[00:00:00] Speaker 00:
Case number 20-1033 et al.

[00:00:03] Speaker 00:
Long Island Power Authority and Long Island Lighting Company doing business as LEPA petitioners versus Federal Energy Regulatory Commission.

[00:00:12] Speaker 00:
Mr. McBride for the petitioners, Long Island Power Authority et al.

[00:00:16] Speaker 00:
Mr. Konopka for the petitioner, Linden VFT LLC.

[00:00:20] Speaker 00:
Mr. Viswanathan for the respondents.

[00:00:22] Speaker 00:
Mr. Longstrat for the respondent interveners.

[00:00:28] Speaker 02:
All right, Mr. McBride, good morning.

[00:00:30] Speaker 04:
Good morning, Judge Anderson, and may it please the court.

[00:00:34] Speaker 04:
The Seventh Circuit's mandate was to quantify the benefits for each of the vintage projects at issue.

[00:00:41] Speaker 04:
FERC failed to do that or to cite any testimony or other evidence doing so for each of the three categories of costs at issue.

[00:00:50] Speaker 04:
For the pre-2016 costs,

[00:00:53] Speaker 04:
The debits and credits agreed to in the settlement were a black box settlement.

[00:00:57] Speaker 04:
That is no explanation of how the amounts were derived.

[00:01:01] Speaker 04:
Merchants were supposedly no worse off than if we had litigated the matter.

[00:01:05] Speaker 04:
But that is just a cost to cost comparison, not a cost benefit comparison.

[00:01:11] Speaker 04:
And it presumes the conclusion of the methodology that FERC would have used had the case gone to hearings.

[00:01:18] Speaker 04:
And we were worse off as we demonstrated in our reply brief at three node three.

[00:01:24] Speaker 04:
For the pre 2016 costs, our costs went up about 5.8 million and overall our total costs went up from 16 million to 31 million.

[00:01:34] Speaker 04:
For the second category for the canceled projects, FERC's rationale was that it could rely on so-called violations based defects, even though it had previously rejected that method

[00:01:47] Speaker 04:
because it hadn't, it said, rejected it as the sole means of cost allocation.

[00:01:52] Speaker 04:
But in fact, FERC was urged by the Illinois Commerce Commission to use that violations-based defects for part of the cost allocation, and FERC's response was to reject it altogether.

[00:02:04] Speaker 04:
That's at JA 461.

[00:02:07] Speaker 04:
FERC has not justified how it is now justified to use that methodology that it previously rejected.

[00:02:15] Speaker 04:
with the cost starting on January 1, 2016.

[00:02:18] Speaker 05:
Mr. McBride, if I could interrupt you, the Seventh Circuit made clear that the posted stamp method won't work.

[00:02:27] Speaker 05:
And I'm sure you would not want 100% flow-based method.

[00:02:33] Speaker 05:
So what do you propose?

[00:02:36] Speaker 05:
What ratio is it that you think FERC should have chosen?

[00:02:40] Speaker 04:
Well, for one thing, Your Honor, what we really were contending here is that we needed to have an as applied determination.

[00:02:48] Speaker 04:
So even if you start with the Order 1000 hybrid methodology, there were aspects of the settlement that were highly prejudicial and that we had no part in negotiating, such as for de minimis and for netting.

[00:03:03] Speaker 04:
So for de minimis, for example,

[00:03:05] Speaker 04:
A system as large as PSE&G, if a project had a load of less than 1% of PSE&G's total load, and so that 1% would be 1,150 megawatts, you'll find that at GA 150, then PSE&G would bear no costs for that project altogether.

[00:03:27] Speaker 04:
And those costs would be reallocated to the other participants.

[00:03:32] Speaker 04:
particularly the merchants.

[00:03:33] Speaker 04:
And as to netting, netting is useful for the big systems like PSE and GE and the others because they have flow in two directions.

[00:03:43] Speaker 04:
But as Lyndon pointed out at GA 163, netting doesn't even apply to the merchants because the flow is only in one direction.

[00:03:52] Speaker 04:
Let's be honest.

[00:03:54] Speaker 04:
On the big conceptual question that was at issue in the Seventh Circuit cases and in Old Dominion, which is where on the spectrum between postage stamp and flow, what is the appropriate mix of cost for high voltage facilities?

[00:04:17] Speaker 04:
You want postage stamp.

[00:04:19] Speaker 04:
We didn't argue for that as the only method, Judge, we'd said it was an alternative.

[00:04:24] Speaker 04:
The hybrid, the one-to-one hybrid is $30 million worse for your clients and a defects only method would be even worse.

[00:04:34] Speaker 04:
Well, our showing, the commission's finding at J 353 and 398 was that we were $31 million

[00:04:44] Speaker 04:
of additional or total costs as opposed to 16 million.

[00:04:47] Speaker 04:
So it's the settlement and the provisions of the settlement that are really the problem.

[00:04:52] Speaker 04:
The settlement, which implements the one to one methodology that is now routinely used in or under order 1000.

[00:05:03] Speaker 04:
it's not just the one-to-one as I was just indicating, it also includes the aspects like the minimus and netting that were highly prejudicial to us.

[00:05:12] Speaker 04:
Okay, so if you don't, if you're not pressing the conceptual point, what I call the macro point of pure postage stamp versus pure defects versus some kind of hybrid,

[00:05:30] Speaker 04:
And what you're saying instead is that there were a lot of subsidiary details that FERC should have looked at more closely instead of just making this overall ballpark judgment.

[00:05:48] Speaker 04:
That seems like that's just a challenge to their Trailblazer framework, no?

[00:05:55] Speaker 04:
No, Your Honor, Trailblazer 2, which was their basis here,

[00:06:00] Speaker 04:
is just to make an overall determination that it's just unreasonable without looking at the component parts.

[00:06:07] Speaker 04:
And I'm urging that they would have had to look at the component parts.

[00:06:11] Speaker 04:
Exactly.

[00:06:11] Speaker 04:
So you're saying that Trailblazer 2 is not a lawful way for FERC to approve contested settlements.

[00:06:21] Speaker 04:
perhaps in other contexts, but here where we had the mandate and cost benefit was required.

[00:06:27] Speaker 04:
And we needed discovery to show what the assumptions were in the models and what the power flow data were, the base period for which they were used and that sort of thing.

[00:06:37] Speaker 04:
And to force the interveners to put on a case,

[00:06:41] Speaker 04:
that showed cost benefit and then we could put on an opposing case and then FERC would have to resolve the disputes.

[00:06:47] Speaker 04:
Right, but I mean Illinois Central, neither Illinois Central case involved approval of a settlement.

[00:06:56] Speaker 04:
So however, I mean whatever you think of the mixed signals from Judge Posner's opinions, they really don't speak to

[00:07:08] Speaker 04:
the trailblazer question that we've been discussing, which is in the settlement context, is it good enough for FERC just to look at something overall, or are they legally required to separately address all of the granular details that you're pressing on us now?

[00:07:29] Speaker 04:
Judge Posner and the other members of the Seventh Circuit, of course, didn't have a settlement in front of them.

[00:07:34] Speaker 04:
But our point here was that when we contested this and we showed that the methodology, despite the intervener's assertions that we would be better off, we weren't better off, we were worse off, and that we were entitled to show that there were problems with the settlement that made us so.

[00:07:54] Speaker 04:
And so it was really an as applied challenge that we were trying to present and that we were prevented from presenting.

[00:08:03] Speaker 04:
Do you quarrel with FERC's reasoning to the extent they said that we now have the hybrid 50-50 methodology which we use.

[00:08:21] Speaker 04:
We approved it in 2013.

[00:08:27] Speaker 04:
It's produced consensus among all of these utilities who had been at each other's throats.

[00:08:33] Speaker 04:
So we are going to apply that methodology here.

[00:08:38] Speaker 04:
Do you dispute that aspect of their reasoning?

[00:08:42] Speaker 04:
I thought your whole case was that they can't do that.

[00:08:46] Speaker 04:
They have to redo the 2013 compliance determination in the context of this administrative record.

[00:08:58] Speaker 04:
Note that FERC itself said at J83 that the hybrid methodology was just an outline.

[00:09:05] Speaker 04:
And our point here was that as applied to these projects, and we showed this in our comments contesting the settlement,

[00:09:14] Speaker 04:
the basis for the settlement that we were supposedly better off was not correct.

[00:09:20] Speaker 04:
And that when you included the Susquehanna Roseland project, for example, we were a lot worse off.

[00:09:25] Speaker 04:
And that's those are the tables at JA 353 and 398.

[00:09:30] Speaker 04:
Sure, I understand you're worse off, but they said in the but for world where you litigate,

[00:09:41] Speaker 04:
you weren't gonna get the postage stamp method that you want.

[00:09:45] Speaker 04:
You're gonna get a hybrid.

[00:09:48] Speaker 04:
Well, again, you're gonna get the rule of law you get here will be the one-to-one, the 50-50 rule that FERC uses and the arcane adjustments under this three-track method is designed roughly to replicate what you would get under the

[00:10:11] Speaker 04:
50-50 order 1000 approach.

[00:10:15] Speaker 04:
Well, the problem that we had is it's not just this 50-50 approach.

[00:10:21] Speaker 04:
That's the problem.

[00:10:22] Speaker 04:
It was a settlement that had a lot of other provisions in it that were prejudicial to us.

[00:10:28] Speaker 04:
But that's what I'm just trying to isolate here.

[00:10:31] Speaker 04:
Are you complaining about applying

[00:10:34] Speaker 04:
50-50 rule, or are you complaining about all these other details?

[00:10:40] Speaker 04:
Well, it's very difficult to answer fully, Your Honor, because the intervenors, you know, who were the parties who had the burden below, would have had to present cost-benefit testimony to justify the settlement.

[00:10:57] Speaker 04:
And FERC itself said that that's what was required at JA67 in the order on remit.

[00:11:03] Speaker 04:
And then we would have been able to present cost benefit testimony in the alternative showing what was wrong with their testimony.

[00:11:11] Speaker 04:
And that's what the hearing would have been about.

[00:11:13] Speaker 04:
So it's not just the conceptual, but it's the as applied that I'm trying to explain was really our concern here.

[00:11:24] Speaker 02:
All right, if there are no more questions, then we'll hear from Mr. Konopka.

[00:11:33] Speaker 01:
Can you hear me?

[00:11:34] Speaker 04:
Yes.

[00:11:36] Speaker 01:
Great.

[00:11:36] Speaker 01:
Good morning, Your Honors, and may it please the court, Eric Konopka for Linden VFT.

[00:11:41] Speaker 01:
Up to this point, we've been talking about reasons why the settlement should not be upheld.

[00:11:44] Speaker 01:
But if it is upheld, it should at least be interpreted and enforced according to its terms.

[00:11:49] Speaker 01:
That means Linden VFT cannot be held liable for transmission enhancement charge adjustments because it was not subject to transmission enhancement charges at any point during the period in which adjustments are collected.

[00:12:01] Speaker 01:
Now, I don't have a lot of time and I'd really like to stress two points.

[00:12:05] Speaker 01:
First is that on the text, there are really two key phrases here and it's in which and are collected.

[00:12:11] Speaker 01:
If the settlement had said, for example, the period for which adjustments are collected or the period in which adjustments accrue,

[00:12:19] Speaker 01:
then Fork's interpretation of it may make sense, but those aren't the words that the settlement uses.

[00:12:23] Speaker 01:
And the words that the settlement does use in which adjustments are collected are used not only in the paragraph that we're relying on 2.2E2, but also in the very next paragraph 2.2E3.

[00:12:34] Speaker 01:
And nearly identical words are used in the prior paragraph 2.2E1 of the settlement.

[00:12:39] Speaker 01:
So this wasn't an accident, it wasn't an error.

[00:12:42] Speaker 01:
These words were chosen.

[00:12:44] Speaker 01:
The second point is related.

[00:12:46] Speaker 04:
Your position seems pretty strong on schedule, the language of schedule 12 C. But what do you do with the language in the settlement agreement?

[00:13:00] Speaker 04:
I think there's some JA 88, JA 86.

[00:13:05] Speaker 04:
There's a formulation which says effective 1116, which is the effective date, not the approval date.

[00:13:14] Speaker 04:
PJM shall collect.

[00:13:19] Speaker 04:
Sure.

[00:13:20] Speaker 04:
Is that some at least a clue that collect in this context might have a counterintuitive meaning of the crew.

[00:13:32] Speaker 01:
Sure, so a couple of points on that, Judge Katsas.

[00:13:35] Speaker 01:
Number one, we think that the two provisions are actually reconcilable, and we've reconciled them in our brief.

[00:13:41] Speaker 01:
But if the court perceived any conflict between them, then we think that the tariff should govern, that the Schedule 12C should govern.

[00:13:48] Speaker 01:
And FERC itself in its briefing focuses on Schedule 12C, so that's the filed rate that should be applied to us.

[00:13:54] Speaker 01:
And so the language of that really should control.

[00:13:57] Speaker 01:
But we think that they're totally reconcilable because of the way that the settlement

[00:14:00] Speaker 01:
works and it may be worth kind of giving our conception of how it's supposed to work so sections 2.2 B and sections 2.2 D and E of the settlement sort of

[00:14:12] Speaker 01:
they incorporate a list of dollar amounts that were assigned to us by the settling parties in an appendix to schedule 12C.

[00:14:20] Speaker 01:
Now, sections 2.2B and sections 2.2E make clear that those amounts are subject to change depending on the exception that we're relying on as well as another one.

[00:14:31] Speaker 01:
So the way that we think that this has to work is that you apply our exception first, 2.2E2 first,

[00:14:36] Speaker 01:
And that has the effect of zeroing out our adjustment number.

[00:14:42] Speaker 01:
And then other parties' adjustments would be increased by a very small amount, about 0.8% to account for us.

[00:14:50] Speaker 01:
And then those amounts would have to be made retroactive to January 1, 2016, including with interest.

[00:14:55] Speaker 01:
And we think that's how the settlement operates.

[00:14:58] Speaker 01:
And we think, again, sort of getting to my second point, that's for good reason.

[00:15:02] Speaker 01:
I mean, we don't have a ton of insight into why the settlement was drafted this way.

[00:15:06] Speaker 01:
But the provision that we're relying on seems to be an administrative one.

[00:15:10] Speaker 01:
What it's basically saying is that when we gave up our firm transmission withdrawal rates, we stopped being liable for transmission enhancement charges.

[00:15:19] Speaker 01:
PJM stopped billing them for us and stopped collecting them from us.

[00:15:22] Speaker 01:
And so what this settlement provision is really saying is that if PJM isn't billing you and collecting charges from you, then it shouldn't bill and collect you for adjustments either.

[00:15:32] Speaker 01:
And we think that's buttressed.

[00:15:33] Speaker 01:
and among other places in section 2.2B, which makes clear that PJM shall collect adjustments as a separate line item on customer's bills.

[00:15:43] Speaker 01:
Thank you, Your Honors.

[00:15:44] Speaker 01:
I see I'm out of time.

[00:15:45] Speaker 02:
All right, we'll give you the minute you requested in reply.

[00:15:49] Speaker 02:
Thank you, Judge Engerson.

[00:15:52] Speaker 02:
We'll hear from FERC Council, Mr. Viswanathan.

[00:15:56] Speaker 06:
Good morning, your honors on investment often on behalf of the commission.

[00:15:59] Speaker 06:
Um, I'll start off with where we left off on the language of the settlement.

[00:16:08] Speaker 06:
the provision of section 2.2D that states that effective January 1, 2016, PJM shall collect.

[00:16:17] Speaker 06:
I can also ask you to compare that language and that usage of collect with section three of schedule 12C, which uses the word collect in a slightly different way.

[00:16:28] Speaker 06:
That's the person that says that PJM shall track and accumulate.

[00:16:33] Speaker 04:
Sorry, where are you?

[00:16:34] Speaker 04:
You said D, which is the JA 88.

[00:16:37] Speaker 06:
Right.

[00:16:37] Speaker 06:
And so I'm asking you to compare that with what's on JA100, which is section three of schedule 12C.

[00:16:44] Speaker 04:
88 seems to me doesn't help you as much because it says collect or credit.

[00:16:52] Speaker 04:
So that could easily just mean from in the transition period from 16 to 18, they're not collecting, but they're crediting.

[00:17:04] Speaker 06:
Well, okay, but it also uses the same phrase that's used in section 4C12 of schedule 12C, as well as that schedule.

[00:17:17] Speaker 04:
I'm sorry, 4C12, okay, that's the main.

[00:17:21] Speaker 06:
Right, that's the provision that's been disputed.

[00:17:24] Speaker 06:
And so I guess my first point is,

[00:17:27] Speaker 06:
Lyndon is focused on the phrase collected in that provision but I think what the commission is trying to convey is that that word is used in a few different places in the settlement, and it means slightly different things and so.

[00:17:40] Speaker 06:
on the prior page J100, what it says is that between January 1, 2016 and the date of order authorizing PJM to begin collecting.

[00:17:52] Speaker 06:
So that's one usage of that word.

[00:17:55] Speaker 06:
And then if you compare that use of collect with 2.2D, which states that PJM shall collect or credit on effective January 1, 2016,

[00:18:07] Speaker 06:
I think based on that, the commission found that it's a more reasonable reading of 4C12 is that it's referring to the entirety of the time period.

[00:18:17] Speaker 06:
Another point the commission focused on is not just that phrase in 4C12, but the entirety of the sentence in which it is located.

[00:18:26] Speaker 06:
And so what it says is during the period in which transmission enhancement charge adjustments are collected.

[00:18:34] Speaker 06:
There's no definition or explanation of what that time period is in that provision.

[00:18:38] Speaker 06:
The closest time period we have is in the preceding umbrella paragraph in 4C, which is what the commission called the entire adjustment period.

[00:18:47] Speaker 04:
You wouldn't disagree.

[00:18:49] Speaker 04:
If we start from the directly controlling text and work our way outwards, by far the more natural reading of collect is to collect the money.

[00:19:04] Speaker 04:
forced transfer of money from the utilities to PJM as opposed to accruing the liability on the recording the liability on the balance sheet of the utilities, right?

[00:19:18] Speaker 06:
Well, but I think when you consider the entirety of the settlement and other provisions, I think that's when that reading starts to make less sense.

[00:19:27] Speaker 04:
Yeah, but I'm not sure that I'm not sure the other provisions help you

[00:19:33] Speaker 04:
very much.

[00:19:34] Speaker 04:
So, I mean, just working outward from that provision of the tariff, one provision later, you have paragraph five, which contrasts collection with payment.

[00:19:50] Speaker 04:
And one paragraph earlier, the section you were talking about is an entire regime set up to deal with this transitional issue of

[00:20:04] Speaker 04:
the two-year period between the effective date and when the liabilities kick in and the approval date when PJM can start the collection.

[00:20:20] Speaker 04:
I mean, it all seems, everything in the tariff seems to hang together to support Lyndon's view.

[00:20:30] Speaker 06:
I'm not sure that's right.

[00:20:32] Speaker 06:
I think I can point you to one more provision.

[00:20:34] Speaker 06:
This is on.

[00:20:36] Speaker 04:
I mean the best one I could find for you are the provisions in the in the settlement offer and I don't know that those have quite the same weight but go ahead within 12C.

[00:20:46] Speaker 06:
Sure.

[00:20:46] Speaker 06:
Well, so at least, well, I was going to point you to one of the terms of the settlement itself on J85.

[00:20:51] Speaker 06:
This is 2.1.

[00:20:54] Speaker 04:
I'll let you do that in a second, but do you have anything in 12C that you want to start with?

[00:21:01] Speaker 06:
I think that 12C I think are

[00:21:05] Speaker 06:
what I've already said, which is number one, that the tracking and accumulating obligation section three.

[00:21:11] Speaker 06:
And this is important because if Lyndon is right, that means that their reading of 4C12 is focused on that word collect would essentially undo the tracking and accumulating obligation in section three of 12C.

[00:21:26] Speaker 06:
And the other piece is what I've already said, which is the only time period that's actually defined

[00:21:32] Speaker 06:
in 12c is the one in the umbrella paragraph 4c and so it's a reasonable reading of 4c12 that during the period in which the adjustments are collected must refer back to the period where that's defined.

[00:21:44] Speaker 06:
I can also point you to the last sentence or last phrase in 4c which says

[00:21:51] Speaker 06:
This is at the end of 4C, it says subject to adjustment in accordance with subsection 4C1.

[00:22:01] Speaker 06:
And so I think a reasonable reading of that is that what follows 4C, that is subsections one and two of 4C1 are subject to what has previously been stated in 4C and 4C is where we have that full adjustment period of 2016 to 2025.

[00:22:21] Speaker 06:
So that's what I have for you on 12C.

[00:22:26] Speaker 06:
I can just point you to back in the settlement, JA85.

[00:22:29] Speaker 06:
This is section 2.1.

[00:22:31] Speaker 06:
The commission emphasized that, so this is the provision that explicitly in the settlement separates out the effective date for adjustments.

[00:22:41] Speaker 06:
and the effective date of the settlement itself.

[00:22:43] Speaker 06:
And that latter date is dependent on when the commission actually approves the settlement itself.

[00:22:48] Speaker 06:
So the point of this year is that regardless of any, for example, delays in approval of the settlement, that doesn't change the fact that adjustments are effective as of January 1, 2016, they continue to accrue.

[00:23:01] Speaker 05:
Can I take you back to JA100?

[00:23:08] Speaker 05:
Yes.

[00:23:10] Speaker 05:
The paragraph three that you suggested is probably the most helpful to you.

[00:23:15] Speaker 05:
I read in a different way.

[00:23:17] Speaker 05:
I wonder if you can tell me where you think I went off track here.

[00:23:21] Speaker 05:
PJM shall track and accumulate the differences between amounts collected.

[00:23:29] Speaker 05:
So to me, and then they're gonna take that amount and they're gonna subtract basically what 12C otherwise would have required.

[00:23:39] Speaker 05:
tracking the difference.

[00:23:43] Speaker 05:
So we're talking about a subtraction here between the amounts collected versus the rates and charges applicable under this schedule 12C.

[00:23:53] Speaker 05:
And so that kind of subtraction problem to me really only makes sense if collected is the kind of collect that Lyndon is talking about because you wouldn't

[00:24:07] Speaker 05:
You wouldn't take as your first amount in that equation what perhaps a company was billed but didn't actually end up paying.

[00:24:18] Speaker 05:
You would want to know what they actually paid, what was actually collected from that company.

[00:24:24] Speaker 05:
That's the amount that you would then use and then subtract from that what should have been collected under 12C.

[00:24:32] Speaker 05:
Imagine that I'm just a customer and a company is trying to figure out what I owe them versus what they owe me.

[00:24:40] Speaker 05:
And what should have been paid is what was under schedule 12C.

[00:24:45] Speaker 05:
What are they going to compare that to?

[00:24:47] Speaker 05:
They're going to compare that to what I actually paid them, what that company actually collected.

[00:24:52] Speaker 05:
They're not going to compare it to maybe a bill they sent me that I never actually paid and that they never actually collected.

[00:24:58] Speaker 05:
So to me, don't tell me why I'm wrong.

[00:25:01] Speaker 05:
Tell me why I'm misunderstanding how the word collected is being used there.

[00:25:05] Speaker 06:
Well, I think that that I think what you're.

[00:25:09] Speaker 06:
Saying sort of premise on the fact that maybe the bills have already been collected.

[00:25:16] Speaker 06:
And so what the settlement is covering is amounts that were already collected, as well as amounts that would be due under the previously remanded method.

[00:25:26] Speaker 05:
They're taking the first of those and they're subtracting from that the second of those, right?

[00:25:32] Speaker 06:
I mean, it's not necessarily a subtraction because if you paid a certain amount under the postage stamp and you are now under the new method, you need to pay more money, then it wouldn't be a subtraction, it would be a payment.

[00:25:44] Speaker 06:
So that's why I think there's references to both payments and credits throughout the settlement.

[00:25:51] Speaker 05:
Right, but you could say three minus four equals negative one.

[00:25:58] Speaker 05:
And that would be,

[00:25:59] Speaker 05:
a credit or you could say, let's say that it was five minus three, that will be two.

[00:26:03] Speaker 05:
So that would be a debit.

[00:26:05] Speaker 05:
But my point is when you're trying to contrast what is applicable under 12 C with some other number, and then you're using those two in an equation to get what is owed either to or from PJM, you would take

[00:26:26] Speaker 05:
what was actually collected, what was literally obtained from the company.

[00:26:33] Speaker 05:
And then you would say, let's compare that amount that was obtained from the company with what 12C says should have been obtained, right?

[00:26:43] Speaker 06:
Again, assuming we're talking about amounts that have already been paid, but their ongoing costs with respect to these facilities, obviously these transmission lines exist for decades and there's annual costs.

[00:26:58] Speaker 06:
And so now the settlement is changing the amount of costs that are allocated.

[00:27:02] Speaker 06:
That is the costs that have already been paid for these facilities, as well as costs that are going to be paid going forward.

[00:27:09] Speaker 06:
So it's not necessarily the case that

[00:27:11] Speaker 06:
the amounts that we're talking about are all amounts that have already been paid for.

[00:27:15] Speaker 06:
And so what the postage stamp method said is you already paid a certain amount based on your share of the entire network, and you continue to pay that share going forward, and the settlement changes that calculus.

[00:27:28] Speaker 06:
And so that's why there's a difference in terminology for what we've called the pre-2016 costs, which those were already paid.

[00:27:36] Speaker 06:
And so

[00:27:37] Speaker 06:
the settlements adjusting those versus what are called the current recovery charges, which are the costs going forward post 2016.

[00:27:48] Speaker 06:
And I think that what the commission tried to emphasize here is that there's an obligation on PJMs part to track and accumulate these liabilities starting in 2016 up until the point where PJMs authorized to actually go out and get the money.

[00:28:04] Speaker 06:
And so if Lyndon was right about their reading of 4C12, that essentially means that

[00:28:12] Speaker 06:
a private party like Lyndon, all it has to do to get out of its liabilities under the settlement is to just beat the commission to the punch.

[00:28:19] Speaker 06:
And I think that what the commission was trying to do is read all these provisions in a way that gave all the meaning.

[00:28:25] Speaker 06:
And if Lyndon's right, that means that the ability of PJM to go out and get this money would be severely hampered.

[00:28:33] Speaker 06:
I'll just add here that

[00:28:37] Speaker 06:
this court has consistently deferred to the commission on its reasonable interpretations of settlement language.

[00:28:46] Speaker 06:
So try to see if I have other provisions for you.

[00:28:50] Speaker 06:
So I think that based on what we've seen in 4C12, I don't think you can read 4C12 as clear and unambiguous as Lyndon has argued.

[00:29:04] Speaker 06:
So then the question

[00:29:06] Speaker 06:
is whether the commission's interpretation is reasonable.

[00:29:11] Speaker 06:
It's not an unreasonable interpretation if we can come up with a different interpretation.

[00:29:16] Speaker 06:
The question is whether the commission's interpretation is reasonable.

[00:29:21] Speaker 06:
If I can step back and go to some of the court's questions of Mr. McBride.

[00:29:26] Speaker 04:
Yeah, can I ask you one question on that set of issues?

[00:29:31] Speaker 04:
which is where in this record or in the rule 1000, order, sorry, order 1000 compliance record, would I find, would one find some very rough estimate of the quantification of system-wide benefits that would justify the,

[00:30:01] Speaker 04:
50-50 hybrid.

[00:30:04] Speaker 04:
I mean, it just seems like there's an intuitive appeal to that hybrid, but you know that all postage stamp is no good because the Seventh Circuit has said that and all defax is no good because we said that in Old Dominion.

[00:30:27] Speaker 04:
just reads a little bit like a Goldilocks theory of rate making, which is 100% one way or the other, no good.

[00:30:36] Speaker 04:
So 50-50 is in the middle.

[00:30:41] Speaker 04:
Where would we find some justification for the 50-50 other than just happens to be in the middle?

[00:30:50] Speaker 06:
I think I can point you to what the commission said in the December order.

[00:30:55] Speaker 06:
This is JA 390.

[00:30:57] Speaker 06:
This is a paragraph 44, and it provides an explanation for each of those pieces.

[00:31:03] Speaker 06:
I'll just point out that at least with respect to the postage stamp piece, some of the questions to Mr. McBride indicated this, it does not appear that the petitioners have a problem with the postage stamp approach and the notion that there are broad region-wide benefits to these facilities.

[00:31:19] Speaker 04:
I agree with that and I think the defects component of the 50-50 you've given some rough justification which is flow can be a proxy for dollars and that's without prejudice to the challenge in the separate case but for purposes of satisfying Judge Posner and

[00:31:49] Speaker 04:
Cost causation, good enough.

[00:31:53] Speaker 04:
I don't see anything like that.

[00:31:57] Speaker 04:
Put aside the question of whether these petitioners are the right parties to be

[00:32:03] Speaker 04:
raising the concerns that Judge Posner had about postage stamp, but where is the attempt to quantify the system-wide benefits that are, you know, if you upgrade something in New Jersey, the power plants in Chicago are going to benefit from?

[00:32:21] Speaker 06:
So I can't point you to anything in the record that attempts to quantify the regional benefits.

[00:32:27] Speaker 06:
What I will say is that both the commission and this court and the Seventh Circuit have repeatedly stated that

[00:32:35] Speaker 06:
Generally speaking, enhancements to a transmission system benefit the entire system.

[00:32:40] Speaker 06:
Now, obviously, the Seventh Circuit had an issue with the assumption that 100% of the costs of those can be shared on a postage stamp basis.

[00:32:48] Speaker 06:
And that's the problem where you have someone in the Midwest having to pay for, really, facilities in the East to remedy liability violations in the East.

[00:32:58] Speaker 06:
But there does not seem to be a dispute anywhere that at least there is some benefit to users of the transmission system writ large based on enhancements to that system.

[00:33:11] Speaker 06:
And I guess the question here is not so much

[00:33:14] Speaker 06:
I mean, you point out the Goldilocks methodology, but at the same time, we're not here to find whether there's some more optimal alternative.

[00:33:22] Speaker 06:
The question is whether what the commission did is reason decision making and whether it is overall just and reasonable within the meaning of commission policy and the second trailblazer approach.

[00:33:32] Speaker 06:
We haven't seen anything from the petitioners to question that.

[00:33:37] Speaker 06:
I think they repeatedly argued that the commission completely failed to quantify benefits, but the fact of the matter is the flow based piece of the hybrid methodology does in fact attribute benefits to individual users based on their projected usage of the system.

[00:33:54] Speaker 06:
That's something the Seventh Circuit acknowledged.

[00:33:58] Speaker 06:
If I can just clarify one piece that came up a few times from your questioning Judge Katz's with Mr. McBride, there were a few questions about whether they were complaining about the component pieces of the hybrid methodology or just the 50-50 method itself.

[00:34:16] Speaker 06:
The answer that you got back seemed quite different than what we've seen in the opening brief.

[00:34:21] Speaker 06:
And so I just want to clarify this.

[00:34:23] Speaker 06:
There were some references to the to the de minimis issue, the de minimis threshold and the netting issue.

[00:34:31] Speaker 06:
That was raised for the first time on the reply brief.

[00:34:34] Speaker 06:
The opening brief, the only reference to the de minimis threshold is in page 12 of the facts section.

[00:34:41] Speaker 06:
And that's, I think it's in a footnote, and that specifically notes that these issues are, the substantive validity of that method is a, quote, key issue in the 151183 appeal.

[00:34:55] Speaker 06:
And there's no mention at all of the netting point.

[00:34:57] Speaker 06:
So to the extent that the petitioners are now trying to bring in those issues, I would say those are forfeited.

[00:35:05] Speaker 06:
Oh, there was one more point that was raised in terms of the petitioners claim that they are not better off.

[00:35:14] Speaker 06:
The commission relied upon expert testimony that was unchallenged in the opening brief that found, for example, that with one exception, all of the contesting parties were allocated lower costs under the settlement than they were under the prior postage stamp methodology.

[00:35:31] Speaker 05:
But that's a big exception, right?

[00:35:34] Speaker 06:
Yes, the one exception is the Susquehanna Roseland project.

[00:35:37] Speaker 06:
And with respect to that project, there was also expert testimony that found and the commission agreed that the costs that were allocated under the settlement for that project were substantially similar to what they would have been under the hybrid method.

[00:35:52] Speaker 05:
And not under the postage stamp method.

[00:35:56] Speaker 05:
I think you all agree.

[00:35:58] Speaker 05:
The petitioners are worse off under the hybrid method than they would have been

[00:36:04] Speaker 05:
under the postage jam method, right?

[00:36:08] Speaker 05:
Well, okay, but that might be- You say, well, they actually are better except for one.

[00:36:12] Speaker 05:
Well, I mean, it's kind of like, you know, it was a good day, the theater for Lincoln, except for the assassination.

[00:36:17] Speaker 05:
I mean, it's a big exception.

[00:36:19] Speaker 05:
They're $15 million worse off, right?

[00:36:23] Speaker 06:
Right, so the question under commission policy, though, is whether they are no worse off under the terms of the settlement as compared to continuing in litigation.

[00:36:32] Speaker 06:
And so what the commission found based on that expert testimony with respect to that one exception is that because that project was placed into service fairly close to the 2016 cutoff date when the hybrid methodology in order 1000 starts, most of those costs are going to be recovered under that method anyway.

[00:36:49] Speaker 06:
And so the settlements allocation with that project is going to be substantially similar to what it would have been under the hybrid method.

[00:36:59] Speaker 04:
Doesn't this question of whether they're better or worse off boil down to the underlying merits question of whether postage stamp would have been the prevailing method?

[00:37:17] Speaker 06:
I mean, in some respects, I think that the issue under trailblazer is making a prediction about what would have happened if you continue the litigation out to its conclusion.

[00:37:26] Speaker 04:
I think what the prediction is that postage stamp would have prevailed.

[00:37:34] Speaker 04:
These folks are clearly worse off the $30 million worse off under the settlement.

[00:37:39] Speaker 04:
So your mission on this has to be that

[00:37:44] Speaker 04:
That was not a plausible outcome for all the same reasons that you now advocate 50-50 over a pure postage stamp or a pure defects.

[00:37:58] Speaker 06:
I think that's right, Judge Katzis.

[00:38:00] Speaker 06:
And I think the commission said that because of the fact that the Seventh Circuit was quite emphatic on two separate occasions as to the problems underlying the 100% post stamp approach.

[00:38:12] Speaker 06:
We haven't seen anything to indicate that continuing litigation wouldn't result in a 100% post stamp approach at the end.

[00:38:20] Speaker 02:
Right.

[00:38:20] Speaker 02:
All right.

[00:38:21] Speaker 02:
Let's hear from Mr. Longstreth for the interveners then.

[00:38:26] Speaker 02:
Thank you, Roemers.

[00:38:28] Speaker 03:
Thank you.

[00:38:29] Speaker 03:
And I'd like to just briefly address some of the points from the perspective of the respondent intervener parties who include nine transmission owners, six state regulatory commissions, and PJM itself.

[00:38:40] Speaker 03:
We believe the settlement's unquestionably in the public interest, and Commission probably considered the positions of the two parties that are objecting to it here.

[00:38:49] Speaker 03:
I'll start by going back to Judge Katz's point about 50-50 and Goldilocks and all that.

[00:38:55] Speaker 03:
If you look at the PJM compliance, Order 1000 compliance order in 2013, which was the basis for this because that was the basis for the settlement, the commission went through very carefully why the 50-50 took into account both the regional benefits and the specific flow-based benefits, and no one objected to that.

[00:39:16] Speaker 03:
including these parties.

[00:39:18] Speaker 03:
And if these parties, as you point out, are not really the proper position to challenge that here, there's really nobody challenging it.

[00:39:27] Speaker 03:
And I think it really was something that the market, to some extent, has spoken.

[00:39:32] Speaker 03:
All of the interested parties got together and decided that really was something that

[00:39:39] Speaker 03:
was a rule that applied.

[00:39:41] Speaker 03:
So part of the problem with the region-wide benefits, and I know Judge Posner went into this a little bit, but it is very hard to quantify those specifically.

[00:39:53] Speaker 03:
That's the whole point of a postage stamp system.

[00:39:57] Speaker 03:
But the idea, I think, that the problem the Seventh Circuit had was if you go entirely postage stamped, people who have nothing to do with the project

[00:40:06] Speaker 03:
are paying even more, for example, than people are taking flow directly from it.

[00:40:11] Speaker 03:
And the solution-based defects, as I think you pointed out, takes care of that.

[00:40:15] Speaker 03:
And again, that's not the situation we have at all here with these parties.

[00:40:19] Speaker 03:
You know, these parties are taking energy from the Susquehanna-Roseland project.

[00:40:25] Speaker 03:
It was built to resolve problems in northern New Jersey.

[00:40:29] Speaker 03:
That's where these people are.

[00:40:31] Speaker 03:
They are benefits.

[00:40:32] Speaker 03:
As a matter of fact, the commission pointed out they would have benefited even under the old violation-based system.

[00:40:38] Speaker 03:
There is testimony directly in the record, JA 241, that points out that the flow they're taking from this project is greater than the amount that they're being charged under the settlement for the project.

[00:40:51] Speaker 03:
So again, this notion that no one presented testimony as to benefits.

[00:40:56] Speaker 03:
There it is, it's in the gas declaration.

[00:40:59] Speaker 03:
There was also on the Glenn declaration there was a schnitzer declaration as bird council pointed out all of those were ignored in the opening brief where the

[00:41:09] Speaker 03:
petitioners were incorrectly arguing there was no evidence of benefits here.

[00:41:14] Speaker 03:
So I think that kind of puts that all out.

[00:41:18] Speaker 03:
On the de minimis, I think Ferg is correct that that was something that came up in the reply brief was also something that came up, I think, in the agency proceedings.

[00:41:27] Speaker 03:
kind of at the end as they're trying to throw a bunch of stuff against the wall to see if they can do something to derail this settlement.

[00:41:34] Speaker 03:
The only thing I would point out on that is I think Mr. McBride mentioned, well, that allows somebody like Public Service Electric and Gas, PSEG, to avoid responsibility.

[00:41:44] Speaker 03:
You know, PSEG is paying I think at least 60% of the cost of this to

[00:41:48] Speaker 03:
This notion that somehow a de minimis rule is being applied in this case, whatever their problems with it might be in some other case, the notion that it's being applied in this case so that parties can avoid their responsibility is, I think, just fanciful.

[00:42:02] Speaker 03:
The commission had that all in front of it.

[00:42:04] Speaker 03:
We presented testimony.

[00:42:05] Speaker 03:
They presented testimony.

[00:42:07] Speaker 03:
The commission considered that under a paper record, as they do in very many cases.

[00:42:12] Speaker 03:
And that would pretty much it.

[00:42:14] Speaker 03:
They can support it as a proper settlement that's certainly well within the bounds of reasonableness.

[00:42:22] Speaker 03:
The only other thing I wanted to raise was the contractual issue that Lyndon has gotten into.

[00:42:29] Speaker 03:
And the only thing I would point out, I think, just Cassis, you talked about the settlement offer and you mentioned, well, maybe that doesn't have quite the rate, quite the weight.

[00:42:40] Speaker 03:
The settlement offer is a file degree, but that's part

[00:42:42] Speaker 03:
settlement.

[00:42:43] Speaker 03:
So this isn't a situation where the settlement offer is some kind of parole evidence or legislative history that's trying to be used to override the language of the agreement.

[00:42:53] Speaker 03:
And the language of the agreement, I think either even Mr. Konopka said something on the order.

[00:42:58] Speaker 03:
Well, if it had said the period in which it's collected as opposed to for which it's collected, that was the only problem.

[00:43:05] Speaker 03:
All we had to say was for which.

[00:43:08] Speaker 03:
And, you know, the intent of the settlement would have been

[00:43:12] Speaker 03:
would have been effectuated.

[00:43:15] Speaker 03:
You know, I think you're getting awfully fine into these very, you know, very, you know, intricate arguments.

[00:43:21] Speaker 03:
I'm not going to get into all of that except to just point out that the general principle, and there's a case that you guys have, Arkansas Public Commission versus FERC, it's an unpublished decision, but it

[00:43:34] Speaker 03:
does go through the general principle that when you withdraw from an agreement, if you have accrued obligations, I think they say in that particular case, FERC concluded that a party's accrued contractual obligations continue beyond its withdrawal from a contract.

[00:43:55] Speaker 03:
What happened here was they had obligations under the contract because they had firm withdrawal rights.

[00:44:01] Speaker 03:
They decided a couple years into the period in which was these charges were being collected for the 10 year period.

[00:44:10] Speaker 03:
Well, we'll just get rid of our.

[00:44:12] Speaker 03:
firm withdrawal rights and will avoid our obligations.

[00:44:15] Speaker 03:
And I think the quite natural response to that is, okay, maybe that's fine going forward, but you've accrued these obligations for two years during the period.

[00:44:23] Speaker 03:
That's what we had set up this whole settlement designed to collect.

[00:44:27] Speaker 03:
And you're responsible for those two years, even if you got out of it for the eight years after.

[00:44:32] Speaker 03:
All right.

[00:44:33] Speaker 03:
Mr. Longstreet.

[00:44:34] Speaker 03:
Very consistent.

[00:44:36] Speaker 02:
This guy is calling time on you.

[00:44:38] Speaker 02:
Thank you.

[00:44:38] Speaker 03:
I'm sorry, thank you.

[00:44:40] Speaker 03:
And I appreciate the carts and dolphins.

[00:44:42] Speaker 02:
All right, Mr. McBride, why don't.

[00:44:49] Speaker 04:
Mr. McBride, you're muted.

[00:44:54] Speaker 04:
Can you hear me now?

[00:44:56] Speaker 04:
Yes, thank you.

[00:44:58] Speaker 04:
So first on the commission's point that we didn't put in the opening brief anything about the problems with the

[00:45:08] Speaker 04:
lack of evidence about benefits and how they would be applied to these projects.

[00:45:13] Speaker 04:
We did indeed do so at pages 35 to 36 of our opening brief.

[00:45:18] Speaker 04:
And we showed that the benefits did not flow equally with respect to all the projects and that the merchants derived different benefits.

[00:45:27] Speaker 04:
And we had evidence disputing the methodology in general, as well as the specific application to the vintage projects.

[00:45:37] Speaker 04:
The point is, and I think Ferck conceded, that there were no quantitative findings that it made on cost benefit.

[00:45:45] Speaker 04:
And the roughly commensurate test requires that there be such.

[00:45:49] Speaker 04:
There has to be some showing that costs and benefits are even roughly commensurate and there is no finding here from the commission to that effect.

[00:45:58] Speaker 04:
So that the commission simply can't satisfy the mandate.

[00:46:02] Speaker 04:
I want to point out that at page 12, note three of our opening brief,

[00:46:06] Speaker 04:
as well as page 37, note 11.

[00:46:09] Speaker 04:
And in the recent PSEMG versus FERC decision of this circuit, there are numerous examples of how the general methodology does not produce roughly commensurate benefits in accordance with the costs that are allocated.

[00:46:26] Speaker 04:
So, you know, it seems clear to me that what happened here was FERC didn't want to put on

[00:46:33] Speaker 04:
and give us an opportunity to show on an as applied basis or otherwise that the evidence was such that there was a roughly commensurate balance between costs and benefits.

[00:46:50] Speaker 02:
And so I, I'm sorry.

[00:46:52] Speaker 02:
Go ahead and finish your thought.

[00:46:54] Speaker 04:
I finished Judge Anderson, thank you.

[00:46:56] Speaker 02:
All right, then Mr. Konopka, you asked for one minute in reply.

[00:47:02] Speaker 01:
I did, Your Honor.

[00:47:03] Speaker 01:
Thank you.

[00:47:03] Speaker 01:
I think I'd like to make just a couple of points.

[00:47:06] Speaker 01:
You know, Mr. Longstreth, I think at the very end of his argument, suggested that there's some free-floating intent of the settlement that's somehow not embodied in the text, and that the court should construe the text in accordance with that intent.

[00:47:19] Speaker 01:
But of course, the text is the best evidence of the intent of the parties, and here he didn't say anything about

[00:47:24] Speaker 01:
in which meaning something other than in which.

[00:47:27] Speaker 01:
The second point I'd like to make is there seems to be some idea that there was an accrual of a liability here.

[00:47:32] Speaker 01:
Our whole point is that the settlement provision talks about the rates and charges due under the settlement.

[00:47:39] Speaker 01:
And of course, the exception that we're relying on means that our rates and charges due under the settlement are zero for the adjustment.

[00:47:46] Speaker 05:
Mr. Konopka, let me, I know our time is short and we've been,

[00:47:52] Speaker 05:
quite in the weeds of the J.A., but let me ask you one question about J.A.

[00:47:56] Speaker 05:
102, if you could go there, please.

[00:47:59] Speaker 05:
Sure.

[00:48:00] Speaker 05:
I'm going to ask, this is the paragraph immediately following the key paragraph, whose meaning we're trying to figure out.

[00:48:09] Speaker 01:
Subsection three or section five?

[00:48:12] Speaker 05:
Subsection three is talking about Con Ed New York.

[00:48:16] Speaker 05:
And what's been done here is it seems like maybe the parties were anticipating that Con Ed might jump ship and they wanted to kind of account for that possibility.

[00:48:28] Speaker 05:
And so they use the phrase are collected and I'll just read it.

[00:48:33] Speaker 05:
Con Ed New York terminates its agreements with PJM

[00:48:38] Speaker 05:
during the period in which transmission and charge adjustments are collected.

[00:48:42] Speaker 05:
Then, blah, blah, blah, this stuff happens.

[00:48:45] Speaker 05:
So they're using the exact same phrase as the phrase before.

[00:48:47] Speaker 05:
Now, here's my question to you.

[00:48:49] Speaker 05:
If you're right that R collected means literally the money is going from one party to PJM, that would not explain what happens in the event that Con Ed New York jumped ship

[00:49:08] Speaker 05:
before the settlement was approved.

[00:49:12] Speaker 05:
So they've accounted for what will happen if Con Ed jumps, under your theory, they've accounted for what would happen if Con Ed New York jumps ships after the settlement is approved.

[00:49:24] Speaker 05:
But they have not said anything about what would happen if Con Ed New York jumps ship before the settlement is approved, which seems to me an awfully

[00:49:35] Speaker 05:
large thing to not account for when you've written this whole paragraph all about what to do if Con Ed decides it doesn't want to be part of the service agreements anymore.

[00:49:45] Speaker 05:
So don't you think it's weird?

[00:49:49] Speaker 05:
Don't you think that if you're right about what our collective means, then this settlement agreement made a large and odd omission and failed to account for the possibility that Con Ed New York would terminate its agreements

[00:50:05] Speaker 05:
in this period between January 1, 2016 and the period when the settlement agreement is approved?

[00:50:12] Speaker 01:
It's a good point and a good question, Judge Walker.

[00:50:15] Speaker 01:
I think ultimately, though, what the parties agreed to in subsection three is that Con Ed couldn't get out.

[00:50:20] Speaker 01:
And in fact, that subsection or that paragraph is really inoperative because

[00:50:24] Speaker 01:
If you look at the other provisions, it says that adjustments are, can be changed only under paragraphs one and two.

[00:50:30] Speaker 01:
So I think all the, all this was really getting at was, was making clear that Con Ed can't get out period.

[00:50:37] Speaker 05:
Does it allow Con Ed to get out?

[00:50:40] Speaker 05:
Let's say on June 20th, 2016, that's five days after the settlement agreement, but it's well in advance of when the settlement agreement would have been able to be approved and when literal collection would have been able to begin.

[00:50:55] Speaker 01:
I think under that circumstance, obviously, the settlement doesn't speak to that circumstance.

[00:51:00] Speaker 01:
It's a good question.

[00:51:01] Speaker 05:
That's my question.

[00:51:02] Speaker 05:
The fact that the settlement under your theory doesn't speak to that circumstance to me suggests that maybe your theory is not correct.

[00:51:10] Speaker 01:
Well, again, I think it's sort of hard because this provision is not actually operative.

[00:51:15] Speaker 01:
It doesn't really do anything.

[00:51:17] Speaker 01:
But I think probably what would likely happen is that they wouldn't be able to get out in that circumstance.

[00:51:21] Speaker 01:
But obviously, the settlement doesn't speak to that.

[00:51:23] Speaker 01:
Why would Con Ed not be able to?

[00:51:27] Speaker 05:
If Con Ed wanted to get out, if Con Ed New York wanted to get out on June 20th, 2016, why would they not have been able to get out?

[00:51:34] Speaker 01:
Well, so Con Ed was actually due credits under the settlement, so they wouldn't have wanted to get out of these.

[00:51:39] Speaker 01:
OK, so that's helpful.

[00:51:40] Speaker 01:
That's like a theory for why maybe this is done the way it's done.

[00:51:43] Speaker 05:
Exactly.

[00:51:44] Speaker 05:
Thank you.

[00:51:46] Speaker 05:
Thank you.

[00:51:46] Speaker 05:
All right.

[00:51:47] Speaker 02:
Thank you, gentlemen.

[00:51:49] Speaker 02:
And the case is submitted.