[00:00:05] Speaker 05:
Mr. D. Alessandro for petitioners M, P, S, Z. Mr. Demaris for petitioners Sylvie Mining Co-op Company L, Z, and L. Ms.

[00:00:19] Speaker 05:
Kager for the respondent FERC and Mr. Massey for intervener P, S, Z of the sponsor.

[00:01:17] Speaker 06:
Good morning.

[00:01:18] Speaker 03:
Good morning, Your Honor.

[00:01:19] Speaker 03:
Good morning.

[00:01:20] Speaker 03:
May it please the Court.

[00:01:21] Speaker 03:
My name is David D'Alessandro, and with me today arguing is William F. Demaris.

[00:01:26] Speaker 03:
We represent petitioners, and we've agreed to split our time evenly, six minutes each.

[00:01:33] Speaker 03:
And with the Court's permission, we'd like to reserve three minutes of our total time for rebuttal.

[00:01:38] Speaker 03:
My portion of the oral argument will focus upon the lack of substantial evidence underlying Ferck's finding that the existing

[00:01:46] Speaker 03:
allocation on a pro rata basis of system support resource costs in the American Transmission Company rate zone is unjust and unreasonable.

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And Mr. Demaris will explain why the imposition of retroactive rate increases in the form of surcharges is statutorily prohibited under the circumstances of this case.

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Now, the lack of substantial evidence is graphically illustrated on page 24 of petitioners' reply brief.

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And it's recreated here for reference in the court today.

[00:02:20] Speaker 03:
And on the far left, you can see that FERC relied on a preliminary load shed study that purported to allocate only 42 percent of the benefits of the Presque Isle SSR unit to Wisconsin, as compared in the middle there

[00:02:38] Speaker 03:
to an allocation of 92 percent of the cost of that unit to Michigan.

[00:02:43] Speaker 03:
I mean, excuse me, to Wisconsin.

[00:02:46] Speaker 03:
More than twice the benefits.

[00:02:48] Speaker 03:
Based on that evidence, FERC found that the existing pro rata allocation of SSR cost was unjust and unreasonable.

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But the commission acknowledged that the preliminary load shed study

[00:03:02] Speaker 03:
was not complete and directed MISO to complete and file the final study.

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The final study on the right-hand corner of the chart indicated that Wisconsin received 86 percent of the benefits from the Prescal unit, reasonably commensurate with the 92 percent of the costs allocated under the existing methodology.

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But respondent claims at 27 of its brief

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that both studies are probative evidence of the invalidity of the existing pro rata allocation method.

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But that claim ignores two important points.

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One, the incomplete preliminary study was

[00:03:47] Speaker 03:
replaced by a complete study.

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And the evidence in the complete study that 86 percent of the benefits from the Presque Isle unit flowed to Wisconsin completely undermined FERC's finding that the existing pro rata allocation bears little, if any, relation to the benefits.

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Now, Respondent appears to recognize

[00:04:17] Speaker 03:
the vulnerability of relying solely on the preliminary load study by arguing at pages 27 and 28 of their brief

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that the language of the tariff itself is unjust and unreasonable, because it doesn't make any reference to benefits.

[00:04:34] Speaker 03:
But Frick never made that finding.

[00:04:36] Speaker 03:
If you review paragraphs 59 and 60 of the July 29 order, which is at JA 08 and 09.

[00:04:45] Speaker 06:
That's what I'm trying to get in front of me right now.

[00:04:48] Speaker 06:
OK.

[00:04:50] Speaker 03:
When you look at JA.

[00:04:51] Speaker 06:
That's the complaint order.

[00:04:53] Speaker 03:
When you look at JA 608 and 09, those two paragraphs, which are cited in FERC's brief for the proposition that the tariff language itself is unjust and unreasonable, they make clear that the sole basis for FERC's finding of unjustness and unreasonableness is the preliminary load shed study.

[00:05:23] Speaker 06:
Well, actually, paragraph 61, doesn't it say more than that?

[00:05:30] Speaker 03:
Well, it's referring to the application of the tariff language through the preliminary load shed study, and the results of that study demonstrate the unjustness and unreasonableness of the allocation.

[00:05:45] Speaker 06:
Well, indeed, there are no studies or other evidence in the record.

[00:05:49] Speaker 06:
You see that sentence in paragraph 61?

[00:05:52] Speaker 03:
Yes.

[00:05:53] Speaker 03:
Other than the preliminary study, which at that point in time was the only study in the record.

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It was included with the complaint.

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The court noted that that is the only study, the preliminary study.

[00:06:07] Speaker 03:
So that's what FERC was relying on.

[00:06:09] Speaker 03:
And they said there's no other study in the record.

[00:06:11] Speaker 06:
All right.

[00:06:12] Speaker 06:
So then we get these studies in the record later on.

[00:06:15] Speaker 03:
Yes.

[00:06:17] Speaker 03:
The final study came in later on, Your Honor, in compliance with FERC's directive.

[00:06:21] Speaker 06:
Right.

[00:06:24] Speaker 03:
And the final study is the one that showed the completely opposite result of the preliminary study.

[00:06:30] Speaker 06:
All right.

[00:06:30] Speaker 06:
And where is FERC's response on that?

[00:06:35] Speaker 03:
Excuse me.

[00:06:36] Speaker ?:
You're in.

[00:06:37] Speaker 06:
See, I'm trying to understand.

[00:06:39] Speaker 06:
FERC made a decision at step one.

[00:06:42] Speaker 03:
Yes.

[00:06:42] Speaker 06:
Based on the records that were before it.

[00:06:44] Speaker 03:
Yes.

[00:06:45] Speaker 06:
It said the fact this is preliminary doesn't matter because it shows the basic allocation problem and the methodological problem.

[00:06:56] Speaker 06:
All right.

[00:06:56] Speaker 03:
It showed that the benefits were only 42% compared to the cost of 92%.

[00:07:01] Speaker 06:
So then FERC in that order says,

[00:07:05] Speaker 06:
To me so, you know, prepare this study.

[00:07:09] Speaker 03:
Yes.

[00:07:09] Speaker 06:
And then the rest of the orders are basically fussing about the study, and FERC wants more detail, more detail, more detail.

[00:07:17] Speaker 03:
Yes, Your Honor.

[00:07:18] Speaker 06:
All right.

[00:07:18] Speaker 06:
So where are we?

[00:07:20] Speaker 06:
Are we in the third or the fourth order?

[00:07:22] Speaker 03:
There were a total of four studies.

[00:07:25] Speaker 03:
The final study was the second one.

[00:07:27] Speaker 06:
But I would note, Your Honor, I'm just trying to find, and I'll ask FERC counsel, where I'm going to find the response that you're saying was required to this later study.

[00:07:40] Speaker 06:
Well, I would refer you to... In other words, agencies operate and studies come in, studies come in, studies come in, but the initial decision was made based on the record before it.

[00:07:57] Speaker 06:
Then we have four later orders and then we have a petition for reconsideration.

[00:08:04] Speaker 03:
Yes, Your Honor.

[00:08:05] Speaker 03:
What happened is the Commission issued their initial order on July 29th and directed that the study be completed.

[00:08:15] Speaker 03:
And that was filed on August 11th.

[00:08:17] Speaker 03:
But the state-by-state breakdown on this chart was not placed in the record until September 2nd.

[00:08:24] Speaker 03:
And that is at JA 984, Your Honor.

[00:08:32] Speaker 02:
I thought what FERC, well, we'll ask the agency too, but with respect to this study that you're calling the final study, which has the 86% figure, I thought that FERC had said, and this is at 35 to 36 of its brief, the commission did not rely on that version of the final load shed study because it was superseded by an updated version.

[00:08:51] Speaker 02:
Yes, Your Honor, they did say that.

[00:08:52] Speaker 02:
It's on six local balancing authorities instead of the five.

[00:08:55] Speaker 02:
And on that one, the figures go back in the direction that you don't like.

[00:09:00] Speaker 03:
That's exactly right, Your Honor, but I have to point out that the superseding study they referred to was a completely new study based on six local balancing authority areas, which did not go into effect until December 1, six months after the initial order and eight months after the complaint was filed.

[00:09:18] Speaker 03:
It had nothing to do with the original preliminary study or the final study that was filed by MISO on August 11th, which were both based on five local balancing authority areas.

[00:09:34] Speaker 02:
But which way does that cut?

[00:09:36] Speaker 03:
That cuts our way, Rhonda, because the complaint was filed based on five local balancing authority areas.

[00:09:43] Speaker 03:
And the complaint included reference to the preliminary load shed study.

[00:09:48] Speaker 03:
And the final load shed study, which went our way, was also based on the five local balancing authority areas.

[00:09:57] Speaker 03:
So it wasn't until there was a change

[00:10:01] Speaker 03:
approved by NERC to add an additional

[00:10:06] Speaker 03:
balancing authority area, which became effective December 1, that a new study was made based on the six local balancing authority areas.

[00:10:16] Speaker 03:
In our view, it would be improper to retroactively rely on a forward-looking change that occurred long after the filing of the complaint.

[00:10:27] Speaker 06:
So in terms of this study, the Commission says this discrepancy

[00:10:33] Speaker 06:
6% was never presented to the agency.

[00:10:38] Speaker 03:
It was not presented, Your Honor, because the reference

[00:10:43] Speaker 03:
to the joint appendix at 984 where that information first came into the record was five days after we filed our application for rehearing.

[00:10:53] Speaker 03:
What we did say on our application for rehearing, Your Honor, is that the credibility of the preliminary study was undermined because MISO was the author of that study.

[00:11:05] Speaker 03:
MISO warned FERC that the study was both incomplete and needed further analysis.

[00:11:12] Speaker 03:
And that's at JA-791, the April 28th filing at 5.

[00:11:19] Speaker 06:
So did you ever bring this 6% to the commission's attention?

[00:11:24] Speaker 03:
I didn't hear you.

[00:11:25] Speaker 06:
Did you ever bring this 6% discrepancy that you reference in your reply brief to the agency's attention?

[00:11:31] Speaker 03:
We did not, Your Honor.

[00:11:33] Speaker 03:
It became apparent that

[00:11:34] Speaker 03:
it would not have mattered that the protest was filed against when Wisconsin saw the results of the

[00:11:44] Speaker 03:
final study, protests were filed, and the subsequent study was filed on the six local balancing authority areas.

[00:11:53] Speaker 03:
And it's clear that FERC would have arrived at the same decision, but we did not, after our application for rehearing, make further arguments on the differential that you're referring to.

[00:12:08] Speaker 03:
I see my time is up.

[00:12:12] Speaker 03:
If there are no further questions, I'd like to turn it over to Mr. Demaris.

[00:12:15] Speaker 03:
Thank you.

[00:12:16] Speaker 03:
Thank you.

[00:12:26] Speaker 00:
Good morning, Your Honor.

[00:12:28] Speaker 00:
May it please the Court, my name is William Demaris and I'm appearing here today on behalf of the joint petitioners.

[00:12:36] Speaker 00:
Even if the court determines that FERC's decision in July of 2014 that MISO's tariff provision was unjust and unreasonable is based upon substantial evidence, the argument that Mr. Del Sandro has just addressed.

[00:12:58] Speaker 00:
this court must still reverse because the remedy that the commission ordered exceeds its authority under the statute.

[00:13:08] Speaker 00:
On its face, Section 206A of the Power Act prohibits the action FERC took here.

[00:13:18] Speaker 00:
And nothing in Section 309 of the Act authorizes that action.

[00:13:25] Speaker 00:
FERC's position in this case

[00:13:27] Speaker 00:
is that refunds are warranted based upon equitable considerations.

[00:13:34] Speaker 00:
However, because refunds can only be funded out of surcharges, if FERC cannot order surcharges, an unjust situation would arise, and therefore

[00:13:50] Speaker 00:
Under Excel and TNA, FERC can order surcharges to pay for the refunds that FERC views are warranted.

[00:13:58] Speaker 00:
That's the Commission's position.

[00:14:01] Speaker 00:
That rationale, however, puts the cart before the horse, and it turns the legal error line of cases upside down.

[00:14:11] Speaker 00:
This is not a legal error case.

[00:14:14] Speaker 00:
And the Commission has not cited a single case

[00:14:19] Speaker 00:
outside of the context of legal error in which this Court has concluded that a remedy may be in the form of a surcharge retroactive rate increase expressly prohibited by Section 206A of the Act.

[00:14:40] Speaker 02:
This case comes down to... Why do you say it's expressly prohibited?

[00:14:45] Speaker 02:
Where is the language that expressly prohibits it?

[00:14:47] Speaker 00:
The language that it's expressly prohibited is the language in section 206A, which says that the commission may fix the rate thereafter to be observed.

[00:15:00] Speaker 00:
And the court in the City of Anaheim case expressly found that language is clear and unambiguous.

[00:15:08] Speaker 00:
and prohibits retroactive rate increases.

[00:15:12] Speaker 00:
This is not a Section 205 refund case.

[00:15:16] Speaker 00:
The commission goes to great length in its brief.

[00:15:19] Speaker 02:
But that's not necessarily to the exclusion of the proposition that under 309, there's an authority to construct an effective remedy by requiring a surcharge in circumstances like exist in this case.

[00:15:31] Speaker 00:
Well, I would disagree with that, Your Honor, because all of this court's cases construing Section 309, going back to Niagara Mohawk,

[00:15:41] Speaker 00:
and coming right up through TNA have said that the Commission's authority here to fashion a remedy under 309 cannot be inconsistent

[00:15:55] Speaker 00:
with an express provision of the statute.

[00:15:58] Speaker 00:
It must be consistent with the purposes and other provisions of the Act.

[00:16:03] Speaker 00:
And in the cases that have been cited, such as Niagara Mohawk, there was no statutory prohibition against the action that was taken under Section 309.

[00:16:13] Speaker 02:
So if we read A,

[00:16:18] Speaker 02:
I don't know the, is it 206A?

[00:16:21] Speaker 02:
All I know is it's A24EA, but you all refer, people in the know refer to it as 206A?

[00:16:25] Speaker 02:
206A, yeah.

[00:16:27] Speaker 02:
Okay, so if we read 206A, as you're suggesting, which is that it prohibits surcharges, then how does that square with what, I guess it would be 206C says about surcharges, since 206C specifically says at least, it talks about not allowing in circumstances

[00:16:47] Speaker 02:
But the language it uses should be paid through an increase in the cost to be paid by other electric utility companies, which is a surcharge.

[00:16:54] Speaker 02:
So that seems to presuppose that at least surcharges are allowable in some situations.

[00:17:00] Speaker 00:
allowable in the situation governed by Section 206C, but Section 206C we don't believe applies here.

[00:17:09] Speaker 00:
And we believe that the argument that you can infer from the Congressional action to expand the scope of refund authority under Section 206B in 1988, and the concomitant

[00:17:30] Speaker 00:
language in Section 206C, the argument that is made in reliance on those two provisions is that there's a negative inference that applies to Section 206A.

[00:17:46] Speaker 00:
We don't believe that negative inference is appropriate

[00:17:50] Speaker 00:
Given the fact that Congress expressly failed to amend Section 206A, Congress had to be aware of the existence of 206A's absolute prohibition, which has been recognized for many years.

[00:18:06] Speaker 00:
and chose for whatever reason not to amend 206A.

[00:18:11] Speaker 00:
I think it's too much of a reach to rely on a negative inference from the relationship between 206B and 206C to reach the conclusion that therefore the prohibition against retroactive rate increases in 206A should be overridden.

[00:18:32] Speaker 00:
The only time that this court

[00:18:35] Speaker 00:
has determined that the 206A prohibition may be overridden is in the case of legal error cases.

[00:18:44] Speaker 00:
And this is not a case that involves legal error.

[00:18:47] Speaker 00:
And to the suggestion made by interveners that somehow this case should be a legal error case.

[00:18:55] Speaker 00:
FERC never concluded that this was a legal error case.

[00:19:00] Speaker 00:
The complaint never raises the issues that the interveners rely on to claim that this case would be shoehorned into the legal error line of cases.

[00:19:10] Speaker 00:
We believe the legal error line of cases is controlling.

[00:19:14] Speaker 00:
And absent legal error, there's no evidence, there's no indication,

[00:19:20] Speaker 00:
that the prohibition against retroactive rate increases should be overridden.

[00:19:26] Speaker 06:
So I know there's a limit to what you can do with, or what a court can properly do with the titles of subsections.

[00:19:34] Speaker 06:
But looking at what Congress left, as I understand part of the intervener's argument, it's that you really have to read B and C together.

[00:19:48] Speaker 06:
C, B talks about refunds.

[00:19:54] Speaker 06:
And then C talks about these considerations that we take into account, et cetera.

[00:20:01] Speaker 06:
And as I understand your argument in part, other than it's too great a stretch, is that C is addressing very specific circumstances that are not present here.

[00:20:16] Speaker 00:
Yes, Your Honor.

[00:20:17] Speaker 06:
And that the 309 broad language, almost the necessary and proper authorization, simply can't rest on this, what did you just call it?

[00:20:32] Speaker 00:
Tenuous negative inference.

[00:20:35] Speaker 06:
Negative inference.

[00:20:37] Speaker 06:
Yes, Your Honor.

[00:20:38] Speaker 06:
Rather, Congress has to affirmatively provide the agency with authority and that a broad

[00:20:48] Speaker 06:
Provision in 309 cannot fill the gap absent Congress's express determination.

[00:20:57] Speaker 00:
I would say, Your Honor, that 309 is expansive.

[00:21:01] Speaker 00:
The 309 grants for very broad authority, but it is not unconstrained.

[00:21:08] Speaker 00:
It's not unlimited.

[00:21:09] Speaker 00:
It is limited by the other provisions of the act, which if the other provisions of the act say that something may not be done, 309 could not be used under those circumstances.

[00:21:25] Speaker 00:
to grant action that other provisions of the Act expressly prohibit.

[00:21:32] Speaker 00:
And all of the cases applying 309 have recognized that reality, starting with Niagara Mohawk and right up to TNA, where TNA says that this authority to adjust unjust situations in an legal error case, which clearly TNA is,

[00:21:55] Speaker 00:
that that authority cannot be used to violate a specific stricture under the Act.

[00:22:02] Speaker 06:
So what's your understanding of the origin of these legal error decisions?

[00:22:09] Speaker 00:
My understanding of the legal error decisions, Your Honor, is they are in truth not an exception to the statute.

[00:22:17] Speaker 00:
but rather they are a judicial understanding that where the agency has made a legal error, to be consistent with the purposes of the statute, there may be remedies fashioned.

[00:22:32] Speaker 00:
And those remedies, admittedly, could involve a retroactive surcharge.

[00:22:37] Speaker 00:
But that's because you're putting the parties back in the position they would have been in under the statute

[00:22:45] Speaker 06:
the agency's error.

[00:22:47] Speaker 06:
Yes, Your Honor.

[00:22:48] Speaker 06:
I'm just trying to understand.

[00:22:49] Speaker 06:
You don't want to visit on the parties something that the agency itself has acknowledged was error.

[00:22:57] Speaker 00:
That's correct, Your Honor.

[00:22:58] Speaker 06:
So in this case, FERC argues, we have, let's ignore your co-counsel's first argument, if we can for the moment, that issue.

[00:23:11] Speaker 06:
We have such an outrageous situation here.

[00:23:15] Speaker 06:
where one group has been paying for services another has received.

[00:23:23] Speaker 06:
So refunds are clearly warranted.

[00:23:28] Speaker 06:
And FERC goes on at length as to why.

[00:23:32] Speaker 06:
But the problem is NISO doesn't have any resources.

[00:23:38] Speaker 06:
So do you just have to sweep the unjust and unreasonable?

[00:23:45] Speaker 06:
focus here under the rug.

[00:23:49] Speaker 06:
And FERC says no, because we do have sort of a necessary and appropriate authorization.

[00:23:57] Speaker 06:
And in this limited circumstance, it says that authority is sufficient.

[00:24:06] Speaker 06:
What's your response?

[00:24:08] Speaker 06:
I understand your response about 206A.

[00:24:13] Speaker 00:
I would have two responses to that, Your Honor.

[00:24:17] Speaker 00:
The first is that the result you describe is a consequence of the way the statute is drafted and the balancing that Congress made in striking a balance between 206A and 206B, as described in both City of Anaheim and City of Reading, and that

[00:24:42] Speaker 00:
That balance sometimes leads to results in which the agency lacks authority to grant retroactive relief.

[00:24:51] Speaker 00:
But the parties are not without remedy here.

[00:24:55] Speaker 00:
We must remember that these provisions have been in effect since 2004.

[00:25:00] Speaker 00:
And in 2013, there was an SSR agreement

[00:25:08] Speaker 00:
under which the commission approved pro-rat allocation.

[00:25:13] Speaker 00:
And if the parties indeed believed that under the circumstances, that circumstances had changed enough that pro-rat allocation was inappropriate, they had an opportunity then to complain about it.

[00:25:29] Speaker 00:
But they chose not to.

[00:25:32] Speaker 00:
When they filed their complaint,

[00:25:34] Speaker 00:
they were well aware that the remedies that the Commission could grant would be limited by the statute and by the remedies that Congress prescribed.

[00:25:47] Speaker 00:
And in this case, the Congress prescribed only prospective relief, which means that the next time an SSR agreement is proposed, the different allocation mechanism would be implemented

[00:26:04] Speaker 00:
This is a direct consequence of the two-step process that this court recognized in AmeriMain applies to 206.

[00:26:14] Speaker 00:
The first step was the July 29 decision that the existing tariff provision was unjust and unreasonable.

[00:26:24] Speaker 00:
It then took the commission until May of 2016 to fix the rate within the meaning of electric district number one

[00:26:35] Speaker 00:
that would be applied thereafter.

[00:26:38] Speaker 00:
And that is the rate that would apply in the future to SSR agreements in the ATC footprint.

[00:26:47] Speaker 00:
So the parties here, the complaining parties, are not without a remedy.

[00:26:53] Speaker 00:
They have the remedy that Congress chose to give them.

[00:26:55] Speaker 00:
And the commission doesn't have the authority to grant a remedy that the statute prohibits.

[00:27:03] Speaker 00:
And 309 doesn't authorize that.

[00:27:07] Speaker 00:
Thank you, Your Honor.

[00:27:18] Speaker 04:
Good morning.

[00:27:18] Speaker 04:
May it please the court, Holly Kapor for the commission.

[00:27:20] Speaker 04:
I think I should probably start where we just left off with the remedy issue, and I hope that I'll be able to circle back to the unjust and unreasonable original rate.

[00:27:32] Speaker 04:
a little later on.

[00:27:33] Speaker 04:
I'd like to start with 309.

[00:27:36] Speaker 04:
There is no limit in 309 that says it's only for legal error or that it doesn't allow surcharges.

[00:27:46] Speaker 04:
Petitioners' Council understands and has agreed that it is a very broad grant of authority.

[00:27:51] Speaker 04:
Specifically, it allows the Commission to quote from the statute, carry out its existing authority.

[00:27:59] Speaker 04:
Congress gave the Commission in Section 206B authority to require refunds for a 15-month period.

[00:28:08] Speaker 06:
So let me just ask you, before Congress amended 206,

[00:28:14] Speaker 06:
Fork had no authority to grant refunds.

[00:28:17] Speaker 06:
Is that correct?

[00:28:20] Speaker 04:
Perhaps it could have under Section 309.

[00:28:23] Speaker 04:
I don't know that there's a case that specifically addresses that, Your Honor.

[00:28:27] Speaker 06:
Well, obviously, you know where I'm going in the sense that

[00:28:31] Speaker 06:
We have held repeatedly that the agency is a creature of statute.

[00:28:38] Speaker 06:
It has the powers Congress has given to it.

[00:28:41] Speaker 06:
And it amended this same Section 206 to authorize refunds, but in a very tailored way so that the 309 authority, arguably,

[00:28:58] Speaker 06:
could not authorize the commission to grant refunds in excess of what Congress authorized under 206B.

[00:29:09] Speaker 04:
And the commission is not granting refunds in excess of 206B here.

[00:29:13] Speaker 04:
It's simply trying to carry out those refunds both before and after

[00:29:19] Speaker 04:
Congress enacted 206B.

[00:29:21] Speaker 04:
This Court said that the Commission could, in fact, require surcharges under Section 309 in cases that involved a legal error-based fact pattern.

[00:29:32] Speaker 04:
Now, of course, we're not arguing that this is a legal error case here, but petitioners have pointed out nothing, and I see nothing in the Court's case law

[00:29:40] Speaker 04:
that suggests that that reading of 309, which says that surcharges are not prohibited and may be allowed under 309, notwithstanding Section 206A, which has not changed in this course of time,

[00:29:54] Speaker 04:
nothing to say that that doesn't apply outside of the factual context of legal error.

[00:30:01] Speaker 04:
There's simply nothing there.

[00:30:02] Speaker 04:
Again, Congress intended for the Commission to be able to require refunds under 206B.

[00:30:09] Speaker 04:
What we have here, granted it's not legal error, is a circumstance where the Commission will be unable to

[00:30:17] Speaker 04:
require those refunds, because of the nonprofit status of the system operator, because this is a cost allocation case, those limited circumstances that we describe in our brief, it's unable to implement that authority unless it can do so under Section 309.

[00:30:33] Speaker 04:
The Court has already said surcharges are okay under 309 in other circumstances.

[00:30:39] Speaker 04:
And so all the Commission is saying here is that

[00:30:41] Speaker 04:
we should be able to carry out that authority to protect consumers.

[00:30:46] Speaker 04:
Going back to Niagara Mohawk, the very purpose of Section 309 is to allow the Commission to implement its existing authority to carry out, again, in the language of the statute, in order to serve the purpose of the statute, which is to protect consumers.

[00:31:02] Speaker 04:
Here we have the results of the vital cost allocation methodology, which has nothing to do with local balancing authorities.

[00:31:10] Speaker 04:
and simply assigns costs directly to the load serving entities, the local utilities that benefit from the projects, and that shows very clearly that Michigan benefits far more, potentially nearly to the exclusion of Wisconsin.

[00:31:29] Speaker 04:
And so in those factual circumstances, 309 is broad enough.

[00:31:34] Speaker 04:
Petitioners agree that it's broad.

[00:31:35] Speaker 04:
It is broad enough to take us to apply the same legal findings about the scope of the commission's authority outside of the context of legal error in this particular set of circumstances here.

[00:31:50] Speaker 02:
How does a refund get effectuated without a surcharge in other contexts?

[00:31:56] Speaker 04:
Ordinarily, when you have a

[00:31:59] Speaker 04:
public utility that is not a non-profit, the public utility will have funds on hand to pay those.

[00:32:08] Speaker 04:
In particular cases, the shareholders can also be compelled to pay for those costs.

[00:32:16] Speaker 02:
The standard procedure would be that the entity itself has

[00:32:19] Speaker 04:
Yes, and that's why we're here.

[00:32:23] Speaker 04:
That's one of the reasons why we explain Niagara Mohawk so in such detail in our brief and that's because in Niagara Mohawk, 1967, the court said that the Commission is supposed to use its 309 authority in order to

[00:32:40] Speaker 04:
take into account these types of new and evolving circumstances.

[00:32:43] Speaker 04:
Well, relatively speaking to the Federal Power Act, regional transmission organizations and independent system operators that are all nonprofit public utilities is a new and evolving circumstance.

[00:32:54] Speaker 04:
And the commission is attempting to use its full authority as it's been told to do, not just in Niagara Mohawk, but also in Excel, also in TNA, where the

[00:33:06] Speaker 04:
court counseled the Commission to be sure that it was fully examining the equities in all of these refund cases and that it was carrying it out to the maximum effect.

[00:33:16] Speaker 04:
And in fact, Niagara Mohawk uses that language in describing the Commission's broad discretion to implement remedies and to essentially be creative in implementing remedies.

[00:33:28] Speaker 04:
It says to maximize the effectuation of the purpose of the statute, which is consumer protection.

[00:33:36] Speaker 04:
I wanted to go circle back to TNA in particular because I think it's important to note there that the court distinguished between the remedy of refunds under 206b and the separate matter of recoupment under 206b and found that the commission wasn't constrained by the language of 206b.

[00:34:01] Speaker 04:
of 206A with regard to recoupment the way that it would be with refunds.

[00:34:08] Speaker 04:
And so I think that by analogy, again, it's quite easy to see that surcharges are something separate from refunds.

[00:34:17] Speaker 04:
And here, it is necessary for the commission to require those surcharges to carry out its 206B refund authority.

[00:34:27] Speaker 04:
Let's see.

[00:34:30] Speaker 04:
Petitioners' Council mentioned that parties have fully available recourse.

[00:34:37] Speaker 04:
They suggest that the parties could have come to the commission sooner with their argument that the pro rata cost allocation was unjust and unreasonable.

[00:34:46] Speaker 04:
Of course, it's the study that was only driven by the retirement of the Presque Isle plant that caused the Commission to see that the existing cost allocation methodology was unjust and unreasonable.

[00:34:59] Speaker 04:
But perhaps more important in the context of remedies, the short-term nature of the agreements is what really makes it necessary for the Commission to have this authority

[00:35:09] Speaker 04:
to not only give the refunds, but to require the surcharges to implement them.

[00:35:13] Speaker 04:
There is no prospective relief here.

[00:35:16] Speaker 04:
The Presque Isle system support resource agreement lasted a shorter amount of time than the refund period did.

[00:35:24] Speaker 04:
So if we don't have the ability to require the surcharges, then the Wisconsin parties are without relief.

[00:35:31] Speaker 06:
So just explain to me why these agreements go into effect that way.

[00:35:35] Speaker 06:
They automatically go into effect.

[00:35:39] Speaker 04:
Like a typical 804D 205 filing, the parties bring it to the commission, and normally there's a 60-day waiting period, essentially, for it to become effective.

[00:35:53] Speaker 04:
But because these units are needed for the reliability of the grid, the commission has

[00:36:00] Speaker 04:
waved that 60-day period so that the agreements become effective immediately, and that is what it did here.

[00:36:06] Speaker 04:
So the Commission obviously does have the power to suspend, but if it did that, the agreement then wouldn't go into effect, the unit wouldn't be able to run, and there would be a reliability issue.

[00:36:16] Speaker 04:
So the Commission certainly has good reasons for allowing that to go into effect quickly, and this is simply unlike your standard long-term power purchase agreement or even a change to

[00:36:26] Speaker 04:
a market design that you're putting into effect to be good for five years, ten years, or until a better market design comes around.

[00:36:33] Speaker 04:
It's just a different type of situation.

[00:36:35] Speaker 04:
And again, it's these types of new and evolving circumstances, the cost allocation case, the nonprofit status of the public utility, the short-term nature of the agreement, all of those things that the Commission found, the equities that the Commission found supported refunds.

[00:36:52] Speaker 04:
are the same things that support the Commission in exercising its 309 authority here.

[00:36:56] Speaker 04:
So, again, while the prior cases that the Court has dealt with under Section 309 have involved a legal error factual scenario, we think that these equitable facts are more than adequate to show that the Commission has its 309 authority.

[00:37:11] Speaker 04:
There's nothing in the statute, certainly, and there's nothing in the Court's case law to date that says otherwise.

[00:37:19] Speaker 06:
So it's a legal necessity, is that the argument?

[00:37:23] Speaker 06:
In other words, in order to carry out 206B, where you have these RTOs or these ITOs, necessarily you have to be able to impose

[00:37:47] Speaker 04:
surcharges to recover the refunds, if I can.

[00:37:50] Speaker 06:
So, I mean, it's not a unique situation, arguably.

[00:37:55] Speaker 06:
I mean, now that we have this restructured grid, it could happen more frequently.

[00:38:06] Speaker 04:
It could happen more frequently, but again, it's not just the nonprofit status of the system operator, it's also the short-term nature of the agreements, and it's also the fact that it's a cost allocation case.

[00:38:21] Speaker 04:
system operator has this money and it's sitting on it because it overcharged and needs to give it back.

[00:38:27] Speaker 04:
That's your standard overcharge case where, so I did want to point the court to, because it was just recently issued, in Northwestern versus FERC 884, Fed 3rd 1166 at 1184, just from last month, the court there explained a little bit more in detail about the difference between overcharge cases, which this case is not,

[00:38:49] Speaker 04:
and cost allocation cases and the distinctions there.

[00:38:52] Speaker 04:
That was a standard overcharge case where the utility had the money and simply needed to give it back.

[00:38:58] Speaker 04:
Going back to your question, Judge Srinivasan, about how does this work in a normal case, that's an example of a normal case there.

[00:39:11] Speaker 04:
Turning to the

[00:39:14] Speaker 04:
cost allocation issue on the matter of the commission's evidentiary basis for its

[00:39:20] Speaker 04:
step one finding under 824E or section 206.

[00:39:26] Speaker 04:
What the commission did there is it said the preliminary study is enough because it shows that it is possible to tie the costs to the benefits.

[00:39:38] Speaker 04:
And when we look at the pro rata language of the tariff in the view of this preliminary study that the commission now received,

[00:39:47] Speaker 04:
we can see it illustrates that the pro rata method does not require any connection to cost causation.

[00:39:55] Speaker 04:
No connection is required between the costs and the benefits.

[00:39:59] Speaker 04:
And so we can see that it is unjust and unreasonable.

[00:40:02] Speaker 04:
The study the commission found was illustrative in that manner.

[00:40:05] Speaker 04:
It demonstrated the sort of inherent nature of the unjust and unreasonable pro rata approach that was in the tariff.

[00:40:12] Speaker 04:
And the commission needed the study in order to see that.

[00:40:16] Speaker 04:
Turning to the later studies that came in, the most important thing to know about the so-called final study, which was actually the second of four studies that were ultimately done in the course of the proceeding,

[00:40:32] Speaker 04:
is that it isn't final.

[00:40:35] Speaker 04:
The commission rejected it outright, and it was replaced by another study, the third study, that also looked at allocation of costs based on local balancing areas.

[00:40:50] Speaker 04:
That's the sixth LDA study, if you will, that showed 99% of the benefits going to Michigan.

[00:40:57] Speaker 04:
And that study was also rejected because in the end, the commission found that allocating costs based on local balancing authorities' areas for these particular units was unjust and unreasonable.

[00:41:09] Speaker 04:
So the study that shows

[00:41:11] Speaker 04:
86% of the benefits to Wisconsin, and even the study that shows 99% of the benefits to Michigan using local balancing areas are both irrelevant to the Commission's analysis.

[00:41:26] Speaker 04:
The only way they could be relevant is that they all show it is possible to tie costs to benefits for these particular units.

[00:41:37] Speaker 04:
it is possible to implement the nexus that is required by the court's precedent and the commission's precedent that says the commission needs to assign costs as closely as possible in line with benefits.

[00:41:50] Speaker 04:
And all four of the studies, but really all three of the studies that petitioners have presented arguments based upon show that that's possible.

[00:42:00] Speaker 04:
Petitioners in their reply brief at page 25 pointed out that or asserted that they had not been able to present argument based upon the so-called final study, the one that showed 86% of benefits to

[00:42:15] Speaker 04:
Wisconsin.

[00:42:17] Speaker 04:
I did want to just inform the court that that's not accurate.

[00:42:21] Speaker 04:
In Verso's rehearing request, Petitioner Verso, in their hearing request at JA 914, you will see a motion to lodge, not included in the Joint Appendix is the attachment that they were attempting to lodge, which is the very study that shows the 86 percent of benefits to

[00:42:43] Speaker 04:
Wisconsin.

[00:42:44] Speaker 04:
I would just want to read in the accession number where that can be found and I'm happy to provide it to the court if necessary.

[00:42:49] Speaker 04:
It's the accession number for the Commission's e-library is 2014-0828-5243.

[00:42:56] Speaker 04:
So they had that information.

[00:42:57] Speaker 04:
It was in the record or

[00:42:59] Speaker 04:
in the commission's docket before September 2nd.

[00:43:02] Speaker 04:
They attached it to their rehearing request.

[00:43:04] Speaker 04:
They could have presented argument on it.

[00:43:06] Speaker 04:
They did not, which is why when you look at the commission's orders, you'll see that the commission relied on the preliminary study and said in paragraph 74 of the second order in particular, that said JA 1401,

[00:43:18] Speaker 04:
It said the preliminary study is enough.

[00:43:20] Speaker 04:
Yes, there is this new final study that has come in, and we'll address that later, but it's not relevant to our purposes here under step one, finding that the existing rate is unjust and unreasonable.

[00:43:35] Speaker 04:
And if there are no questions, I will leave it there, and thank you for your time.

[00:43:38] Speaker 06:
Thank you.

[00:43:43] Speaker 06:
Council for intervening.

[00:43:52] Speaker 06:
Good morning.

[00:43:53] Speaker 01:
Good morning, if it please the court.

[00:43:55] Speaker 01:
My name is Bill Massey.

[00:43:56] Speaker 01:
I'm representing the Wisconsin Commission and intervener in this case.

[00:44:02] Speaker 01:
I appreciate the court's questions about the implications of Section 206C.

[00:44:09] Speaker 01:
Actually, if you read 206B and 206C together,

[00:44:15] Speaker 01:
206C would be a superfluous if 206B did not authorize surcharges, because 206C limits FERC's authority to use surcharges in the case of registered holding companies.

[00:44:34] Speaker 01:
If Fertin did not have that authority under 206b, perhaps coupled with 309, 206c would have been completely, would be superfluous.

[00:44:47] Speaker 01:
It would have been totally unnecessary.

[00:44:50] Speaker 01:
If you parse the words closely,

[00:44:52] Speaker 01:
You can see that 206C actually begins by saying when the Commission is exercising its 206B authority and uses surcharges

[00:45:06] Speaker 01:
actually uses a different term, but that's what it's talking about, then FERC's authority is limited in the case of registered holding companies.

[00:45:16] Speaker 01:
Strong implication is not limited elsewhere.

[00:45:19] Speaker 01:
If you read 206C and 206B together, Your Honors, we would argue

[00:45:28] Speaker 01:
any strictures on the application of Section 309 to do justice, which is exactly what the Commission did in this case.

[00:45:37] Speaker 01:
And by the way, the 309 cases that this Court has

[00:45:43] Speaker 01:
proved do not all require legal error.

[00:45:47] Speaker 01:
The Niagara Mohawk case was not a legal error case, and there are cases under the Natural Gas Act in which court applied section 16 of the Natural Gas Act, which is the same thing as section 309 of the Federal Power Act, without finding legal error.

[00:46:07] Speaker 01:
The second point I would like to make, Your Honor, is that City of Anaheim is distinguishable.

[00:46:14] Speaker 01:
City of Anaheim was a 206A case.

[00:46:19] Speaker 01:
It did not involve FERC's exercise of its refund authority.

[00:46:27] Speaker 01:
It was a rate increase case where the utility sought an increase in its revenue requirement.

[00:46:36] Speaker 01:
in its revenues.

[00:46:37] Speaker 01:
Here we have a matter where the utility is not seeking an increase in its revenues.

[00:46:43] Speaker 01:
The issue is the allocation of the revenues.

[00:46:47] Speaker 01:
that are on file at the Commission.

[00:46:50] Speaker 01:
It's a zero sum reallocation unlike City of Alaheim in which generators came in with no notice and asked for a rate increase.

[00:47:05] Speaker 01:
Here all parties were on notice.

[00:47:07] Speaker 01:
These are all very sophisticated parties that deal with MISO all the time and these RTO tariffs.

[00:47:15] Speaker 01:
They definitely understood that if FERC in the July order

[00:47:20] Speaker 01:
required refunds, that those would need to be funded with surcharges.

[00:47:26] Speaker 01:
So City of Anaheim doesn't speak to this situation at all.

[00:47:30] Speaker 01:
FERC is in its refund box here under 206B and 309.

[00:47:36] Speaker 01:
And if you read, our view is the path through this maze is, if you read 206C, which sheds strong light on the meaning of 206B,

[00:47:50] Speaker 01:
And 206C basically assumes that under 206B FERC has the surcharge authority.

[00:47:58] Speaker 01:
And if you read that in connection with Section 309, you put together a legal package

[00:48:06] Speaker 01:
that is quite persuasive for FERC's use of authority in this case.

[00:48:11] Speaker 01:
This may actually be a unique case where FERC finds that all the equities favor refunds and surcharges, that MISO has no money, can't pay, so the costs have to be reallocated.

[00:48:26] Speaker 01:
There's no increase in the revenue requirement here like there was in City of Anaheim, Your Honor.

[00:48:34] Speaker 06:
Thank you.

[00:48:35] Speaker 01:
I've gone over my time.

[00:48:36] Speaker 06:
Thank you very much.

[00:48:48] Speaker 00:
I'd like to respond briefly to the arguments that have been made by respondent and interveners.

[00:48:55] Speaker 00:
I'd like to start by pointing out to the court that nowhere in the proceedings below did the Commission rely on its authority under Section 309.

[00:49:07] Speaker 00:
cited Niagara, but it doesn't rely on Section 309 as the basis for its actions below.

[00:49:13] Speaker 00:
Moreover, the Commission did not rely on this tenuous argument presented by the interveners in Section 206C, and you may have noted that Ms.

[00:49:25] Speaker 00:
Kafer in her argument made no references to or reliance on Section 206C because the Commission below did not agree with or put forth this novel theory.

[00:49:37] Speaker 00:
With respect to TNA and the point Ms.

[00:49:43] Speaker 00:
Kafer made about recoupment, I would point out that recoupment is not prohibited by Section 206A, whereas retroactive rate increases are.

[00:49:54] Speaker 00:
And that's why TNA does not authorize the relief granted here.

[00:50:00] Speaker 00:
With respect to Ms.

[00:50:01] Speaker 00:
Kafer's point that Section 309 and the Commission's actions here were to carry out, quote, the purposes of the statute, which she referred to as protection of consumers, I would point out that that view is too narrow.

[00:50:20] Speaker 00:
This statute is a very careful balance of protection of the rights of consumers and utilities.

[00:50:27] Speaker 00:
That balance has been recognized going back to Hope Natural Gas and its progeny.

[00:50:34] Speaker 00:
And Section 206A and 206B recognize the balance of protection of consumers from rate increases versus the protection of utilities from unlimited refund exposure.

[00:50:51] Speaker 00:
And that balance remains today.

[00:50:54] Speaker 00:
And to suggest

[00:50:55] Speaker 00:
that the purposes of the statute in Section 309 can be used in contravention of one of those core balances struck by Congress reads too much into Section 309.

[00:51:10] Speaker 00:
This is a Section 206 case, not a Section 205 case.

[00:51:17] Speaker 00:
With respect to the references that Mr. Massey referred to under the Natural Gas Act, I would call the court's attention to Public Service Commission of New York versus FERC.

[00:51:30] Speaker 00:
where this court said, we see no basis for reading NGA Section 16 as overriding the balance achieved by Sections 4 and 5, the corollaries to Sections 205 and 206 of the Federal Power Act, and find FERC's expansive view of its Section 16 powers, the equivalent to Section 309 under the Power Act, to be contrary to the purposes of the Act.

[00:51:59] Speaker 00:
And we believe that language is equally applicable here.

[00:52:02] Speaker 06:
So what's the site?

[00:52:04] Speaker 00:
The site for that case, Your Honor, is 866 Fed 2nd, 487 at 491.92.

[00:52:10] Speaker 00:
Thank you.

[00:52:15] Speaker 00:
The Court has no other questions.

[00:52:18] Speaker 06:
Thank you.

[00:52:18] Speaker 06:
Thank you, Your Honor.

[00:52:20] Speaker 06:
We'll take the case under advisement.