[00:00:00] Speaker 01:
Number 20-1389, Cogentrix Energy Power Management LLC and Vistra Court Petitioners versus Federal Energy Regulatory Commission.

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Mr. Jones for the petitioners, Mr. Glover for the respondents.

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Morning, Council.

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Mr. Jones, please proceed when you're ready.

[00:00:18] Speaker 02:
Good morning, Chief Judge Srinivasan and may it please the court.

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Christopher Jones for Petitioners Cogentrix and Vistra, the owners of several New England power plants

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have been designated as critical to the reliable operation of the power grid in the Northeast United States.

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I've asked the courtroom deputy to reserve three minutes for rebuttal.

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Petitioners were compelled by law to incur new costs to help keep the lights on in New England.

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They did so, and they now seek cost recovery.

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That's all this case is about.

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But in its orders below, the commission, despite decades of reviewing utility costs after the fact,

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held that a regulated utility must make a rate filing with FERC before it can even incur costs that might later be charged to customers.

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In our view, FERC's orders badly misconstrued the file rate doctrine and the rule against retroactive rate making, and the best evidence of that is FERC's inability to produce a single example of another rate having been designed this way in its 85-year history of setting utility rates.

[00:01:13] Speaker 02:
Now, the problems with FERC's application of the file rape doctrine and rule against retroactive rapemaking are several, but before I walk through them, I'd like to take just a moment to address the statutory framework because the context of this is important.

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We respectfully suggest that Congress passed Section 219D4 of the Federal Power Act in 2005 to prevent FERC from doing exactly what it did here.

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finding some creative way to disallow rate recovery of mandatory costs spent to safeguard the reliability of the grid.

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Section 219 stems from the 2005 amendments to the act following the historic Northeast blackout of 2003, which were caused in significant part by the lack of a mandatory and enforceable reliability regime.

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So Congress erected an entirely new regime and required FERC to issue new standards and made them mandatory

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and empowered FERC for the first time to issue civil penalties to the tune of $1 million per day per violation.

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Congress was foisting compliance costs and penalty risk on the industry and thus included a special provision to address cost recovery.

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Section 219B4 directs FERC to permit the recovery of all prudently incurred costs of complying with the new mandatory standards required by the Act.

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Now 219B4 must be read as a special rule in our view because 80 years of federal power actors prudence already provide for the utility customers the cost of its prudently incurred cost of providing public utility service.

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So in our view, 219B4 must mean something more.

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Now, FERC says that 219D and the reference there to just and reasonable rates necessarily require the temporal cutoff it created in this case.

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Now, we explained in our briefs why FERC's textual analysis of Section 219D is wrong and why we think the words just and reasonable must mean the same thing in Sections 205 as it does in 219.

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But we would urge the court to sort of focus on a simpler notion, which is if FERC's view of the statute is right, 219B4 and the cost recovery directive therein is rendered entirely superfluous and is read out of the statute.

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Now, even if the court doesn't agree with us on the statute, FERC's application of the filed rate doctrine and rule against retroactive rate making in this case is also clearly

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And I'd like to quote briefly from the Niagara Mohawk case that we have cited throughout this proceeding.

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And we've received no answer to from the commission.

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There, the commission described- Can we just, sorry, can we just talk about the statute for a minute?

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So there's in 205 and

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all of the history with similar schemes, there comes this very strong presumption against retroactive rate making, right?

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You have to file the tariff first and then you can only recover costs prospectively as outlined in the tariff, right?

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Generally, yes, Your Honor.

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Your position has to be that 219 affects an implied repeal of the file rate doctrine.

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The textual construct of 219B4 and its references only to 205A and 205B, I think, Your Honor,

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would support that conclusion.

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Do you agree with that framing?

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I do, but I would suggest that even if the court doesn't, we have an independent basis to reverse the commission on the tab.

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In other words, I understand if you go to D, I understand your argument that

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the text of D can be read to simply say that 205A and B remain effective.

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And you say that the filed rate doctrine arises out of 205C and D. And let's assume I agree with that much of your argument, but you still need something else to turn off

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C and D to affect the implied repeal of C and D. So where do I get that from 219.

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Well, I think the mere presence of 219 before your honor would do that in so far as Congress had to speak to this for a reason.

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In other words, we already knew from section 205, as I mentioned, that we had the ability to recover costs.

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Congress.

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Okay, so if you go to B4, it's either D or B4.

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So if you go to B4, your argument has to be that all means all, right?

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And that includes costs incurred after the filing of a tariff, as well as costs incurred before the filing of a tariff.

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There's this strong background rule that all doesn't mean all.

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It means all costs incurred after the filing of a tariff, which strikes me as

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sort of a FERC specific analog of the presumption against statutory retroactivity, where, you know, wholly apart from filed rate doctrine, if you had a statute that said all costs, you would not read that to mean costs incurred before the statute was enacted.

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So why wouldn't we read all costs in B4 consistent with the filed rate equivalent of that statutory presumption, all costs incurred after filing the tariff?

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Well, again, Your Honor, I don't think that's the rule, that it's costs recovered after the filing of the tariff.

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And so in other words, the long history of the commission has been to approve costs after they are incurred.

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The Columbia gas case we cited at page 42 of our initial brief is sort of the garden variety retroactive rate making case where a pipeline tried to go back and change the costs that were charged to customers after those costs had already been settled.

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And that's not at all what happened here.

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We had no rate.

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We had no ability to file a rate.

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So the retroactive rate making rule does not suggest that costs incurred before a rape filing is tendered are disallowed.

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That's not what the rule says.

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And so to answer your statutory question, it's entirely reasonable, I think, to read the statute in light of the commission's history

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of approving costs after they are incurred under the proven utility manager standard, which we cited throughout our pleadings and our briefs, which the commission has not had an answer to.

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What does the retroactivity mean then?

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It fences some things out and what you're saying is it doesn't fence out everything that predates the filing of the tariff.

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That's right, your honor.

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So once we have a tariff and we file and we start recovering, we are going to be barred by the filed rate doctrine, the rule against retroactive rate making from going back and changing those rates as charged and settled with customers.

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And that's again, that's sort of the Columbia gas example I provided.

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Once we've settled up with our customers for a past period, we can't then go back over time.

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The key distinction here is we have no rate.

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The commission keeps saying that we've charged

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customers for the service and they and that we've been compensated for it well that's news to us because we don't have a rate on file and that that is the key distinction here so all we're talking about here is as we stand up an initial rate and incur costs during the nascent years of this reliability regime.

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At some point, you need to file a rate and seek recovery of them.

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And that's not at all.

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When you say we have no rate, you mean you didn't have a rate that would allow for the recovery of the security costs or the enhancement.

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You had a rate.

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You weren't working for nothing.

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That's true, Your Honor.

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And so we have a general market-based rate tariff that permits us to participate in the market and sell power.

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But again, the commission here, having endorsed this notion of Schedule 17, says specifically these costs, these reliability costs, should be non-market costs because only we, these special generators, have to pay for them.

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And FERC, as you know, goes to great lengths to ensure a level playing field in the wholesale market.

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And so they clearly understand the notion that a special subset of generators that play a higher role in maintaining the reliability of the grid and have additional costs shouldn't be forced to recover those under their market-based rate tariffs where they're competing with everybody else.

[00:10:26] Speaker 04:
Do you represent all of the critical facilities within the New England ISO?

[00:10:34] Speaker 02:
Your honor, that's a question I don't know the answer to because I think these designations can be fluid.

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So I actually don't know if there are more designations for units besides the two entities that signed our briefs.

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The reason I'm asking is I wonder if the other companies filed rather quickly.

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years ago filed for recovery of these security related or efficiency related matters.

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Yeah, that I can't answer your honor and the answer is no.

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And the primary reason for that is we as independent

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generators, not vertically integrated utilities.

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We have no contractual privity with a customer base.

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We rely entirely on ISO New England to pass through costs to customers.

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So we had no, we, the generating community speaking here at large, had no unilateral ability to come to the commission and cite section 219 and say, I'd like my costs please.

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That had to be developed through the ISO New England process, which

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as the record shows was a source of the unfortunate delay over these last few years of getting the rate on file, but that we don't think is determinative of the legal outcome.

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Sorry, why couldn't you unilaterally file a tariff and say, now that we have this new legal obligation imposed on us, we're going to recover the prudently incurred costs associated with it?

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So the vehicle for charging customers in New England has to be through the ISO New England's tariff.

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So even if we filed a rate schedule, we would have no ability to simply stick bills in the mail to New England customers.

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That would have to flow through the ISO.

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And so ISO New England went through the stakeholder process, a various committee process that everybody's obliged to follow through participation and signing the membership agreement, which we

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did in good faith and reliance on the ISO to do that.

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Schedule 17 is clear that at least going forward, you can, the individual generators can make their own section 205 filings.

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And once schedule 17 is in place, that's true, right?

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And I think we read that to mean is if you don't like the specific formula that's attached to schedule 17 and you want to do something else,

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you're free to do that, but schedule 17 still provides the, you know, is now provides the notice that the commission says is so critical to the customers.

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Could you have supplied that notice by filing, making your own 205 filing right at the beginning?

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And then at least you would have protected yourself on retroactivity grounds because that would have been notice.

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I think the commission will tell you, Your Honor, that the notice would only be effective if that rate schedule were filed.

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And we have a pretty strong view that the commission probably would have rejected that as lacking any basis in the ISO and the England tariff to charge customers an out of market cost.

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Because again, all the market costs, the entire cost, the decision to charge market or out of market is all within the umbrella of the ISO tariff and FERC's regulation of it.

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We're quite confident that had we done something like that you know laterally, we would have been kicked out on procedural grounds.

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Now, if I might spend just a moment on what schedule 17 does say, which is that it contains only one temporal requirement.

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for cost recovery and that's that the cost must have been incurred quote during the period in which the subject facility was designated as critical.

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Now we met that requirement FERC still says no on the basis that schedule 17 is somehow ambiguous but we think FERC frankly gave away the farm and its deficiency letter

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This is JA page 132, when it acknowledged to the ISO during the proceeding that based on this language, that was the phrase that it used, Schedule 17 appears to allow retroactive recovery.

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And then if you look at the Lowell testimony accompanying the ISOs filing at joint appendix page 70, it's pretty clear there.

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The witness testifies that the rate design was intended to cover the quote, previously paid costs that were incurred.

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So in our view, FERC manufactured the ambiguity in order to apply the filed rate doctrine, which again, doesn't even really apply here.

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And if I might just cite the commission's own words from Niagara Mohawk,

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The filed rate doctrine and rule against retroactive rate making are grounded in the enforcement of the terms and conditions of a filed rate schedule, but there is no such rate schedule here.

[00:15:08] Speaker 02:
We think that's directly on point, Your Honor.

[00:15:10] Speaker 02:
We've cited that case three different times in this proceeding and the commission hasn't answered it.

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I see I am out of time, so if the court has no other questions, I'll reserve the balance for rebuttal.

[00:15:23] Speaker 00:
Okay, thank you, Mr. Jones.

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Mr. Glover, we'll hear from the commission now.

[00:15:33] Speaker 01:
Thank you, Chief Judge and may it please the court.

[00:15:35] Speaker 01:
I'm Matthew Glover and I represent respondent, the Federal Energy Regulatory Commission.

[00:15:39] Speaker 01:
This is principally a case about turf interpretation, but I'd actually like to start by responding to a point that petitioner just made regarding the deficiency letter.

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They say twice in the reply brief, once at page one to two and once at page nine, that somehow the deficiency letter conceded that schedule 17 was not clear.

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And I have three responses to that.

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The first is that the deficiency letter made clear that it was not the commission's official or final statement on this.

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It was a statement from staff in the office of energy markets asking for more information

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And informing the filing party the New England system operator that their filing was deficient and couldn't be considered by the commission without more information.

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So the commission wasn't making any pronouncement on what the, the statute said if anything it was suggesting your filing is unclear to us, and we would like more information.

[00:16:27] Speaker 01:
The commission was clear in both the initial order and the rehearing order, which are what's on review here, that it thought that the tariff was ambiguous.

[00:16:35] Speaker 01:
I apologize.

[00:16:35] Speaker 01:
I think I said statures.

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I can go on talking about the tariff, the Schedule 17 filing, and that Schedule 17 is best read as permitting only forward-looking costs.

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How do you get that out of the language of Schedule 17?

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get prospectivity out of provisions that are silent with regard to temporal scope.

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This schedule is very explicit as to temporal scope.

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It says costs are recoverable to the extent incurred during the period when the facility is designated.

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And the designation here happened a couple of years before the terrifying

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So your honor, section 2.2A Romanet 1 says what you said.

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Section 2.2A Romanet 2 says, and during the cost recovery period, that'll be designated in schedule 17.

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And then Romanet 3 says that the recovery will be through a section 205 filing.

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A section 205 filing allows you to file a rate that you will charge forward looking.

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And so the commission was basically harmonizing, I think is the word we use in the hearing order,

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Roman at section 2.2 Roman at one, two, and three to provide for only forward-looking costs.

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And this was actually my second response on the deficiency.

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What would Roman at one do on that view?

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I mean, of course they needed 205 filing because the past tariff doesn't account for these newly created obligations.

[00:18:12] Speaker 01:
Your honor, so my first response would be, no, the commission disagrees with the statement that the past tariff doesn't account for these newly imposed obligations.

[00:18:22] Speaker 01:
This goes to our point that they had the opportunity to recover costs in the market.

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If you step back and think generally, these are generators.

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Generators typically provide service in the market and receive a market rate.

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And you're presumed when you're participating in the market that the market rate is covering your costs.

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And so the commission was presuming when these generators are participating in the market that they were recovering their costs.

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The New England system operator came forward and said, for certain designated critical facilities, the medium impact, we would like to create a billing mechanism on transmission rates, which requires cost-based rates, and it requires recovery by the New England ISO collecting and then passing it back to the parties.

[00:19:03] Speaker 01:
We'd like to create this new Schedule 17

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that that medium impact facilities can use to recover their incremental costs.

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But the example I think captures this is all facilities have to comply with section 205 critical facility requirements for the low impact category and the New England system operator didn't propose some new recovery for the low impact category.

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It's presumed that transmission facilities that are charging cost based rates in their cost based rates will recover their costs to comply with the low impact category and that generating facilities are currently and will continue even after schedule 17 to recover those costs for the low impact category through their participation in the market.

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The system operator here is giving a new mechanism that will allow recovery of these costs separate and apart from

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market participation for these generators.

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Is the short answer then that Romanet 1 still does work even if it of its own force doesn't talk about retroactive recovery because it adds to the market-based rate for these medium facilities in a way that wouldn't otherwise be in existence?

[00:20:15] Speaker 01:
Yes, in that you must like your recovery must be the period that you were designated a medium facility.

[00:20:21] Speaker 01:
Yes.

[00:20:22] Speaker 01:
Roman at one is saying the only costs were allowing are these incremental costs during this period you're designated and you're recovering those through a section 205 filing.

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and the Section 205 filing allowing only forward-looking recovery of costs, because you need to provide notice.

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You can't retroactively recover for under-compensated rates.

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So I think that's how we're harmonizing the entire thing.

[00:20:45] Speaker 03:
On their theory... Sorry, I missed that.

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If Romana 3, on your theory,

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sets the clock, starts the clock from the moment of the 205 filing and directs it only going forward, then that will necessarily pick up every period in which the facility was designated because it was designated before the 205 filing was made.

[00:21:20] Speaker 03:
You're saying I guess it's covering a hypothetical of someday down the road, they get undesignated.

[00:21:28] Speaker 01:
So if facilities can have their designation changed to low impact from medium impact, other facilities may later be designated medium impact.

[00:21:36] Speaker 01:
So it's providing for that.

[00:21:37] Speaker 01:
And I think it's helpful to look at JA135, the system operator who wrote the tariff filing, their response to the commission's question regarding what section 2.2A Roman at one means.

[00:21:49] Speaker 01:
At the top of the page, they say section 2.2A Romanet 1 of the proposed schedule 17 does not address the recovery of, and they use an acronym, but this just means critical facility costs, the medium impact incremental costs incurred prior to the requested effective date of March 6th, 2020.

[00:22:09] Speaker 01:
So the system operator is saying right there that it doesn't think Romanet 1 is talking about any costs incurred prior to March 6th.

[00:22:19] Speaker 01:
And that's where we said in the hearing order and we said in our brief that the system operator itself was acknowledging the ambiguity.

[00:22:27] Speaker 03:
I mean, they just gave a non-answer, right?

[00:22:30] Speaker 03:
They just put it on the individual owners to make the case.

[00:22:36] Speaker 01:
No, Your Honor, I disagree.

[00:22:37] Speaker 01:
We asked them whether they think this specific language is providing recovery prior to that.

[00:22:43] Speaker 01:
And they said that it doesn't, that provision, sorry, it does not address the recovery.

[00:22:50] Speaker 01:
So this provision doesn't answer the question.

[00:22:52] Speaker 03:
And then they said, they said if an owner wants to seek recovery for periods before the effective date,

[00:23:00] Speaker 03:
the owner must explain why the filed rate doctrine and the presumption against retroactivity don't apply.

[00:23:08] Speaker 01:
Yes, and that's their section to B if the answer to A was yes, but their answer in A was not yes.

[00:23:14] Speaker 01:
Their answer in A was that it doesn't address it.

[00:23:16] Speaker 01:
And so again, we read that in conjunction with Romanet 3, which sets up or brings in the traditional section 205 filing requirements that only permit going forward costs.

[00:23:26] Speaker 04:
Suppose it did schedule 17 did address it and said that the generators are entitled to recover all of their past costs that were incurred as a result of being designated a critical facility.

[00:23:46] Speaker 04:
If the schedule did say that, wouldn't that violate the filed rate doctor?

[00:23:54] Speaker 01:
Yes, absolutely, Judge Randolph.

[00:23:56] Speaker 01:
I have two points in that.

[00:23:57] Speaker 01:
The first being, if the schedule said that explicitly, this is, again, you start with our tariff interpretation.

[00:24:02] Speaker 01:
Our tariff interpretation would be unreasonable, and you'd vacate what we did because we unreasonably read the tariff as ambiguous.

[00:24:09] Speaker 01:
But the commission in explaining and responding to petitioners, or actually it's only two of the critical facilities here, but the

[00:24:15] Speaker 01:
critical facility owners, the eight of them that participated at the commission level and a few other entities.

[00:24:21] Speaker 01:
In responding to them, the commission did explain that allowing these backward looking costs would violate the filed rate doctrine and the rule against retroactivity.

[00:24:29] Speaker 01:
And so we were interpreting the tariff in light of those background principles.

[00:24:33] Speaker 03:
I suppose I suppose I disagree with your reading of the tariff, but agree with what Judge Randolph just said, which is a

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retroactive recovery going back to 2014 would violate the filed rate doctrine.

[00:24:52] Speaker 03:
Are you saying we can't affirm

[00:24:56] Speaker 03:
on the ground that you have alternative rationales.

[00:24:59] Speaker 03:
You have a tariff-based rationale and you have a rule against retroactivity rationale.

[00:25:04] Speaker 03:
I thought you had both.

[00:25:06] Speaker 01:
We do have both.

[00:25:07] Speaker 01:
I guess it's difficult because you'd be saying we were unreasonable in our interpretation of the tariff, but our interpretation complies with the filed rate doctrine and rule against retroactivity.

[00:25:19] Speaker 03:
I thought you said if the tariff were interpreted to

[00:25:24] Speaker 03:
reach backward in time, it would violate the filed-rate doctrine.

[00:25:29] Speaker 03:
It seems like it's an independent statutory rationale.

[00:25:34] Speaker 01:
Yeah, I think you could affirm on that ground.

[00:25:37] Speaker 01:
No, I think you could affirm on that ground.

[00:25:41] Speaker 01:
It's a little difficult because I'm understanding you to say that, you know, the tariff is unambiguous and it does allow backwards looking costs.

[00:25:49] Speaker 01:
We don't think so.

[00:25:50] Speaker 01:
But the tariff was therefore unjust and unreasonable or violated the filed rate doctrine if it allowed for those costs.

[00:25:57] Speaker 01:
I guess that's sort of a remedy aspect.

[00:25:59] Speaker 01:
You'd be allowing us to keep schedule 17 in the New England system operators tariff.

[00:26:03] Speaker 01:
to recover forward-going costs because recovering backward-going costs violates the filed rate doctrine.

[00:26:10] Speaker 01:
The commission in discussing the filed rate doctrine and rule against retroactivity was explaining to petitioners and these other critical facilities that participated why it would violate those doctrines to interpret the tariff as they wished.

[00:26:22] Speaker 00:
Can I ask you what the individual entities are supposed to do if the system operator, let's just say the system operator just waits for a long time.

[00:26:34] Speaker 00:
and the individual entities want to trigger their ability to recover for costs that are being incurred.

[00:26:41] Speaker 00:
Are they stuck or is there something they could do?

[00:26:46] Speaker 01:
A couple of points of that, Your Honor.

[00:26:48] Speaker 01:
Again, we think Section 219 said we need to propose a rule within one year, which we did in the incentives rule, allowing for incentive-based rate treatments, including allowing recovery of these costs.

[00:27:00] Speaker 01:
We laid out a rule in 2006.

[00:27:02] Speaker 01:
The hearing orders didn't address these provisions, so everyone knew in 2006, but even 2007, that we would allow for recovery in rates that were sought under that.

[00:27:11] Speaker 01:
And in 3518 USC 3535C, we made clear that

[00:27:15] Speaker 01:
any rates you wanted to recover under that rule would be following the filing procedures of section 205.

[00:27:21] Speaker 01:
Now, when they began incurring these costs, as petitioners council said, because the mechanism here for recovery, the new mechanism is a transmission, it's a cost-based mechanism on transmission fees, they couldn't file for that.

[00:27:36] Speaker 01:
The New England system operator is the only one that can file for changes to its tariff on that aspect, but they could have done a couple things

[00:27:43] Speaker 01:
If they thought that the market rates they were receiving were not allowing them to recover these critical facility costs, they could have filed a section 206 proceeding saying the market rates as applied to us are unjust and unreasonable because we are entitled to recover these costs and we are not able to recover them.

[00:28:00] Speaker 01:
They didn't do that.

[00:28:01] Speaker 01:
There's also provisions in the commission's rules

[00:28:04] Speaker 01:
And they didn't come up in this case, so I think it's like 18 CFR 385.713 but they mimic five USC 555 E where you can ask the Commission for a declaration for clarity within sort of what's going on in its jurisdictional area and so, in theory, they could have in 2013 said.

[00:28:23] Speaker 01:
or 2014 we've just been designated we're about to start incurring these costs in 2016 we would like to know that we'll be able to recover these costs, even though they're in a special mechanism, even though the New England system operator hasn't filed a special mechanism.

[00:28:37] Speaker 01:
At this point, the transmission tariff doesn't allow for and the Commission would have told them.

[00:28:42] Speaker 01:
We think you recover these in the market, but if you'd like to recover them through a special mechanism, the system operator could propose one.

[00:28:48] Speaker 01:
And if it complies with the requirements of the regulation, we will approve it, which we did here.

[00:28:56] Speaker 03:
So as a general matter, wholly apart from 219 and the cyber issue, all of the tariffs are filed by the ISO, not by the individual owners.

[00:29:10] Speaker 01:
So the the cost based rate of availability in the open access tariff like the amendments and adjustments to that are filed by the system operator, it has the filing.

[00:29:21] Speaker 01:
Right and what's happening here is it's added to that tariff this schedule 17 which describes the rates and it provides a form.

[00:29:29] Speaker 01:
And so what system operators do, and I think in their reply brief, they cited their own filings in with the commission.

[00:29:35] Speaker 01:
DynaG I think is the either upstream or downstream entity that represents Vistra.

[00:29:40] Speaker 01:
And I can't recall the cogentrix entity, but they file a 205 filing with the commission saying, we would like to use schedule 17 to recover our incremental costs between the low and medium level of our critical facility designation.

[00:29:54] Speaker 01:
And here are the types of costs we're seeking to recover.

[00:29:57] Speaker 03:
Yeah, that's what I'm finding sort of puzzling because the way this seems to work in 219 is really the important Section 205 filing is the follow-on one that's contemplated for the individual owners.

[00:30:19] Speaker 03:
The Schedule 17 just

[00:30:24] Speaker 03:
It feels awfully light.

[00:30:27] Speaker 03:
It says there will be future filings in which people can seek to recover for labor equipment, other costs.

[00:30:37] Speaker 03:
It doesn't feel like a formula.

[00:30:39] Speaker 03:
It doesn't feel like it gives much notice to anyone.

[00:30:43] Speaker 03:
It feels like all of the media information is going to come in the later filings, which are coming from the individual owners.

[00:30:54] Speaker 03:
background rule is the individual owners are doing the filings here.

[00:30:59] Speaker 01:
I know I'm in the red light, but I have a number of points to respond to that.

[00:31:03] Speaker 01:
I'll try to keep it brief, though.

[00:31:04] Speaker 01:
The first is, yes, Your Honor, you absolutely understand this correctly.

[00:31:08] Speaker 01:
But the individual owners are doing the filings that are providing notice that are describing what they're going to recover.

[00:31:15] Speaker 01:
But these are generators here.

[00:31:17] Speaker 01:
And generators again typically recover their costs through a market-based rate.

[00:31:21] Speaker 01:
And the ISO is giving these generators this special cost recovery mechanism that transmission purchases are going to pay under the tariff for transmission services.

[00:31:31] Speaker 01:
So people who purchase wholesale power are using the transmission system in the ISO.

[00:31:36] Speaker 01:
And so this is giving them a mechanism under the open access transmission tariff, or the OATT, I just call it the tariff though, to file a schedule 17 filing with the commission to recover.

[00:31:49] Speaker 01:
Otherwise, when you're providing transmission service, you get your costs under the other schedules and under other provisions of the tariff, but the tariff didn't have a transmission provision providing for this specific recovery.

[00:32:00] Speaker 01:
And so this goes back to, and I hope I sort of getting giving a broad market overview clear things up a little bit that generators typically recover their costs through the market based rates for generation, the clearing price, and that this is a separate opportunity for both generators.

[00:32:16] Speaker 01:
and transmission facilities that would be designated medium impact to recover these costs and and the diner.

[00:32:23] Speaker 03:
But the generators are going through the transmission tariff for this.

[00:32:26] Speaker 01:
This yeah for this specific incremental set of costs and judge catches, I think you were hitting on the point that the meat of what's going to be recovered and all of that is in the section 205 filing.

[00:32:38] Speaker 01:
And I think it was paragraph 28 of the initial order, the commission pointed out that there was a merchant there was an entity that wanted formula based rate for for these recoveries and schedule 17 and we said.

[00:32:50] Speaker 01:
your schedule 17 filing, your later 205, could seek a formula-based rate, or you could specify the costs that you have in this period that you want to recover.

[00:33:00] Speaker 01:
So you could use a formula rate, but you can also just use this schedule and identify your costs.

[00:33:05] Speaker 01:
And that's how we're recovering them going forward.

[00:33:07] Speaker 01:
And that's why we're not letting you recover for the market participation you had since 2013, where we think you had the opportunity to recover these costs.

[00:33:16] Speaker 01:
If you didn't recover them, we're not setting a new rate to allow for

[00:33:20] Speaker 01:
recovery of that.

[00:33:21] Speaker 01:
And I'm well over time, but I can make one more point in response to your question, Judge Katzis.

[00:33:26] Speaker 01:
I think you used the word the meat of the proceeding is going to be in the critical facilities 205 Howling.

[00:33:31] Speaker 01:
And that's absolutely true.

[00:33:33] Speaker 01:
And that's where the prudence review will occur.

[00:33:35] Speaker 01:
If you look at the cases they cite for prudence review, particularly, I think there's like a Northern California or transmission agency of Northern California versus FERC 495 F3, it's 663, but it's 672 note eight.

[00:33:48] Speaker 01:
And this case is cited in the blue brief at 29 it describes the prudent standard as quote a mechanism by which a complaint can challenge utilities rate under the just and reasonable standard semi colon.

[00:33:59] Speaker 01:
it is an evidentiary tool designed to facilitate a rate challenge.

[00:34:02] Speaker 01:
So when the critical facility owners file their 205 proceedings, stating the costs they would like to recover using schedule 17, the commission will engage in prudence review, and it needs to ensure that those costs are just and reasonable.

[00:34:14] Speaker 01:
And a party that would have to pay those costs that might think they aren't prudent can use the prudent standard as an evidentiary standard to challenge that later filing.

[00:34:23] Speaker 01:
I think that's the meat you're talking about.

[00:34:24] Speaker 04:
Before you sit down, one question

[00:34:28] Speaker 04:
keeps recurring to me, and that is, is there anything unique about ISO New England, as opposed to other regions?

[00:34:39] Speaker 04:
Forget about Texas.

[00:34:41] Speaker 04:
Excuse me.

[00:34:46] Speaker 04:
Has this issue, another way of asking the question is, has this issue, the issue that we're dealing with here, come up in other regions of the United States?

[00:34:56] Speaker 01:
So in preparation for the argument, I spoke with commission staff and with people that deal with these filings and they weren't aware of any other ISO or RCO system operator filing a transmission tariff based mechanism to recover these costs.

[00:35:11] Speaker 04:
So they're all being recovered by market based rates.

[00:35:16] Speaker 01:
If you were a generator.

[00:35:17] Speaker 01:
would be recovered by market based rates.

[00:35:19] Speaker 01:
If you were transmission, most transmission tariffs, there are some exceptions if you have a contract and things like that, but most transmission providers or transmission facilities recover their costs through these cost of service rates in the open access tariff.

[00:35:33] Speaker 01:
So if you were a transmission provider in ISO New England since, and you were designated in 2014, presumably you were recovering those rates

[00:35:40] Speaker 01:
through your cost based rate making with the ISO that these were just among the costs that you were recovering there, I would say there is.

[00:35:48] Speaker 01:
I don't think it's not unique legally about the New England system operator, but just to fully answer your question, this statute in part was passed because of reliability issues in New England.

[00:36:00] Speaker 01:
And I think, again, in talking with staff, the New England system operator has been maybe a leader in really applying the critical facilities rules and a leader, sort of one of the earlier system operators to engage with these rules and want to assure that

[00:36:16] Speaker 01:
the New England storms that led to the statute don't happen again in their system.

[00:36:22] Speaker 01:
Okay, thank you.

[00:36:23] Speaker 01:
Thank you.

[00:36:24] Speaker 03:
Just sorry one last question on the statute on 219.

[00:36:33] Speaker 03:
What's your response to what I think is the best argument on the other side, which is

[00:36:44] Speaker 03:
219 seems to do oddly very little if it simply means it preserves the filed rate doctrine and the rule against retroactivity and just confirms what would otherwise be the case, which is that all prudently incurred costs can be recovered.

[00:37:12] Speaker 03:
Is the work there

[00:37:14] Speaker 03:
what you were talking about and shifting from a market rate to a cost rate, is that the work it's doing?

[00:37:21] Speaker 01:
As to the B4, yes, absolutely.

[00:37:24] Speaker 01:
That would be the work it's doing.

[00:37:25] Speaker 01:
219 itself obviously required the commission to issue a whole lot of other incentive rates.

[00:37:31] Speaker 03:
219, when you look at it writ large, it seems that Congress is very intent on

[00:37:42] Speaker 03:
encouraging this kind of investment and making sure that generators are compensated for it.

[00:37:49] Speaker 03:
It's a pro-recovery statute and just seems odd in that context if you read all of this language to just confirm background rules.

[00:38:03] Speaker 01:
So 219 is, I think it's fair to say it's an incentive recovery statute, but the regulations we, the rule we passed pursuant to it has a lot of different incentive rate treatments.

[00:38:13] Speaker 01:
This is just one, you know, we had the San Diego gas case about a different incentive rate treatment.

[00:38:19] Speaker 01:
And I know Judge Reynolds didn't agree with the commission's position there, but so 219 is, you know, providing, you know, instruction to us to put forward a lot of rules for a lot of different incentive programs.

[00:38:29] Speaker 01:
Yes, B4 is permitting us to have this

[00:38:32] Speaker 01:
additional cost-based recovery as the system operator is doing here.

[00:38:37] Speaker 01:
Otherwise there wouldn't, you know, that's the statutory mechanism for the system operator to say to the commission, we would like to have this additional, you know, cost-based mechanism to recover these.

[00:38:46] Speaker 03:
I mean, it's requiring you to do that, but I take your point.

[00:38:50] Speaker 01:
It's requiring us to allow the fees, if it were required, and this gets to my point about the low impact that we're requiring us to have a special cost based mechanism, then all parties would need to be able to recover their low impact fees but everyone presumes that those these to comply with low impact are being recovered in the market, it says that we need to allow recovery.

[00:39:09] Speaker 01:
of prudently incurred costs.

[00:39:12] Speaker 01:
But we don't read it as requiring us in the rule to have said, add to all tariffs this specific mechanism.

[00:39:18] Speaker 01:
We told the entities that they could file rates with us.

[00:39:22] Speaker 01:
And in 3535C, we said those rates needed to comply with 205 and the background rules.

[00:39:26] Speaker 01:
And I think I've gone over that.

[00:39:27] Speaker 01:
So I don't mean, I know I'm well over time and I don't want to belabor the point unless you have further questions.

[00:39:34] Speaker 00:
Thank you, Mr. Glover.

[00:39:35] Speaker 01:
Thank you.

[00:39:36] Speaker 00:
Mr. Jones, you reserved three minutes for rebuttal.

[00:39:38] Speaker 00:
We'll give you three minutes.

[00:39:40] Speaker 02:
Thank you, your honor.

[00:39:42] Speaker 02:
There's a lot there.

[00:39:43] Speaker 02:
Let me start with the question about market compensation if I could.

[00:39:48] Speaker 02:
First of all, the low impact is if all generators in the market are bearing a cost, there's no concern about undue discrimination and there's no concern about unlevel playing field.

[00:39:59] Speaker 02:
And the statute at 219D, which the commission relies on, does in fact require both just and reasonable rates and unduly discriminatory rates.

[00:40:08] Speaker 02:
And if we are required to rely on market compensation,

[00:40:12] Speaker 02:
for costs that only a few generators bear that is by definition a discriminatory rate regime which would not satisfy the statute.

[00:40:19] Speaker 02:
The problem that we have in this case is, if for example, these incremental costs foisted on us.

[00:40:27] Speaker 02:
are exactly the costs that make us out of the money in the market, they could cause these units not to clear the market.

[00:40:35] Speaker 02:
There's nothing in the record that suggests that the commission ever investigated the sufficiency of market outcomes and market compensation for these rates.

[00:40:44] Speaker 02:
And that's exactly why the ISO felt compelled to create a separate transmission rate, which council concedes that's what this is.

[00:40:50] Speaker 02:
So we have generation rates over here where all the costs of power producing are happening.

[00:40:56] Speaker 02:
And we have this critical transmission role that these units play that have to be called out.

[00:41:01] Speaker 02:
They are both non-generation costs and they are non-market.

[00:41:04] Speaker 02:
So to say that they're just recovered in the market per se, even though the lion's share of generators in the market don't have those costs, again, leads right back into its statutory problem.

[00:41:17] Speaker 02:
Now, I'd also like to address,

[00:41:20] Speaker 02:
The commission staff or staff council referenced the incentives rule and section 3535 of the regulations.

[00:41:26] Speaker 02:
Actually, if you read the incentive rule, you will not find a single mention of the rule against retroactive rate making or the file rate doctrine.

[00:41:35] Speaker 02:
So the notion that somehow the reference to filing requirements in section 3535 of the regulations was putting the world on notice that the commission intended to do this is not credible in our view.

[00:41:47] Speaker 04:
Were you keeping, were your clients keeping a separate account for the attributable to the, the, the, uh, section two 19.

[00:41:58] Speaker 02:
Uh, your honor, we have tracked them.

[00:42:01] Speaker 02:
Yes.

[00:42:01] Speaker 02:
We, the, you know, uh, merchant generators, non-utility generators by the commission's rules don't have to follow the uniform system of accounts.

[00:42:10] Speaker 02:
So I can't tell you exactly what the accounting was, but absolutely we have, we have.

[00:42:15] Speaker 04:
tracked the costs that were incremental and caused by... Well, if you weren't doing that, I'm a little bit confused about how you separate what you received in the market-based rates as opposed to separating out just the costs that you incurred with respect to the critical facility matter.

[00:42:41] Speaker 02:
Well, I guess I would think about it this way, Your Honor.

[00:42:43] Speaker 02:
We certainly don't separate them out in the course of in the day to day course when we make that 205 filing to come into the commission.

[00:42:53] Speaker 02:
we can identify the incremental costs that were foisted on us that need to be separated out into that transmission rate.

[00:43:00] Speaker 02:
And if I might, on that note, the rates that we filed and commission council referenced that we had actually now made these 205 filings, the meat of it, I think it was that was referred to.

[00:43:13] Speaker 02:
And I'll give you the FERC docket numbers so your clerks could pull them.

[00:43:16] Speaker 02:
The FERC dockets are ER21-774 and ER21-1171.

[00:43:22] Speaker 02:
you'll see there is no me and that that goes back

[00:43:32] Speaker 02:
But it's not until a year from now, as counsel says, well, we're going to do the prudence review.

[00:43:37] Speaker 02:
You're going to see the meat.

[00:43:39] Speaker 02:
Well, under this rule, we have to file an empty rate.

[00:43:42] Speaker 02:
There's nothing in it that says we simply intend to recover.

[00:43:47] Speaker 02:
And then a year from now, we get to come back and say, OK, now here are the costs that we recovered for that year.

[00:43:53] Speaker 02:
Of course, disallowing the entire four or five years that we thought we were going to get recovery for.

[00:43:59] Speaker 02:
And that then leads me to the question of whether we somehow waited too long.

[00:44:04] Speaker 02:
I think the entire notion that

[00:44:09] Speaker 02:
we should have done something earlier, presupposes that the commission is right.

[00:44:13] Speaker 02:
When this was all about the filed rate docker, which we think they're not, while this was all going on, we had a good faith assumption and basis to conclude that the ISO, that we could convince them to include past costs in the rate and that that was lawful.

[00:44:29] Speaker 02:
And so the ISO, as Judge Cass has pointed out, provided just sort of a non-answer.

[00:44:33] Speaker 02:
They decided to punt on this to the commission.

[00:44:35] Speaker 02:
But in order for you to conclude that we should have somehow come in earlier, presupposes that the commission is right, that there's a filed rate doctrine or retroactive rate making issue here when there's just not, there is no rate on file that we have violated.

[00:44:49] Speaker 02:
In contrary to all the commission's precedent on that matter.

[00:44:52] Speaker 02:
I'm out of time unless the court has anything else.

[00:44:55] Speaker 02:
I'll thank the court for its time and urge the court to vacate these orders.

[00:45:00] Speaker 00:
Thank you, counsel.

[00:45:01] Speaker 00:
Thank you to both counsel.

[00:45:03] Speaker 00:
We'll take this case under submission.