement bid of $100, let's say, and the proxy comes in and says, no, no, an appropriate bid would be $50.

[00:08:46] Speaker 00:
and the market clears somewhere in between.

[00:08:50] Speaker 00:
Do you have or not have the option at that point of saying, OK, I know we bid $100, but on reflection and considering what the market monitor said and the proxy calculation, we're OK with $50.

[00:09:08] Speaker 00:
We'll take $50.

[00:09:09] Speaker 02:
We do have that option, Your Honor.

[00:09:11] Speaker 03:
Well, no, no, no.

[00:09:12] Speaker 03:
It's just that flatly false statement in the brief.

[00:09:14] Speaker 03:
Well, I apologize.

[00:09:15] Speaker 03:
And I'll tell you why that was relevant, because it went to your injury.

[00:09:18] Speaker 00:
Hugely relevant.

[00:09:19] Speaker 00:
Yeah.

[00:09:20] Speaker 02:
Well, it doesn't go to her.

[00:09:21] Speaker 02:
Let me explain why that doesn't make a difference.

[00:09:23] Speaker 02:
Because Section 205 applies to rates that we demand, Your Honor.

[00:09:28] Speaker 02:
It applies to rates we demand.

[00:09:30] Speaker 02:
And so not only rates we receive, but also rates we demand.

[00:09:33] Speaker 03:
I asked about your injury.

[00:09:35] Speaker 02:
Well, our injury comes from the fact that we're forced to go ahead and submit a... Wait a minute, wait a minute, wait a minute.

[00:09:44] Speaker 03:
You have an option.

[00:09:45] Speaker 03:
You could have, you could have, you could buy at 10.

[00:09:51] Speaker 02:
But, Your Honor, that option presents us with the choice of either retiring or selling below our costs at a loss.

[00:09:57] Speaker 03:
That's not an option.

[00:10:02] Speaker 02:
But that's the whole point of this case, which is, as long as our costs are just and reasonable, our costs should be given precedence.

[00:10:09] Speaker 02:
and reflected in the supply stack of bids that go into the auction.

[00:10:13] Speaker 00:
That's the point of the case, is that the market monitor and us may have very different... For purposes of standing, let's just talk about standing for a second before we get to the merits.

[00:10:27] Speaker 00:
I thought your best theory was this scenario that these rules could under some circumstances force you to retire a plant that you think is profitable.

[00:10:46] Speaker 00:
I don't see how that happens given what you just told us that you always have the option of adjusting your bid to account for

[00:10:55] Speaker 00:
what the monitor says and what the proxy bid is.

[00:10:58] Speaker 02:
Let me, I think the example on page 21 and 22 in the diagrams will help explain.

[00:11:03] Speaker 02:
Okay, in the example.

[00:11:05] Speaker 03:
You're being asked now for the injury, not the claim.

[00:11:08] Speaker 02:
I understand.

[00:11:09] Speaker 02:
Yes, Your Honor, and I'm going to explain the injury.

[00:11:11] Speaker 02:
So on page 21, you see this is what the supply curve would look like.

[00:11:18] Speaker 02:
What the supply curve would look like if

[00:11:21] Speaker 02:
our own assessment of our costs were entered into the auction.

[00:11:27] Speaker 02:
And you see that we would clear the market.

[00:11:28] Speaker 02:
We would be the marginal unit setting the market price that we would clear at a price of $15.

[00:11:34] Speaker 02:
But what happens under the ISO New England scheme is that instead the market monitor has a different conception of what our costs should be and replaces our bid with the proxy bid.

[00:11:42] Speaker 02:
And you can see what that looks like on page 22.

[00:11:45] Speaker 02:
The proxy offer is D, so it moves us from being sort of the market clearing resource at the margin to now being inside the supply curve.

[00:11:56] Speaker 02:
And the market now clears at $10 instead of $15.

[00:11:59] Speaker 02:
There was a buyer willing to pay $15 for our capacity.

[00:12:02] Speaker 02:
But now the market clears at $10, and because now we could accept that $10 price, but accepting that $10 price means that we're out, under our understanding of our costs, $5.

[00:12:13] Speaker 02:
We're going to lose money.

[00:12:15] Speaker 02:
Why would we want to agree to a deal where we lose money?

[00:12:19] Speaker 02:
So under that situation, we make the decision to retire our unit.

[00:12:22] Speaker 02:
That is our injury.

[00:12:25] Speaker 01:
Your injury is an inferior injury in the sense that if you know that the market clearing price is going to be determined by essentially the accumulation of proxy bids, at least it's going to be affected by the proxy bids as well as bids that haven't been changed by the market monitor, you have to hedge what you do bid

[00:12:54] Speaker 01:
in light of that possibility.

[00:12:58] Speaker 01:
Well, certainly the possibility, absolutely, that prospect doesn't... It pushes you down, as you see it, to a lower place in the range of just and reasonable.

[00:13:09] Speaker 02:
That is true too, Your Honor, yes.

[00:13:11] Speaker 01:
And that's happening the entire period that this rule is in effect.

[00:13:17] Speaker 01:
That's true too, Your Honor, yes.

[00:13:20] Speaker 02:
I think it would be helpful to explain what exactly more concretely goes on when we submit a bid and the market monitor then reviews that bid.

[00:13:30] Speaker 00:
Can I just ask you one nuts and bolts question, which is how many of these bids are retirement delist bids as opposed to just bids?

[00:13:43] Speaker 02:
I don't know the answer to that question, Your Honor.

[00:13:47] Speaker 00:
Is it possible to just bid to say, I will sell X amount of capacity at Y price, but I'm not threatening or raising the possibility of taking my plant out of capacity?

[00:14:03] Speaker 02:
That would be known as a static delist bid.

[00:14:05] Speaker 02:
It's a different kind of bid.

[00:14:07] Speaker 02:
So retirement bids are one type of bid.

[00:14:09] Speaker 02:
Static delist bids are another type of bid where there's no retirement possibility involved.

[00:14:13] Speaker 02:
But under this scheme, the ISO and FERC wants clients that are planning to retire if they don't receive the amount of money to make that claim.

[00:14:21] Speaker 00:
Do we know anything about what percentage of bids fall into which category?

[00:14:26] Speaker 02:
In the market as a whole, I don't know.

[00:14:28] Speaker 00:
How about for your client?

[00:14:29] Speaker 02:
For my client, again, that information would be, I think, business sensitive.

[00:14:36] Speaker 00:
Fair enough.

[00:14:37] Speaker 00:
But the reason I ask is if we're in a world where

[00:14:42] Speaker 00:
You know, your client has only one plant that's on the very front end of a 50-year anticipated life cycle, right?

[00:14:53] Speaker 00:
The injury of you might be, you know, you might be soon making retirement bids which might be skewed by the system and might cause an imminent injury seems a lot less likely than

[00:15:09] Speaker 00:
the opposite extreme where all or most bids are retirement bids and you have plants that are near the end of the life cycle.

[00:15:19] Speaker 00:
It just seems the standing is a little fuzzy here.

[00:15:21] Speaker 02:
I can say to Your Honor that we do have several units that are near the end of their life cycle and are nearing retirement, including one where retirement is actually pending.

[00:15:30] Speaker 02:
And so this is, I mean the reason I'm here and the reason we're bothering to bring this petition for review is because it's important to my clients.

[00:15:36] Speaker 00:
I understand, but it is your burden to show standing and we don't know a whole lot about the particulars of your client's situation.

[00:15:46] Speaker 02:
I understand that and if the court would like me to supplement with affidavits after argument, I'm happy to do that.

[00:15:52] Speaker 02:
Obviously standing wasn't contested by FERC or we would have put in more information regarding those details.

[00:15:57] Speaker 02:
But again, I think the point is,

[00:15:59] Speaker 02:
You never know for sure whether you're going to be the marginal unit.

[00:16:01] Speaker 02:
That's sort of the problem, right?

[00:16:03] Speaker 02:
You sort of have to think, well, I'm an expensive plant relative to the market.

[00:16:08] Speaker 03:
How many plants do you have in the geographical area we're talking about?

[00:16:13] Speaker 02:
Less than a dozen, Your Honor, I believe.

[00:16:15] Speaker 02:
I could get the exact figure from my plant.

[00:16:19] Speaker 02:
But the point is that there are some major plants which are really nearing the end of their life.

[00:16:24] Speaker 02:
And these are relevant to our business plan.

[00:16:27] Speaker 03:
Before the agency, your brief suggested that you were not the only power plant that took the same position.

[00:16:39] Speaker 02:
There were other generators that also took the same position in the rehearing petition.

[00:16:43] Speaker 02:
That's correct, Your Honor.

[00:16:47] Speaker 02:
I'm happy to explain if it would be helpful how the bid

[00:16:50] Speaker 02:
sort of the process works for the market.

[00:16:53] Speaker 02:
In other words, you review if that would be helpful to the court.

[00:16:55] Speaker 02:
I recognize that.

[00:16:56] Speaker 03:
Wait, you have to explain it in your brief, I think.

[00:16:59] Speaker 02:
Haven't you?

[00:16:59] Speaker 03:
Is there something you haven't explained in your brief?

[00:17:02] Speaker 02:
I think the brief does explain the case.

[00:17:04] Speaker 02:
I was just going to sort of go through and explain the types of factors and the kind of reasonable business judgment that is involved in the submission of the bid to the market manner, such as what you think energy market revenues are likely to be three years from now.

[00:17:19] Speaker 02:
what you think, how often you think your plan is going to be out of service, whether you think that there's certain capital expenditures that you're going to need to make in three years, how long those expenditures should be depreciated over, what your risk of having performance penalties assessed on you if you happen to be out during a cold snap or a very hot period, and also how you value risk, which is very important.

[00:17:40] Speaker 02:
And FERC recognizes how you value risk, the risk of things being not as you expect.

[00:17:45] Speaker 02:
And FERC recognizes that these are

[00:17:47] Speaker 02:
these range of assumptions can all be reasonable and there could be the very subjective.

[00:17:52] Speaker 00:
Reasonable minds can differ.

[00:17:53] Speaker 02:
Absolutely, and that's precisely why Section 205 gives the utility the benefit of a rule which says when they're reasonable we respect the utility's judgment about the rate that emerges from those assumptions.

[00:18:05] Speaker 00:
So turning to the merits, is there any

[00:18:11] Speaker 00:
Is there any precedent for applying, for treating as a rate demanded under Section 205, not the end result, the rate that is the end result of an auction or negotiation, but as it were, an opening bid?

[00:18:30] Speaker 02:
Well, I, in terms of cases, I don't think this issue's been litigated before, but I would just point the court to the statute, which says all rates in charge is made, demanded, or received by any public utility.

[00:18:41] Speaker 00:
The amount paid by the auction is the rate received, but the statute... I understand your textual argument, and it's a pretty good one, but it does seem inconsistent with how the system operates.

[00:18:56] Speaker 02:
Well, I don't think so, Your Honor.

[00:18:57] Speaker 00:
I mean, take a case.

[00:19:00] Speaker 00:
Suppose we're in Mobile Sierra territory, and you just have two parties negotiate, a buyer and a seller negotiating a rate.

[00:19:11] Speaker 00:
And they're sophisticated parties, right?

[00:19:13] Speaker 00:
And the seller thinks the high end of the just and reasonable rate is 100.

[00:19:23] Speaker 00:
And that's where I want to end up.

[00:19:25] Speaker 00:
So I'm going to make an opening bid to my opponent.

[00:19:28] Speaker 00:
I'll say, I'll sell it to you for 120.

[00:19:29] Speaker 00:
And that's as part of a negotiation strategy to end up at 100.

[00:19:35] Speaker 00:
And let's assume 100 would be the top of the just and reasonable rate requirement.

[00:19:41] Speaker 00:
Does anyone think that that opening bid of 120 violates Section 205 because it is a rate demanded that is not just and reasonable?

[00:19:54] Speaker 02:
Well, I think that

[00:19:57] Speaker 02:
I don't know that that's come up before either of you.

[00:19:59] Speaker 00:
I don't know.

[00:20:00] Speaker 00:
That's the import of your theory.

[00:20:01] Speaker 02:
Well, I think it would be.

[00:20:04] Speaker 02:
It would violate.

[00:20:05] Speaker 02:
I mean, it could be reviewed under Section 205.

[00:20:07] Speaker 02:
It would be odd.

[00:20:08] Speaker 02:
I think FERC could take disciplinary action.

[00:20:10] Speaker 00:
FERC could take whatever authority they have against someone who negotiates in that way.

[00:20:17] Speaker 02:
I would imagine so.

[00:20:19] Speaker 02:
I don't know that that's ever heard.

[00:20:20] Speaker 01:
Is there anything to review at all until the parties reach a contract?

[00:20:26] Speaker 02:
Well, no, because Section 205 involves the submission of information to FERC for FERC then to review.

[00:20:32] Speaker 02:
And so the kind of negotiation you're talking about happens outside the context of FERC actually looking at supporting documents and assumptions and methodologies to support what's submitted to it.

[00:20:41] Speaker 00:
Now, I think what... It suggests to me that rate demanded might be the rate

[00:20:47] Speaker 00:
that settled on at the end of the negotiating process rather than something at the beginning.

[00:20:54] Speaker 00:
It's just another way of expressing FERC's input theory.

[00:20:58] Speaker 02:
I don't think so, again, because that would also be the rate received.

[00:21:02] Speaker 02:
And so the statute obviously covers both and must admit different things by both.

[00:21:06] Speaker 02:
But the other point I'd make about that is that FERC itself recognizes that these bids are submitted to it under Section 205.

[00:21:13] Speaker 02:
I mean, that's the problem here, in a sense,

[00:21:16] Speaker 02:
these bids are submitted in a Section 205 filing.

[00:21:20] Speaker 02:
And so there's, I think, an internal contradiction in FERC's argument.

[00:21:23] Speaker 02:
How can these bids be submitted pursuant to Section 205, yet somehow be outside the scope of Section 205?

[00:21:28] Speaker 03:
I think your answer to Judge Katz's hypothetical is that the negotiating position would not be a demand.

[00:21:36] Speaker 03:
That may be one way to put it.

[00:21:40] Speaker 02:
I mean, a demand is something that's actually filed.

[00:21:42] Speaker 02:
Section 2.5 covers the things that are filed at FERC.

[00:21:44] Speaker 02:
And so a negotiating demand that's happening outside that context wouldn't constitute demand in that sense.

[00:21:51] Speaker 03:
It has to be right.

[00:21:52] Speaker 03:
Otherwise, your whole case would collapse.

[00:21:56] Speaker 01:
One of other things would happen that would have to be FERC review.

[00:22:02] Speaker 01:
of every step of negotiations between a supplier and a buyer.

[00:22:07] Speaker 02:
And for interference in that process in a way that's inconsistent with the whole idea of bilateral negotiations.

[00:22:12] Speaker 00:
So why isn't the bid that we're talking about here more akin to an opening offer rather than like in a traditional tariff filing or mobile sierra, just the filed rate

[00:22:31] Speaker 02:
Well, because in this case, there's no negotiation.

[00:22:33] Speaker 02:
The bidder has every incentive to offer what in economics would be known as its reservation price.

[00:22:39] Speaker 02:
That is the minimum it's willing to accept for the product.

[00:22:43] Speaker 02:
Otherwise, it could end up offering too high and then discovering, oh, whoops, the auction ended up clearing below my bid.

[00:22:48] Speaker 02:
I wish I had offered lower.

[00:22:49] Speaker 02:
So no bidder wants to do that.

[00:22:51] Speaker 02:
And so the bidder has every incentive to offer its true assessment of the minimum it needs in order to remain in service.

[00:22:57] Speaker 03:
Your position would be, excuse me, your position

[00:23:01] Speaker 03:
in response to Judge Katz's would be a lot stronger if your brief was correct rather than false with respect to whether or not you could continue to enjoy the clearing price if it was below your opening position.

[00:23:21] Speaker 03:
In other words, the way you wrote the brief would have been you would have had a better answer to Judge Katz's than the fact that in the truth.

[00:23:30] Speaker 03:
Because, as it is, your bid, which is your opening position, is not your final position even as demand.

[00:23:40] Speaker 03:
Because you could, yes, the second rate, which is below your opening bid, can also be thought of as both the demand and the receiving price, right?

[00:23:52] Speaker 03:
Well, no, Your Honor, and again, I apologize about the brief.

[00:23:54] Speaker 03:
You had two demands.

[00:23:55] Speaker 03:
You had two demands.

[00:23:56] Speaker 03:
First demand was rejected.

[00:23:59] Speaker 03:
By the law of the second demand, it's been accepted.

[00:24:02] Speaker 02:
No, we have one demand.

[00:24:04] Speaker 02:
And then the market monitor replaces that demand with its own bid.

[00:24:07] Speaker 03:
Do you understand my question?

[00:24:08] Speaker 03:
Hypothetically, you had a second demand, too, didn't you?

[00:24:11] Speaker 02:
No, it's not our demand.

[00:24:12] Speaker 02:
It's the market monitor's demand.

[00:24:13] Speaker 02:
And it's true that the market rules allow us to essentially take that price if we have some sort of a second thought about, well, maybe our costs are actually lower.

[00:24:22] Speaker 02:
But then it would be a demand, wouldn't it?

[00:24:24] Speaker 02:
Well, in that case, it would be a demand, but we're not going to make that demand because it's below what we think our costs are.

[00:24:31] Speaker 02:
In our example, we wouldn't have said our costs are 15.

[00:24:35] Speaker 02:
That's what we want to do.

[00:24:35] Speaker 03:
It's a practical matter to destroy your credibility if you did.

[00:24:39] Speaker 02:
No, it's not about a practical matter, Your Honor.

[00:24:41] Speaker 02:
It's about our assessment of all these factors involving business judgment.

[00:24:45] Speaker 02:
that involve reasonable disagreement about how to value risk and what the future will hold in terms of prices, that informs our bid, and that's our understanding of what our costs are.

[00:24:55] Speaker 02:
And if the market clears below that, we don't want to accept, we'll retire.

[00:24:58] Speaker 02:
That's the whole point of offering that bid.

[00:25:04] Speaker 02:
So the fact that the market monitor, we could accept

[00:25:07] Speaker 02:
The lower market clearing price that results from the inclusion of the proxy bid is cold comfort.

[00:25:13] Speaker 02:
It doesn't help us because below what we subjectively understand our cost to be.

[00:25:17] Speaker 02:
And if our subjective understanding is a reasonable one, the statute requires that it be accepted without regard to whether the market monitor thinks differently.

[00:25:24] Speaker 02:
And that's the fundamental issue in the case.

[00:25:26] Speaker 00:
Can I ask another nuts and bolts question?

[00:25:29] Speaker 00:
My understanding of how the auctions, the ISO

[00:25:35] Speaker 00:
actually asks suppliers, and I can't tell if this happens all at once or iteratively over time, but the ISO asks a series of questions to the effect of how much capacity are you willing to sell at price number one, price number two, price number three, et cetera,

[00:26:03] Speaker 00:
And when you bid on this, you say, well, I'll sell 100 units at 100, 90 units at 90, 80 units at 80, and so on, right?

[00:26:12] Speaker 00:
Is that a fair summary of how things work?

[00:26:17] Speaker 02:
Roughly.

[00:26:18] Speaker 02:
My understanding is with respect to retirement bids, the bids need to be announced in advance to the market monitor.

[00:26:23] Speaker 02:
That's the whole premise here.

[00:26:26] Speaker 02:
The bids need to be submitted in advance to the market monitor and reviewed.

[00:26:30] Speaker 02:
So they're announced in advance.

[00:26:33] Speaker 00:
But if the normal, if the bidding works in that way, under your theory, why wouldn't all of those bids, why wouldn't all of those numbers be bids offered?

[00:26:49] Speaker 00:
I'm sorry, rates demanded.

[00:26:53] Speaker 00:
I'm sorry.

[00:26:53] Speaker 00:
Your client says, well, I'll sell 100 units at 100 and 90 units at 90.

[00:27:00] Speaker 00:
and 80 units at 80.

[00:27:03] Speaker 00:
If rates demanded just means any number that the seller tenders in the course of doing this auction before the market clearing price is established, we seem to cover all of those.

[00:27:23] Speaker 02:
If those offers are indeed then submitted to FERC in a filing of some kind,

[00:27:28] Speaker 02:
They would be rates, yes, rates demanded.

[00:27:32] Speaker 02:
Perhaps I'm not understanding.

[00:27:34] Speaker 01:
This would occur in a case of multiple plants or in a case in which, depending on the level of production, the cost and therefore the rate demanded would be different layer by layer.

[00:27:54] Speaker 01:
I meant the latter.

[00:27:56] Speaker 02:
Where the cost of production would be different layer by layer.

[00:27:59] Speaker 02:
Is that the hypothetical?

[00:28:01] Speaker 00:
One plant, how much are you willing to supply?

[00:28:06] Speaker 00:
And your answer depends on the price.

[00:28:09] Speaker 00:
You get different answers depending on the price.

[00:28:12] Speaker 02:
Because there might be different marginal cost of production, different price level.

[00:28:15] Speaker 00:
Yeah, you're willing to sell more as the price goes up.

[00:28:18] Speaker 02:
Well, each of those would be rates.

[00:28:19] Speaker 02:
Each of those would be rates demanded for that quantity of capacity.

[00:28:22] Speaker 02:
That's correct.

[00:28:24] Speaker 00:
And therefore, each would be subject to 205.

[00:28:28] Speaker 00:
Not just 205 protection, but 205 restrictions, which is that each of those has to be just and reasonable.

[00:28:36] Speaker 02:
Well, the way FARC handles this in the ordinary course in these types of markets is that sellers have market-based tariffs, which is essentially ex ante approval that allows them to make

[00:28:46] Speaker 02:
whatever offers they like in the context of the market, assuming that competition disciplines those offers and prevents the exercise of market power.

[00:28:54] Speaker 02:
So yes, they're all subject to Section 205 in the sense that they're all authorized in advance by a market-based tariff that allows these bids to be made without actually having to go to FERC and submit your bids for FERC to review.

[00:29:10] Speaker 02:
There are no further questions.

[00:29:11] Speaker 00:
Anything else?

[00:29:13] Speaker 00:
OK.

[00:29:13] Speaker 00:
We'll give you some rebuttal.

[00:29:25] Speaker 05:
Good morning.

[00:29:26] Speaker 05:
I'm Carol Banta for the Commission.

[00:29:28] Speaker 05:
I definitely want to get to the retirement options, but I think it would be useful for you to start with the nuts and bolts.

[00:29:34] Speaker 05:
In this market, there are certain administratively determined benchmarks that are FERC approved in advance.

[00:29:44] Speaker 05:
They're in the tariff.

[00:29:47] Speaker 05:
they're based on cost of new entry.

[00:29:49] Speaker 05:
And there's a benchmark, I don't remember what it is right now, when the market started it was 0.8 times the cost of new entry.

[00:29:55] Speaker 05:
It's changed every three years and this court has dealt with that in the 2014 New England power generators case.

[00:30:03] Speaker 03:
The benchmark is sort of the opening price for the auction?

[00:30:07] Speaker 05:
Well they're kind of guardrails.

[00:30:08] Speaker 05:
It's a benchmark below which we're not concerned about potentially non-competitive behavior.

[00:30:15] Speaker 05:
Now there's a minimum offer price rule

[00:30:17] Speaker 05:
There are floors and ceilings for different kinds of bids.

[00:30:20] Speaker 05:
All of it is administratively determined.

[00:30:22] Speaker 03:
But when you use the term benchmark, it would be nice if you explained what you meant.

[00:30:25] Speaker 05:
OK.

[00:30:26] Speaker 05:
I'm sorry.

[00:30:26] Speaker 05:
It's a threshold.

[00:30:27] Speaker 05:
It's a threshold.

[00:30:27] Speaker 03:
That's what I thought.

[00:30:28] Speaker 05:
If you're looking to bid below that threshold, no one will ever look at that.

[00:30:32] Speaker 05:
It's called the dynamic D-list.

[00:30:34] Speaker 05:
You're free to do what you want below that threshold.

[00:30:38] Speaker 00:
When you want to bid... So if a bidder comes in

[00:30:43] Speaker 00:
with a retirement bid below that threshold, there is no risk of a market monitor snooping around and saying, no, no, no, I think it's really a lot.

[00:30:53] Speaker 05:
The tariff specifies that bids under the dynamic D-list thresholds are not subject to this review of retirement bids.

[00:31:00] Speaker 05:
Now, it begs the question, who's going to go with a retirement bid when they could just do a dynamic D-list and jump out of the capacity market that year if they're not satisfied with the cost?

[00:31:09] Speaker 05:
Now, once you make a retirement,

[00:31:13] Speaker 05:
When you make a retirement bid, you are bound to stay on a retirement track, so you have to keep putting in a retirement bid every year unless you're given permission to get off of it.

[00:31:24] Speaker 05:
I do believe that some of the subsequent retirement bids, even under the dynamic D-list threshold, may be subject to review.

[00:31:31] Speaker 05:
I'm not sure about that.

[00:31:32] Speaker 05:
It hasn't really been contested here, but certainly your first time you make a retirement bid

[00:31:36] Speaker 05:
If you're under this dynamic D-list threshold, nobody needs to look at it.

[00:31:40] Speaker 05:
You don't have to tell anyone what it is.

[00:31:42] Speaker 00:
The market monitor will not look at it.

[00:31:43] Speaker 05:
No one will know what your bid actually is, because unlike in some other regions, they build the supply stack from the bottom.

[00:31:51] Speaker 03:
You mean the bids are not disclosed to all?

[00:31:54] Speaker 05:
Under that threshold, no.

[00:31:56] Speaker 05:
No.

[00:31:56] Speaker 01:
In other regions, in the P. Just because they're so low that there's no possibility that they'll be the marginal rate?

[00:32:03] Speaker 05:
No, they might be, but the reason is because of how the market works.

[00:32:07] Speaker 05:
In the PJM region in the Mid-Atlantic and Midwest, you build the bid stack from the bottom.

[00:32:13] Speaker 05:
And you know all the bids in advance.

[00:32:15] Speaker 05:
The system operator has all the bids and arrays them from lowest to highest, uses the demand curve and builds the bid stack.

[00:32:22] Speaker 05:
In New England, you start with everybody in.

[00:32:25] Speaker 05:
All qualified generators are in.

[00:32:27] Speaker 05:
The starting price is very high, maybe two times the cost of new entry.

[00:32:31] Speaker 05:
And you go down the demand curve

[00:32:34] Speaker 05:
And people drop out, so that's why it's called a D-list.

[00:32:37] Speaker 05:
Once you get to the dynamic, and it is done as a single option, and to go to your unit question, my understanding is you bid in a resource, like a power plant.

[00:32:46] Speaker 05:
You don't get to say, I'll sell all of it at this price and half of it at this, I believe you bid in each of your resources.

[00:32:54] Speaker 05:
And everyone's in the market.

[00:32:56] Speaker 05:
And as it drops down, so above the dynamic D-list threshold, to have a bid at that level, you have to be market monitor reviewed.

[00:33:05] Speaker 05:
The most common one is static D-list.

[00:33:08] Speaker 00:
For a retirement bid.

[00:33:10] Speaker 05:
Well, those two.

[00:33:10] Speaker 05:
But the more common one is the static D-list.

[00:33:13] Speaker 05:
I don't have numbers on that for you, but I did.

[00:33:15] Speaker 05:
Static the list is what, ma'am?

[00:33:19] Speaker 05:
I want to drop out of the capacity market for this year only.

[00:33:23] Speaker 05:
if I can't get X dollars.

[00:33:25] Speaker 03:
Oh, in other words, it's not a complete retirement.

[00:33:27] Speaker 00:
No, no, no.

[00:33:28] Speaker 00:
But it's a removal of capacity.

[00:33:30] Speaker 05:
And it has existed from the start of the market.

[00:33:32] Speaker 05:
That's why the commission said that this process, that the commission thought this was just using a process that already existed for the static delist.

[00:33:39] Speaker 05:
And in fact, that one's more rigid because you don't have the options that I'll talk about.

[00:33:43] Speaker 05:
If you don't like what the market monitor has done, well, if the market monitor says you haven't justified the costs for your bid, you can withdraw the bid.

[00:33:53] Speaker 05:
or you can accept the bid that the market monitor thinks is right, or you can unconditionally retire and just get out of the market.

[00:33:59] Speaker 03:
So you actually have... Can you accept the clearing price?

[00:34:02] Speaker 05:
No, no, no.

[00:34:02] Speaker 05:
And that's what I was going to get to with the retirement options.

[00:34:05] Speaker 05:
You do have to make your election in advance.

[00:34:08] Speaker 05:
The market monitor reviews your retirement bid, says, actually, we think this one cost input you haven't adequately supported or you haven't valued the risk in a way that's reasonable.

[00:34:18] Speaker 01:
You never, in this scenario,

[00:34:21] Speaker 01:
get a chance to have the Commission review your bid under the standards of Section 205?

[00:34:29] Speaker 05:
Well, the independent system operator puts in the whole, the filing with all of the bids and the system operator itself said, we'll include the original bid and their documentation too because the burden that the

[00:34:46] Speaker 05:
system operator has to meet to justify what the market monitor has done is to show, number one, there's a materiality threshold, so the market monitor has... What's just 10%?

[00:34:57] Speaker 00:
10%.

[00:34:57] Speaker 00:
And if the market monitor comes in at 10% or greater... That the original bid, unmitigated, the original... Then it goes to FERC with the... Original bid.

[00:35:08] Speaker 05:
Proxy bid being... There would be no proxy bid if there's no 10%.

[00:35:12] Speaker 00:
No, and any time it's greater than 10%, it goes to FERC in a posture where FERC is supposed to treat the proxy bid as the... I'm not sure I'll get the terminology right, but the one covered by section 205.

[00:35:28] Speaker 05:
Well, a couple things on that.

[00:35:30] Speaker 05:
I want to be careful about using the word proxy bid because although the market monitor comes up with what the correct competitive bid would be,

[00:35:38] Speaker 05:
The proxy bid is what the market monitor is going to put into the auction to prevent the supplier's bid from potentially influencing the clearing credit.

[00:35:51] Speaker 01:
Is it fair to say the market monitor's bid is for this particular plant?

[00:35:56] Speaker 01:
The bid that it thinks is just and reasonable, taking into account

[00:36:05] Speaker 01:
the total effect on the market.

[00:36:08] Speaker 05:
No, no, no.

[00:36:09] Speaker 05:
It's not about the total effect on the market.

[00:36:10] Speaker 05:
And I would point you to, particularly in re-hearing order paragraphs 18 and 19 on JA 224, this is where the commission talks about, and there are many other places, but that's the most pointed place.

[00:36:20] Speaker 05:
The market monitor, which is a department in New England, it's not a contractor, it's actually an internal department.

[00:36:26] Speaker 05:
There's an internal and an external market monitor in New England.

[00:36:29] Speaker 05:
All these markets are a little different because they all were able to develop in their own ways.

[00:36:34] Speaker 05:
The internal market monitor makes the determination.

[00:36:37] Speaker 05:
The system operator makes the filing.

[00:36:40] Speaker 05:
And you're right, it is a 205 filing.

[00:36:41] Speaker 05:
But to do a mitigated bid, the market monitor has to show that not only the 10% materiality threshold, but has to show that a specific cost input.

[00:36:57] Speaker 05:
See, this isn't just a number you come up with.

[00:36:58] Speaker 05:
There are specific costs laid out in the tariff that you're allowed to put into your bid.

[00:37:04] Speaker 05:
The market monitor has to show a failure by the supplier to substantiate some specific cost item.

[00:37:13] Speaker 05:
It's not just this number doesn't look right or we don't like what it would do to the market.

[00:37:17] Speaker 01:
It first looks at that.

[00:37:18] Speaker 05:
Yes.

[00:37:19] Speaker 01:
And what are the standards by which it evaluates this?

[00:37:23] Speaker 05:
Well, it wants to find the right number.

[00:37:25] Speaker 05:
It says in paragraph 18 that nor do these tariff changes oblige the commission to accept, as just and reasonable, an internal market monitor mitigated bid in lieu of a more accurate supplier-initiated bid.

[00:37:38] Speaker 05:
And actually, the... Well, more accurate.

[00:37:40] Speaker 01:
Maybe it turns on the...

[00:37:43] Speaker 01:
Lurking in the phrase more accurate.

[00:37:47] Speaker 05:
Because the question is, in addition to the materiality threshold, did the supplier fail to support with adequate quantitative analysis, adequate documentation, did it put costs into its bid that it couldn't support?

[00:38:05] Speaker 01:
Are you saying that this review process is exactly the equivalent

[00:38:12] Speaker 01:
of a Section 205 review of no.

[00:38:18] Speaker 01:
So what is the difference?

[00:38:19] Speaker 01:
It sounds as if you're saying no complaint.

[00:38:23] Speaker 01:
These suppliers are getting exactly what they would normally get.

[00:38:26] Speaker 05:
Well, they're getting exactly what they always got with the informational filings in the static delist process, for example.

[00:38:33] Speaker 05:
And we cited, I think, a 2013 case

[00:38:36] Speaker 03:
Well, Council, I am getting totally confused by your presentation, which goes beyond the brief, perhaps.

[00:38:46] Speaker 03:
If I understand it correctly, this is what I did understand from the brief.

[00:38:51] Speaker 03:
The market monitor disputes the supplier by at least 10 percent.

[00:38:59] Speaker 03:
So then both bids go before the FERC at that point.

[00:39:05] Speaker 03:
Yes.

[00:39:06] Speaker 03:
This is important.

[00:39:07] Speaker 03:
The bid of the supplier hasn't disappeared.

[00:39:10] Speaker 03:
It appears before FERC.

[00:39:13] Speaker 03:
And FERC has, one of them is called the proxy bid, which is the, which is proxy.

[00:39:20] Speaker 05:
Can I interject one thing?

[00:39:21] Speaker 03:
No, just follow me.

[00:39:23] Speaker 03:
Okay.

[00:39:23] Speaker 03:
Which is proxy?

[00:39:25] Speaker 03:
The original supplier bid or the monitor bid?

[00:39:29] Speaker 05:
The monitor's mitigated bid would be a proxy if they need to put a, yes.

[00:39:34] Speaker 03:
Okay, so both bids come before the agency, right?

[00:39:38] Speaker 03:
Yes.

[00:39:39] Speaker 03:
And the agency gives the monitor's bid priority in the sense that if the monitor's bid, if it's 10% different and if it is just and reasonable,

[00:39:54] Speaker 03:
It is the bid that is considered.

[00:39:56] Speaker 05:
No.

[00:39:56] Speaker 03:
No.

[00:39:57] Speaker 05:
Because the commission and the tariff rules.

[00:39:59] Speaker 05:
The commission says it has to comply with the tariff rules.

[00:40:01] Speaker 05:
And the tariff says specifically, you cannot mitigate the bid within that the supplier failed to substantiate.

[00:40:10] Speaker 03:
Yeah, but so what?

[00:40:11] Speaker 03:
That's not inconsistent with what I said.

[00:40:13] Speaker 03:
You said no.

[00:40:14] Speaker 05:
Well, it's not just that this number.

[00:40:16] Speaker 03:
What is it that I said was wrong?

[00:40:18] Speaker 05:
If both numbers were just unreasonable, if we're saying they're both in a zone of reasonableness,

[00:40:23] Speaker 05:
That's not enough.

[00:40:25] Speaker 05:
What's not enough?

[00:40:26] Speaker 05:
That is not enough for the monitor's bid to prevail.

[00:40:30] Speaker 05:
The monitor has to show a failure of a specific cost input, not just we don't like these numbers, not just they might affect the market in a certain way.

[00:40:39] Speaker 05:
In paragraph, I think 58... No, no, no.

[00:40:42] Speaker 03:
What you're suggesting is the monitor has to show why it rejected

[00:40:48] Speaker 03:
the supplier's bid.

[00:40:49] Speaker 05:
And why it can supplant it with a particular... Yes, I understand.

[00:40:53] Speaker 03:
Yes.

[00:40:53] Speaker 03:
So both bids come before the agency.

[00:40:55] Speaker 05:
Yes.

[00:40:56] Speaker 03:
All right.

[00:40:56] Speaker 03:
And the agency examines but gives priority to the monitor's bid.

[00:41:04] Speaker 05:
Well, I don't know.

[00:41:05] Speaker 05:
We don't... If it's just and reasonable.

[00:41:07] Speaker 05:
The commission never refers to priority, and it says you can only do this if you show a failure in the supplier's bid.

[00:41:15] Speaker 01:
Look, not all buildings are equal, right?

[00:41:18] Speaker 01:
So we want to find out whether a supplier's bid will lose out to the proxy bid under circumstances where the Commission takes the view that both are just and reasonable.

[00:41:36] Speaker 05:
And the Commission doesn't phrase it that way, that they're both just and reasonable, because it doesn't.

[00:41:44] Speaker 05:
It only happens if there's a failure of the supplier's bid.

[00:41:48] Speaker 03:
You know, you're using the term failure as if it was a binary question.

[00:41:55] Speaker 03:
A is a failure, B is not.

[00:41:58] Speaker 03:
Well, there's a range of determinations on cost, right?

[00:42:01] Speaker 05:
No, but not here.

[00:42:02] Speaker 05:
Because the monitor cannot substitute its own particular cost item for the particular cost item that it's supplanting in the mitigated bid.

[00:42:13] Speaker 05:
without showing that the supplier did not support with documentation analysis.

[00:42:20] Speaker 01:
And you're heroically resisting.

[00:42:22] Speaker 01:
It seems to me, my question, which is, suppose that the commission would find the supplier's bid to be just and reasonable.

[00:42:34] Speaker 05:
Then it would be supported.

[00:42:36] Speaker 05:
It would be supported by documentation.

[00:42:37] Speaker 01:
But that isn't the test that the commission applies.

[00:42:40] Speaker 01:
Oh, it is.

[00:42:40] Speaker 01:
It's the tariff rule.

[00:42:42] Speaker 05:
It says it has to comply with the tariff, and that is the tariff rule.

[00:42:47] Speaker 05:
The tariff rule is that you have to support all of your cost items adequately.

[00:42:52] Speaker 05:
If it finds it's adequately supported, then it's in compliance with the tariff, and the supplier's original bid is what goes.

[00:42:59] Speaker 00:
Suppose we were in a normal Section 205 context, whatever that is, and there's a

[00:43:10] Speaker 00:
The supplier has a rate that's been filed with FERC and someone, a challenger, a customer, whoever wants to come in and say that that rate, which only has to be somewhere within the zone, is unjust and unreasonable.

[00:43:29] Speaker 00:
And the challenger comes in and says, my argument for unjustness is

[00:43:37] Speaker 00:
Fill in the blank, and the blank is what you just said, which is there's some specific component input of the rate that's not adequately supported.

[00:43:50] Speaker 00:
Would that be enough to establish that that rate is outside the range of reasonableness, if FERC agrees?

[00:43:57] Speaker 05:
No, and that's exactly why these bids are, but that's why these bids are different, because these bids are put into the options.

[00:44:04] Speaker 00:
So then what happens in the 205, in what I loosely call the normal 205 context, is more favorable to the supplier than what happens to the supplier here.

[00:44:15] Speaker 05:
Because that supplier is actually trying to set a rate.

[00:44:18] Speaker 05:
It's not putting a bid into an auction that has rules.

[00:44:22] Speaker 01:
We understand that.

[00:44:23] Speaker 01:
We're trying to get the aspect of the process that you're conveying to us.

[00:44:30] Speaker 01:
And you seem to be saying, well, it's just as good for the supplier as the regular role of assessment as to whether it's

[00:44:39] Speaker 01:
proposed rate is just and reasonable, but you explicitly resist a characterization of it that way.

[00:44:49] Speaker 01:
So we're absolutely baffled as to how what you're saying, accepting it as completely true, changes or undermines the petitioner's plan.

[00:45:05] Speaker 05:
Well, it builds on several parts of our argument.

[00:45:09] Speaker 05:
that these bids are not, first the bids are not rates, they're inputs into the auction mechanism.

[00:45:16] Speaker 00:
And that's the argument I was pressing on.

[00:45:18] Speaker 00:
So again, there's a legal argument that this kind of bid is not a rate.

[00:45:24] Speaker 00:
But if you lose on that, you seem to be making a separate argument

[00:45:30] Speaker 00:
that the process the bidder gets before FERC in this context is no different from the process a bidder would get in another 205 context.

[00:45:42] Speaker 05:
And I think that's what's baffling us.

[00:45:47] Speaker 05:
It's actually a more flexible process.

[00:45:49] Speaker 03:
We're not talking about flexibility, we're talking about priority.

[00:45:55] Speaker 03:
Well, the question that we're talking about is from the priority.

[00:45:57] Speaker 01:
We're talking about the standard applied to the supplier's bid.

[00:46:01] Speaker 03:
Right.

[00:46:02] Speaker 03:
Well, no, I'm on.

[00:46:03] Speaker 03:
I was talking about the standard supply.

[00:46:06] Speaker 03:
Then I'll ask her about the standards.

[00:46:09] Speaker 03:
What does the FERC look at first, the monitor's bid or the supplier's bid?

[00:46:17] Speaker 05:
If it's been mitigated, I guess it looks at them together.

[00:46:20] Speaker 05:
But I suppose it looks at the monitor's bid first, but the monitor has to show

[00:46:25] Speaker 03:
I understand what the monitor has to show, but then is it fair to say that if the staff says reasonable men could differ as between these two bids, right, or women, who gets priority?

[00:46:43] Speaker 05:
Well, if reasonable minds could differ,

[00:46:47] Speaker 05:
First of all, they should be within 10%.

[00:46:49] Speaker 05:
I think the supplier, because if the supplier is able to support the particular cost items in such a way that the commission says reasonable minds can differ, but you have supported your version, then yes.

[00:47:02] Speaker 05:
That's exactly what the tariff says.

[00:47:05] Speaker 05:
If they can quantify risks, if they can put in supporting documentation and analysis,

[00:47:13] Speaker 05:
then yes, the suppliers bid.

[00:47:15] Speaker 01:
Can you point us to where in the joint appendix this is?

[00:47:18] Speaker 01:
Because at least I certainly didn't see your brief as making a claim remotely like this.

[00:47:28] Speaker 05:
Well, I mostly look at 18 and 19 in the hearing order.

[00:47:32] Speaker 05:
It's also.

[00:47:33] Speaker 01:
And what language there?

[00:47:37] Speaker 05:
Well, the part about not being obligated to accept

[00:47:41] Speaker 05:
the market monitor's bid, it goes on just because it's being filed by them.

[00:47:51] Speaker 05:
In the last sentence of paragraph 18, the market monitor can only mitigate the bids where the supplier has failed to support the reasonableness of particular cost items.

[00:48:02] Speaker 05:
The only way we get to the hypothetical that you just posed where reasonable minds can differ and either one could be right

[00:48:10] Speaker 05:
is if, in fact, they didn't fail to support the reasonableness of their bid.

[00:48:15] Speaker 05:
If they actually did put in supporting documentation and analysis.

[00:48:18] Speaker 01:
Where in paragraph 18 are we?

[00:48:21] Speaker 05:
This is paragraph 18 on page 224.

[00:48:26] Speaker 05:
But there are other places that we see.

[00:48:29] Speaker 01:
I didn't see in a quick look the language you were talking of.

[00:48:33] Speaker 05:
Oh, it's the next to last sentence.

[00:48:39] Speaker 01:
The revisions permit the monitor to propose to mitigate only those supplies for the term bid exceeded the materiality threshold, okay, and failed to support the reasonableness of particular cost items.

[00:48:51] Speaker 01:
I see.

[00:48:52] Speaker 05:
And I would look also at JA 175, paragraph 58 in the initial order, the tariff order, which is described in this process.

[00:49:01] Speaker 00:
I'm sorry, which paragraph?

[00:49:02] Speaker 05:
It's paragraph 58 on JA 175.

[00:49:06] Speaker 03:
Well, Counsel, let me put this simple question to you.

[00:49:09] Speaker 03:
In the event that there's a dispute between the monitor and the supplier, are you perfectly happy with the proposition that the supplier gets, if the supplier is determined to be just and reasonable, it satisfies its burden?

[00:49:31] Speaker 05:
If it supported all of its cost items?

[00:49:34] Speaker 03:
No, no.

[00:49:35] Speaker 03:
I'm going to the legal question.

[00:49:37] Speaker 03:
If the supplier is determined to be just and reasonable, does it get its rate, regardless of what the monitor said?

[00:49:47] Speaker 05:
Just and reasonable has to have a meaning.

[00:49:49] Speaker 05:
And just and reasonable has to mean in this context that it's supported by the costs.

[00:49:53] Speaker 01:
Well, of course.

[00:49:55] Speaker 01:
So if we're saying the same thing.

[00:49:56] Speaker 01:
If what you say is correct in principle is never disputed at all between you and Petitioner.

[00:50:02] Speaker 01:
Exactly.

[00:50:03] Speaker 01:
But this particular sentence should be modified to say failed to show that its rate

[00:50:15] Speaker 01:
is just and reasonable.

[00:50:17] Speaker 01:
And you conspicuously don't say that.

[00:50:20] Speaker 05:
Because the commission has held previously in a case that's not an issue here, in a 2011 case that was upheld on other grounds.

[00:50:29] Speaker 05:
It wasn't challenged on that basis.

[00:50:30] Speaker 05:
The 2011 order that we cited, the Devin Power 2011, that the petitioner never even discussed, which was upheld by this court in one of the New England powers, I think 2013.

[00:50:43] Speaker 05:
has never said that your bid is a rate, because the rate is set by the auction.

[00:50:50] Speaker 05:
Numerous.

[00:50:50] Speaker 05:
This court has said so in numerous.

[00:50:52] Speaker 01:
Now you're skipping away from the problem.

[00:50:55] Speaker 01:
You're going back to the purely linguistic argument.

[00:50:58] Speaker 01:
I think we understand that.

[00:50:59] Speaker 01:
Well, it's not.

[00:50:59] Speaker 01:
But here you're making a pragmatic argument, which is that everything works out just the way the petitioner would like it to work out.

[00:51:08] Speaker 01:
The petitioner doubts that.

[00:51:11] Speaker 05:
And the language doesn't seem to completely... The orders... I mean, I'm not really straying from the orders in that the orders said numerous times, we've always viewed this as being essentially the same process that is already used for static D-list bids.

[00:51:26] Speaker 05:
The Commission didn't think anything new or unusual was really... Well, I don't think that solves the problems.

[00:51:32] Speaker 01:
Static D-list bid is different.

[00:51:35] Speaker 01:
The question is what is happening here?

[00:51:37] Speaker 05:
And permanent D-list bids, which are now handled this way,

[00:51:41] Speaker 05:
were also extents.

[00:51:44] Speaker 05:
They also existed in that earlier process.

[00:51:46] Speaker 05:
But the commission thought this is the same process.

[00:51:49] Speaker 05:
So what I'm saying, I think what I'm saying too is not straying from what the commission said.

[00:51:54] Speaker 03:
Well, here's a puzzling me.

[00:51:56] Speaker 03:
You're suggesting that the way you look at the supplier's bid in this process in which you're comparing it to the monitor's bid

[00:52:08] Speaker 03:
you're treating it exactly you would be as if it was a rape.

[00:52:17] Speaker 03:
So I don't understand your... In other words, your practical argument is different from your linguistic argument.

[00:52:23] Speaker 03:
Your linguistic argument, and yet you're analyzing it just as if it was a rape, right?

[00:52:28] Speaker 05:
Well, yeah, the bids have standards of the cost that can be... You are analyzing the bid just as if it was a rape.

[00:52:35] Speaker 05:
I think the difference is that there's, I don't think so, for one thing.

[00:52:38] Speaker 03:
The way you just explained it.

[00:52:41] Speaker 03:
You said, look, we have to look at this.

[00:52:43] Speaker 03:
We have both the monitors proxy bid, or one of them is a proxy.

[00:52:48] Speaker 03:
You got me confused.

[00:52:49] Speaker 05:
I know.

[00:52:50] Speaker 05:
I didn't get back to that.

[00:52:52] Speaker 03:
You have both the monitors bid and the suppliers bid.

[00:52:55] Speaker 03:
And you look at them.

[00:52:57] Speaker 03:
But at that point, you're looking at rates, right?

[00:53:01] Speaker 03:
The monitor rate demanded is x.

[00:53:05] Speaker 03:
for the producer, and the producer's rate is his bid.

[00:53:10] Speaker 03:
So you have two potential rates.

[00:53:12] Speaker 05:
Certainly the analysis of the cost is similar, but the commission does not consider it a rate because it goes into an auction mechanism.

[00:53:19] Speaker 05:
Even petitioners agree.

[00:53:22] Speaker 03:
You guys, ma'am, what we're trying to say is you've explained the process of analysis as just as if

[00:53:31] Speaker 03:
the suppliers bid was a rate.

[00:53:34] Speaker 05:
It is similar.

[00:53:34] Speaker 05:
It is similar.

[00:53:35] Speaker 03:
It is.

[00:53:36] Speaker 03:
So your linguistic argument then is sort of irrelevant.

[00:53:39] Speaker 05:
Well, it's not... We think it's not linguistic, it's functional.

[00:53:43] Speaker 03:
It goes to... The linguistic argument being the change between bids and rates.

[00:53:48] Speaker 05:
Well, I don't think it's merely linguistic.

[00:53:50] Speaker 05:
I do think it's functional.

[00:53:52] Speaker 03:
I don't mean merely, it's linguistic.

[00:53:55] Speaker 03:
But you've explained that your process of analyzing it

[00:53:59] Speaker 03:
is exactly the same as if the bid were at a rate.

[00:54:04] Speaker 03:
Okay, now, where is the difference between the two of you then?

[00:54:08] Speaker 03:
Did you suggest that the monitor's rate will not be accepted if the supplier's is just and reasonable?

[00:54:21] Speaker 05:
If it has supported its cost items as requiring the tariff, yes.

[00:54:26] Speaker 05:
The supplier's rate

[00:54:29] Speaker 05:
the supplier can use their original bid if they have supported all of the cost items as required in the tariff.

[00:54:37] Speaker 03:
Well, that would be true of anybody who filed a tariff, right?

[00:54:40] Speaker 05:
I think there might be other things that go into some other, I don't know, if there is specifically... Can we go back on this?

[00:54:47] Speaker 01:
It conspicuously talks about particular cost items.

[00:54:52] Speaker 01:
Suppose the market monitor identifies

[00:54:55] Speaker 01:
five cost items which it believes have not been adequately supported.

[00:55:02] Speaker 01:
And suppose the commission, the commission would look at all five claims, right, and suppose it found that one wasn't adequately supported, the other four were, then what happens?

[00:55:19] Speaker 05:
My understanding of how the process would work is it would go back to the supplier's cost items that were supported and put those back in.

[00:55:34] Speaker 05:
And I think if you're not outside the 10% threshold.

[00:55:39] Speaker 01:
Let's forget about the 10% threshold.

[00:55:41] Speaker 01:
That just complicates matters.

[00:55:42] Speaker 05:
It wants to find out whether they've supported their numbers.

[00:55:45] Speaker 05:
So if, did you say four were supported and one wasn't?

[00:55:48] Speaker 05:
No.

[00:55:48] Speaker 05:
Yeah.

[00:55:49] Speaker 05:
Then the four it supported would go back into the number.

[00:55:53] Speaker 01:
So are you saying what happens here is the exact equivalent of what happens when a rate is submitted

[00:56:03] Speaker 01:
And it is reviewed against various claims that it's not adequately supported.

[00:56:09] Speaker 01:
And the commission finding that some of it isn't adequately supported will then say, no, you're beyond the range of reasonableness.

[00:56:18] Speaker 01:
And we would only approve a rate of 12% lower.

[00:56:28] Speaker 05:
I guess it's similar, yes.

[00:56:33] Speaker 05:
If I'm understanding your question right, yes.

[00:56:36] Speaker 03:
That results in there being a tempest in the teapot.

[00:56:46] Speaker 05:
It may be because the Commission really with this was looking at market rules that were setting up a new kind of price retirement bid

[00:56:58] Speaker 05:
It's not that dissimilar from the statute D-list bids except you can put more costs in it, you can put more capital costs and going forward costs.

[00:57:07] Speaker 05:
The commission really thought it was looking at the same thing it had been looking at all along.

[00:57:11] Speaker 05:
I know I'm out of time.

[00:57:12] Speaker 05:
I want to make two very important points.

[00:57:13] Speaker 05:
To put some numbers on Judge Katz, this is your question.

[00:57:16] Speaker 05:
I don't know how many static D-list bids there are in a given year, but I looked at the retirement D-list filings that have been made in the first few years under this.

[00:57:25] Speaker 05:
There are no details in them because they are filed confidentially because of all the proprietary information, but there have only been a handful of the retirement bids that were mitigated each year because there have been like a dozen.

[00:57:37] Speaker 00:
So given all of that and given the

[00:57:41] Speaker 00:
obvious confusion about how this actually works?

[00:57:46] Speaker 00:
Do you want to rethink your failure to contest standing at all?

[00:57:50] Speaker 05:
Well, of course, if it's Article 3, we can't concede it.

[00:57:55] Speaker 05:
We don't contest it in every case.

[00:57:58] Speaker 00:
Do you think that standing is satisfied here?

[00:58:03] Speaker 05:
No, I wouldn't concede it, but I don't have an argument to make about it.

[00:58:07] Speaker 05:
But one very important point, because there was so much confusion about the retirement options, and this is very important because we're talking about, when the petitioners talk about the price that they demand for services to be provided with their assets, there is no supplier would be required to provide service with its assets at anything less than its original supplier bid.

[00:58:28] Speaker 03:
Yeah, unless undisputed.

[00:58:31] Speaker 05:
Okay, but I do want to just be clear about that.

[00:58:34] Speaker 05:
They do have to elect sooner.

[00:58:36] Speaker 05:
They aren't allowed to do it after the clearing prices.

[00:58:38] Speaker 05:
I think there was, after the auction is run.

[00:58:41] Speaker 03:
Oh.

[00:58:41] Speaker 05:
They do have to decide in advance.

[00:58:43] Speaker 03:
Oh, so after the auction is run, they can't... They always had to decide in advance.

[00:58:47] Speaker 05:
With unconditional retirements, now they have priced retirements as well.

[00:58:50] Speaker 05:
They always had to decide in advance as static D-list bids.

[00:58:54] Speaker 05:
They have to decide in advance.

[00:58:55] Speaker 05:
You don't get to decide... What about the retirement?

[00:58:57] Speaker 03:
What about the retirement bid?

[00:58:59] Speaker 05:
With retirement bid.

[00:59:00] Speaker 05:
They put their bid in, the market monitor tells them, we don't think you supported this cost item, we're changing your number to X. You have a period of time to choose three options.

[00:59:13] Speaker 05:
You can unconditionally retire to say, I don't care, I'm done.

[00:59:18] Speaker 05:
You can conditionally retire, no, I bid $10, you say that it should be eight, I'm standing on my $10.

[00:59:26] Speaker 05:
And that is... What do you mean I'm standing on my $10?

[00:59:30] Speaker 05:
I have to get my $10 or I'm... That's the same way of saying I'm out.

[00:59:35] Speaker 05:
Well, no, because you don't yet know.

[00:59:37] Speaker 05:
This is well before the auction.

[00:59:39] Speaker 03:
Oh, I'm sorry, I'm sorry.

[00:59:41] Speaker 05:
The auction runs and the auction clears.

[00:59:43] Speaker 05:
And that's why there's a difference between mitigated bid and proxy bid.

[00:59:46] Speaker 05:
You can say, no, I'll take your mitigated bid.

[00:59:48] Speaker 05:
If you don't and you stay,

[00:59:50] Speaker 03:
Why didn't you disagree with them in their brief then?

[00:59:55] Speaker 05:
Why didn't you say they had their brief wrong when they said... Well, we did say in our brief that you always have the right to conditionally retire.

[01:00:02] Speaker 05:
I think I didn't understand until today that anyone was talking about making that determination after the clearing price was known.

[01:00:08] Speaker 05:
That's the only thing I'm correcting.

[01:00:10] Speaker 01:
But with... Which is not always.

[01:00:14] Speaker 01:
The adverb always doesn't fit there.

[01:00:16] Speaker 05:
Wait.

[01:00:17] Speaker 05:
Would you always switch?

[01:00:19] Speaker 05:
I'm sorry.

[01:00:22] Speaker 05:
But to be clear, the proxy bid is if you choose to unconditionally retire or to conditionally retire at your $10.

[01:00:31] Speaker 05:
The market monitor doesn't put your $10 in the market, but you're there with it.

[01:00:36] Speaker 05:
They put the bid in at $8 so that you can't influence other... No, we understand.

[01:00:42] Speaker 05:
So the market closes at $11.

[01:00:44] Speaker 03:
No, I want to make sure I understand it.

[01:00:46] Speaker 03:
The market closes at $10.

[01:00:50] Speaker 03:
Your bid was $12.

[01:00:53] Speaker 03:
Can you take the $10?

[01:00:54] Speaker 05:
No.

[01:00:55] Speaker 05:
You have to decide in advance.

[01:00:56] Speaker 03:
You have to... And that is... That was what they said in their brief, and then they retreated from that.

[01:01:02] Speaker 05:
I think I didn't see that they were saying that they could elect after the clearing price was up.

[01:01:07] Speaker 05:
No, they said they were stuck, and then I... Well, that's why we said in our brief that you're not.

[01:01:12] Speaker 05:
On page 32, we said,

[01:01:14] Speaker 05:
that you can conditionally retire.

[01:01:16] Speaker 05:
And you're never forced.

[01:01:19] Speaker 03:
Yeah, but they are stuck if they can't move after the bidding process is over.

[01:01:24] Speaker 05:
Only if they elected to take the mitigated bid.

[01:01:28] Speaker 05:
And that's exactly the way it is with static D-list bids and has been.

[01:01:31] Speaker 01:
That's before the auction.

[01:01:33] Speaker 05:
Before the auction.

[01:01:34] Speaker 01:
After the market auditor gives you the number.

[01:01:37] Speaker 05:
That's right.

[01:01:38] Speaker 05:
They have to make an election early.

[01:01:40] Speaker 03:
So you've given them a better argument for standing than they make.

[01:01:43] Speaker 05:
I just want to be accurate about the status.

[01:01:46] Speaker 05:
But to be clear, no supplier is ever required to supply at a price that they didn't agree to.

[01:01:57] Speaker 05:
There's no forcing.

[01:01:58] Speaker 00:
So they bid 10?

[01:02:00] Speaker 05:
Yes.

[01:02:01] Speaker 00:
Market Monitor says no, it's eight.

[01:02:05] Speaker 00:
We think it's eight.

[01:02:06] Speaker 05:
That's right.

[01:02:07] Speaker 00:
At that point, we're still pre-auction.

[01:02:10] Speaker 00:
They have three choices.

[01:02:11] Speaker 00:
They can elect to just retire regardless.

[01:02:16] Speaker 00:
They can elect to maintain their initial bid at 10.

[01:02:23] Speaker 05:
That's right.

[01:02:24] Speaker 00:
Or they can adjust their bid and take eight, and then that's what goes into the auction.

[01:02:31] Speaker 05:
Well, the 8 is going to go in the auction regardless.

[01:02:33] Speaker 05:
It's just if they unconditionally or conditionally retired, the 8 proxy bid is kind of a phantom bid.

[01:02:40] Speaker 05:
There's no supply with it.

[01:02:42] Speaker 00:
So they stick at 10.

[01:02:45] Speaker 05:
Yeah.

[01:02:46] Speaker 00:
And then the auction happens.

[01:02:49] Speaker 05:
It clears at 11.

[01:02:50] Speaker 00:
And the clearing is at 9.

[01:02:52] Speaker 05:
It clears at 9.

[01:02:53] Speaker 00:
They can't at that point say, no, we want to go to 8.

[01:02:57] Speaker 00:
No.

[01:02:57] Speaker 00:
But neither can any other bidder.

[01:02:59] Speaker 05:
No.

[01:03:00] Speaker 05:
And you couldn't under the old process.

[01:03:02] Speaker 05:
If you didn't like what the market monitor did with your static delist, or if you did unconditional retirement, it's always been the case that you do have to make these decisions in advance.

[01:03:12] Speaker 05:
There's no gaming the auction as it happens.

[01:03:16] Speaker 05:
It has to be done in advance.

[01:03:21] Speaker 00:
Now that we've cleared everything up.

[01:03:23] Speaker 05:
I'm sorry, I created more confusion.

[01:03:26] Speaker 00:
Thank you.

[01:03:28] Speaker 00:
Any other questions?

[01:03:29] Speaker 00:
No, I don't think at the moment.

[01:03:31] Speaker 00:
Okay, we'll take some rebuttal.

[01:03:35] Speaker 02:
So I would like to make three points if I could.

[01:03:38] Speaker 02:
The first is picking up on this last exchange and your question about our brief, Joe Silverman.

[01:03:42] Speaker 02:
I've now had the chance to go back and look at the passage.

[01:03:45] Speaker 02:
It is accurate and stated for the very reasons that Ms.

[01:03:47] Speaker 02:
Banter explained.

[01:03:49] Speaker 02:
I think we had a disconnect about when things were happening and timing.

[01:03:53] Speaker 02:
So the way it works is... Yes, you did not make that clear.

[01:03:59] Speaker 03:
She preserved your position by pointing out that after the auction takes place, you cannot then take the clearing part.

[01:04:07] Speaker 03:
That is absolutely right.

[01:04:09] Speaker 03:
So that suggests

[01:04:11] Speaker 02:
That's a stronger argument for your standing than the one... That's right, because we're stuck with whatever the auction price turns out to be, and if it's below our costs, we will retire.

[01:04:22] Speaker 03:
No, under the rules.

[01:04:23] Speaker 02:
Yeah, and under the rules, if we stick with our own original bid, and the auction is then held... The difference between the two of you was a timing problem.

[01:04:34] Speaker 03:
A timing question.

[01:04:36] Speaker 02:
She clarified that the timing is that we get to choose only before the auction happens.

[01:04:41] Speaker 03:
Now, what about this discussion we were having concerning what practically happens?

[01:04:49] Speaker 03:
Do you understand there's really a big difference between the situation they're now pursuing and what they were pursuing before?

[01:04:59] Speaker 03:
You made it in your brief turn on the burden of proof.

[01:05:04] Speaker 03:
But it sort of sounded the way I understood them.

[01:05:09] Speaker 03:
FERC was saying that if your position is just and reasonable, that is to say your costs are supported, your bid is accepted.

[01:05:20] Speaker 02:
I did hear that and I'm glad to hear it, although I have to admit I'm a bit perplexed by it because this was the subject of the rehearing petition and FERC's order doesn't really say that.

[01:05:29] Speaker 02:
And in our understanding of what FERC said in its order is that

[01:05:32] Speaker 02:
it's our job to come in and protest the market monitor's proxy bid.

[01:05:36] Speaker 02:
So it gives the section 205 preference to the market monitor.

[01:05:41] Speaker 03:
No, it didn't say that.

[01:05:42] Speaker 02:
You assumed that, right?

[01:05:43] Speaker 02:
Well, if you look, for example, at paragraph 70 of the, let's see, paragraph 85, it says the filing provides suppliers an opportunity to challenge any proposed mitigation before the commission.

[01:06:00] Speaker 02:
In other words, it's the suppliers

[01:06:02] Speaker 02:
duty to come in and challenge the market monitors did.

[01:06:05] Speaker 03:
Well, that could be true even if you had the burden, if the burden was on the monitor.

[01:06:11] Speaker 03:
Because in a normal 205 challenge, suppose a challenger comes in on a 205 filing.

[01:06:23] Speaker 02:
Who has the burden?

[01:06:26] Speaker 02:
the supplier would have the burden of showing that its rates are just unreasonable.

[01:06:29] Speaker 02:
That's right.

[01:06:29] Speaker 02:
So if you look at paragraph 19 of the rehearing order, that's exactly what's going on here.

[01:06:33] Speaker 00:
And does that include the burden to show adequate justification of the particular cost inputs?

[01:06:42] Speaker 02:
I think it's ultimately about the ultimate rate, Your Honor.

[01:06:44] Speaker 02:
And so the sort of cost inputs would bear on the reasonableness of the ultimate rate.

[01:06:49] Speaker 02:
But you can imagine a situation where

[01:06:51] Speaker 02:
Perhaps there might be disagreement about a particular cost estimate, but that disagreement didn't place the rate as a whole outside the zone of reasonableness.

[01:06:58] Speaker 02:
Now if you look at paragraph 19 of the rehearing order, it says in explaining why this complies with section 205, it says the proponent of the 205 filing

[01:07:08] Speaker 02:
As the proponent of the 205 filing, ISO New England will bear the burden of proof to show that any proposed mitigated bids comply with the tariff and are just and reasonable.

[01:07:16] Speaker 02:
So that suggests to me, and this is the premise of our petition for review, that the ISO New England is... We read it again.

[01:07:25] Speaker 03:
Who has the burden of proof?

[01:07:26] Speaker 02:
The ISO New England has the burden of proof to demonstrate that its proposed mitigation bids are just and reasonable as the proponent of the 205 filing.

[01:07:33] Speaker 01:
Which is exactly the 205 process.

[01:07:34] Speaker 01:
Correct.

[01:07:35] Speaker 01:
Except the ISOs...

[01:07:37] Speaker 01:
The market monitor is substituted for the supplier for the operation of the 205 process.

[01:07:44] Speaker 02:
Exactly.

[01:07:45] Speaker 01:
It seems to say it unequivocally.

[01:07:47] Speaker 02:
Yes, in paragraph 19 of the rehearing order.

[01:07:49] Speaker 02:
And so in other words, the market monitor's bid is the one that gets the presumption or the rule of priority under section 205.

[01:07:56] Speaker 02:
And it's our burden to come in and show that it's not just unreasonable.

[01:07:59] Speaker 02:
That's the problem in our case.

[01:08:01] Speaker 02:
If the commission is now suggesting otherwise, we're happy to accept that concession.

[01:08:04] Speaker 02:
But we really appreciate an order from the court making that clear.

[01:08:07] Speaker 02:
so that there's no misunderstanding going forward.

[01:08:10] Speaker 03:
And I guess I would like to ask the, when he asked the presiding judge whether we could hear again from first lawyer to see whether that.

[01:08:20] Speaker 03:
I had the same thought.

[01:08:21] Speaker 03:
You had the same thought.

[01:08:24] Speaker 02:
Okay.

[01:08:24] Speaker 02:
Well, if there are no further questions, I'm happy to sit down.

[01:08:27] Speaker 02:
Thank you very much for your time, sir.

[01:08:33] Speaker 03:
Ma'am, you better be careful on this one.

[01:08:37] Speaker 03:
Okay.

[01:08:37] Speaker 03:
If the rule of priority remains on the supplier, then this is a tempus and a teapot, then we really don't have a disagreement.

[01:08:52] Speaker 05:
The Commission has never referred to this as rule of priority.

[01:08:56] Speaker 03:
Well, except by the normal Section 205 filing, a supplier files a tariff,

[01:09:06] Speaker 03:
And it's accepted if it's just and reasonable.

[01:09:10] Speaker 03:
Right.

[01:09:10] Speaker 03:
Correct.

[01:09:11] Speaker 03:
Now we have a market monitor who disagrees, right?

[01:09:16] Speaker 03:
The market monitor disagrees more than 10 percent, so it puts in another proxy bid or whatever we want to call it.

[01:09:27] Speaker 03:
And now the question is, assuming that it's possible, and we really do see it's equally possible,

[01:09:35] Speaker 03:
that both are just and reasonable.

[01:09:37] Speaker 03:
Reasonable men and women could differ.

[01:09:40] Speaker 03:
Who gets priority?

[01:09:43] Speaker 05:
The Commission said in its order, and the system operator said from the beginning of its filing, that if the supplier has supported its cost items as required in the tariff, it will not be mitigated.

[01:09:58] Speaker 05:
And the Commission said specifically in its order, I don't think you're answering the question, that the market monitor doesn't even get to mitigate it

[01:10:05] Speaker 03:
I don't think they're answering the question.

[01:10:07] Speaker 05:
I don't know how to answer it.

[01:10:09] Speaker 03:
There are two different calculations before a tribunal.

[01:10:17] Speaker 03:
Theoretically, both could be just and reasonable.

[01:10:19] Speaker 03:
Certainly that's true, theoretically, right?

[01:10:21] Speaker 05:
If they're both supported, the supplier gets to keep the original bid, yes.

[01:10:25] Speaker 01:
That is what... So this sentence in paragraph 19 is...

[01:10:33] Speaker 01:
at best confusing, and at worst, mendacious, under your view, because it ought to read, but as the proponent of a rate, the supplier will bear the burden of proof to show that its bid is just and reasonable, period, full stop.

[01:10:58] Speaker 05:
Right, but it can only be read in conjunction with paragraph 18 and other parts of that order and the previous order that say the market monitor's bid is only compliant with the tariff.

[01:11:11] Speaker 05:
It only is permissible under the tariff if two things are true.

[01:11:17] Speaker 00:
Would you have any objection to our ruling

[01:11:24] Speaker 00:
in your favor based on your representation to Judge Williams that this, the words he read to you should be interpreted or rewritten to mean what he said.

[01:11:40] Speaker 00:
It's not ISO's burden to show that the mitigated bid comply with the tariff and are just and reasonable, but it's the bidder's

[01:11:54] Speaker 00:
burden to show that the supplier's burden to show that its bid is just and reasonable.

[01:12:01] Speaker 00:
And if it is, that's it.

[01:12:06] Speaker 00:
Right.

[01:12:08] Speaker 00:
But necessary and sufficient for the bidder to prevail.

[01:12:11] Speaker 05:
I think that's right.

[01:12:12] Speaker 05:
I only have two hesitations about that.

[01:12:15] Speaker 05:
One, if they

[01:12:17] Speaker 05:
conditionally or unconditionally retire, the market monitor still has to justify the proxy bid to the commission, so the market monitor still bears a burden.

[01:12:25] Speaker 01:
I'm sorry, if the supplier shows that its bid is just reasonable, you have just said, at least we understand you have said, its bid is the bid that goes into the auction.

[01:12:40] Speaker 01:
Right?

[01:12:41] Speaker 01:
Period, full stop.

[01:12:42] Speaker 05:
Forget about it.

[01:12:46] Speaker 05:
If it chooses to unconditionally retire, I think that's right.

[01:12:50] Speaker 05:
But there are cases where the market monitor is putting forth a proxy bid that's no longer in dispute because the resource decided to retire.

[01:13:00] Speaker 05:
Well, that's not relevant.

[01:13:01] Speaker 01:
Yeah, then the case has disappeared.

[01:13:04] Speaker 05:
OK, then maybe I'm confused.

[01:13:05] Speaker 05:
I think that yes, I think we would be OK with that.

[01:13:10] Speaker 05:
I think our concern would be more if there were a more general holding that bids are rates that could create all sorts of consequences.

[01:13:19] Speaker 01:
If you're really concerned about the consequences, and the consequences are indistinguishable here, why should we worry about it?

[01:13:31] Speaker 01:
How is this lost by characterizing

[01:13:38] Speaker 01:
number that gets assessed under the normal 205 standard as a rate since it's being, according to you, evaluate a rate would be.

[01:13:51] Speaker 05:
I just don't know if that's true in all cases.

[01:13:53] Speaker 05:
It's true here, but I don't know.

[01:13:58] Speaker 05:
I just hesitate to... I can't...

[01:14:02] Speaker 05:
agree that bids are the same as rates and subject to 205 in all circumstances.

[01:14:07] Speaker 01:
Well, I know, that was very firm in your brief.

[01:14:09] Speaker 05:
Right.

[01:14:09] Speaker 05:
No, I certainly wouldn't be able to do that.

[01:14:12] Speaker 05:
But I do think that we're all in agreement about how the supplier's bids should be treated if it is compliant with the tariff and supported with documentation.

[01:14:27] Speaker 05:
I don't think

[01:14:29] Speaker 05:
given paragraph 18 that we're disagreeing, that the supplier's bid would be accepted instead of the mitigated bid in that circumstance.

[01:14:39] Speaker 00:
Your argument on the broader point, I assume, has to be that everything we're talking about now in the words of 205 involves rules and regulations affecting or pertaining to such rates.

[01:14:57] Speaker 00:
you happen to treat aspects of this as if they were rates even though your position is they're not rates within the meaning of the first line of this provision.

[01:15:10] Speaker 05:
I think that's right.

[01:15:17] Speaker 05:
There are so many bids into auctions that are set up with market rules that I just... Understood.