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Face number 20-1104 et al, Louisiana Public Service Commission petitioner versus Federal Energy Regulatory Commission.

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Mr. Fontham for the petitioner, Ms.

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Banta for the respondent.

[00:00:13] Speaker 01:
Mr. Fontham, good morning.

[00:00:16] Speaker 02:
Good morning, your honor, and may it please the court.

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I'm Mike Fontham.

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I represent the Louisiana Public Service Commission.

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This case is controlled by the court's decision in

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number 171251.

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There are two holdings in that case that are controlling and dispositive here, and they cut the foundation out of my opponent's arguments.

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The first was not covered, and I apologize for this in my August letter.

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The second was, but I will speak of the one that was omitted first.

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In that case, Energy was arguing that

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an operating company could include an off-system sale in its load.

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And that had not been done for this case purposes with regard to the Grand Gulf sales in 2000.

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So that's what keeps it out of the case.

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But it was for a different purpose that was argued in 1251.

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The court said, no, you're wrong.

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FERC held, and this is in FERC's opinion 521 at paragraphs 128, 29, that the violation was not a violation of 3003A, it was a violation of 30.04.

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And the court affirmed FERC's ruling that 3303A was ambiguous.

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And it said, this is on page five at the top of their memorandum, finding section 30.03 to be ambiguous

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It determined that the opportunity sales were best understood as sales to others under section 30.04.

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This meant that the opportunity sales should have been deemed to have been fulfilled with the most expensive energy on the energy system.

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I don't want to, time is limited and I do want to get to this.

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I'm concerned about whether we have jurisdiction.

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Now you laid out in your

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supplemental brief, the elements of standing, but you didn't lay them out very fully.

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You listed briefly that there has to be injury caused by the act of the defendant and remediable in the action.

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However, it's not just injury, it's injury personal to the plaintiff.

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What is the injury upon which you rely to the commission?

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I rely on the injury to rate payers, which- No, no, no, no, no, no, no, no, no.

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Rate payers are not the plaintiff here.

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You are the commission.

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What is the injury to the commission that gives you- Under the Federal Power Act, Your Honor, we are the appointed representative of the rate payer.

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The way that under, you know, we are allowed to make a complaint specifically under the Federal Power Act,

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and we are allowed to pursue judicial review.

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Now, you know, in Baton Rouge, the commission offices and the commission offices throughout Louisiana all had to pay these higher rates, the ones that are being served by Energy Louisiana.

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So there is an injury there, but I don't understand.

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And I think it would be out of step with every case.

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And you know, I've had cases here at the DC Circuit

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which our standing was exactly that and nothing other.

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You know we have said though that if standing if jurisdiction is not expressly decided in a prior case that case does not bind the future decision on the question jurisdiction.

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Now in the

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What you see, but the rate payer seems to smack up parents Patriot standing, which is very limited when you talk about its availability to a state as against the federal government.

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If you look at EP Massachusetts versus EPA.

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That's pretty well written out of the possibilities for a state.

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And I'm going to not distinguish between a state and the state agency for a moment, but that's pretty well written out in the Massachusetts EPA.

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So do you have an injury to the commission itself that gives you article three standing?

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Well, I explained to you what the injury to the commission itself is paying higher rates.

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The commission is not paying higher rates.

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The rate payer.

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It has offices around Louisiana.

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It's a rate payer.

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Is that in the record that you appearing as a rate payer in this?

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No, your honor.

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We did not appear as a rate payer.

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We appeared pursuant to section 825 of the federal power act.

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Give me the language upon which you're relying from 825.

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Read that language to me if you have it there, counsel.

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If you don't have it, just tell me you don't have it, but quote it as close to you.

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I can tell you what it says.

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It says that any state commission may file a complaint concerning anything done wrong under the federal power act and 825 L I believe it is, which the court uses all the time with regard to jurisdiction.

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It says that a state commission can intervene on behalf, you know, or can intervene in any for proceeding.

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And it says that a state commission specifically can appeal.

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And in 1251, we were appealing and we were found to have standing.

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It wasn't questioned, but we were found to have standing and the court dealt with our appeal.

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Did you argue that this way in your brief?

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in the brief in on standing that we just filed?

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Yes, of course.

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I mean, I argued that, you know, we stand in the shoes of the rate payer under the federal power.

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The problem with that is it sounds to me like parents' victory of standing.

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And the Supreme Court in the Commonwealth of Massachusetts, the EPA tells us that that's not available to states.

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And I did find it confusing that your briefs go back and forth between commission and Louisiana, but you're appearing as the commission, I think not as the state, right?

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We're appearing at as the commission, but, uh, you know, we're the under the state constitution.

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We are the regulator.

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And I mean, it's a plenary grant of power in Article IV, Section 21 of the Louisiana Constitution.

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So we have the equivalent status to the legislature or the commission as it.

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With Judge Santel's permission, can I just ask you another question?

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Go ahead.

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I won't have any more.

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Thank you.

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So you were starting off talking about sort of the original decision about whether these were opportunity sales or joint sales, I think.

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And I guess what I'm trying to understand is whether your argument is that FERC didn't say enough about the conclusion it made in this regard, or whether there's not sufficient record evidence to support

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The change, I understand that originally it was characterized, the Grand Gulf sales were characterized as opportunity sales, which you think was the correct way to refer to them and to address them.

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And then during phase three, they got re-characterized as joint sales.

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And that I understood to be part of what you are objecting to.

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But I guess I need to figure out and understand the basis of your objection.

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Are you saying that FERC couldn't, they didn't say enough about why they believed that they were joint sales or the record doesn't support that conclusion or both?

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It's both, Your Honor.

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That's the other ruling in the other case.

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I mean, FERC defined the opportunity sales in opinion 521.

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And it included these sales based on the energy's testimony and representations.

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And then it ruled that the opportunity sales violated the system agreement.

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And the court already held that was a final decision.

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The only thing left was compliance and this very discreet issue regarding the bandwidth, which didn't come into existence until

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2005, it doesn't apply in any, have any relevance whatsoever to the liability.

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So that's one thing.

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What was the original finding really a sort of litigated disputed question of the nature of these sales, or they just put them all in the 2000 to 2009 basket without really focusing?

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Well, it was a litigated issue in this sense.

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Energy was arguing

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that an operating company can make sales and that it can include it in its load regardless.

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And no matter what, it can pretend it's a native load customer, basically.

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So they included these sales.

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We had asked for them to identify individual operating company sales

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Not joined account sales.

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That's on page 1626 of the appendix.

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Right.

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But then they eventually say, okay, so we went back over this in the damages phase and we made a mistake.

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We included things that we shouldn't have included.

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We are now presenting testimony that those things didn't count and the FERC agreed and took them out.

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So what was wrong with the FERC's

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other than the fact that it had originally included them, which I understand, but can it change its mind if there's evidence in the record to support the fact that that was a mistake?

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Not only the compliance proceeding, they had ruled, and this is why it's really important, that 3004 was violated.

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It should have been the most expensive energy.

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That applies to either one, joint account sales or individual sales.

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It doesn't, there's no distinction there.

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And that's what the court said.

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You get the most expensive energy.

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But when they got to phase three, and I don't know what came over FERC, except energy was making the argument.

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Energy says, oh no, you ruled that it was 3003A that was the violation.

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And we didn't include these sales in Energy Arkansas's load.

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And therefore you should exclude them.

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So they based,

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their argument on something that has now been ruled by this court in a final decision was not true.

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And FERC bought it for some reason.

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And the fact that there was an additional violation does not undo the fact that it violated 30.04 to take Grand Gulf, which is one of the lowest cost resources on the system, and assign it to an opportunity sale, no matter what you call it.

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because it's supposed to be the most expensive energy.

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And the rate payers were paying for this capacity.

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This system worked in such a way that everybody paid for Grand Gulf.

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It was allocated among the companies and the retained share was included at full cost in the allocations.

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And they took energy that was supposed to go to the rate payers and they sold it off system

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because they could get a benefit for the shareholder and they bought power to replace it.

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Or else they generated power at this, you know, $80 or so a megawatt hour when Grand Gulf costs 10.

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And they loaded that right into the fuel clauses.

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So the rate payers had to pay.

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All right, so can I ask another?

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I'm mindful of the time.

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I'm trying to understand in the wake of the settlement,

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which ultimately the FERC decides precludes you from making assertions concerning the impropriety of the calculations with respect to Grand Gulf.

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Why is it that you think that you should be able to litigate this now?

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We thought everything was wound down, the settlement happened.

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First of all, why did it take so long for you all to

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file a petition concerning the Grand Gulf sales.

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Why wasn't it not until 2019 that that happened?

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And the settlement intervened, didn't it?

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Yes, it did, Your Honor.

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But let me try to clarify this.

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We're mainly arguing about the 565 decision.

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We're not mainly arguing about our complaint.

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We only filed that complaint because FERC said, go file a new complaint if you want to do something about this.

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OK.

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In regard to your earlier question, you've got a final ruling now that FERC tried to change in this compliance proceeding.

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That's a collateral attack.

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They always dismiss that.

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And you've also got the fact that they say that it was allocated as a joint account sale.

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That's absolutely false.

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Now they didn't cite any evidence.

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There was tons of evidence in the record.

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that it was allocated energy from the Grand Gulf unit.

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It was not allocated energy from the, you know, incremental cost system dispatch that normally covers joint account sales.

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So, you know, it's just a false statement and there is absolutely nothing in the record to support it.

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And FERC just, you know, they refused to comment on our evidence.

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Nobody denied what we said.

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It was unrebutted.

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And they just, you know, they just blew it off as if it wasn't there.

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We are not, I think they said something like, we are not convinced or persuaded by Louisiana's evidence.

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Well, that's not addressing the issue, as Judge Santel said in the, you know, the first big rough equalization case, that's a conclusion.

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That's not a reason.

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All right, Judge Jackson, has he answered your question?

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Yes, thank you.

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All right, we'll hear from Ms.

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Banta.

[00:15:27] Speaker 01:
Could you start with where Council left off on the statement that he's addressing there?

[00:15:34] Speaker 00:
Absolutely, yes, Your Honor.

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Carol Banter for the commission.

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I would like to start by giving you a number of record citations for the commissions, supporting the commission's finding that these grand golf sales were treated as joint account sales.

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First of all, the commission found that in opinion 565 at paragraphs 102 and 104 and contrary to

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what you just heard, the commission did rely on evidence.

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It specifically cited its own trial staff, which if you look at paragraphs 97 and 98 of opinion 565, that's the recap.

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And I do apologize that we did not include the trial staff's brief on exceptions in the joint appendix.

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I would be happy to provide that to the court.

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It is record material.

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We did not designate it for the joint appendix.

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Trial staff in its brief on exceptions cited both

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the trial staff witnessed Salmon's testimony, which we did include in the joint appendix and in our brief, that's at J904 and 909 in particular.

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And the trial staff in its brief on exceptions also cited the Entergy testimony or data response, I forget which, that he did put into evidence.

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So it was in the record saying,

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These were treated as joint account sales from the start.

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But I'd also like to point to places where the Louisiana commission itself has repeatedly agreed with that.

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In Mr. Barron's rebuttal testimony at Joint Appendix 1217, and also I believe at 1226, he stated that Entergy began including the grand golf sales in load under Section 30.03 in October 2000.

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meaning that it was not before.

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And I'd like to come back to the 30.03 point, but I'd like to also in Louisiana's phase three rehearing quest at J 1378, and in its 2019 complaint at J 1409, which the commission cited in its rehearing order at paragraph 28, note 63.

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Once Entergy put in phase three, as the commission said, it's the first time

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that the entire 10 year span of off-system sales was examined.

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And they went back to rerun the intra-system bill and it involved a great deal of examination and recoding transactions to figure it out 10 years later.

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And Entergy came forward and said, the first nine months of 2000, these off-system sales were treated as joint account sales.

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That means they're not made on Entergy Arkansas's behalf.

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They're made on behalf of the system

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with revenue sharing among the operating companies.

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Ms.

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Fanta, can you address Mr. Forentham's contention that the FERC had previously already said something different with respect to whether or not those sales were joint account sales and whether or not they violated 30-004?

[00:18:46] Speaker 03:
Well, to be clear- I'm struggling to understand the argument that he's making and I'm trying to see what your perspective of it is.

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Right.

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And I'd like to give two, there are two parts to that answer.

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I want to emphasize looking at opinion 521 as well as this court's decision affirming it in all respects.

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The violation in the opportunity sales, which were off-system sales made by Entergy Arkansas,

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for its own account, not sharing among the companies, but for its own account.

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Entergy was including those off-system customers in its loads, in its load shape under 30.03 instead of treating them as sales to others.

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It made the argument, Entergy did, which did not prevail before the commission or before this court.

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that those sales were part of its requirements and should be treated as part of loads under 30.03.

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The violation in 521 is the commission said that was the violation.

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Those are not loads.

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The way we read this, although we know it's ambiguous, because they are sales to others, they should be treated under 30.04.

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But let's be clear that there are two kinds of sales.

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that can happen under 30.04.

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They're both sales to others.

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They're both sales off the Entergy system.

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But one kind of sale is made for the sole account of the company making the sale.

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That was one of the disputes in opinion 521 was even whether Entergy had the right to do that.

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And there is language in section 4.05 of the system agreement that says that joint account sales are sales off the system for which a company does not want to take sole responsibility.

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And the commission said by negative implication, there must be sales for which the individual company can take sole responsibility.

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So it's those sole responsibility sales that are the definition of opportunity sales.

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And I would point you for one thing to the

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language in 521 that petitioners themselves, Louisiana has emphasized, in paragraph two, this is on JA 696, in footnote five, and this is the broad definition of what are the sales that are at issue here?

[00:21:08] Speaker 00:
What are the transactions that are at issue?

[00:21:11] Speaker 00:
The capitalized phrase, opportunity sales, refers to the disputed off-system sales of energy by Entergy Arkansas.

[00:21:20] Speaker 00:
And we skip forward for its shareholders behalf.

[00:21:24] Speaker 00:
That means not joint account sales, because there was never any dispute that joint account sales were permissible under 4.05 of the system agreement.

[00:21:32] Speaker 00:
The entire dispute was number one, but Louisiana took the position that Entergy Arkansas had no right to make these sales at all.

[00:21:41] Speaker 00:
Opportunity sales.

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It unequivocally had the right to make joint account sales.

[00:21:47] Speaker 00:
The dispute was that it had no right to make opportunity sales and that when it did make opportunity sales, it violated the system agreement by including them in its customer base, its loads under 30.03.

[00:22:00] Speaker 00:
And that was the violation the commission found.

[00:22:02] Speaker 00:
It found no violation of 4.05.

[00:22:05] Speaker 00:
It found no violation of a couple other provisions that were argued about.

[00:22:09] Speaker 00:
The violation in opinion 521 was including off-system customer sales in the loads instead of treating them

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differently as sales to others.

[00:22:19] Speaker 03:
All right, so in that case, what you're saying is they didn't really make a decision earlier that they contradicted with their determination that these should be treated as joint account sales in phase three.

[00:22:38] Speaker 00:
Right, and let me make it even clearer.

[00:22:40] Speaker 00:
The three-phase litigation, the commission looked at

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And there were the other issues that came up about bandwidth adjustments and so on.

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But the commission, and we did this in our brief, we presented this way to the court and the orders presented this way.

[00:22:53] Speaker 00:
Phase one was liability.

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Is there a violation of the system agreement?

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Does it warrant awarding damages?

[00:23:01] Speaker 00:
Phase two, methodology.

[00:23:04] Speaker 00:
In phase two, the parties only

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litigated over three test years, and I always forget which years they are, they are not 2000.

[00:23:14] Speaker 00:
I believe it was 2003, 2006, and the other one was either four or five, I don't remember which, to litigate the methodology.

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And so the commission says in phase three, in opinion 565, that this phase is the first phase where the entire 10 years of transactions

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were on the table.

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The liability is there.

[00:23:37] Speaker 00:
We've already decided the liability.

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Opportunity sales that were put into load in section 30.03 are the liability.

[00:23:46] Speaker 00:
And what we have in the evidence I cited earlier, including Louisiana's own rebuttal testimony, they didn't dispute.

[00:23:55] Speaker 00:
They may have disputed how the, they did not dispute that those sales had been treated as joint account sales.

[00:24:03] Speaker 00:
At that point, and even if they had disputed, the commission still had sufficient evidence in the testimony of trial staff witness Salmon and in energy's testimony that it put in.

[00:24:15] Speaker 00:
But that is what had happened with those first nine months.

[00:24:17] Speaker 00:
The commission had sufficient evidence to make that finding as to those nine months for the first time.

[00:24:23] Speaker 00:
And it wasn't it was finding they were never.

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Of the sort of violation that we found in phase one to begin with,

[00:24:32] Speaker 00:
Therefore, they are not part of the damages to be calculated in phase three.

[00:24:37] Speaker 03:
And they said, the commission says this and fully, Mr. Fontum suggests that there's also an explanation problem.

[00:24:49] Speaker 00:
The commission, yeah, looking at 565 in particular, and I, in paragraph 106, which is on JA 48,

[00:25:02] Speaker 00:
The total damages calculation for the entire period of the opportunity sales was not at issue in this proceeding until this phase, phase three.

[00:25:13] Speaker 00:
But previously in paragraph 103 on the page before, that's where the commission makes the finding that the grand golf sales at issue these nine months were not improperly allocated under section 30.03.

[00:25:26] Speaker 00:
Again, that's the opinion 521 violation.

[00:25:31] Speaker 00:
And that's why the commission went on to say, I believe in the rehearing order that, yeah, in paragraph 46 on JA 118 and 119, this is not a collateral attack on opinion 521.

[00:25:47] Speaker 00:
And it repeats, it cites back to what I just read you from paragraph 106 in the first order, that the total damages calculation for the entire period was not an issue until now.

[00:26:01] Speaker 03:
So do you, is it first position that something about the settlement agreement precludes they're making claims of this nature or is the settlement agreement issue only with respect to the new complaint?

[00:26:18] Speaker 00:
I believe it's only with respect to the new complaint.

[00:26:21] Speaker 00:
The litigation, the out of scope finding in phase three

[00:26:28] Speaker 00:
whatever they wanna argue about the commission being wrong, right or wrong about the scope finding, that's all part of the first proceeding that continued.

[00:26:37] Speaker 00:
That continued, so it had nothing to do with the settlement.

[00:26:39] Speaker 00:
Right.

[00:26:40] Speaker 00:
I would like to make one point.

[00:26:42] Speaker 00:
There was nothing, first of all, two points.

[00:26:44] Speaker 00:
The court, of course, upheld the phase one, two, and three orders in all respects, but in particular, its discretion as to scope findings, and in particular, the Arkansas Commission had raised

[00:26:56] Speaker 00:
a different issue that the commission kept saying we're not deciding here because it's beyond the scope and the court.

[00:27:02] Speaker 00:
Very strongly affirmed that.

[00:27:07] Speaker 00:
That and that's not unusual in these cases this the phase one, two and three case first arose in earlier case where some of these office system sales were discovered.

[00:27:18] Speaker 00:
And the commission said, that's not really an issue here.

[00:27:20] Speaker 00:
And the court said, whatever the commission said about that was dicta, go file a complaint.

[00:27:24] Speaker 00:
I could cite a number of cases where that's happened.

[00:27:27] Speaker 00:
There have been a number of offshoots of other cases.

[00:27:30] Speaker 00:
Some issue comes up.

[00:27:31] Speaker 00:
The commission says, that's not within the scope of this case.

[00:27:34] Speaker 00:
Louisiana goes and files a separate complaint.

[00:27:36] Speaker 00:
So that was something that happened pretty frequently under system agreement litigation.

[00:27:41] Speaker 00:
All right.

[00:27:42] Speaker 00:
Thank you.

[00:27:43] Speaker 01:
Mr. Fahn, take two minutes.

[00:27:49] Speaker 02:
Thank you, your honor.

[00:27:50] Speaker 02:
My opponent just said that Energy Arkansas made joint account sales, and these are joint account sales made by Energy Arkansas.

[00:28:00] Speaker 02:
That can't be done.

[00:28:01] Speaker 02:
The system has to make a joint account sale.

[00:28:04] Speaker 02:
I would like to address Judge Jackson's question, and there is perhaps, you have to understand what's going on here to really get it, I think, just on the basis of the briefs.

[00:28:18] Speaker 02:
When they first started doing this, they did distribute some margins to the other companies, but they still sourced the sales out of Grand Gulf.

[00:28:33] Speaker 02:
In other words, they did not find the most expensive energy on the system as they're supposed to do for a joint account sale.

[00:28:42] Speaker 02:
Then rather than using the fuel cost of Grand Gulf, which is about, you know, five to $10 a megawatt hour, they paid Arkansas, which didn't generate the energy in the first place.

[00:28:54] Speaker 02:
They paid Arkansas avoided costs, which was more like 70 or $80 a megawatt hour, totally fictitious.

[00:29:02] Speaker 02:
And they then had a tiny bit of margins that they distributed to the other companies.

[00:29:08] Speaker 02:
Later, they just actually, they went, they got rid of that extra bureaucracy and they started allocating the sales directly into Arkansas's loan.

[00:29:20] Speaker 02:
But in 1251, the court doesn't say anything about it was a joint account sale or it wasn't a joint account sale.

[00:29:30] Speaker 02:
It says the violation is allocating something besides

[00:29:36] Speaker 02:
the most expensive energy on the system to either kind of say they, there is no dispute that they didn't do that.

[00:29:47] Speaker 03:
There's so many numbers.

[00:29:51] Speaker 02:
You say the court decision of the court that came out in June, 12, not the FERC, the court that's court affirming FERC.

[00:30:03] Speaker 02:
on finding the violation to be under 30.04 by the fact that they didn't allocate the correct energy.

[00:30:12] Speaker 02:
Now, in a sense, they were called joint account sales, although energy had to know this when they answered those data requests, because they had to rig the ISB to do what they did.

[00:30:30] Speaker 02:
They had to rig it in several ways

[00:30:33] Speaker 02:
paying avoided costs and putting the Grand Gulf energy instead of the system incremental costs.

[00:30:40] Speaker 02:
And yet they represented that it was an energy Arkansas sale because their position in the case was, oh, an individual operating company can make a sale.

[00:30:50] Speaker 02:
Then they changed their mind in phase three and say, oh, this violation of 3003A when Burke said it was 3004.

[00:31:03] Speaker 02:
To me, it's dumbfounding, but that's what happened.

[00:31:08] Speaker 02:
You might want to take a look at 825 LA, which is the application for rehearing and the appeal provision.

[00:31:23] Speaker 02:
It specifically says, any state municipality or state commission agreed by an order.

[00:31:32] Speaker 02:
We paid higher rates just like the rate payers.

[00:31:37] Speaker 02:
All right.

[00:31:39] Speaker 00:
Thank you, madam.

[00:31:40] Speaker 02:
Madam Clerk, would you give us a adjournment, please?