[00:00:02] Speaker 02:
Case number 19-1142 et al, National Association of Regulatory Utility Commissioners, Petitioner versus Federal Energy Regulatory Commission.

[00:00:14] Speaker 02:
Ms.

[00:00:14] Speaker 02:
Murphy for Petitioner NARUC, Mr. Lane for Petitioners American Public Power Association et al, Mr. Biswa Nathan for the responding.

[00:00:29] Speaker 04:
Good morning.

[00:00:33] Speaker 03:
Good morning.

[00:00:58] Speaker 04:
That's it.

[00:00:59] Speaker 04:
Council for Petitioner Nauert, are you ready to begin?

[00:01:03] Speaker 03:
I am, Your Honor.

[00:01:05] Speaker 03:
Please do.

[00:01:06] Speaker 03:
Thank you.

[00:01:10] Speaker 03:
Good morning, Your Honors, and may it please the Court, Jennifer Murphy from the National Association of Regulatory Utility Commissioners.

[00:01:17] Speaker 03:
I would like to reserve three minutes for rebuttal.

[00:01:21] Speaker 03:
Your Honors, this case presents a narrow but critical issue for the Court.

[00:01:25] Speaker 03:
Congress granted authority to defer over wholesale electric sales

[00:01:30] Speaker 03:
But Congress also explicitly reserved powers to the states.

[00:01:35] Speaker 03:
These powers include jurisdiction over the distribution side of the electric grid.

[00:01:40] Speaker 03:
The rule at issue here disregards that division of authority.

[00:01:45] Speaker 03:
The storage rule did not have to be written this way to achieve its goals.

[00:01:50] Speaker 03:
And because it is unlawfully written, we asked the court to vacate this aspect of the rule.

[00:01:56] Speaker 03:
My organization represents the state public utility commissions in every state that regulate utilities that provide essential services like electricity and natural gas.

[00:02:07] Speaker 03:
They are responsible for ensuring that their retail customers receive safe, reliable, and affordable service.

[00:02:16] Speaker 03:
In one small and unnecessary aspect of the rule, exceeded is statutory authority granted by the Federal Power Act

[00:02:24] Speaker 03:
by attempting to curtail state authority over the distribution system and prevent states from executing their responsibilities fully.

[00:02:33] Speaker 03:
This prevents them from guaranteeing that their retail customers receive safe, reliable, and affordable service.

[00:02:41] Speaker 03:
Before turning to the statutory language of the Federal Power Act, it is important to clarify what this case is about and what it is not about.

[00:02:49] Speaker 03:
This case isn't about the validity of the majority of the storage rule.

[00:02:53] Speaker 03:
It's about the validity of a discrete portion of the rule in which FERC asserts that states may not, quote, broadly prohibit, unquote, local state-regulated storage resources on the distribution system from participating in federally regulated wholesale markets.

[00:03:12] Speaker 03:
This case is also not about wholesale rates.

[00:03:15] Speaker 03:
Much of FERC's argument relies on cases addressing FERC's exclusive authority over wholesale rates.

[00:03:22] Speaker 03:
But this case is actually about FERC's attempt to encroach on states' ability to regulate distribution facilities and local storage resources.

[00:03:31] Speaker 03:
Also, this case is not about a request by states for FERC to disclaim its jurisdiction over wholesale transactions by local resources.

[00:03:40] Speaker 03:
What this case is about is what the Federal Power Act allows FERC to do and what FERC cannot do.

[00:03:49] Speaker 03:
Burke's authority is constrained by what powers it is granted by the Federal Power Act.

[00:03:55] Speaker 03:
With its storage rule, Burke exceeded the limits of its authority under the Federal Power Act when it proclaimed that states cannot broadly prohibit storage resources on state-regulated distribution systems from participating in the federal wholesale market.

[00:04:11] Speaker 01:
Can I just... I'm sorry.

[00:04:14] Speaker 01:
Go ahead, Judge Rogers.

[00:04:15] Speaker 04:
No, please.

[00:04:16] Speaker 04:
Judge Wilkins, proceed.

[00:04:20] Speaker 01:
You said that FERC exceeded its authority in the rule by saying that states may not broadly prohibit electric storage resources from participating in the wholesale market.

[00:04:40] Speaker 01:
But that language is in

[00:04:43] Speaker 01:
I guess an explanatory section of Order 841A.

[00:04:52] Speaker 01:
That language doesn't appear in the rule itself.

[00:04:56] Speaker 01:
It's not in 18 CFR 35.28 anywhere, is it?

[00:05:05] Speaker 01:
No, Your Honor.

[00:05:09] Speaker 01:
What is it that you're asking us to set aside?

[00:05:12] Speaker 01:
If the regulation that was amended by the order doesn't include the offending language, then where is your injury?

[00:05:22] Speaker 01:
What is it that we're supposed to be doing here?

[00:05:27] Speaker 03:
We are asking the court to vacate just those sentences where FERC declares that

[00:05:34] Speaker 03:
States cannot broadly prohibit local resources from participating in the wholesale markets.

[00:05:42] Speaker 03:
That language is there and FERC, we asked for clarification when it was in the Order 841, we asked for clarification of that language.

[00:05:53] Speaker 03:
FERC still included it in 841A.

[00:05:55] Speaker 03:
FERC is here defending that language now.

[00:05:58] Speaker 03:
If FERC had said that that language had no meeting, we wouldn't be here frankly.

[00:06:04] Speaker 03:
So we are asking that the court remove this language from the order.

[00:06:21] Speaker 01:
I guess what I'm trying to get at is that normally we vacate a

[00:06:30] Speaker 01:
in order because there is a rule or a specific mandate by regulation or an action.

[00:06:45] Speaker 01:
But there's a rightness challenge that's been raised.

[00:06:49] Speaker 01:
And even the amicus states that include California have said that

[00:06:59] Speaker 01:
While they don't like that language, the broadly prohibiting language, they don't believe that ultimately it's going to prevent them from taking steps to ensure the reliability and safety of their grid in circumstances where there's a wildfire or a potential blackout or something of that nature.

[00:07:27] Speaker 01:
in that if there is a potential conflict, they believe that they can work it out with first.

[00:07:33] Speaker 01:
And if they can't, then they'll be back here to see us or another court.

[00:07:44] Speaker 01:
Why isn't that the way that we should resolve this?

[00:07:50] Speaker 03:
Well, respectfully, Your Honor, if

[00:07:54] Speaker 03:
Burke is here defending the inclusion of this language in its order and saying that it has meaning.

[00:08:02] Speaker 03:
If a state were reading the order, it would be inhibited, or it might seem to feel inhibited from pursuing oversight and management of the distribution system by the language in the order itself.

[00:08:21] Speaker 03:
If the court finds that this language

[00:08:24] Speaker 03:
does not impact state jurisdiction, we would find that to be an acceptable result.

[00:08:36] Speaker 01:
All right.

[00:08:36] Speaker 01:
Well, I don't want to monopolize the question.

[00:08:39] Speaker 01:
And thank you for your responses.

[00:08:43] Speaker 04:
So following up on Judge Wilkins' question about where this language appears, how

[00:08:52] Speaker 04:
How do you reconcile that with at least the position that the commission took on rehearing and now before the court in its brief that tracks very much the notion Judge Wilkins was reviewing with you that the state of California has articulated?

[00:09:20] Speaker 04:
In other words, are we looking for a problem to happen as distinct from a clear violation of a jurisdictional bar or, as you say, a clear line?

[00:09:45] Speaker 03:
Yes, Your Honor, the FERC has

[00:09:50] Speaker 03:
I said that states cannot do this action.

[00:09:53] Speaker 03:
And so currently they are... They cannot do what action?

[00:09:59] Speaker 03:
They cannot create broad prohibitions against all local storage resources participating in federal wholesale markets as they can with demand response resources currently.

[00:10:13] Speaker 03:
We were looking for the same what's been referred to as opt-out language that FERC

[00:10:20] Speaker 03:
included in orders 719 and 719A that preserved this jurisdictional boundary.

[00:10:27] Speaker 03:
And we asked FERC for that language in the rulemaking.

[00:10:32] Speaker 03:
Instead of providing that language, FERC has gone the other way and directly prohibited states from taking this sort of action.

[00:10:40] Speaker 03:
So I understand what you're saying, but it seems that FERC could have

[00:10:47] Speaker 03:
remained silent on this issue, but they chose not to.

[00:10:50] Speaker 03:
Instead of leaving it open for states to try to implement regulations regarding local storage resources participating in the wholesale markets, they preemptively said, you cannot do this.

[00:11:07] Speaker 03:
And they're saying that even if we did it, we'd be preempted.

[00:11:12] Speaker 03:
But if they're saying that,

[00:11:18] Speaker 03:
If they're saying that, then we think that you're saying it has meetings.

[00:11:22] Speaker 03:
Thank you, Your Honor.

[00:11:23] Speaker 00:
Wait, wait.

[00:11:24] Speaker 00:
Don't go away.

[00:11:25] Speaker 00:
Judge Garland, I have a question.

[00:11:28] Speaker 00:
Yes.

[00:11:33] Speaker 00:
If I read the, I want to see exactly how you read the bar on states and compare it to the way in which the agents

[00:11:48] Speaker 00:
So you agree with the following, that the work rule says that states can't bar a DSR from getting on a local grid at all.

[00:12:01] Speaker 00:
But if a DSR is allowed on the grid, then the state can't bar it from providing power to interstate wholesale markets.

[00:12:08] Speaker 00:
Is that what the rule does, or does the rule do something else?

[00:12:14] Speaker 03:
I'm sorry, Your Honor, could you just repeat

[00:12:17] Speaker 03:
Last part of the question.

[00:12:19] Speaker 00:
Yeah, well, I'll repeat it again.

[00:12:21] Speaker 00:
A state cannot bar a DSR from getting on, can bar a DSR from getting on the grid at all for safety reasons, for reliability reasons, for whatever reasons.

[00:12:35] Speaker 00:
But if the state allows the DSR to get on the grid, it can't bar it from providing power to interstate wholesale markets.

[00:12:44] Speaker 00:
Assuming it can do its safety and reliability.

[00:12:46] Speaker 00:
It can impose the same safety and reliability rules it can apply to anything.

[00:12:51] Speaker 00:
But it can't, to use the word in a colloquial way, discriminate to prevent the DSR from providing power to an interstate wholesale market.

[00:13:05] Speaker 03:
Correct.

[00:13:06] Speaker 03:
Yes.

[00:13:07] Speaker 03:
FERC is saying that it is the

[00:13:10] Speaker 03:
local storage resources choice whether they participate in the retail market or the wholesale market.

[00:13:16] Speaker 00:
Right, but the state can still borrow the DSR from getting on the local grid at all?

[00:13:24] Speaker 00:
Yes, under a variety of... I'm saying in terms of understanding of what FERC is doing, when they say we don't give DSRs a right of attachment regardless of what the state wants,

[00:13:41] Speaker 00:
What they mean by that is the state can bar the DSR from getting on the local grid at all.

[00:13:48] Speaker 00:
That is, it can just block it from getting on the grid.

[00:13:50] Speaker 00:
But once it allows it to be on the grid, then it can't discriminate against the provision of interstate wholesale power.

[00:14:00] Speaker 00:
I'm not asking this to be argumentative.

[00:14:03] Speaker 00:
I just want to be sure I understand that both sides understand the rule to be the same.

[00:14:08] Speaker 03:
Yes.

[00:14:09] Speaker 03:
Yes, Your Honor.

[00:14:10] Speaker 03:
They're saying that we cannot prohibit them from accessing the wholesale markets.

[00:14:17] Speaker 00:
OK.

[00:14:17] Speaker 00:
Let me ask one other question.

[00:14:18] Speaker 00:
Is there any state that has said that they want to, or they're thinking about, or they might anytime in the near future want to borrow a DSR from providing power to interstate wholesale markets?

[00:14:37] Speaker 03:
Well, as we noted in our brief, which I can, our initial brief at 32, note 74, the state of North Carolina had, in a similar situation with demand response resources, found that because they are traditionally vertically integrated state, that

[00:14:59] Speaker 03:
retail customers individually or collectively through a third-party aggregator that is not overseen by the commission cannot participate in the wholesale market.

[00:15:11] Speaker 00:
So that state... That has to do with demand response, but with respect to... I understand you think there's an analogy, but has any state, including North Carolina, indicated that it wants to do this with respect to DSRs?

[00:15:30] Speaker 03:
No, directly, states have said that they want to preserve this authority, though.

[00:15:35] Speaker 03:
They want to make sure that this is a new situation for them.

[00:15:40] Speaker 03:
They are, before FERC enacted this rule, they did, this was not a possibility.

[00:15:48] Speaker 03:
The state had no.

[00:15:49] Speaker 00:
In what way have they indicated that they want to preserve the possibility?

[00:15:55] Speaker 00:
And what particular state has said that?

[00:15:59] Speaker 03:
Well, so I work for the National Association of Regulatory Utility Commissioners.

[00:16:05] Speaker 03:
We represent all the states.

[00:16:06] Speaker 03:
We asked our members what they wanted, what comments they wanted to put into the rulemaking when it was a rulemaking and then whether they supported our action.

[00:16:17] Speaker 03:
And we had them participate in a comment process and in the appellate process, you know, with their oversight

[00:16:28] Speaker 03:
reviewing our proceedings and pleadings.

[00:16:32] Speaker 03:
So they've done this through our process.

[00:16:41] Speaker 04:
I guess we're asking for a little specificity.

[00:16:45] Speaker 04:
For example, it's a new situation, you say, and the question is, what have they lost?

[00:16:55] Speaker 04:
What do they want to do that they think

[00:16:58] Speaker 04:
the rule and as your vibe, would bar them from doing.

[00:17:10] Speaker 03:
So the rule is prohibiting them from... Broadly?

[00:17:16] Speaker 03:
I'm sorry.

[00:17:20] Speaker 03:
I pardon your honor, I didn't hear that last word.

[00:17:25] Speaker 03:
No, excuse me.

[00:17:26] Speaker 03:
Please continue.

[00:17:29] Speaker 03:
So the part of this rule is that states will have to take on additional burdens such as accounting measures and looking at their operations and such.

[00:17:46] Speaker 03:
And the accounting measures will have to deal with how to separate retail and wholesale practices and metering and such.

[00:17:53] Speaker 03:
And so this is a new burden.

[00:17:55] Speaker 03:
And so as states go through this process, they want

[00:17:59] Speaker 03:
to make sure that they can still meet their obligations, which include the design operations, reliability, and cost of the systems for the distribution systems.

[00:18:10] Speaker 03:
So this is a tool for them to be able to move through this process.

[00:18:18] Speaker 00:
Just to follow up one more time, what you and I established together is that the only thing that the state can't do

[00:18:29] Speaker 00:
is once DSR is on the grid and approved to be on the grid, state can't bar it from providing power to interstate wholesale markets.

[00:18:38] Speaker 00:
Has some state indicated that it wants to discriminate against the provision of power to interstate wholesale markets?

[00:18:46] Speaker 03:
As Burke pointed out, Missouri filed comments.

[00:18:50] Speaker 03:
It was in the demand response aggregation docket, but it's a similar, which would include storage resources, but they said,

[00:18:58] Speaker 03:
that they don't think that they're going to use the opt-out, but they want to preserve the ability to use the opt-out.

[00:19:03] Speaker 03:
And that is generally the consensus among our members is that they're, they want to be able to move forward in a, in a methodical piecemeal fashion and figure out as they go what they need to do.

[00:19:19] Speaker 03:
And this takes away one of the tools in their toolbox.

[00:19:24] Speaker 00:
Okay, thank you.

[00:19:31] Speaker 01:
It seems that what you're asking us to do is to strike down this language in this order now, which seems to be, is it because we're supposed to interpret this language as

[00:19:59] Speaker 01:
as a mandate to the states and we should strike it down now as opposed to waiting until if and when the state decides to take action and FERC interprets that action as conflicting with this mandate or conflicting with this order in the regs that the order has amended.

[00:20:27] Speaker 01:
instead of waiting for that conflict to occur?

[00:20:35] Speaker 03:
Yes.

[00:20:36] Speaker 03:
I mean, that would be one way to approach it, but we also feel that the Federal Power Act does not support FERC's interpretation of its jurisdiction in order to be able to do this.

[00:20:45] Speaker 03:
FERC states that its rule is directed at wholesale market operators and that it is trying to reduce the barriers to participation in the wholesale market.

[00:20:57] Speaker 03:
Our position is that the Federal Power Act allows it to do that for barriers within the federal wholesale markets to participation.

[00:21:06] Speaker 03:
This is what they're calling a barrier outside, and we think it exceeds the FERC's jurisdiction to proclaim in advance that states cannot do this.

[00:21:19] Speaker 03:
We don't think that the Federal Power Act supports that.

[00:21:22] Speaker 00:
Can I just follow up on that?

[00:21:24] Speaker 00:
So just again, you think that the

[00:21:27] Speaker 00:
FERT does not have the authority to bar a state from borrowing a power source that is already on a local grid from providing power to an interstate market.

[00:21:45] Speaker 00:
Is that right?

[00:21:47] Speaker 03:
Yes.

[00:21:47] Speaker 03:
So prior to the rule, this was not an issue because the local storage resources were on the local distribution system and could not

[00:21:58] Speaker 03:
participate in the federal market?

[00:22:00] Speaker 00:
I don't care.

[00:22:00] Speaker 00:
I'm sorry.

[00:22:01] Speaker 00:
I understand that this is new.

[00:22:05] Speaker 00:
Are there regular power plants, fossil fuel plants, et cetera, that are on local grids to begin with?

[00:22:14] Speaker 00:
That is, the way they plug into the interstate, providing interstate wholesale power, is through a local grid?

[00:22:22] Speaker 03:
No, most of those plants are on the transmission system, Your Honor.

[00:22:26] Speaker 00:
Are there any?

[00:22:27] Speaker 00:
When you say most, are there any?

[00:22:31] Speaker 03:
I would think that there may be a few, particularly in the smaller.

[00:22:35] Speaker 00:
And if the work wants to ensure that those plants can reach the interstate grid and provide wholesale power, you think that is a violation of their

[00:22:53] Speaker 00:
jurisdiction that's outside their jurisdiction?

[00:22:57] Speaker 00:
Is that what you're saying?

[00:23:01] Speaker 03:
I am saying that to do so they need to use the distribution facilities and those distribution facilities that

[00:23:17] Speaker 03:
are used for that are ones that have been established for this dual purpose.

[00:23:24] Speaker 03:
The distribution facilities we are referring to are not.

[00:23:28] Speaker 03:
These are distribution facilities that only deal with distribution activities.

[00:23:35] Speaker 00:
But it can be used physically to transmit power from these DSRs, or in my hypothetical a power plant, to the transmission grid, right?

[00:23:49] Speaker 03:
depending on the load or the... Yeah, of course.

[00:23:54] Speaker 00:
I understand.

[00:23:55] Speaker 00:
Blockability, security, et cetera.

[00:23:57] Speaker 00:
But there, you know, we have a whole bunch of amicus states who want to get this to go forward.

[00:24:01] Speaker 00:
So it must be possible to do so, right?

[00:24:05] Speaker 03:
Yes.

[00:24:06] Speaker 03:
We are not saying... Yes, I recognize that many of the states are eager and are willing to have their resources

[00:24:16] Speaker 03:
participate in the wholesale market, and we fully support that.

[00:24:19] Speaker 03:
We are just saying that not all states are there, not all states are ready for this, and that those states that aren't are going to, and those states that don't have the capabilities to handle the accounting and the metering and all the extras that come with implementing this rule, those states need this tool to preserve their... Excuse me.

[00:24:39] Speaker 00:
So that sounds like an arbitrary and capricious argument.

[00:24:43] Speaker 00:
a jurisdiction argument.

[00:24:44] Speaker 00:
I'm trying to only ask you about jurisdiction.

[00:24:47] Speaker 00:
All the problems you're mentioning, those are a question of whether the rule is arbitrary.

[00:24:51] Speaker 00:
The question I'm asking is whether there's jurisdiction.

[00:24:55] Speaker 00:
So isn't this a rule that affects wholesale rates?

[00:25:02] Speaker 00:
Just in the same way, demand response was a rule that affected wholesale rates, even though it applied

[00:25:11] Speaker 00:
Even though it required crossing the local grid?

[00:25:17] Speaker 03:
This rule only affects wholesale rates if those resources are participating in the federal markets.

[00:25:28] Speaker 03:
The issue here is what happens before that.

[00:25:32] Speaker 03:
Right now, there are no wholesale transactions because they were not... Right.

[00:25:38] Speaker 00:
If there were wholesale transactions,

[00:25:41] Speaker 00:
rate, right?

[00:25:43] Speaker 00:
I'm sorry.

[00:25:45] Speaker 00:
The phone is a difficult way to have the conversation for both of us.

[00:25:51] Speaker 00:
If there were such a transaction, it would affect the wholesale rate, right?

[00:25:57] Speaker 00:
It would provide power, and that would be more supply, and that would affect the rate, right?

[00:26:05] Speaker 03:
And the courts have found that

[00:26:08] Speaker 00:
I'm not worried about courts here at all.

[00:26:10] Speaker 00:
I'm only asking the economics for a moment.

[00:26:14] Speaker 03:
But that would only be an incidental effect on the rates.

[00:26:18] Speaker 03:
So right now, if the states could bar all the local storage resources from participating in the federal market, that's an incidental effect on the wholesale rates.

[00:26:30] Speaker 03:
It's a volume issue.

[00:26:32] Speaker 03:
It's not having an impact on what the rate is in the same way that other

[00:26:38] Speaker 00:
In the way you're describing it, demand response was an incidental effect also, right?

[00:26:49] Speaker 00:
It was loosing the load.

[00:26:53] Speaker 00:
Yes.

[00:26:53] Speaker 00:
Okay.

[00:26:54] Speaker 00:
And the court said that was okay.

[00:26:55] Speaker 00:
So the word you're using, incidental, which I'm taking it for purposes of the argument, but the court said it was a direct effect.

[00:27:06] Speaker 00:
that that was sufficient to constitute a direct effect to Supreme Court.

[00:27:11] Speaker 03:
So you're referring to the ESSA case, Your Honor?

[00:27:14] Speaker 00:
Yeah.

[00:27:16] Speaker 03:
So the opt-out was not at issue in the ESSA case, Your Honor?

[00:27:20] Speaker 00:
I understand, but I'm not asking that question yet.

[00:27:24] Speaker 00:
I understand why you want the opt-out.

[00:27:26] Speaker 00:
I'm only asking whether regulation of permitting

[00:27:32] Speaker 00:
these DSRs to reach the wholesale market would directly affect the rate.

[00:27:40] Speaker 00:
And permitting the demand response, according to the Supreme Court, directly affected the rate.

[00:27:53] Speaker 03:
I respectfully disagree.

[00:27:55] Speaker 03:
So the issue in the EPSA case was the actual setting

[00:28:02] Speaker 03:
of the rate, the opt-out happened beforehand.

[00:28:07] Speaker 03:
And the courts have said that it is only an incidental effect if you're changing the amount of who's participating in the federal market.

[00:28:20] Speaker 00:
But EFSA applied the rate to demand response, which was time the meter.

[00:28:35] Speaker 03:
Yes, these are resources behind the meter, Your Honor.

[00:28:37] Speaker 00:
And so is demand response.

[00:28:40] Speaker 03:
Yes.

[00:28:41] Speaker 00:
Okay, I'm sorry.

[00:28:42] Speaker 00:
I've overdone my time.

[00:28:43] Speaker 00:
Thank you.

[00:28:47] Speaker 03:
Thank you.

[00:28:49] Speaker 03:
I am out of time, so if there are no other questions.

[00:28:53] Speaker 03:
I thank Your Honors.

[00:28:55] Speaker 05:
Thank you.

[00:28:56] Speaker 05:
We'll hear from... I had one further question.

[00:29:00] Speaker 01:
Oh, sorry.

[00:29:01] Speaker 01:
Yeah.

[00:29:01] Speaker 01:
Where in council, you said that in...

[00:29:05] Speaker 01:
Order 841, the broad prohibition on states from the language broadly prohibiting states from banning electric storage resources from participating in the wholesale market, that that language appears in 841.

[00:29:32] Speaker 01:
Where does it appear in order 841?

[00:29:40] Speaker 03:
I'm sorry, your honor, I misspoke.

[00:29:47] Speaker 03:
I have the citation for 841A.

[00:29:52] Speaker 03:
I don't know if I have the citation for 841.

[00:29:56] Speaker 03:
I'm happy to provide the 841A citation.

[00:30:00] Speaker 01:
Yeah, it's in paragraphs 41 and 56 of 841A.

[00:30:05] Speaker 01:
I didn't see that language in 841.

[00:30:07] Speaker 01:
That's what I wanted to clarify.

[00:30:11] Speaker 03:
I'm sorry, I might have misspoken.

[00:30:16] Speaker 01:
So the language that you are objecting to is in 841A, but the rule that implemented the change in, you know, FERC policy, so to speak, was,

[00:30:37] Speaker 01:
was promulgated as part of Order 841.

[00:30:41] Speaker 01:
And Rule 841A didn't change the language of the regulation, right?

[00:30:52] Speaker 03:
I'm sorry, Your Honor.

[00:30:53] Speaker 03:
You're talking about the actual language of the regulation?

[00:30:58] Speaker 01:
So at the end of Order 841, FERC sets out

[00:31:06] Speaker 01:
what it proposes to be or what the amendments to the regulation 18 CFR 3528 will be, right?

[00:31:22] Speaker 03:
Yes.

[00:31:23] Speaker 01:
And so that implements this new policy, correct?

[00:31:28] Speaker 05:
Yes.

[00:31:30] Speaker 01:
And order 841A didn't change that language

[00:31:35] Speaker 01:
to the regulation 35.28, correct?

[00:31:42] Speaker 03:
It might have made other changes, but not with regard to this.

[00:31:47] Speaker 01:
OK.

[00:31:49] Speaker 01:
So if the regulation is what is, I guess, governing the action by the states, then

[00:32:04] Speaker 01:
How are you harmed by that regulation?

[00:32:13] Speaker 03:
We are harmed.

[00:32:17] Speaker 03:
We are harmed because the order accompanying the regulation after we were trying.

[00:32:25] Speaker 03:
We are harmed because.

[00:32:28] Speaker 03:
in its interpretation or its explanation of those regulations states that we cannot take the action that we wish to be able to take.

[00:32:38] Speaker 03:
And we feel that that's beyond FERC's authority to ban us from doing that.

[00:32:48] Speaker 01:
All right, thank you.

[00:32:51] Speaker 02:
Thank you.

[00:32:57] Speaker 04:
All right, we're here.

[00:32:59] Speaker 04:
from Council for Petitioners American Public Power Association at AL.

[00:33:08] Speaker 04:
Mr. Lane.

[00:33:09] Speaker 07:
Thank you, Judge Rogers.

[00:33:11] Speaker 07:
I've asked for two minutes on rebuttal.

[00:33:14] Speaker 07:
I just want to get back.

[00:33:16] Speaker 07:
Maybe I should just go right to Judge Wilkins' question first.

[00:33:22] Speaker 07:
Yes, it wasn't... You're right, Judge Wilkins.

[00:33:25] Speaker 07:
It wasn't in 841.

[00:33:29] Speaker 07:
But more important from our standpoint, and remember, so I represent ATPA, which is all the community-owned utilities, NRECA, which is all the electric co-op utilities, and EEI, which is all the investor-owned utilities in the United States, and then AMP,

[00:33:53] Speaker 07:
which represents a number of utilities primarily on the East Coast and Midwest.

[00:34:01] Speaker 07:
So when we didn't see the opt-out, which we had asked for in 841, we raised the issue.

[00:34:11] Speaker 07:
And if you look at JA 510, you can see that we asked that,

[00:34:21] Speaker 07:
Nothing in order, and if you don't mind, I'll just read the sentence.

[00:34:25] Speaker 07:
It's in paragraph 13.

[00:34:27] Speaker 07:
Nothing in order 841 override state law or tariff requirements that might prohibit or limit a state and electric storage resource interconnected with the distribution system or behind the retail meter from directly assessing the wholesale market.

[00:34:49] Speaker 07:
We were concerned without an opt-out that we wanted it clear that it wasn't that the state still had that authority to broadly prohibit.

[00:35:02] Speaker 07:
Not necessarily that we thought, in fact, we know that not all states are going to use it.

[00:35:08] Speaker 07:
And more important from our standpoint, not that we're not sure, we don't know

[00:35:15] Speaker 07:
that we will even ask for it.

[00:35:18] Speaker 07:
We're the utilities that are going to have to change their distribution systems to allow for this energy storage to get to the interconnect.

[00:35:30] Speaker 07:
Judge Garland, you kept referring to local grid and I don't

[00:35:36] Speaker 07:
I don't know exactly how you defined it, but all of these energy storage facilities that we're discussing are on what we call the distribution facilities.

[00:35:46] Speaker 07:
They're behind the meter, or they're on the distribution facilities.

[00:35:49] Speaker 07:
So you have to go through the distribution facilities to get to the point where the distribution system interconnects with what we call, at least what I

[00:36:04] Speaker 07:
would normally call the grid, which is really the wholesale market, the interstate grid.

[00:36:11] Speaker 07:
So it is in this situation.

[00:36:14] Speaker 07:
You brought up, Judge Garland, the question, aren't a lot of generators on the grid already.

[00:36:23] Speaker 07:
Yes, they are on the grid, and they are

[00:36:27] Speaker 07:
You probably remember a lot of cases back a few years ago with the large generator interconnection agreements when we argued whether those adjustments were going to be rolled in or directly assigned to the generator itself.

[00:36:45] Speaker 07:
Well, think of that in a smaller scale.

[00:36:49] Speaker 07:
Let's say you have a solar panel on your,

[00:36:53] Speaker 07:
array of solar panel on your roof in your house.

[00:36:58] Speaker 07:
You're not connected to the grid.

[00:37:01] Speaker 07:
I'm sorry, what I call the grid.

[00:37:03] Speaker 07:
You are connected to the distribution system and our concern as distribution utilities is what adjustments are we going to have to make to allow you to put that if you wanted to sell your

[00:37:22] Speaker 07:
solar power generator, what adjustments are we going to have to make to the distribution system to allow you to do that?

[00:37:34] Speaker 07:
And that's where the problems arise in our standpoint.

[00:37:38] Speaker 07:
You don't have an opt-out, and I agree with you.

[00:37:41] Speaker 07:
That's a question, an arbitrary and capricious question.

[00:37:44] Speaker 07:
I'm happy to address that.

[00:37:46] Speaker 07:
But I want to address more our first sort of the legal issue.

[00:37:52] Speaker 07:
So when you see that it's only the distribution, what we call the distribution facilities and that's the language in 201B1 that is assigned exclusively to states.

[00:38:08] Speaker 07:
And what we are saying is the commission exceeded its authority by banning not only state commissions but also the,

[00:38:22] Speaker 07:
The APBA, the city councils are the ones who govern it, and the boards of a lot of the elector co-ops are the ones that govern their systems.

[00:38:33] Speaker 07:
And so what the commission is saying is none of those, and there are literally hundreds if you add those all up, none of those people in the future can broadly prohibit

[00:38:51] Speaker 07:
someone a solar and energy storage resource on their distribution system from getting to the wholesale market.

[00:39:03] Speaker 00:
Let me interrupt for a second.

[00:39:06] Speaker 00:
Again, this sounds mostly like an arbitrary and capricious argument.

[00:39:13] Speaker 00:
You did make one reference, which sounded jurisdictional, which is that they

[00:39:19] Speaker 00:
that FERC doesn't have jurisdiction over these facilities.

[00:39:25] Speaker 00:
But that's not what the statute says.

[00:39:27] Speaker 00:
What the statute says is shall not have jurisdiction except as specifically provided in this subchapter.

[00:39:37] Speaker 00:
Let me just suggest what I understand from the Supreme Court's opinion is 824EA, which is any rule

[00:39:49] Speaker 00:
or practice affecting such rape.

[00:39:54] Speaker 00:
So that's the way in which they get jurisdiction over to require non-discriminatory transmission over the local distribution in order to get to the interconnection, in order to get to the transmission lines.

[00:40:15] Speaker 07:
Yes, Judge Garland.

[00:40:17] Speaker 07:
There's also a number of Supreme Court cases.

[00:40:21] Speaker 07:
And if you just focus on EPSA, I agree with Ms.

[00:40:25] Speaker 07:
Murphy, the problem is EPSA had an opt out.

[00:40:28] Speaker 07:
So the court never had to address this question.

[00:40:32] Speaker 07:
But if you look, we started out with Connecticut Light and Power in our brief and where Justice Jackson said, yes, this could be a federal system, but for whatever reason,

[00:40:46] Speaker 07:
Congress put that language in to what I'll call 201B.

[00:40:52] Speaker 07:
I'm sorry, Judge Garland.

[00:40:55] Speaker 07:
That's how I think of the statute is... That's all right.

[00:40:58] Speaker 00:
That's the difference between a lawyer who does a lot of FERC work and an appellate judge who looks only at... A lot of FERC work.

[00:41:06] Speaker 07:
But you do a lot of FERC work, Judge.

[00:41:08] Speaker 07:
All three of you do, so... Absolutely.

[00:41:12] Speaker 07:
What he's saying, what he said is for whatever reason, they put that language in and it has to mean something.

[00:41:22] Speaker 07:
And another case that we cited, Northwest Central, the court said, you know, just because you affect the wholesale rates, I mean, if that is all that happens,

[00:41:41] Speaker 07:
then you're eviscerating 201B1's limitation on FERC's jurisdiction.

[00:41:49] Speaker 07:
If the state is going to have, what the court is saying, almost anything that the state does is going to affect wholesale rates.

[00:41:58] Speaker 07:
So if that's true, then there's no, I think what they said is 201B1 would be meaningless.

[00:42:07] Speaker 00:
Well, that's what he said it has to directly affect.

[00:42:10] Speaker 00:
And the court endorsed that in EPSA.

[00:42:14] Speaker 00:
And the question is whether the court's description of the way in which the banned response directly affected is any different than the way in which preventing discriminatory bans directly affects.

[00:42:32] Speaker 07:
And I would say, yes, it is.

[00:42:35] Speaker 07:
It's very different in the critical

[00:42:40] Speaker 07:
point, which is that demand response, you did not have to use any distribution facilities to affect the market.

[00:42:50] Speaker 07:
Remember, demand response is just getting a bunch of people to lower the amount of energy that they're taking at, say, a peak period.

[00:43:01] Speaker 07:
So you don't have to use the distribution facilities.

[00:43:04] Speaker 07:
With energy storage,

[00:43:06] Speaker 07:
distribution, what we call distributed storage that's on the distribution facilities or behind the meter, you have to use, they have to use the distribution facilities.

[00:43:19] Speaker 07:
So the question then becomes who gets to control how the distribution facilities are used.

[00:43:26] Speaker 07:
Is it the state or

[00:43:29] Speaker 07:
the FERC and the cases come down very distinctly.

[00:43:34] Speaker 07:
I think Judge Rogers, you said that there's a clear line of where they wanted to, I think in one of the earlier cases, Panhandle, that we cited, it says they took meticulous care to set up clear boundaries and that boundary is that the state have jurisdiction over distribution facilities.

[00:43:59] Speaker 01:
Council, I think that if your argument were correct, then the opt-out wouldn't fix the problem.

[00:44:08] Speaker 01:
Because your argument is essentially then that FERC can't mandate the use of these behind-the-meter or other storage facilities.

[00:44:24] Speaker 01:
They just don't have the power to do that.

[00:44:27] Speaker 01:
It doesn't matter if they give the states the ability to opt out of the mandate.

[00:44:37] Speaker 01:
Your argument is that they don't have the power to do it in the first place.

[00:44:42] Speaker 01:
If something is ultra-virus, you don't fix it by saying, well, we know FERC doesn't have the power to do this, but we're going to let them do it

[00:44:55] Speaker 01:
unless and until a state objects.

[00:44:58] Speaker 01:
If they don't have the power to do it, they don't have the power to do it.

[00:45:01] Speaker 01:
So I don't see how an opt-out fixes your ultra viris argument.

[00:45:08] Speaker 07:
Well, I think Judge Wilkins, I don't want to sound facetious, but we're pretty practical people.

[00:45:15] Speaker 07:
And if they did an opt-out, we wouldn't be raising this issue.

[00:45:20] Speaker 07:
But more important, and to your point,

[00:45:24] Speaker 07:
If you read EFSA and I'm going to, again, I'm sorry, I'm going to read a line from EFSA, although claiming the ability to negate such state decision, the commission chose not to do so in recognition of the linkage between wholesale and retail market.

[00:45:43] Speaker 07:
So, in my view, what the court was saying in EFSA was, hey, they put this line

[00:45:50] Speaker 07:
They already have this opt-out policy and they used it here.

[00:45:55] Speaker 07:
And they claim that they have the ability to do that, but we're not addressing that question.

[00:46:00] Speaker 07:
We're asking you now to address that question.

[00:46:05] Speaker 07:
And secondarily, what we're saying is, okay, if you think they have that power, we think, you know, as all of you are saying, it was arbitrary and capricious not to allow an opt-out here.

[00:46:19] Speaker 01:
The next section of EPSA, the court basically obliterated the argument by the petitioners, or I guess it was the respondents in that case, because they had won in the D.C.

[00:46:35] Speaker 01:
Circuit, that the logical conclusion of EPSA's argument would be that demand response

[00:46:48] Speaker 01:
wasn't permitted at all.

[00:46:54] Speaker 01:
And that's essentially the logical conclusion of the argument that you're making here, isn't it?

[00:47:03] Speaker 01:
That this isn't allowed at all.

[00:47:07] Speaker 07:
Yes, but that's true.

[00:47:14] Speaker 07:
But I think that's a question that was not decided by EFSA and you... It's also a position that nobody talks in the comments, right?

[00:47:27] Speaker 01:
Did anybody in any of the comments say that Burke doesn't have the authority to allow or mandate

[00:47:43] Speaker 01:
and electric storage resources to participate in the wholesale market.

[00:47:48] Speaker 01:
Did anybody take that position?

[00:47:50] Speaker 07:
Yes, we took that position, Judge Wilkins.

[00:47:52] Speaker 07:
If you look at 510, at the commission, JA 510, at the commission summary of our position on rehearing, I think you will see that we took that position, and that's why the commission made a stronger statement about

[00:48:11] Speaker 07:
We're not going to allow states to broadly prohibit in A41A why they hadn't done it in A41.

[00:48:27] Speaker 01:
Would I see, okay, well, we can perhaps agree to disagree, but I don't see JA510 as saying that that's what you said.

[00:48:38] Speaker 01:
Can you point to, point to,

[00:48:40] Speaker 01:
the page in the JA where your rehearing petition says that?

[00:48:47] Speaker 07:
No.

[00:48:50] Speaker 07:
Judge Wilkins, I know that the excerpts of our rehearing petition in the JA do not include that part, but I would be happy to supply that in a letter to the court.

[00:49:08] Speaker 01:
All right.

[00:49:09] Speaker 01:
Thank you.

[00:49:15] Speaker 07:
If there are no, I know I'm way over my time, so if there are no other questions, I'll hopefully get maybe a chance for rebuttal.

[00:49:24] Speaker 07:
Thank you.

[00:49:28] Speaker 04:
All right.

[00:49:29] Speaker 04:
Why don't we hear from Council for FERC?

[00:49:36] Speaker 06:
Good morning, Your Honors.

[00:49:37] Speaker 06:
Anand Viswanathan on behalf of the Commission.

[00:49:40] Speaker 06:
There are a number of questions the panel had on the Commission's statutory jurisdiction.

[00:49:45] Speaker 06:
Before I get to that, there's one record point.

[00:49:47] Speaker 06:
I just want to clarify from, I think, a question from Judge Garland.

[00:49:52] Speaker 06:
Judge Garland, you asked the question about whether there are regular or traditional power plants connecting through the distribution system.

[00:50:02] Speaker 06:
The commission did make a finding on this point.

[00:50:05] Speaker 06:
This is at JA-234, the top of the page, which is paragraph 31.

[00:50:09] Speaker 06:
And the commission pointed out that, quote, various types of traditional generation of demand-side resources that are not connected directly to the transmission system currently participate in the, and the references to the first jurisdictional wholesale markets.

[00:50:25] Speaker 06:
So the commission also found

[00:50:28] Speaker 06:
with respect to storage specifically, that there are many storage resources connected at the distribution level already participating in the wholesale markets before the rule.

[00:50:39] Speaker 06:
So let me now turn to some of these questions on jurisdiction.

[00:50:44] Speaker 00:
Judge Garland, that was helpful.

[00:50:45] Speaker 00:
Could you help me with one more thing, which is more fundamental, which is my understanding of what FERC did here, and I put it to

[00:50:58] Speaker 00:
The petitioner who agreed with this sort of description, bottom line description, I want to see whether that's the same description you have, that the state can bar a DSR from getting on the local grid at all for security, reliability, safety reasons.

[00:51:16] Speaker 00:
But if a DSR is allowed on, I'll leave out the word grid, I'm sorry, that was a bad shorthand.

[00:51:23] Speaker 00:
Local distribution lines, but if,

[00:51:27] Speaker 00:
DSR is allowed on the local distribution.

[00:51:32] Speaker 00:
State can't borrow it from providing power to interstate wholesale markets.

[00:51:36] Speaker 00:
Is that the nut of it?

[00:51:40] Speaker 06:
That's correct, Judge Garland.

[00:51:42] Speaker 06:
I just need to add a bit more to that.

[00:51:44] Speaker 06:
First, the rule defines an eligible storage resource in part as a storage resource that has the contractual permissions to be able to inject energy to the grid, which means the appropriate permissions in place to be able to connect to a distribution facility, if that's how they act.

[00:52:03] Speaker 00:
That's what I understood.

[00:52:06] Speaker 00:
The bottom line of, but if a DSR is already allowed on, and I understand that's where you get that from, from the language where you talk about actual rights.

[00:52:17] Speaker 00:
Is that right?

[00:52:18] Speaker 06:
That's exactly right.

[00:52:19] Speaker 06:
And what the commission clarifies throughout the rule is that

[00:52:24] Speaker 06:
whatever authority states had and retail regulators had before the rule to police matters like reliability and safety of the distribution system, none of those authorities are changed as a result of the rule.

[00:52:37] Speaker 06:
The broad prohibition that we've been speaking about this morning is the commission's interpretation of its statutory authority over exclusive authority over the wholesale markets as meaning that states cannot extend their state authority over

[00:52:54] Speaker 06:
matters like reliability and start blocking wholesale sales and interstate commerce.

[00:53:00] Speaker 06:
To the extent that a state or retail regulator decided to do that in the future, that's where the commission pointed out that that future regulation would be preempted.

[00:53:10] Speaker 06:
Of course, the commission's not... Whatever powers a state or retail regulator had to issue regulations or enact laws, the rule's not changing any of those processes.

[00:53:22] Speaker 06:
It's just a matter of the commission pointing out that this is the bounds of our interpretation of the Federal Power Act.

[00:53:29] Speaker 06:
To the extent a state in the future decides to regulate in a way that's intruding upon our exclusive authority over the wholesale markets, that's the sort of thing that courts have preempted consistently.

[00:53:47] Speaker 06:
So, Judge Garland, you also asked the question about the rule and effects on wholesale rates.

[00:53:58] Speaker 06:
Two responses on that point, Judge Garland.

[00:54:01] Speaker 06:
First, both sets of petitioners have not disputed the commission finding that electric storage resources participating in the wholesale market has a direct effect on wholesale rates.

[00:54:15] Speaker 06:
For example, they did not dispute the commission's finding in the rule that existing market rules were unjust and unreasonable by imposing barriers to entry to electric storage resources.

[00:54:26] Speaker 06:
They did not dispute the notion that storage resources participating in the wholesale market would have effects on wholesale rates, including benefiting the wholesale market.

[00:54:35] Speaker 06:
I know that Council for the States made a reference to incidental effects.

[00:54:44] Speaker 06:
That phrase typically applies in the context of preemption of state laws.

[00:54:54] Speaker 06:
We're not aware of any authority for the notion that there's some sort of threshold on how much of an effect on wholesale rates is needed for the commission's, quote-unquote, affecting jurisdiction to attach.

[00:55:07] Speaker 06:
And as you point out, Judge Garland, in the Electric Power Supply Association,

[00:55:14] Speaker 06:
the practice there was found to be within the commission's authority because it had a direct effect on wholesale rates.

[00:55:20] Speaker 06:
That's the same point that the commission's made here in terms of participation of storage resources at wholesale.

[00:55:32] Speaker 06:
In terms of, I think, Judge Wilkins, you asked a few questions about the scope of what petitioners were actually challenging.

[00:55:41] Speaker 06:
I just want to clarify here

[00:55:43] Speaker 06:
Unlike the, I guess, the respondent in Electric Power Supply Association, the petitioners here have not raised a traditional ultra-virus argument.

[00:55:53] Speaker 06:
They did not argue, and actually no one at the commission level made the argument that the commission simply does not have authority to regulate electric storage resources.

[00:56:05] Speaker 06:
What they've argued is that, to the extent that even if the commission has authority over this practice,

[00:56:13] Speaker 06:
states still have to consent to it.

[00:56:15] Speaker 06:
The problem with that, and I think we pointed this out in our brief, is that because of the limited nature of their challenge, either the commission has power over the practice or it does not.

[00:56:26] Speaker 06:
And so if the commission is actually exercising its authority under the statute, and if it is not regulating local distribution facilities in violation of 824B1,

[00:56:41] Speaker 06:
then it's an appropriate exercise of the Commission's statutory authority, and that exercise of authority is not contingent on states approving that authority.

[00:56:50] Speaker 06:
There's no suggestion in the statute or any case that the Commission's Federal Power Act authority hinges on states approving it.

[00:56:56] Speaker 06:
Now, obviously, to the extent that the Commission does not have authority over a particular practice that it chooses to regulate under the statute, then the fact that

[00:57:07] Speaker 06:
a particular state consents to that does not cure the statutory overreach.

[00:57:13] Speaker 06:
Again, we either have power over the practice or we do not.

[00:57:19] Speaker 06:
And again, I just want to emphasize in the rule that

[00:57:24] Speaker 06:
the commission is making clear that whatever states could do to protect reliability and safety and so forth with respect to distribution systems, that power is completely unchanged by the rule.

[00:57:34] Speaker 06:
And so to the extent that a state in the future passes some sort of regulation or law to protect the reliability of the distribution system, so long as that regulation is within the scope of state power, for example, over reliability, the fact that it has effects on the wholesale sphere

[00:57:54] Speaker 06:
is not relevant.

[00:57:56] Speaker 06:
And to the extent that anyone, whether it's a private party or the commission, has a problem with what the state regulation in the future does and decides to challenge it as preempted by the Federal Power Act, then that's just going to be a dispute that would come before an Article III court like this one.

[00:58:13] Speaker 06:
And then, I mean, like every other preemption case that we're aware of, the court would actually be able to compare an existing state law or regulation and whether or not

[00:58:24] Speaker 06:
that law or regulation either intrudes upon the field granted to the commission by Congress or improperly conflicts in a way that blocks implementation of the purposes and goals set forth by Congress.

[00:58:40] Speaker 04:
So to the argument counsel that the rule as clarified on the hearing

[00:58:52] Speaker 04:
actually deprives the state of authority to decide whether distributed storage may participate in wholesale markets.

[00:59:05] Speaker 04:
In your view, that's a non-starter here because of the 824 authority and that the

[00:59:19] Speaker 04:
Council, Mr. Lane's reference to, what was it, 8... 824B1?

[00:59:31] Speaker 04:
No, his reference to, what was it, 20... I'm just looking, I thought I wrote it down.

[00:59:39] Speaker 04:
In terms of that 201B, where he...

[00:59:47] Speaker 04:
reference the Supreme Court's decision saying that that text has to be given meaning, so to the extent that distribution facilities are at issue, that's for the states to decide.

[01:00:00] Speaker 04:
And that is a limitation on FERC's jurisdiction.

[01:00:06] Speaker 06:
Well, certainly the Federal Power Act in 824B1, which is the same thing as 201B of the statute, certainly that imposes

[01:00:15] Speaker 06:
a restriction on the Commission's jurisdiction over facilities used in local distribution.

[01:00:23] Speaker 06:
Number one, there's a caveat to that denial of jurisdiction.

[01:00:26] Speaker 06:
There's a phrase, accept as specifically provided.

[01:00:28] Speaker 06:
So if the Commission has an affirmative grant of jurisdiction elsewhere, then that affirmative grant of jurisdiction would trump, number one.

[01:00:36] Speaker 06:
Number two, what that provision is blocking the Commission from

[01:00:42] Speaker 06:
asserting authority over is facilities used in local distribution.

[01:00:47] Speaker 06:
The rule itself does not impose any obligations whatsoever on any type of facility, local distribution or otherwise.

[01:00:54] Speaker 06:
Now, to the extent that there is some effect at the distribution level, I mean, that ship has sailed long before this rule, Your Honors.

[01:01:06] Speaker 06:
Number one,

[01:01:07] Speaker 06:
this Court and the Supreme Court have approved the Commission asserting authority over entities physically located at the distribution level.

[01:01:16] Speaker 06:
And number two, this Court's also approved on several instances the Commission asserting authority over wholesale sales and interstate commerce, even when they occur over facilities over which the Commission lacks jurisdiction.

[01:01:31] Speaker 04:
Right.

[01:01:31] Speaker 04:
So the argument then from first position that

[01:01:37] Speaker 04:
whatever argument is being made today in terms of the burden that now is on the state distribution facilities, that's not a jurisdictional argument?

[01:01:50] Speaker 04:
That's maybe an arbitrary and capricious argument?

[01:01:54] Speaker 06:
I mean, I think they've raised it in both respects.

[01:01:57] Speaker 06:
I think the way they raised the jurisdictional point is this is what they repeatedly refer to as the how versus whether distinction they've come up with in their briefs, which is that

[01:02:06] Speaker 06:
In their view, states have authority to decide whether an entity at the distribution level can participate in the first place in the wholesale markets.

[01:02:18] Speaker 06:
I mean part of the problem there is that the language that takes away FERC's jurisdiction over facilities used in local distribution can't be read to go as far as giving states

[01:02:30] Speaker 06:
exclusive and paramount dominion over anything that happens at the distribution level.

[01:02:35] Speaker 06:
That's why in the face of a lot of case law that gives FERC authority over wholesale transactions wherever they occur.

[01:02:41] Speaker 06:
And it gives, that also approves FERC's authority over entities connected at the distribution level, even if, as long as they're, as long as what FERC is regulating is pursuant to its charge of regulating wholesale sales and interstate commerce.

[01:02:56] Speaker 06:
So that's both electric power supply,

[01:02:59] Speaker 06:
which was a practice affecting a wholesale rate by a resource at the distribution level.

[01:03:04] Speaker 06:
It's also this court's national association decision, which is about interconnections of generators to distribution facilities.

[01:03:14] Speaker 06:
And the rule here is quite careful that what it's exercising authority over is just the wholesale sales and interstate commerce.

[01:03:21] Speaker 06:
There's one actually key clarification of the bounds of the commission's authority in the rule where the commission points out, I think this is at JA233, the commission points out that when a storage resource is injecting power to the grid for the purpose of participating in a jurisdictional wholesale market, that's when the commission's jurisdiction attaches.

[01:03:41] Speaker 06:
But in a footnote on that page, it clarified that it was not necessarily extending jurisdiction every time a resource injected power to the grid.

[01:03:48] Speaker 06:
It needs to be for the purpose of transacting in a FERC jurisdictional wholesale market.

[01:04:02] Speaker 01:
Can I interject?

[01:04:03] Speaker 01:
Yeah.

[01:04:05] Speaker 01:
Go ahead.

[01:04:08] Speaker 01:
So there was a concern raised even by the amicus supporting you that the broadly prohibiting language was improvident and too broad.

[01:04:27] Speaker 01:
How are we supposed to interpret that language, and why isn't it arbitrary and capricious to the extent that language

[01:04:37] Speaker 01:
to implies that a state couldn't take some action that could be reasonable to ensure the safety and reliability of its grid and local distribution system.

[01:04:53] Speaker 06:
Well, the way to interpret that language, I think, is in the context of what the commission was responding to, which is the notion that states can prohibit

[01:05:03] Speaker 06:
a resource at the distribution level for making wholesale sales in interstate commerce.

[01:05:07] Speaker 06:
And so that's the only, if you want to call it a restriction in the rule that the commission was articulating.

[01:05:14] Speaker 06:
It was trying to make clear through a number of examples in the rule that states have all the authority that they had before the rule.

[01:05:22] Speaker 06:
In terms of whether the issue of reason decision making and whether or not it was arbitrary and capricious, I think the commission

[01:05:31] Speaker 06:
extensively addressed all the various ways in which state and retail regulators' authorities preserved and the way in which to the extent there are impacts on utilities that operate the distribution system, those utilities, for example, continue to have the authority to allocate any costs that they incur in the future as a result of the rule.

[01:05:52] Speaker 06:
And so there's very... So, I mean, I guess one way to think about this, Serge Wilkins, is that

[01:06:00] Speaker 06:
There has been some conflation in this case of the wholesale markets and the distribution system.

[01:06:07] Speaker 06:
First authority over the wholesale markets is exclusive and paramount.

[01:06:12] Speaker 06:
And that's the authority it is exercising in the rule.

[01:06:15] Speaker 06:
It's not trying to say anything with respect to the distribution system.

[01:06:19] Speaker 06:
So whatever processes an entity, whether it's a storage resource or any other type of entity connecting at the distribution level had to follow to get permission to inject power at a local level, none of those rules change as a result of the rule here.

[01:06:39] Speaker 00:
Judge Garland, but it is requiring the local distribution facility to permit the transmission to the wholesale market, isn't it?

[01:06:51] Speaker 00:
It is doing something to the local facility.

[01:06:56] Speaker 06:
It's not imposing requirements on anyone other than wholesale market operators.

[01:06:59] Speaker 06:
Now, the commission's clarifying that the point of the rule is that

[01:07:04] Speaker 06:
Wherever a storage resource is located, whether it's on the transmission system or on the distribution system, it's the resource's choice whether or not to participate in the wholesale markets.

[01:07:14] Speaker 06:
So to the extent a retail regulator or state regulator decides to prohibit an entity from making wholesale sales in interstate commerce, that would be an intrusion on the commission statutory authorities.

[01:07:26] Speaker 06:
But the rule itself does not impose any obligations on anyone other than wholesale market operators.

[01:07:32] Speaker 06:
And we know from a number of Supreme Court cases, including electric power supply, that so long as the Commission is acting within the scope of its authority as given to it by Congress, and so long as it's not regulating facilities used for local distribution, the effects on the retail sphere or on local distribution facilities do nothing to extinguish the Commission's statutory jurisdiction.

[01:07:55] Speaker 00:
Now, obviously... Could you help me for one second with sort of the...

[01:08:01] Speaker 00:
physical explanation of what's happening here.

[01:08:04] Speaker 00:
When they inject into the local distribution facility, who runs the local distribution facility?

[01:08:17] Speaker 06:
Typically, I mean, typically I think they're owned by utilities that operate that infrastructure.

[01:08:26] Speaker 06:
Sometimes they might be owned by a state or retail regulator, or at least in part

[01:08:30] Speaker 00:
Does that facility have to do anything or refrain from doing anything to permit the power to cross local facility to get to the interstate transmission line?

[01:08:48] Speaker 06:
You mean in a physical or technical sense?

[01:08:50] Speaker 06:
Yes.

[01:08:53] Speaker 06:
I don't think so.

[01:08:55] Speaker 06:
I mean, there are...

[01:08:58] Speaker 06:
My understanding is at the distribution level, there are many utilities that have a variety of power plants or other resources connected to that system, and those entities are able to transmit power to the wholesale markets.

[01:09:15] Speaker 06:
So there is some sort of physical connection that's there between what we call the distribution system and interstate transmission lines.

[01:09:27] Speaker 06:
The rule is not requiring anyone to build any new physical infrastructure or anything like that, to the extent that a utility has existing infrastructure

[01:09:41] Speaker 06:
that connects it to the interstate transmission system and to the extent they feel that that infrastructure is being overloaded, for example, by all these resources at the distribution, although now trying to make wholesale silver and interstate commerce, they can do whatever they need to do to deal with those consequences to the extent that there need to be upgrades to the facilities and so forth.

[01:10:04] Speaker 06:
That's still in the purview of

[01:10:06] Speaker 06:
state and retail regulators.

[01:10:08] Speaker 00:
And so the rule explicitly points out that anything with respect to upgrades or technical requirements or costs, those are all in the purview of... I understand that, but what struck me with a sentence you said earlier that the rule doesn't impose any obligation on a local distribution facility.

[01:10:29] Speaker 00:
And I assume it does impose the obligation that

[01:10:35] Speaker 00:
imagine it's a state-run utility, that it not block, in whatever sense, it might physically block the transmission to the interstate transmission facility, from the local to the interstate.

[01:10:55] Speaker 06:
I mean, I guess here, again, we have to go through what it means to impose an obligation.

[01:11:03] Speaker 06:
asserting its authority over the wholesale markets necessarily means that states and others don't have authority over those markets.

[01:11:11] Speaker 06:
So I don't think it's... I don't think it opposes any obligation on states or the commission to say that this is our authority and you can't regulate or prohibit wholesale market activity.

[01:11:26] Speaker 00:
Let me ask it from a statutory point of view.

[01:11:33] Speaker 00:
Sorry, I'm going to use the US code 824B1 when it says, the commission shall not have jurisdiction except as specifically provided in this sub-chapter over facilities used for the generation of electric energy or over facilities used in local distribution.

[01:11:56] Speaker 00:
Your position that FERC is not doing anything

[01:12:03] Speaker 00:
with respect to facilities used in local distribution or is your position that this falls within the accept clause which then takes you to Section 206, 824E?

[01:12:23] Speaker 06:
I would say the commission is not doing anything with respect or imposing any obligations on facilities used in local distribution.

[01:12:35] Speaker 00:
So you're not relying on the accept clause, is that what you're saying?

[01:12:39] Speaker 06:
Well, I mean, part of this is if we're talking about a facility in local distribution that is also being used for wholesale sales, I think that's where the accept is specifically provided clause

[01:12:56] Speaker 06:
would confirm that the commission has jurisdiction over the wholesale sales that occur over those facilities because the proceeding language in that provision states that the commission has, and this part is unqualified, the commission has authority over all facilities used for wholesale sales and interstate commerce.

[01:13:19] Speaker 06:
But in response to the point that

[01:13:22] Speaker 06:
because the commission is reaching entities that are connected at the distribution level, and the petitioner's argument that somehow constitutes regulation of local distribution facilities, I think our answer is no, it's not imposing any requirements on facilities at all.

[01:13:41] Speaker 06:
The exercise of authority by the commission is only over wholesale sales and interstate commerce.

[01:13:49] Speaker 06:
Now, I think this gets back to the sort of two-pronged analysis that's articulated in electric power supply, which is number one, is the commission acting pursuant to a valid grant of authority from Congress?

[01:14:01] Speaker 06:
And number two, is it regulating in an area reserved to the states?

[01:14:05] Speaker 06:
As to the first point, the commission's exercise of authority, its affirmative exercise of authority,

[01:14:12] Speaker 06:
824EA, which gives it the authority, actually gives it the obligation to set the just and reasonable rule of practice affecting a rate once it determines that the existing rule of practice is unjust and unreasonable.

[01:14:26] Speaker 06:
That brings us to the secondary question, well, maybe not secondary, but the second question of whether it's improperly regulating in a matter reserved to the states.

[01:14:36] Speaker 06:
And that's where we get to 824B1.

[01:14:41] Speaker 01:
I don't understand how you can say that this doesn't impose any obligation on the distribution system.

[01:14:49] Speaker 01:
If a homeowner installs solar panels on her home and as a part of that also installs batteries so that she can store the power generated by her solar panels

[01:15:10] Speaker 01:
she might at some point decide to use that backup power instead of buying power from the local grid to power her home.

[01:15:22] Speaker 01:
Or she might decide that it might be advantageous at some point to sell that power that she's got stored in her batteries on the wholesale market.

[01:15:37] Speaker 01:
In order to allow her to do that,

[01:15:41] Speaker 01:
Isn't the local utility going to have to make some modifications to meters and other aspects of the distribution system to facilitate that?

[01:15:55] Speaker 01:
And how is the homeowner going to get her power from her batteries in her basement or backyard or wherever they are to the wholesale market without facilitation

[01:16:09] Speaker 01:
by the local utility.

[01:16:12] Speaker 06:
So whatever processes she would have to use before the rule to get permission to connect to the local distribution, those rules would still continue to govern her connection to the distribution facility.

[01:16:25] Speaker 06:
And so to the extent that... And so the rule does not burden any of that.

[01:16:31] Speaker 06:
It does not take away state or retail regulators or the utilities powers over deciding

[01:16:38] Speaker 06:
the terms of that, deciding the terms of that interconnection.

[01:16:44] Speaker 06:
But what the states cannot do is use that authority to then prohibit wholesale sales.

[01:16:53] Speaker 06:
So I guess the point here is that the fact that there may be effects on the distribution system as a result of the rule is not the same thing as the commission imposing obligations on

[01:17:05] Speaker 06:
states or on distribution-owning utilities.

[01:17:08] Speaker 06:
They still have whatever powers and whatever rights they had before the rule on the terms of access to the distribution system.

[01:17:19] Speaker 06:
The rule doesn't touch any of that.

[01:17:20] Speaker 06:
But the fact that there may be effects on the distribution side, I mean, that's

[01:17:26] Speaker 06:
as long as the commission's acting within a grant of authority from Congress and as long as it's not imposing obligations or requiring anything of facilities used in local distribution in a way that would constitute regulation, then the effects are legally irrelevant.

[01:17:42] Speaker 01:
So you're saying that with this order, FERC is not mandating that the states facilitate that homeowner's ability to sell her stored power

[01:17:54] Speaker 01:
to the wholesale market?

[01:17:57] Speaker 06:
Absolutely not, Judge Wilkins.

[01:17:58] Speaker 06:
To be clear, let's assume you're the homeowner and you see order 841, you're pretty excited about the prospect of selling it to the wholesale markets.

[01:18:07] Speaker 06:
To the extent the homeowner then marches over to her distribution utility or to her state regulator and demands access, the rule doesn't give her that access.

[01:18:17] Speaker 06:
She still has to go through whatever hoops and hurdles exist at the distribution level to get access to the distribution system.

[01:18:24] Speaker 06:
Only after she satisfied those requirements does she qualify, can she qualify as an eligible storage resource under the rule on review here.

[01:18:38] Speaker 01:
Another question I have is relates to what we were discussing earlier about what does this broadly prohibit language mean.

[01:18:48] Speaker 01:
So it appears from the briefing

[01:18:53] Speaker 01:
that some states like California have rules and policies in place that require storage capacity to be reserved for use in relieving local grid congestion or other grid reliability purposes.

[01:19:23] Speaker 01:
in that they must be given priority for that over wholesale market sales.

[01:19:33] Speaker 01:
Is that prohibited by this order?

[01:19:38] Speaker 06:
I think the answer is no.

[01:19:39] Speaker 06:
It's not prohibited for two reasons, Judge Wilkins.

[01:19:42] Speaker 06:
First, the rule is trying to

[01:19:47] Speaker 06:
point out that the broad prohibition language means that what a state cannot do is take away the voluntary choice of a resource to participate in the market.

[01:19:56] Speaker 06:
So one of the examples in the rule is that a state or retail regulator could require a resource to make a choice between the wholesale or the retail side.

[01:20:05] Speaker 06:
That doing so would not take away the resource's voluntary choice, and that was the point of the rule, which that is that the just and reasonable rule of practice should be that any resource that wants to participate should be able to do so.

[01:20:17] Speaker 06:
I think the regulation along the lines that you're talking about, if we're talking about granting priority for local congestion, grid congestion relief over participation in the wholesale markets, that sounds like it's directly tethered to a state's authority over preserving reliability and safety of the distribution system.

[01:20:43] Speaker 06:
So I think based on that and based on what I mentioned that it's not

[01:20:47] Speaker 06:
taking away the voluntary choice of a resource to participate or wholesale, I think that would be fine.

[01:20:58] Speaker 01:
How do you propose that if we were concerned about not giving advisory rulings and not preventing

[01:21:17] Speaker 01:
challenges, future challenges that could be considered to be either arbitrary and capricious or ultraviaries.

[01:21:31] Speaker 01:
How would you propose that we deal with that concern?

[01:21:38] Speaker 06:
Well, I mean, I think that the court can, on the merits, can resolve the appeal by simply addressing whether

[01:21:46] Speaker 06:
the rule is a valid exercise of the Commission statutory authority and that it does not regulate a matter reserved to the states.

[01:21:55] Speaker 06:
But at the same time, you can point out that to the extent a state decides to regulate in the future, any disputes about the viability of that regulation, whoever brings that challenge can be resolved in a future case where a court can actually consider

[01:22:13] Speaker 06:
some existing state regulation versus the Federal Power Act as all preemption cases tend to go.

[01:22:21] Speaker 06:
There tends to be an actual dispute between some existing state regulation or law and the federal statute.

[01:22:28] Speaker 06:
So the court ruling on the commission statutory authority wouldn't hinder anyone from raising a preemption challenge in the future to some regulation that a state decides to enact.

[01:22:45] Speaker 01:
And I guess that gets me to a question that I have about standing, which is that there has been no particular state policy rule statute that's been identified as being in conflict with the orders at issue here.

[01:23:11] Speaker 01:
Is there any precedent that requires that there be

[01:23:15] Speaker 01:
a live conflict in order for us to find injury or is the asserted threat to state sovereignty sufficient to find injury?

[01:23:32] Speaker 06:
Well, I think that a potential threat to state sovereignty could satisfy injury.

[01:23:40] Speaker 06:
I think here is a good point for me to point out that

[01:23:44] Speaker 06:
In the state petitioner's reply brief, their allegation of injury in fact is not the same as the allegation of injury in fact in the opening brief.

[01:23:52] Speaker 06:
And that's obviously we responded to what was in the opening brief, which is an allegation that the rule adversely affects or infringes a state's ability to regulate, to protect reliability and safety of distribution systems.

[01:24:05] Speaker 06:
But in the reply brief, and there's a page three of the reply brief, that change to their allegation of injury in fact is now

[01:24:13] Speaker 06:
that the rule takes away a state's ability to prohibit wholesale market transactions.

[01:24:22] Speaker 06:
So, I mean, I would say that the court should consider the injury alleged in the opening brief, I think, to the extent that states are changing that allegation of injury in their apply brief, I would say that's waived.

[01:24:32] Speaker 06:
And furthermore, I mean, what they alleged in their apply brief, at least on injury, seems to be nothing more than a repetition of the ultimate

[01:24:42] Speaker 06:
claim on the merits.

[01:24:43] Speaker 06:
That is the notion that states get to decide whether a resource can participate or wholesale and by the commission saying states can't prohibit wholesale transactions that causes the state some injury.

[01:24:57] Speaker 01:
I understand and I did see that pivot between the opening brief and the reply brief.

[01:25:02] Speaker 01:
I guess even if we hold them though to the

[01:25:09] Speaker 01:
understanding injury theory that was in the opening brief, if we are to for standing purposes to assume that they are correct on the merits or that they will prevail on the merits, then why isn't this a sufficient allegation of injury?

[01:25:36] Speaker 06:
Well, I think that this is where some of the cases that we cited on injury come in, which those cases have involved scenarios where the court found that standing was lacking because the rule did not actually impose any obligations or the allegation of injury did not show any imposition of an obligation on the petitioning parties.

[01:25:58] Speaker 06:
And if, I mean, what they've alleged here is an infringement of the ability to regulate

[01:26:05] Speaker 06:
and the rule expressly preserves in a number of places that precisability.

[01:26:10] Speaker 06:
I'm not sure that's enough for standing purposes.

[01:26:17] Speaker 06:
Obviously, I mean, we're talking about state petitioners.

[01:26:22] Speaker 06:
I understand there's somewhat of a different standard when it comes to a state petitioner, but, I mean, they still have to meet the elements of Article III standing.

[01:26:31] Speaker 01:
I know that they didn't include any declarations.

[01:26:35] Speaker 01:
At least I don't recall seeing any declarations relating to standing attached to their opening briefs and they weren't referred to in their opening briefs.

[01:26:45] Speaker 06:
That's correct.

[01:26:49] Speaker 01:
All right.

[01:26:49] Speaker 01:
Well, on rebuttal, perhaps we can explore that.

[01:26:52] Speaker 01:
Thank you.

[01:26:54] Speaker 06:
If there are no further questions from the panel, I can stop at this point.

[01:27:03] Speaker 04:
All right, thank you.

[01:27:04] Speaker 04:
Thank you, Your Honor.

[01:27:07] Speaker 04:
Thank you.

[01:27:08] Speaker 04:
Why don't we give petitioners each two minutes each in rebuttal?

[01:27:18] Speaker 03:
Mrs. Murphy?

[01:27:19] Speaker 03:
Yes, thank you, Your Honor.

[01:27:22] Speaker 03:
I appreciate that.

[01:27:24] Speaker 03:
I wanted to address a few things raised by Clerk Counsel.

[01:27:30] Speaker 03:
One is that he was clarifying

[01:27:33] Speaker 03:
that there are generation resources on the distribution system that participate in the wholesale market.

[01:27:42] Speaker 03:
Those are done through wholesale market participant agreements because FERC does not have jurisdiction over the distribution facilities used.

[01:27:53] Speaker 03:
We are arguing that Section 201B1

[01:28:00] Speaker 03:
with our authority over distribution facilities means that FERC cannot tell the states that they cannot prohibit local storage resources from participating in the wholesale market.

[01:28:14] Speaker 03:
Your example, I think it was Judge Wilkins of the homeowner who is connecting to the local distribution system with her storage and her solar panels.

[01:28:29] Speaker 03:
There in some cases are retail markets that she could participate in and FERC's rule is saying that it is the local storage resources decision whether to participate in either the wholesale market or the retail market.

[01:28:49] Speaker 03:
They did say that states could prevent them from participating in both markets.

[01:28:54] Speaker 03:
But if a state wants to require them to participate only in the retail market, they're not able to do that.

[01:29:01] Speaker 03:
And their participation requires additional accounting and metering if they are going to participate in the wholesale market.

[01:29:10] Speaker 03:
And that is a burden on the state.

[01:29:15] Speaker 03:
That's an impact that FERC is

[01:29:19] Speaker 03:
pushing on them through this rule by not allowing them to probably prohibit.

[01:29:30] Speaker 03:
Thank you, Your Honors.

[01:29:32] Speaker 01:
Before you stop, I'd like for you to address standing.

[01:29:38] Speaker 01:
What is the injury here?

[01:29:41] Speaker 03:
The injury here is that it affects

[01:29:48] Speaker 03:
the state's ability to regulate and manage the distribution system.

[01:29:55] Speaker 03:
And FERC is saying that they will be preempted, states will be preempted even if we had a rule.

[01:30:02] Speaker 03:
But some courts have found that when a state, when the agency takes an action that says it will be preempted, that that gives the petitioner an injury in fact.

[01:30:16] Speaker 03:
to challenge that future preemption.

[01:30:21] Speaker 01:
But that's not the theory of standing that was in your opening brief, is it?

[01:30:30] Speaker 03:
Our theory in our opening brief was that it would have... It would affect our ability to... I'm sorry, I'm looking for the...

[01:30:45] Speaker 03:
it would have effects on our ability to operate.

[01:30:54] Speaker 03:
I apologize.

[01:31:03] Speaker 03:
Yes, as we argued, the state's ability to fulfill its regulatory duties will be adversely affected by the challenge orders.

[01:31:09] Speaker 03:
Our regulatory duties are to manage

[01:31:12] Speaker 03:
and oversee the distribution facilities and the resources on those facilities, this rule is prohibiting us from using one of the tools that we could use to manage those facilities.

[01:31:32] Speaker 01:
So the injury is that it's going to impede your ability to ensure the safe, reliable, and affordable delivery of electric service

[01:31:42] Speaker 01:
That's what you say, I think, at pages 12 to 13 of your brief, opening brief.

[01:31:49] Speaker 05:
Yes.

[01:31:52] Speaker 01:
Okay.

[01:31:53] Speaker 01:
And I'm correct that there's no declaration in the record about how that will be.

[01:32:04] Speaker 02:
Sorry, we'll be... No, no.

[01:32:06] Speaker 01:
Am I correct that there's no declaration or evidence in the record about how that will be?

[01:32:11] Speaker 01:
how that injury will take place.

[01:32:14] Speaker 01:
Correct.

[01:32:19] Speaker 01:
And so explain just succinctly how will that injury take place if we don't vacate this order.

[01:32:33] Speaker 03:
That injury will take place because the state will lose

[01:32:41] Speaker 03:
Their jurisdiction over the distribution facilities and local storage resources will be able to join the wholesale market and therefore impose, that imposes additional burdens and requirements on the states to facilitate that participation.

[01:33:03] Speaker 01:
Okay, I guess what I'm struggling with is that the burdens and requirements part of this was not part of your theory of standing as I interpreted your brief.

[01:33:14] Speaker 01:
Am I wrong about that?

[01:33:17] Speaker 03:
I'm sorry, could you repeat that one more time?

[01:33:20] Speaker 01:
Your injury seems to be now what you just said is that these burdens and requirements that are being imposed on the states is your injury.

[01:33:29] Speaker 01:
But that's not the way that I read your opening brief.

[01:33:32] Speaker 01:
Am I incorrect in my understanding of your opening brief or of your argument?

[01:33:42] Speaker 03:
Well, those burdens are burdens on the state's ability to fulfill their regulatory duties.

[01:33:51] Speaker ?:
Okay.

[01:33:52] Speaker 01:
All right.

[01:33:52] Speaker 01:
I'll leave it there.

[01:33:54] Speaker 00:
Thank you.

[01:33:56] Speaker 00:
Thank you, Your Honors.

[01:33:57] Speaker 00:
Can I ask one question?

[01:33:59] Speaker 00:
I'm sorry.

[01:34:00] Speaker 00:
It's Judge Carlin.

[01:34:03] Speaker 00:
Council said that on the question of whether ESR's participation in wholesale markets will have a direct effect on wholesale rates, that FERC made that finding and that that was not challenged.

[01:34:28] Speaker 00:
and sort of be more specifically that that's the basis of the entire rule, not just the part about states, and that you're not challenging the rule in that respect.

[01:34:42] Speaker 00:
Is that accurate?

[01:34:46] Speaker 03:
In part, Your Honor, yes.

[01:34:50] Speaker 03:
So the rule applies to much more than just these resources that we're discussing.

[01:34:56] Speaker 03:
the ones on the local distribution system and the ones behind the meter.

[01:35:00] Speaker 03:
So FERC determined that it needed to allow all storage resources to participate.

[01:35:08] Speaker 03:
And so therefore, it was removing the barriers within the wholesale market to their participation.

[01:35:18] Speaker 03:
And so the rule is valid in that in the parts that it directs the wholesale market operators

[01:35:26] Speaker 03:
to remove barriers within the wholesale market so that the rates can be just and reasonable.

[01:35:32] Speaker 03:
But we're arguing that by including the resources in the distribution that are connected through the distribution system is beyond what they can do in terms of their operation of the market.

[01:35:49] Speaker 03:
We're saying that their powers are limited to,

[01:35:55] Speaker 03:
what they can do within the rules of the wholesale distribution, sorry, the wholesale federal markets.

[01:36:04] Speaker 00:
Is your position that permitting participation in the wholesale markets by those resources you just specified, ones on the local distribution and the ones behind the feeder?

[01:36:24] Speaker 00:
does not have a direct effect on wholesale rates or does have a direct effect on wholesale rates?

[01:36:30] Speaker 03:
I'm saying it has an incidental effect on wholesale rates.

[01:36:34] Speaker 00:
Thank you.

[01:36:37] Speaker 03:
Thank you, Your Honor.

[01:36:41] Speaker 04:
Mr. Lane.

[01:36:43] Speaker 07:
Thank you, Judge Rogers.

[01:36:44] Speaker 07:
I want to get back to a point that I think both Judge Garland and Judge Wilkins raised, and that is physically,

[01:36:54] Speaker 07:
are the distribution utilities going to have to do something to their facilities to allow the distributed, what I'm calling distributed storage, the solar panel on the homeowner's house to get to the markets.

[01:37:16] Speaker 07:
And the answer is absolutely yes.

[01:37:19] Speaker 07:
I think if you look on JA 537,

[01:37:25] Speaker 07:
Paragraph 42, the commission names a number of those things that are going to have to be done.

[01:37:34] Speaker 07:
And sort of colloquially, if you think about it, I know that this court has heard a number of large generator

[01:37:52] Speaker 07:
interconnection agreement cases where because more power is being added to the system, you have to make adjustments to the system, to the grid, if you want to call it that, or the distribution facility.

[01:38:11] Speaker 07:
So yes, they have to be made.

[01:38:14] Speaker 07:
And those are, in fact, what the commission calls the requirements that

[01:38:22] Speaker 07:
the state or local authority will have to decide is it valid or not valid.

[01:38:32] Speaker 07:
So let's just take an example of the homeowner with the solar panel.

[01:38:38] Speaker 07:
Let's say that it's going to cost 50 times as much to add facilities on the

[01:38:48] Speaker 07:
add new equipment to the distribution facilities to accommodate that solar panel.

[01:38:57] Speaker 07:
Is that something that we're going to be required to do, or should the states be allowed to broadly prohibit that in that case?

[01:39:06] Speaker 07:
I don't know.

[01:39:07] Speaker 07:
Judge Wilkins, you brought up the California situation.

[01:39:11] Speaker 07:
You know, council said, and this is a problem that we have with, and I think

[01:39:17] Speaker 07:
Council correctly parroted the commission's view that the reasonably related test.

[01:39:25] Speaker 07:
And we're saying, well, who knows what's reasonably related is if you're having wildfires and you want to conserve all of that energy storage for the local distribution, who has the right to do that?

[01:39:41] Speaker 07:
Or does FERC, because it doesn't allow a broad prohibition,

[01:39:47] Speaker 07:
just take that option away entirely.

[01:39:50] Speaker 07:
So these are the kind of questions.

[01:39:54] Speaker 07:
And I want to just bring up another point, Judge Garland.

[01:40:01] Speaker 07:
You keep saying this directly affects the wholesale market.

[01:40:05] Speaker 07:
Well, if the energy storage is taken out of the distribution market and goes to the wholesale market, it directly affects

[01:40:16] Speaker 07:
the distribution market.

[01:40:18] Speaker 07:
Now, who makes that decision?

[01:40:21] Speaker 07:
If those energy storage resources are on the distribution system, I would suggest that the state is the one that should be entitled to make that decision.

[01:40:33] Speaker 07:
And if that requires a broad prohibition, they should be allowed to do that.

[01:40:37] Speaker 07:
That's not preempted.

[01:40:40] Speaker 07:
A quote from

[01:40:46] Speaker 07:
a case called PPL Energy in the Third Circuit 766 F Third 241.

[01:40:55] Speaker 07:
The law of supply and demand is not the law of preemption.

[01:41:01] Speaker 07:
So just because there's an effect on the wholesale market doesn't mean that the states are preempted.

[01:41:08] Speaker 07:
You have to look beyond that and you have to look at the clear lines in what I'm calling

[01:41:15] Speaker 07:
201B1 that the local distribution facilities are subject to the zone of exclusive state jurisdiction.

[01:41:26] Speaker 07:
Unless there are any questions, thank you for the additional time, Judge Rogers.

[01:41:34] Speaker 04:
All right.

[01:41:34] Speaker 04:
Thank you, counsel.

[01:41:36] Speaker 04:
The court will take the case under advisement.