[00:00:00] Speaker 02:
Case number 16-1325 et al, MISO transmission owners et al petitioners versus Federal Energy Regulatory Commission.

[00:00:11] Speaker 06:
Good morning council.

[00:00:13] Speaker 06:
The court thanks council for your patience and flexibility this morning while we dealt with some unforeseen issues, but we're ready to go now.

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

[00:00:23] Speaker 07:
Thank you.

[00:00:24] Speaker 07:
Good morning, your honor, and may it please the court.

[00:00:26] Speaker 07:
Christopher Jones for the transmission owner petitioners.

[00:00:29] Speaker 07:
I will be addressing the backdating issue, and my colleague Mr. Bennett will argue the successive complaint issue.

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

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Perk's effort to backdate new rates in this case three and a half years was unlawful and should be vacated and remanded to the commission to make the new rate of 10.02% perspective only for May 2020.

[00:00:50] Speaker 07:
accepting only the refunds required for the 15-month period beginning November 2013.

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Under Section 206 of the Federal Power Act, FERC is only empowered to fix a new rate to be thereafter observed, that is, prospectively, at the conclusion of the rate proceeding.

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Opinion 551 simply wasn't the end of the case.

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Now, FERC's general remedial authority in Section 309 of the Power Act cannot read into Section 206.

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The very retroactive authority kept

[00:01:19] Speaker 07:
I'm sorry, the Retroactive Authority Congress kept out of FERC's reach in Section 206.

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Now in this Court's 2017 TNA decision, the Court described it as, quote, obvious that, quote, any action FERC takes under Section 309 must conform with the purposes and policies of Congress, and, quote, cannot be used to supersede specific statutory strictures.

[00:01:41] Speaker 07:
We contend that FERC's orders under review did exactly that by violating two specific statutory strictures by ordering 50 months of refunds despite a statutory 15-month limit and purporting to backdate a rate three and a half years despite a statutory prohibition on retroactivity.

[00:01:58] Speaker 07:
Before I address FERC's legal error justification, I'd first like to address the specific statutory strictures in Section 206.

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206, as amended in 1988, speaks with an unusually clear voice on the topic of rate changes and remedies.

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It permits FERC to provide rate relief in only two ways and at the conclusion of the case.

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Under Section 206A, after a hearing and after finding the existing rate unjust and unreasonable, FERC may then identify the new just and reasonable rate to be thereafter observed.

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The statute thus necessarily excludes retroactive fixing of new rates.

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relief only comes at the end of the adjudicatory process.

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And if I might take a moment to walk through the timeline of what happened beginning with opinion 551, when opinion 551 issued, rehearing was requested by both sides within 30 days.

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And FERC issued an order on November 28th, 2016, granting rehearing, agreeing to rehear the case, granting rehearing for further consideration, one of the

[00:03:02] Speaker 07:
now infamous tolling orders the court will remember from the Allegheny defense case.

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So within 60 days of issuing opinion 551, the commission had already taken back the case and agreed to rehear it.

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That was five months before this court would issue the AmeriMain decision.

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Now fast forward to the 2018 briefing order, the commission then opened a paper hearing on all aspects of the ROE methodology.

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That's a joint appendix page 325 and acknowledged that that was part of a quote ongoing adjudication.

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Now, I would note parenthetically that over 2,200 pages of material was submitted to the commission after the briefing order issued.

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But it was not until opinion 569 and then subsequently in 569A settled on a rate of 10.02%.

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Rehearing was subsequently denied in opinion 569B, making the 569A determination the first final agency action that would have been subject to this court's review

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and fixing for the first time the rate to be thereafter observed.

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FERC offers no support for treating the act of fixing a new rate as a three and a half year continuing process and seeks to backdate it to 551 based on the notion that merely that the order issued at that time.

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But whatever 551 was, what it wasn't was the conclusion of the rate proceeding.

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Now section 206B provides customers a very specific remedy also at the conclusion of the proceeding to address the duration of the rate litigation

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in the forms of refunds for a 15-month period, and thus necessarily excludes refunds for any longer period.

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This is the sole statutory remedy that customers have for paying a challenged rate during the pendency of a rate proceeding, no matter how long that may take.

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The 1988 Regulatory Fairness Act was, in that respect, a careful balancing of two competing objectives.

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On the one hand, customers seeking protection from the challenged rate during the pendency of rate litigation,

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and the need for public utilities to know the rates they're charging.

[00:05:06] Speaker 08:
Your argument seems pretty plausible based on the four corners of 206, both the general requirement of prospectivity and the somewhat reticulated nature of the refund remedy provided for

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But this court has said that 309 has independent is an independent grant of authority and supports correction of legal error in the sense of

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you have a first order that makes a legal error, then you have a second order that corrects it and makes the relief retroactive to the date of the first order creating the error.

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And we've said that's just correcting legally the requirement of prospectivity doesn't generally limit FERC's ability to correct its own errors.

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So it's a little bit more complicated than just saying 206 covers the universe.

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And the way I was thinking of this question is, the real question is, has FERC gone beyond simply correcting a legal error here?

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I mean, they have corrected a legal error in the later order, but arguably they've done a lot more than that.

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So how should we think of, is that the right framing?

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What's the right answer?

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It is, Your Honor.

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And as to the interaction between Section 309 and 206, and that is ultimately what the case is about, this court's precedent on 309 says if we're going to use it to interact with another part of the statute, it must, quote, carry out.

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And those are the words of Section 309.

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It must carry out some other provisions of the statute.

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So even in those orders that lay out a fairly permissive view and broad view of Section 309,

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understand that they have to be tethered to some other part of the statute.

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And I would again point to TNA is a good example of that.

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This court just a few years ago, again, arguably took what was an expansive view of 309 in that case, but tethered it to and noted that it had to be tethered to empowering other specific portions of the statute.

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The Verso case is a good example of that, where this court said the 15-month refund period would be gutted if we couldn't then go forth and surcharge other parties to pay for the refunds.

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So in order to effectuate 206B, the court found that 309 was appropriate to issue surcharges in that case, again, to give effect to the part of the statute.

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Now, Your Honor, what about Tennessee Valley, which seems to me the strongest case on FERC's side on this question?

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Your Honor, Tennessee would suggest, you know, the language would suggest a broad permissive reading to be sure.

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But first of all, it wasn't grounded in Section 309.

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It's a 1972 case under the Gas Act that didn't really deal with first remedial authority per se.

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It seemed to read into the statute, arguably under Section 5.

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the ability to go back and correct errors.

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But we think it's it's loosey goosey consistent with the times, no doubt.

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But doesn't doesn't the Natural Gas Act have an equivalent of 309?

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I mean, we could fairly read it as resting on that principle.

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It does it's section 16, the gas act is that is the corollary to three and nine right so so charitably read the court is saying that that provision permitted permitted a second.

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refund period, which was key to not to the 206 equivalent refund, but to the idea that the court could undo the delay caused by FERC's erroneous dismissal of the Natural Gas Act equivalent of the 206 complaint.

[00:09:45] Speaker 07:
Well, your honor, a couple of things I actually don't read Tennessee to be grounded in section 16 of the gas act the corollary to 309 it seems to read the activity is somehow inherent in section five, which translated to the power act and this is important this court obviously does typically refer back and forth between the gas act and the power act.

[00:10:05] Speaker 07:
The Power Act is critically different by virtue of the 1988 Regulatory Fairness Act, which added the specific remedy.

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The Gas Act does not have a corollary to Section 206B.

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There is no 15-month refund.

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So to the extent there was any ambiguity in the Power Act at all about retroactive relief under Section 206, we think Congress absolutely answered that in Section 206B.

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Now, I would like to go back to your question, Your Honor, about did the commission simply go too far?

[00:10:34] Speaker 07:
We think they did.

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To the extent that 551 was, in fact, error, we would argue it was incomplete error.

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They hadn't yet completed the agency process.

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As I mentioned, rehearing was outstanding.

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Rehearing had been granted for purposes of further consideration.

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The case was absolutely clearly open and the commission then decided to have another hearing.

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And when it did so, it went in our view beyond the four corners of what could reasonably be construed as correcting the legal error.

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It decided to implement a rape methodology that was entirely different than the one

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had before.

[00:11:08] Speaker 06:
They had to come up with a new raise, right?

[00:11:10] Speaker 06:
I mean, so it was predictable that something new was going to happen.

[00:11:14] Speaker 06:
I take your point that a lot happened, but something new was going to happen.

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And can I ask you the following hypothetical?

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So suppose you had a situation and to try to bring it as close to this case as possible.

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Suppose the commission saw what could happen in AmeriMain at the time of the 551 order and they just said,

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based on what we think the law is, here's the rate that we come up with.

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And it's, what was it?

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I can't remember the rate at that juncture in time.

[00:11:41] Speaker 06:
Was that 10.32?

[00:11:42] Speaker 06:
I get the various ones confused, but they put a rate in and they say, but we've heard the oral argument, let's say, in AmeriMain and we see where that might be going.

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And so as an alternative, if it turns out that that's the law, then the alternate rate would be rate B, 10.02.

[00:12:00] Speaker 06:
And then if they did that, and then AmeriMain comes down in the way that at least would have been forecast, then would it count as correcting legal error than to switch and go to the alternate rate that FERC would have already said would eventuate if AmeriMain came out in the way that it did?

[00:12:18] Speaker 07:
I think in that situation, Your Honor, we would have to square the alternative rate scenario.

[00:12:24] Speaker 07:
You'd have two rates there.

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And I would argue that neither one at that point would have yet been fixed.

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So if the commission

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wants to reserve itself, the ability to consider other issues going on in other cases, and that does warrant mention that AmeriMain, of course, was not our case.

[00:12:39] Speaker 07:
The agency had completed its work, here it had not.

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So under your hypothetical, I think no, until we know

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the rate has been specified.

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And under your hypothetical, Your Honor, I believe there were two rates at play that I think- But they would have specified the first one.

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They just would have let the world know what the second one, what the alternate rate would be if things went in the direction that they forecast they could.

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They didn't think they would, but they forecast they could.

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Right.

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And I think that's where sort of mere notice doesn't suffice to fix the rate.

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Rate fixing has to have some degree of precision to it as specificity.

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And I think that we learned from this court in some of the cases we briefed.

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And so under your hypothetical, if we've got two at play and the court then issues the AmeriMain decision and the commission picks one,

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then it can be thereafter observed.

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But until it does that, again, then the way that 206A and B work together, customers bear the responsibility for the challenge rate until the commission can then fix it.

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And I actually, as far as what the commission did as further evidence of not correcting rehearing, I would actually point the court to joint appendix 1118 and 19

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where now Chairman Glick, when chastising the commission for taking so long, describes the commission's process as adding new models, removing some models, tweaking some models, introducing new inputs, modifying existing inputs, introducing new screens, modifying existing screens, and even altering the way the commission places the ROE within the zone of reasonableness.

[00:14:13] Speaker 07:
All of those things happened after AmeriMain.

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So to the extent that AmeriMain even changed the way the commission thought about this case,

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It clearly decided to go off in a very different direction and go far beyond the four corners of what could reasonably can be considered.

[00:14:29] Speaker 07:
We had.

[00:14:30] Speaker 06:
Oh, go ahead.

[00:14:32] Speaker 06:
You please continue.

[00:14:33] Speaker 06:
I was going to go in a different direction so if you're on this, please go for it.

[00:14:37] Speaker 06:
Okay.

[00:14:38] Speaker 06:
Can I just take you in a little bit of a different direction and.

[00:14:43] Speaker 06:
Let's assume just for argument's sake, and I know you're going to resist this assumption, but I just ask you to assume it just so I can understand how the different pieces of this case fit together.

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Let's assume that we vacate the 10.02 rate because we agree with at least some aspect of the customer's challenges.

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If we were to do that, then would this piece of the case go away?

[00:15:08] Speaker 06:
Because the question on this piece of the case is, is it appropriate to order a backward looking refund to account for the difference between the 10.02 and the rate that was existing beforehand?

[00:15:23] Speaker 06:
And once 10.02 gets vacated, then the commission has to go back and come up with a new rate.

[00:15:28] Speaker 06:
And if we're in that,

[00:15:30] Speaker 06:
hypothetical scenario, then it seems to me that the questions about a refund that's predicated on a rate that would have been vacated, then go away because we don't know what's going to happen on remand.

[00:15:41] Speaker 06:
We don't know what's going to happen on remand.

[00:15:44] Speaker 07:
Right.

[00:15:44] Speaker 07:
So I guess, Your Honor, in that situation, again, assuming that you decide that 10.02 is too high and send it back to the commission, you know, obviously it's a different fact pattern than we have because the commission has in this case completed its work, but

[00:15:59] Speaker 07:
I think the only way to s statute is that that new

[00:16:05] Speaker 07:
The duration of litigation, as this court knows, has many components to it.

[00:16:10] Speaker 06:
Well, I guess what I'm saying is, I mean, I think you're right that you would still have the same statutory argument, but we don't know that that issue is even going to be presented.

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Because once, by hypothesis, the rate gets vacated, then we don't know that this issue will surface again for sure.

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I mean, we can maybe predict that it will.

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Suppose the new rate is 10.32.

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then there's not even a difference between the two rates.

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So you would never even have the question of a refund for the interim period as you do now.

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Well, I guess, Your Honor, I think that's wrong.

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And the reason is it's the it's the challenge rate that becomes effective while the case is pending.

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And so no matter in your hypothetical, even if we proceeded to then go fix a new rate, the issue remains that the commission would have to permit us to charge the challenge rate

[00:17:00] Speaker 07:
and recover that from customers through, and the settlements here are a little bit messy to be clear, but I think the issue is still unavoidable.

[00:17:09] Speaker 07:
And so I don't think sending the rate back solves this question and necessarily moves it.

[00:17:15] Speaker 06:
I don't understand how the issue is unavoidable.

[00:17:16] Speaker 06:
Like, well, how do we know that the issue is even gonna necessarily be there?

[00:17:20] Speaker 06:
Because doesn't it depend on what the new rate is?

[00:17:23] Speaker 07:
Unless the rate is higher than the challenge rate, which I think we can all concede is unlikely.

[00:17:29] Speaker 06:
Well, first of all, just to stop you there, it might be unlikely, but that just may be practically unlikely.

[00:17:34] Speaker 06:
But it at least seems we don't know for sure.

[00:17:38] Speaker 07:
Fair enough.

[00:17:38] Speaker 07:
But at this point, your honor, what we have, the situation we have is the commission has ordered us because the first order wasn't stayed on rehearing.

[00:17:46] Speaker 07:
We've we've been charging the 10.32.

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So some

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some acknowledgement of what the law requires is necessary to then implement the remedy, I would argue, regardless of where the rate ends up, if that answers your honor's question.

[00:18:00] Speaker 06:
I'm not sure that it does, because you may have been charging the 10.32.

[00:18:04] Speaker 06:
Have refunds been issued?

[00:18:06] Speaker 07:
Refunds have been issued.

[00:18:08] Speaker 07:
So as soon as 551 started, we started charging, or it was issued rather, we started charging 10.32.

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And then when 569 and 569A subsequently lowered that rate, we

[00:18:20] Speaker 07:
had to start the refund process, which I believe has largely been completed.

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So we are now sort of, you know, having, we've now sort of effectuated retroactively the, the 10.02.

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So.

[00:18:34] Speaker 06:
Well, can I, what would happen then suppose just hypothetically, maybe on practically unlikely, but suppose that the 10.02 gets vacated and then it goes back to the commission and the commission decides based on the new analysis that's occasioned by whatever error hypothetically we would find.

[00:18:49] Speaker 06:
the rate is 10.32.

[00:18:50] Speaker 07:
The rate is 10.32.

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So I think at that point, again, we would argue 10.32 is charged prospectively and 12.38 is charged during the interim.

[00:19:03] Speaker 07:
Well, right now we've been charging the 10.02 via the refunds, if that makes sense.

[00:19:09] Speaker 07:
So again, because we have been living in a 551 world,

[00:19:13] Speaker 07:
since that order issued, it has to be cleaned up.

[00:19:18] Speaker 07:
And I don't know that the legal issue is entirely avoided as long as the commission believes it can backdate the result.

[00:19:26] Speaker 07:
I see I'm out of time, but Judge Walker, if you had a question, I'll defer to the court if I should continue.

[00:19:32] Speaker 09:
Yes.

[00:19:33] Speaker 09:
I think I can guess both of these answers, but you were charging the 10.32 rate

[00:19:42] Speaker 09:
beginning in 2016.

[00:19:43] Speaker 09:
Is that correct?

[00:19:45] Speaker 09:
Yes, sir.

[00:19:46] Speaker 09:
OK.

[00:19:47] Speaker 09:
And if if we had vacated that 2016 order, if we had vacated 551, then do you agree that FERC could have come up with a new rate and made it effective in 2016?

[00:20:05] Speaker 07:
We don't.

[00:20:06] Speaker 07:
We think that even in that situation, the rate fixing would not yet have occurred.

[00:20:11] Speaker 07:
And again,

[00:20:12] Speaker 07:
To be clear, the fact that Ameris from a different case isn't the only thing that distinguishes it.

[00:20:18] Speaker 07:
I mean, we didn't yet have a completed agency process.

[00:20:21] Speaker 07:
So even in your honor's hypothetical where you had vacated 551 on judicial review, we would have had a second order from the commission making those final determinations.

[00:20:32] Speaker 07:
So there's a critical procedural element that was missing.

[00:20:35] Speaker 07:
Again, we think that even if it was error in 551, it was incomplete error and the commission

[00:20:41] Speaker 07:
by granting rehearing and agreeing to rehear the case, took it back for itself, and then didn't complete it until 2020.

[00:20:49] Speaker 09:
Do you think you had notice after 2016 that FERC may require refunds for that 2016 to 2020 period?

[00:21:02] Speaker 07:
I think we did have notice of it.

[00:21:04] Speaker 07:
I don't think that changes the legal outcome.

[00:21:06] Speaker 07:
I mean, the commission has

[00:21:08] Speaker 07:
said it was planning to do this and sort of announced it in 569.

[00:21:13] Speaker 07:
And we obviously that's the basis upon which we requested we're hearing.

[00:21:17] Speaker 09:
And the precedents that we have that say if there is sufficient notice, then the rule against retroactive rate making doesn't apply.

[00:21:25] Speaker 09:
How do you distinguish those precedents?

[00:21:28] Speaker 07:
Well, again, I think this is this is a situation where we've got a discrete statutory remedy and prohibitions on

[00:21:35] Speaker 07:
retroactive rate fixing so notice I don't think cures this I mean you can't simply give us notice that you're going to violate the law and then do it to be candid about it.

[00:21:46] Speaker 07:
So that's what we think the commission was doing here.

[00:21:50] Speaker 08:
Okay, so I guess you would distinguish.

[00:21:54] Speaker 08:
I'm not an expert, but I've come across a lot of those cases in the Section 205 context.

[00:22:01] Speaker 08:
I guess you would say those are different because in the 206 context, the statute specifies the extent of retroactivity.

[00:22:14] Speaker 07:
Precisely, Your Honor.

[00:22:15] Speaker 07:
That's what we think the 88 Act clarified in 206A before that.

[00:22:21] Speaker 07:
206 does act differently than 205 when it comes to the specificity of retroactivity.

[00:22:28] Speaker 06:
Thank you.

[00:22:29] Speaker 06:
Unless my colleagues have further questions for you at this time, we'll give a little time for rebuttal.

[00:22:32] Speaker 06:
Thank you.

[00:22:33] Speaker 06:
Thank you, Mr. Bennett.

[00:22:34] Speaker 06:
We'll hear from you on the successive complaints issue.

[00:22:39] Speaker 02:
Yes, good morning and thank you, your honor.

[00:22:41] Speaker 02:
May it please the court, Matt Bennett for the petitioning transmission owners.

[00:22:45] Speaker 02:
I've informed the deputy that I'd like to reserve one minute for rebuttal.

[00:22:49] Speaker 02:
As Mr. Jones just stated, in Section 206B of the Federal Power Act,

[00:22:54] Speaker 02:
Congress made a clear choice to balance the interests of consumers by affording some refund protection with the interests of utilities by limiting their refund exposure.

[00:23:04] Speaker 02:
In this case, complainants in the second complaint case, who were active participants in the first complaint case and who would benefit from any refunds or lower rates resulting there from, sought to game their way around this congressional choice by filing a duplicative complaint challenging the same base ROE

[00:23:22] Speaker 02:
of the same group of utilities that was already under challenge.

[00:23:25] Speaker 02:
By allowing the second complaint to go forward, FERC violated the intent behind Section 206B's clear limitation on refunds and allowed a practice whereby customers could nullify the refund limitations Congress imposed.

[00:23:41] Speaker 08:
If Congress intended- This stacking of complaints

[00:23:47] Speaker 08:
leading to a stacking of refund periods, right?

[00:23:53] Speaker 08:
It seems very problematic and you address it and you say potentially FERC should address this on the front end by not considering the second complaint.

[00:24:09] Speaker 08:
But suppose you actually won on what seems to me a very similar issue on the backend, which is FERC saying, sure, we'll consider whatever you want to file and look at updated data or whatever it is.

[00:24:28] Speaker 08:
But at the end of the day, we are only going to award a refund

[00:24:36] Speaker 08:
in a case where FERC fixes the prospective relief.

[00:24:43] Speaker 08:
And that's gonna be one and only one case in all but the most unusual circumstances.

[00:24:50] Speaker 08:
So assuming we uphold that aspect of FERC's reasoning, do you care about this issue?

[00:25:00] Speaker 08:
What extra does this front-end framing as opposed to a backend framing get you?

[00:25:07] Speaker 02:
Well, Your Honor, thank you.

[00:25:08] Speaker 02:
I think in this case, yes, we did ultimately prevail.

[00:25:13] Speaker 02:
And FERC ultimately did, in essence, give us the relief we wanted, which was not a stacking of effective dates and refund periods.

[00:25:22] Speaker 02:
However, it still would leave open the door for parties in the future to come in with successive complaints.

[00:25:29] Speaker 02:
And there's no guarantee that FERC would deal the same way with their complaint.

[00:25:34] Speaker 08:
Your question also assumed that if they fix, if they fix the rate in the first complaint, and then you have, you know, the second complaint is essentially identical, except it has newer information.

[00:25:53] Speaker 08:
And you have whatever case you have that that is just a vehicle for avoiding the 15 month limit.

[00:26:05] Speaker 08:
I mean, their rationale will prevent the stacking, you know, unless there's a weird situation where the new information

[00:26:22] Speaker 08:
substantially changes the case.

[00:26:24] Speaker 08:
So, you know, somehow the rate that they fixed was just unreasonable based on everything they knew through whatever the first half of 2015.

[00:26:33] Speaker 08:
And then lo and behold, there's some cataclysmic event.

[00:26:38] Speaker 08:
And then when they look at the later information, they find it to be outside the broad zone of reasonableness.

[00:26:46] Speaker 08:
I mean, that is not gonna happen very often.

[00:26:53] Speaker 02:
Well, I do, I do agree with you, Your Honor, and the way that FERC has indicated that they address return on equity cases specifically is to rely on not necessarily the data that's filed when the complaint is initiated, but the data that's available at the time that the hearing is held.

[00:27:08] Speaker 02:
So in that situation, they would be looking at that later data.

[00:27:13] Speaker 02:
There's no need to have a second complaint to introduce that later data because it can already be introduced in the original complaint proceeding.

[00:27:20] Speaker 02:
So really, even in that scenario, the stacking doesn't really help anything.

[00:27:25] Speaker 02:
And it results in administrative waste because now FERC is having to deal with two proceedings, two hearings,

[00:27:32] Speaker 02:
two different sets of testimony from all the participants, two different initial decisions by an ALJ or multiple ALJs, and in the normal course would be issuing separate orders.

[00:27:44] Speaker 02:
Here, ultimately, they issue one series of orders in opinion 569.

[00:27:49] Speaker 02:
So while, yes, we do think that if the court were to affirm FERC's denial of refunds for the second complaint in this case,

[00:27:59] Speaker 02:
challenge here would essentially be moved for our purposes.

[00:28:02] Speaker 02:
But I don't know that I am comfortable going as far as saying that that would always be the case unless for it continues to adhere to that practice and the court continues to affirm it.

[00:28:14] Speaker 06:
Okay.

[00:28:14] Speaker 06:
Thank you.

[00:28:14] Speaker 06:
Let me make sure my colleagues don't have additional questions for you.

[00:28:18] Speaker 06:
Mr Bennett will give you your the minute that you asked for for rebuttal.

[00:28:22] Speaker 06:
Thank you very much.

[00:28:23] Speaker 06:
Thank you.

[00:28:24] Speaker 06:
We have from Commission Council now, Mrs Perry.

[00:28:32] Speaker 04:
May it please the court, Lona Perry for the commission.

[00:28:36] Speaker 04:
Starting with the issue of the retroactive relief for the legal error committed by the commission, I would point out in the first instance that as to the petitioner's argument is essentially that

[00:28:54] Speaker 04:
the thereafter observed and enforced in section 206A precludes the commission from correcting its legal error in this case.

[00:29:04] Speaker 04:
But I would point out that this court has in several cases specifically rejected that argument, which is this court's decisions in electrical district and also in city of Anaheim that said,

[00:29:19] Speaker 04:
That under 206 a race can only be prospectively available in this court's decision in Louisiana Public Service Commission, which is cited in our brief.

[00:29:30] Speaker 04:
The court said that first ample authority to remedy its own errors after being reversed in court.

[00:29:39] Speaker 04:
applies, notwithstanding the prohibition on retroactive rate making, and this was a 206 complaint that was filed under 206A.

[00:29:50] Speaker 04:
Likewise, an Office of Consumer Council, which is a complaint filed under Section 5 of the National Gas Act, which, as this Court knows, is

[00:30:01] Speaker 04:
in this respect, identical to 206A and is interpreted similarly, the Court specifically held that electrical district, which is for the same proposition, is inapplicable to that issue where the Commission was correcting its legal error in failing to remedy violations.

[00:30:24] Speaker 04:
in that the issue of whether the rate was fixed or when it was fixed under section 206, and they cite to the, they compare it to section 206 and they say the issue of whether the rate was fixed under 206 is irrelevant to the issue of the commission's correction of legal error.

[00:30:54] Speaker 08:
And this goes back to- In this case, you're doing, that principle is well established, but here the commission did a lot more than simply correct an error.

[00:31:10] Speaker 08:
I mean, the error in 551 as elucidated by Maine was,

[00:31:21] Speaker 08:
not adequately explaining either the unlawfulness of the existing rate or the methodology for determining the new rate.

[00:31:34] Speaker 08:
And what you did in 569 was create an entirely new methodology.

[00:31:47] Speaker 04:
Your honor, I don't believe that that is the case, I will point out that the commission noted in multiple places in the challenge orders that it was addressing issues remanded at a mayor main and the issues remanded at a mayor main are essentially two issues.

[00:32:06] Speaker 04:
One was the Commission's use of the single return on equity analysis to govern the unjust and unreasonable finding under the first prong of Section 206.

[00:32:19] Speaker 04:
And there was also the Commission's use, the Commission's selection of a point above the midpoint

[00:32:28] Speaker 04:
Yes, but the important thing about that second issue that you should bear in mind that if you look at pages 28 and 29 of mayor main this specific problem that a mayor main had with the commission's rationale there was that the commission.

[00:32:45] Speaker 04:
decided that the result from its usual discounted cash flow methodology was too low, and therefore it looked at these alternative methodologies, the same methodologies that we're talking about here, in order to find that that result was in fact too low, but did not use those alternative methodologies in order to justify the new rate that it selected.

[00:33:09] Speaker 04:
That was the specific criticism in a mayor Maine and what the commission was specifically doing here as it explained in 569 paragraphs 35 to 37.

[00:33:22] Speaker 04:
And in 2018 briefing order and.

[00:33:29] Speaker 04:
What the Commission specifically was doing here was improving the explanation as criticized in AmeriMain by using these alternative methodologies to support its actual selection of the adjusted reasonable rate, as opposed to only using them to undermine what

[00:33:50] Speaker 04:
return on equity resulted from the discounted cash flowing method.

[00:33:54] Speaker 08:
And that may be a perfectly good method and it's clearly a good faith response to this court's criticisms.

[00:34:08] Speaker 08:
But you can't say that

[00:34:12] Speaker 08:
the proposed method in the briefing order or the two factor method in 569 or the three factor method in 569A.

[00:34:24] Speaker 08:
You can't say that any of that is compelled by AmeriMain.

[00:34:31] Speaker 08:
Those are just new methodologies that FERC created on its own.

[00:34:40] Speaker 08:
And there be any number of other possibilities that would be just and reasonable as well.

[00:34:48] Speaker 08:
So it seems to me you're doing a lot more than just correcting error.

[00:34:52] Speaker 04:
Well, it is certainly the case.

[00:34:54] Speaker 04:
I mean, this court frequently remands cases without directing results on rebands.

[00:35:00] Speaker 04:
And that doesn't change the commission's ability to reach a new result on rebands and to

[00:35:10] Speaker 04:
give retroactive relief for the time period in between.

[00:35:16] Speaker 04:
I mean, a number of these cases that we have talked about, like Office of Consumer Counsel, for example, the court initially found that the commission was correct in finding contracts imprudent under Natural Gas Act Section 5 complaint proceeding, but that the commission erred in not providing a remedy.

[00:35:39] Speaker 04:
But what the court did was it remanded that initial finding to the commission to determine an appropriate remedy.

[00:35:47] Speaker 04:
But nevertheless, when it came back up on appeal, the court found that the commission had the authority to go back to that original unjust and unreasonable finding and order a retroactive remedy from there.

[00:36:01] Speaker 04:
So it wasn't the case that the fact that the court didn't direct them what to do on remand with respect to the remedy prevented them from having the authority to nevertheless make what they ultimately determined to be the remedy retroactive to the very first finding of unjust and unreasonable.

[00:36:23] Speaker 08:
Sorry, which case?

[00:36:25] Speaker 04:
This is, I'm sorry, Office of Consumer Council.

[00:36:30] Speaker 04:
It's 826 FedSecond 1136.

[00:36:32] Speaker 04:
826 FedSecond 1136.

[00:36:40] Speaker 08:
Okay, I don't have that one in my notes.

[00:36:43] Speaker 08:
I will look at it.

[00:36:44] Speaker 08:
I focused on TNA, Excel, and Tennessee Valley for what it's worth.

[00:36:52] Speaker 08:
Maybe I missed one, but it seems to me you're going well beyond what you did and what we allowed in any of those three cases.

[00:37:01] Speaker 04:
Well, that that case is cited in our brief your honor, and it does extensively discuss also the Tennessee Valley case that you were talking about earlier.

[00:37:14] Speaker 04:
And, um,

[00:37:24] Speaker 04:
I mean, in Excel, for example, it was also remanded to the commission to determine what to do with respect to the retroactive.

[00:37:36] Speaker 04:
The court did not direct what retroactive remedy was to be provided, but it simply found that the commission had authority to make a retroactive remedy.

[00:37:47] Speaker 08:
the legal error was not suspending the rate filed under 205 and that error could be undone by retroactively suspending the rate.

[00:38:05] Speaker 08:
That seems to me very different from what's going on here where

[00:38:13] Speaker 08:
The rate is new in every, the methodology is new.

[00:38:17] Speaker 08:
The rate is new in every meaningful sense and you're show actively applying it.

[00:38:23] Speaker 08:
And the only plausible rationale for that is that you're simply correcting legal error.

[00:38:29] Speaker 08:
But as I said, I think you're doing a lot more.

[00:38:36] Speaker 04:
I understand, Your Honor, but I will just point out again.

[00:38:39] Speaker 04:
I mean, the commission in the 2018 briefing order, for example, specifically said that it viewed itself as addressing specifically the issues remanded in AmeriMain.

[00:38:49] Speaker 06:
Can I ask the question this way?

[00:38:52] Speaker 06:
Suppose that there were no methodological changes.

[00:38:57] Speaker 06:
So it didn't introduce the

[00:39:00] Speaker 06:
the risk premium model, a new, there were no methodological changes, but there was still an effort to correct the error that was identified in AmeriMain.

[00:39:10] Speaker 06:
So in theory then, the methodology could have stayed the same, but in order to address the error, the rate likely would have changed anyway, right?

[00:39:23] Speaker 06:
Even if the methodology stays the same, would we think that the rate would stay the same or would we think that in order to correct the error,

[00:39:29] Speaker 06:
without a methodological change, there would have at least been some adjustment in the rate.

[00:39:37] Speaker 04:
You know, I don't know, Your Honor, if the methodology had stayed exact.

[00:39:41] Speaker 04:
I mean, the methodology could not stay exactly the same after Ameramain because Ameramain specifically held that you can't just take a look at these alternative methodologies and deem them to give you a basis for a higher

[00:39:58] Speaker 04:
return on equity without actually relying on this methodology.

[00:40:03] Speaker 04:
So on page 29, the court specifically talks about the range of reasonableness that resulted from each one of those methodologies and how- One way to think about it is that nothing in AmeriMain required the commission to consider the risk premium model.

[00:40:21] Speaker 06:
Nothing in AmeriMain compelled that.

[00:40:25] Speaker 06:
I mean, I understand that the commission thought, we have to go back and look at our rate making methodology now because AmeriMain requires that the results in 551 can't be sustained based on the rationale of that opinion because 531 has been vacated and we use the exact same rationale.

[00:40:41] Speaker 06:
And so we got to start afresh.

[00:40:43] Speaker 06:
But none of that required the addition, for example, of the risk premium model.

[00:40:47] Speaker 06:
It's just that the commission had occasion to reconsider it and decided in considering it afresh that this was an appropriate thing to do.

[00:40:56] Speaker 04:
I think the commission saw the AmeriMain decision as being a little more specific than that, that it was directing

[00:41:04] Speaker 04:
if you were going to undertake this kind of analysis that it was directing, if you were going to use these alternative methodologies, you have to actually use them to calculate the return on equity.

[00:41:14] Speaker 04:
I don't believe it saw it as being as broad a question as that, but it didn't, I mean, clearly AmeriMain did not direct the use of any of these methodologies on remands.

[00:41:33] Speaker 04:
But my question is whether that is essential for the commission to have the basis on which to retroactively correct its legal error and applying an incorrect methodology in the first place.

[00:41:48] Speaker 06:
Can I ask you the shifting gears?

[00:41:50] Speaker 06:
Can I ask you the same question I put to Mr. Jones, which is you'll resist the assumption, but just bear with me.

[00:41:56] Speaker 06:
Let's suppose that we disagree with you that the 10.02 rate can be sustained and we agree with the customer's challenges in some measure.

[00:42:04] Speaker 06:
What does that do to this issue?

[00:42:07] Speaker 06:
Because I'm still not completely following why this issue is still before us if this issue exists because there's a difference between 10.02 and 10.32.

[00:42:20] Speaker 06:
And this is the refund to get back to 551 to account for that difference.

[00:42:25] Speaker 06:
But once we get rid of 10.02,

[00:42:28] Speaker 06:
by hypothesis, then we don't know what is going to happen as a result.

[00:42:32] Speaker 06:
So we don't necessarily know that there's even going to be this refund question that comes into play in the remand proceedings.

[00:42:42] Speaker 04:
Well, in the circumstance that you outlined where the commission actually comes back to the 10.32% return on equity,

[00:42:53] Speaker 04:
As you said, there wouldn't be any question of refunds.

[00:42:57] Speaker 04:
Right.

[00:42:57] Speaker 06:
So if that's possible, I mean, I know that part of the response is going to be that's hard to conceive that that would happen, but it's at least possible.

[00:43:08] Speaker 06:
And I guess that's just an illustration of the broader point that once the 10.02 rate by hypothesis or vacated because of we would agree with one of the customer's challenges,

[00:43:20] Speaker 06:
then why are we addressing the refund question?

[00:43:22] Speaker 06:
Because the refund question seems tethered to the rate.

[00:43:26] Speaker 06:
And once the rate's gone, the refund issue, we just don't know what's gonna happen with that on remun.

[00:43:33] Speaker 04:
That is right, Your Honor.

[00:43:34] Speaker 04:
I mean, we would say, of course, the commission would still take the position that it has the remedial authority to remedy its legal error.

[00:43:42] Speaker 04:
And should that be applicable?

[00:43:45] Speaker 06:
But you wouldn't have exercised it.

[00:43:47] Speaker 06:
I mean, I guess the thing is, you would have the position that you would be able to exercise it if you wanted to.

[00:43:52] Speaker 06:
But we don't know that you would.

[00:43:55] Speaker 04:
That's right, Your Honor.

[00:43:57] Speaker 09:
I can imagine another scenario where, even if it doesn't come back at 10.32,

[00:44:03] Speaker 09:
Is it possible that sometimes the parties after a remand settle, the FERC and customers and the owners reach an agreement?

[00:44:17] Speaker 09:
And if that's the case, then for us to reach out and decide this additional question would almost be like an advisory opinion, putting a finger on the scale of a possible settlement.

[00:44:32] Speaker 09:
The chief is nodding.

[00:44:34] Speaker 06:
Well, that exhibits the advisory possibility.

[00:44:37] Speaker 06:
I just think that's what my questions are going to.

[00:44:39] Speaker 06:
And I appreciate what Judge Walker is asking, too.

[00:44:42] Speaker 09:
But I also was, do settlements happen?

[00:44:51] Speaker 04:
Certainly, Your Honor.

[00:44:52] Speaker 04:
Certainly, they do.

[00:44:54] Speaker 04:
And that very well can happen.

[00:44:57] Speaker 09:
And then what about the advisory opinion point kind of affecting

[00:45:02] Speaker 09:
that the negotiations during a settlement, is there a risk that even a certainty that our reaching this question would function in that way?

[00:45:15] Speaker 04:
I don't know that there's any certainty that it would, Your Honor.

[00:45:18] Speaker 04:
I mean, it is an exercise of commission discretion.

[00:45:22] Speaker 04:
There is, as we were just discussing, no guarantee that it would

[00:45:27] Speaker 04:
the commission would opt to take the step again, even if it had the authority to do so, but it would be resolving the legal issue, yes.

[00:45:42] Speaker 06:
I think with the question, go ahead, Josh Walker.

[00:45:44] Speaker 09:
No, please, I was going to switch.

[00:45:47] Speaker 06:
Just to finish the thought and then turn to Judge Walker, I think what that question exhibits is that even if it's not jurisdictionally moot, this question, because in theory it could re-arise, it still would be advisory in some sense because we don't know that it's going to arise again in this case.

[00:46:05] Speaker 06:
We don't know what's going to happen on the event.

[00:46:11] Speaker ?:
Wow.

[00:46:12] Speaker 04:
The assumption of a remand.

[00:46:15] Speaker 06:
And of course, that's a complete answer.

[00:46:18] Speaker 06:
If we don't remand, then we definitely have to address this issue.

[00:46:22] Speaker 06:
But I'm just asking you to indulge me on the assumption so I can just understand how the pieces fit together.

[00:46:26] Speaker 06:
But I take it that you've already answered that.

[00:46:29] Speaker 08:
Just before we move on, indulge me on the assumption that

[00:46:35] Speaker 08:
We remand for the sake of argument.

[00:46:38] Speaker 08:
This refund issue is not moot in an Article III sense and we have to make a prudential judgment whether or not to address it.

[00:46:53] Speaker 08:
The arguments con are the ones the chief judge has been laying out.

[00:46:58] Speaker 08:
The arguments pro might be

[00:47:01] Speaker 08:
You have your position on the extent of your remedial authority.

[00:47:05] Speaker 08:
It is what it is.

[00:47:06] Speaker 08:
It's teed up before us and you'd like to know what you can do and what you can't do.

[00:47:12] Speaker 08:
Would the commission have a preference on whether we should exercise discretion to talk about the remedy issue in those circumstances?

[00:47:25] Speaker 04:
I think the commission's preference would probably be that you decide the issue.

[00:47:30] Speaker 04:
because if there is a remand and this issue does come up again, we face the prospect of there being another appeal presenting the same issue that could have been resolved now.

[00:47:45] Speaker 04:
And it could save a great deal of judicial time and everybody else's efforts.

[00:47:54] Speaker 08:
And on your view, the refund clock is still running.

[00:47:56] Speaker 08:
So instead of a four-year thing,

[00:47:59] Speaker 08:
going back to 2016, we might have a six-year thing two years from now.

[00:48:06] Speaker 04:
That's right, Your Honor.

[00:48:08] Speaker 00:
Am I?

[00:48:10] Speaker 00:
Am I?

[00:48:10] Speaker 00:
Am I not?

[00:48:11] Speaker 09:
Right.

[00:48:14] Speaker 09:
In your answer, no, sorry, I didn't mean to interrupt you, Ms.

[00:48:17] Speaker 09:
Perry.

[00:48:19] Speaker 04:
Oh, no, please go ahead.

[00:48:20] Speaker 04:
I was just going to address the other issue briefly, if you'd like, but.

[00:48:26] Speaker 09:
Before that,

[00:48:28] Speaker 09:
This relates to Judge Cassis' original question and your answer.

[00:48:34] Speaker 09:
Is there any limit that you can give us to what FERC can do that would... So FERC recognizes a legal heir of some sort and FERC corrects it and makes its correction retroactive.

[00:48:59] Speaker 09:
Is there, when that happens, is there any limit to what FERC can do under the guise of correcting its original error?

[00:49:09] Speaker 04:
I have not seen a case that limits

[00:49:13] Speaker 04:
that in any way, because the entire idea of the case that goes all the way back to the Supreme Court's decision in Callery is that what you were trying to do is put the parties in the position they would have been in had the commission not committed the error.

[00:49:28] Speaker 04:
And so long as the commission is doing that, I don't believe there is a limitation on the commissions, on what the commission can do to do that, because that's the entire purpose of the doctrine is

[00:49:43] Speaker 04:
to make that so, which should have been so at the time.

[00:49:51] Speaker 08:
But there was no legal entitlement to have this particular methodology used, much less a legal entitlement to have this methodology imposed in September 2016.

[00:50:12] Speaker 04:
I would say what happened was the commission fixed the rate in 2016 that was not the correct rate.

[00:50:20] Speaker 04:
And had the correct methodology been applied in 2016, the commission would have reached the correct rate in 2016.

[00:50:29] Speaker 04:
And that's why the commission is dating, backdating the refunds to that point.

[00:50:36] Speaker 08:
There is no one correct rate.

[00:50:40] Speaker 08:
there any number of possibilities that would pass muster.

[00:50:45] Speaker 04:
Oh, certainly, your honor, but the methodology that was used for that 2016 decision did not pass muster and it was not sufficient.

[00:50:57] Speaker 04:
And so the

[00:51:00] Speaker 04:
The point is the commission would have used a methodology that would pass muster that would result in adjusted useful rate determination, which the court found the 2016 order did not.

[00:51:14] Speaker 08:
Let me ask.

[00:51:15] Speaker 08:
I have just one more question before we let you get to the second issue, which is about Tennessee Valley.

[00:51:24] Speaker 08:
It's a good case for you.

[00:51:27] Speaker 08:
It does allow a refund period outside the confines of 206 equivalent.

[00:51:39] Speaker 08:
on the theory that the delay occasioned by a legal error is imposing prejudice, and that's something the commission should eliminate, can and should eliminate.

[00:51:55] Speaker 08:
But it's not a theory that once the commission enters a legally erroneous order,

[00:52:06] Speaker 08:
That iPhone is talking to me for some reason sorry about that um.

[00:52:17] Speaker 08:
It's not a theory that once the commission commits a legal error, that triggers a new refund period that runs as long as it has to run until a later decision in which you get it right.

[00:52:37] Speaker 08:
The legal theory in Tennessee Valley was that that second judicially implied refund period runs from the date of the initial legal error, which was a dismissal, until and only until the complaint was reinstated.

[00:52:56] Speaker 08:
And FERC once again started engaging with the problem

[00:53:02] Speaker 08:
which makes some sense.

[00:53:03] Speaker 08:
There's no right to a decision on a particular day.

[00:53:06] Speaker 08:
So even if we extend Tennessee Valley to this case, it seems to me the most that would entitle the customers to is a second refund period running from the date of the initial legal error, which was 551 until

[00:53:30] Speaker 08:
maybe AmeriMain or maybe no later than when you propose the new method, which is when you're re-engaging in the problem.

[00:53:39] Speaker 08:
And that's something like a year.

[00:53:41] Speaker 08:
It's not four years.

[00:53:43] Speaker 04:
I think, Your Honor, I go back to the error was in fixing the rate.

[00:53:49] Speaker 04:
It was fixing the wrong rate.

[00:53:52] Speaker 04:
And if the right rate had been fixed,

[00:53:55] Speaker 04:
And the right rate was not fixed until 569A.

[00:54:00] Speaker 04:
And that's the basis for the time period for the retroactive look back to the error was we should have fixed the 10.02 rate in 2016, but we didn't because we were applying the wrong methodology.

[00:54:17] Speaker 04:
If we applied the right methodology back then, we would have reached the right result, which would have been 10.02.

[00:54:24] Speaker 04:
And that's the justification for that time period.

[00:54:27] Speaker 08:
I mean, the error was using an impermissible methodology.

[00:54:35] Speaker 08:
And once that is laid bare and you start reengaging, it seems to me you've cured the prejudice, whatever prejudice comes from the delay attributable to the initial mistake, which was the logic of Tennessee Valley.

[00:54:59] Speaker 08:
Anyhow, you've answered my questions.

[00:55:02] Speaker 08:
Thanks.

[00:55:05] Speaker 06:
If you want to briefly address the second issue, you're free to do so.

[00:55:10] Speaker 06:
And then we'll ask an intervener supporting the commission to present an argument.

[00:55:16] Speaker 04:
On the issue of the successive complaints, I will just say the commission in reading section 206 B found that the 206 B requires the commission upon instituting proceeding to establish a refund effective date.

[00:55:33] Speaker 04:
And there is nothing in 206B which limits the ability of parties to file new complaints or for the Commission to establish new proceedings or new refund effective dates.

[00:55:47] Speaker 04:
The limitation, the 15-month limitation upon the

[00:55:55] Speaker 04:
ability to order refunds happens only at the conclusion of any proceeding and, as was discussed earlier, this case is an example of how just because there are successive complaints doesn't mean that there are going to be successive refunds granted.

[00:56:14] Speaker 04:
The commission can only grant refunds in the second proceeding if it finds that the

[00:56:20] Speaker 04:
the rate from the first proceeding is unjust and unreasonable, or if the first complaint is denied and the rate is not found unjust and unreasonable until the second complaint proceeding.

[00:56:34] Speaker 04:
And then the commission could order refunds then as well.

[00:56:37] Speaker 04:
But the commission found that there was no restriction to the ability to file new proceedings in the first place, but that the issue about refunds would be addressed at the end of the proceeding.

[00:56:50] Speaker 08:
Is there any practical difference between what you did, which is solving the stacking problem on the back end through your interpretation of 216 versus solving it on the front end by saying, look, you can't file a complaint that is essentially duplicative.

[00:57:14] Speaker 08:
And if you want to introduce updated information,

[00:57:20] Speaker 08:
that's relevant to a pending case, the normal thing you do is you update the information in the pending case.

[00:57:27] Speaker 08:
You don't file a second complaint and say, this case is different because I have additional information.

[00:57:37] Speaker 04:
Well, in the case of a return on equity, it is all about the current market, how the conditions are in the current market.

[00:57:46] Speaker 04:
And as the commission has said, it's very volatile changes.

[00:57:50] Speaker 04:
And so I would say it makes a difference because of what I was just discussing.

[00:57:54] Speaker 04:
For example, if these two complaints were filed and the commission had found in the first complaint proceeding that 12.38%, the existing rate,

[00:58:05] Speaker 04:
was just and reasonable and had allowed it to continue, it could have been granted the second complaint on the 12.38% rate and found it unjust and unreasonable and granted refunds.

[00:58:20] Speaker 04:
And if you prevented the filing of the second complaint,

[00:58:24] Speaker 04:
then they would have been denied that relief, even though it was justified under the statute, which is different than at the end of the day, determining whether or not there is in fact a basis for refunds.

[00:58:42] Speaker 08:
What is the second complaint add other than a vehicle through which to provide the commission with more recent information?

[00:58:55] Speaker 08:
And why wouldn't you just do that in the first complaint, in the first proceeding?

[00:58:59] Speaker 04:
Well, because the refund periods for the complaints and the effective dates

[00:59:07] Speaker 04:
of the prospective rate going forward are different for the two different proceedings and say you couldn't get to the same place and the.

[00:59:18] Speaker 04:
the commission uses the most recent information about the market at the conclusion during the hearing in any particular case.

[00:59:29] Speaker 04:
And so all of the timing differences would make a difference in when the rate was effective, when the refund period was, and what the rate was based on what the current market conditions were.

[00:59:44] Speaker 06:
Let me make sure my colleagues don't have additional questions for you, Ms.

[00:59:47] Speaker 06:
Perry, on these issues.

[00:59:49] Speaker 06:
Thank you.

[00:59:50] Speaker 06:
Thank you.

[00:59:51] Speaker 06:
We'll hear from Mr. Fontum now.

[00:59:56] Speaker 05:
Thank you, your honor.

[00:59:58] Speaker 05:
My name is Mike Fontum.

[00:59:59] Speaker 05:
I represent the Louisiana Commission and the customer side interveners.

[01:00:06] Speaker 05:
I first want to jump into this issue of the effective date because this argument, I believe, is proceeding on an incorrect premise.

[01:00:16] Speaker 05:
Thereafter,

[01:00:18] Speaker 05:
does not modify when the first sets a new rate.

[01:00:23] Speaker 05:
Thereafter modifies the finding of illegality.

[01:00:28] Speaker 05:
And this court has held that.

[01:00:32] Speaker 05:
Statute says, and this is actually in the office of consumers council case.

[01:00:37] Speaker 05:
The council cited earlier, 826 Fed 2nd, 1136.

[01:00:42] Speaker 05:
It's on page 1138.

[01:00:44] Speaker 05:
They quote the natural gas act.

[01:00:48] Speaker 05:
exact same language in the Natural Gas Act, which says, whenever, whenever is temporal, it modifies something.

[01:00:58] Speaker 05:
Whenever the commission shall find that any practice rate, et cetera, is unjust, unreasonable, unduly discriminatory and so on, it shall set the rate to be thereafter enforced.

[01:01:14] Speaker 05:
Thereafter was intended to mean

[01:01:18] Speaker 05:
You know, you can't keep an unjust and unreasonable rate going.

[01:01:23] Speaker 05:
In that case, one of the sides gave the interpretation of the statute as follows.

[01:01:31] Speaker 05:
The prospective nature of section five relief means simply that the commission has no power to order reparation for illegal rates or practices that extend prior to the date of the commission's

[01:01:46] Speaker 05:
finding a bill to gallop.

[01:01:50] Speaker 05:
And then the court said, we agree with this interpretation of the statutory language.

[01:01:57] Speaker 05:
And think about the effect here.

[01:02:00] Speaker 05:
What the owners are asking you to do is to put the 12.38% rate back in force, all the way since opinion 551.

[01:02:10] Speaker 05:
And that has been determined unjust, unreasonable, and unlawful

[01:02:16] Speaker 05:
And there is nothing in the Federal Power Act, the Regulatory Fairness Act, to suggest that Congress ever intended that an unlawful rate should continue after the finding of illegality.

[01:02:31] Speaker 05:
The finding of unlawfulness is not on appeal here.

[01:02:34] Speaker 05:
It's done.

[01:02:35] Speaker 05:
It didn't change from 551 to 569 to 569A.

[01:02:41] Speaker 05:
The rates are unlawful.

[01:02:45] Speaker 05:
and they want to put them back in effect until FERC gets around to setting a new rate.

[01:02:53] Speaker 05:
Also, there are two Louisiana Public Service Commission cases that are right on point on this.

[01:03:01] Speaker 05:
One was in 2007, Judge Ginsburg wrote it, and the other was a per curiam decision in the famous FERC rough equalization case.

[01:03:13] Speaker 05:
And both of those cases said, once FERC finds a rate unlawful, it cannot delay a remit.

[01:03:23] Speaker 05:
And the court required FERC to go back to the time it found the rates unlawful and provide a remedy from the time they found the rates unlawful.

[01:03:34] Speaker 05:
They hadn't fixed a rate yet, or not until 2000, it was 2005,

[01:03:40] Speaker 05:
didn't get around to accepting a rate until 2007, or yeah, 2007.

[01:03:46] Speaker 05:
Court said, you can't do that.

[01:03:48] Speaker 05:
It's the finding of illegality that is the important thing, not when you fix a rate.

[01:03:57] Speaker 05:
You have to fix a rate, make it start, when you found the prior rate illegal.

[01:04:03] Speaker 05:
I might also mention that the notice decisions are not limited to court decisions.

[01:04:09] Speaker 05:
And they're not limited to section 205.

[01:04:14] Speaker 05:
The first one, well, actually the Office of Consumer's Counsel case also went to the issue of legal error.

[01:04:26] Speaker 05:
And the court has held in many cases that any number of things, filing a complaint, certainly a petition for rehearing suggests that everybody should expect that something might change

[01:04:39] Speaker 05:
So they were on notice.

[01:04:41] Speaker 05:
Now, I do want to address this second issue of the second complaint, because the courts should realize this.

[01:04:48] Speaker 05:
The owners are asking you to overturn three decades plus of precedent.

[01:04:54] Speaker 05:
As soon as the Regulatory Fairness Act was passed, the issue came up, stacking complaints and stacking refunds.

[01:05:05] Speaker 05:
And in case after case after case,

[01:05:08] Speaker 05:
FERC held, yes, you can have a second complaint because the Federal Power Act doesn't say you can't.

[01:05:17] Speaker 05:
And the intent was to help consumers and to have symmetry with 205.

[01:05:23] Speaker 05:
And that never got judicially reviewed because no utility has ever appealed that before.

[01:05:31] Speaker 05:
And if you look at what FERC said in the hearing order on the second complaint,

[01:05:37] Speaker 05:
It explained exactly how these things work and how you would calculate the refund for the first period and the refund for the second period based on different data for each period.

[01:05:52] Speaker 05:
And Judge Casas brought up the issue of, you know, stack complaints.

[01:05:59] Speaker 05:
I mean, if you refer to it like that, sure.

[01:06:02] Speaker 05:
But think about this.

[01:06:04] Speaker 05:
We're in MISO.

[01:06:05] Speaker 05:
MISO is a huge area.

[01:06:07] Speaker 05:
My clients in Louisiana, we have a separate transmission pricing zone from Arkansas.

[01:06:14] Speaker 05:
It's in myself.

[01:06:16] Speaker 05:
Okay, so let's say Arkansas files a complaint and they, you know, diddle around with it, settlement goes on for a year and a half, and then they start moving forward with the complaint, but they don't push it.

[01:06:30] Speaker 05:
The owners are saying,

[01:06:32] Speaker 05:
And let's say that economic conditions totally changed like they did in 2008.

[01:06:37] Speaker 06:
Mr. Fonten, I think we have your argument on this point.

[01:06:41] Speaker 06:
I don't want to cut you off, but if you can, your time's expired.

[01:06:44] Speaker 06:
So if you can bring it to a conclusion, we'd appreciate it.

[01:06:48] Speaker 05:
Well, I'm sorry, your honor.

[01:06:50] Speaker 06:
No need to apologize.

[01:06:54] Speaker 05:
The thing is Congress never intended

[01:06:57] Speaker 05:
that nobody else could ever file a complaint until the first complaint was ended.

[01:07:03] Speaker 05:
That's a ridiculous, would be a ridiculous interpretation.

[01:07:07] Speaker 05:
And Congress didn't intend either that there can't be different refunds based on different rates of return.

[01:07:15] Speaker 05:
That's, you know, in fact, if I could just add one more thing you're on.

[01:07:20] Speaker 05:
Would it be permissible?

[01:07:22] Speaker 05:
Yes.

[01:07:22] Speaker 05:
Before the regulatory Fairness Act,

[01:07:25] Speaker 05:
All these rates are formula rates.

[01:07:28] Speaker 05:
That means the rates change constantly.

[01:07:32] Speaker 05:
All the utilities have to do is put new inputs in.

[01:07:35] Speaker 05:
Before the Regulatory Fairness Act, FERC was starting to attach requirements for equity cost reopeners in those rates because it was fixed, the only thing besides depreciation that were fixed in these rates.

[01:07:51] Speaker 05:
So it's not just unreasonable to have

[01:07:54] Speaker 05:
these formula rates without equity reopeners.

[01:07:57] Speaker 05:
Then they pass the RFA.

[01:07:59] Speaker 05:
I was in a case where I got an equity rate.

[01:08:02] Speaker 06:
I think we understand.

[01:08:03] Speaker 06:
I think we appreciate that point as well, and we appreciate your argument.

[01:08:07] Speaker 06:
Thank you.

[01:08:08] Speaker 07:
Thank you, Ron.

[01:08:09] Speaker 06:
Thank you.

[01:08:09] Speaker 06:
Unless my colleagues have questions for you.

[01:08:12] Speaker 06:
Thank you, Mr. Fathom.

[01:08:14] Speaker 06:
Mr. Jones, we'll give you the three minutes you asked for rebuttal.

[01:08:16] Speaker 07:
A quick note about Consumers Council, if I could, before I move on to the Chief Judge's concern about an advisory opinion.

[01:08:26] Speaker 07:
Consumers Council doesn't apply here.

[01:08:28] Speaker 07:
It predates the Regulatory Fairness Act.

[01:08:30] Speaker 07:
It wasn't even a numerical rate case.

[01:08:32] Speaker 07:
It dealt with the timing of removing take or pay clauses that were deemed illegal under the Natural Gas Policy Act.

[01:08:39] Speaker 07:
So it's a very loose application, if at all, to this case.

[01:08:42] Speaker 07:
I'd like to respond to Mr. Fonten, which will then sort of dovetail into the Chief Judge's concern about what Congress intended here, about the 1238% and once a rate has been deemed at some point unjust and unreasonable.

[01:08:57] Speaker 07:
Congress, in the 88 Regulatory Fairness Act, this is exactly the construct that Congress put in place.

[01:09:04] Speaker 07:
And Mr. Fonten seems to be arguing that the

[01:09:07] Speaker 07:
Regulatory Fairness Act wasn't fair enough.

[01:09:10] Speaker 07:
And I take that point perhaps, but the law is what it is.

[01:09:14] Speaker 07:
And what that requires, back to the Chief Judge's question, the reason we have to have this case decided and this issue decided is because there are two separate things going on here.

[01:09:24] Speaker 07:
And my previous answer probably didn't do a good enough job of clarifying the two.

[01:09:28] Speaker 07:
The refunds, because we were charging the rate that now FERC has self vacated, the 1032, the refunds were of a much, much smaller band.

[01:09:37] Speaker 07:
But if we're right on the statute that you can only fix a rate to be prospectively observed, then as, and this is illustrated in footnote five of our brief, we give sort of a garden variety example of how this should work.

[01:09:50] Speaker 07:
The pre-existing rate comes back to life during the interim.

[01:09:53] Speaker 07:
And so we have to, as long as FERC believes that these interim orders, I mean, the 1032 has any legal effect at all,

[01:10:03] Speaker 07:
Then, no matter what happens to the rate on remand, we have to have an answer to this question because first going to try to backdate some result and it's going to try to deny.

[01:10:14] Speaker 07:
the proper workings of 206A and 206B together.

[01:10:18] Speaker 06:
Well, we don't know what it's going to do, but when you say the pre-existing rate, which pre-existing rate do you have in mind?

[01:10:23] Speaker 06:
That's the 12.38.

[01:10:23] Speaker 06:
I think that's right, that that would be the rate under the hypothetical scenario that would come back into being.

[01:10:30] Speaker 07:
That would be right.

[01:10:31] Speaker 07:
So, I mean, in theory, even if, back to your honor's hypothetical, on remand, if you decided 10.02 was, I'm not sure how you'd get there,

[01:10:42] Speaker 07:
Even on remand, if you got to 12.38, the commission's been asking us to charge the 12th, the 1032, and then we had to do refunds to 1002, both of which at that point would have been vacated by the commission.

[01:10:57] Speaker 06:
But you'd have to recalculate the refunds anyway, right?

[01:11:00] Speaker 06:
Because the commission would have to come up with some replacement rate.

[01:11:05] Speaker 07:
No matter what happens here, Your Honor, there's going to be a resettlement of some sort.

[01:11:11] Speaker 07:
But it is critical to proceed to Judge Walker's question about settlement.

[01:11:17] Speaker 07:
If we don't have legal certainty on this question about the commission's ability to do retroactive relief in violation of the 88 Fairness Act, tough to see how that could happen.

[01:11:28] Speaker 08:
Can I ask, could you just give me your answer to

[01:11:35] Speaker 08:
Mr. Fontum's core statutory argument that 206A has an express temporal scope and it requires prospectivity from the date when the pre-existing rate was declared unjust, not prospectivity from when FERC fixes the replacement rate.

[01:12:04] Speaker 07:
Um, briefly around around that, not only a FERC doesn't even, uh, make that argument.

[01:12:10] Speaker 07:
Um, I think it was it wrong.

[01:12:13] Speaker 08:
I hadn't thought of it, but I'm just reading the text.

[01:12:17] Speaker 08:
I see how he reads it.

[01:12:18] Speaker 07:
Yeah.

[01:12:19] Speaker 07:
I think that turns the regulatory fairness act on its head and the entire 206 structure on its head.

[01:12:25] Speaker 07:
If the commission can merely declare a rate unreasonable, and then at that point go off, take as long as it wants.

[01:12:33] Speaker 07:
to find the new rate and then backdate it.

[01:12:36] Speaker 07:
Again, if that were true, then the Regulatory Fairness Act wouldn't have been necessary.

[01:12:41] Speaker 07:
The 15-month refund protection and everything else would have been completely unnecessary.

[01:12:45] Speaker 07:
So I just don't think that statutory framework finds any support.

[01:12:51] Speaker 08:
That's not right.

[01:12:52] Speaker 08:
I mean, they have to do a lot of work to find the existing rate unjust.

[01:13:03] Speaker 08:
So 15 months from when the complaint is filed would do a lot of work, even assuming that the prospectivity clock starts to run when they say the existing rate is unjust.

[01:13:19] Speaker 07:
Right.

[01:13:19] Speaker 07:
And I guess so in that situation, the commission would have made an initial determination that the existing rate is unjust and unreasonable.

[01:13:29] Speaker 07:
And then later on found that the rate

[01:13:33] Speaker 07:
it determined the rate, but it wouldn't have fixed the same by order.

[01:13:38] Speaker 07:
I don't think Mr. Fonten completed the sentence.

[01:13:40] Speaker 07:
There it must find the, shall determine the just and reasonable rate to be thereafter observed and enforced and shall fix the same by order.

[01:13:50] Speaker 07:
So again, read in context, it has to be prospective only.

[01:13:53] Speaker 07:
And that, and that again, this is a 206A construct.

[01:13:58] Speaker 07:
And there are all the cases that we cited

[01:14:00] Speaker 07:
about 206A and Section 5, the Power Act, that even predate the 88 Fairness Act, don't support that statutory interpretation.

[01:14:10] Speaker 07:
This has long been held that a rate fixing has prospective relief only in this court in Electrical District of Anaheim, among them.

[01:14:21] Speaker 08:
Yeah, the question is prospective relative to what?

[01:14:26] Speaker 08:
Just reading that sentence is a matter of pure grammar.

[01:14:30] Speaker 08:
I can see an argument that thereafter observed modifies what comes before it, and shall fix the same by order.

[01:14:41] Speaker 07:
Thank you, Chief Judge.

[01:14:48] Speaker 07:
Appreciate it.

[01:14:49] Speaker 06:
Thank you, Mr. Jones.

[01:14:50] Speaker 06:
I'll let my colleagues have further questions for you.

[01:14:53] Speaker 06:
Mr. Barnett, you have one minute for your rebuttal.

[01:14:56] Speaker 02:
Yes, thank you, Your Honor.

[01:14:58] Speaker 02:
And I'd like to start with Ms.

[01:14:59] Speaker 02:
Perry's arguments.

[01:15:02] Speaker 02:
She seemed to suggest that FERC was bound to consider the second complaint and establish a refund effective date because the statute says when FERC opens a proceeding, they're required to establish a refund effective date.

[01:15:14] Speaker 02:
Well, that's only true if FERC actually opens a proceeding.

[01:15:17] Speaker 02:
On page 48 of our brief, we cited cases where FERC has either dismissed a complaint as facially deficient

[01:15:25] Speaker 02:
or has denied a complaint on the initial papers without actually setting a hearing.

[01:15:29] Speaker 02:
So the idea that FERC had to entertain this complaint because it had to establish a refund effective date is belied by FERC's own precedent.

[01:15:37] Speaker 02:
On her second issue of, well, what happens if market conditions change dramatically after the first complaint is filed?

[01:15:45] Speaker 02:
Parties need to have a second opportunity.

[01:15:47] Speaker 02:
Well, that's already covered by the fact that FERC uses the latest data in the record.

[01:15:52] Speaker 02:
I believe Ms.

[01:15:53] Speaker 02:
Perry is conflating two different issues.

[01:15:56] Speaker 02:
One is the establishment of a refund effective date, which is tied to the initiation of the proceeding and the data that's used to make the ultimate determination, which is data that comes into the record much later.

[01:16:09] Speaker 02:
So you don't need to have a second complaint to take account for that data.

[01:16:13] Speaker 02:
Now quickly, if I may, just turning to Mr. Fompens' arguments, he says that what we're asking for is the court to overturn three decades of precedent

[01:16:22] Speaker 02:
But he also admits and Ferck admits that all of that precedent is Ferck precedent.

[01:16:28] Speaker 02:
We were not able to find any precedent of this court that would necessarily affirm the practice of allowing successive complaints to extend the refund effective date and refund periods.

[01:16:39] Speaker 02:
Mr. Fontum also suggested that our argument is that once a complaint is filed, nobody can ever file a complaint again.

[01:16:46] Speaker 02:
And that's just not true.

[01:16:47] Speaker 02:
What we're contesting here is the filing of, as Judge Katz aptly put it, an identical complaint for the purpose of merely extending the refund eligibility on the same rate.

[01:16:59] Speaker 02:
So if a party files a complaint to challenge either some other aspect of the utility's rate,

[01:17:04] Speaker 02:
or to seek an additional lower rate as a perspective matter, that's not what we're challenging here.

[01:17:11] Speaker 02:
And so I think that that's an overstatement of our argument.

[01:17:14] Speaker 02:
Unless the court has any other questions for me, I appreciate your time.

[01:17:18] Speaker 06:
Thank you, Mr. Barnett.

[01:17:20] Speaker 06:
That'll conclude our arguments on the transmission party challenges.

[01:17:24] Speaker 06:
Why don't we turn to the customer's challenges.

[01:17:28] Speaker 06:
Mr. Pomper.

[01:17:32] Speaker 01:
Hey, please, the court.

[01:17:33] Speaker 01:
I'm David Pomper for customers.

[01:17:35] Speaker 01:
FERC rightly framed its task as using financial models to keep base returns at cost.

[01:17:41] Speaker 01:
But FERC adopted unreasoned models that exaggerate costs and a so-called presumption that keeps returns even higher.

[01:17:48] Speaker 01:
Each 1% of extra return here exceeds $100 million a year.

[01:17:53] Speaker 01:
Heartland factories started these cases because they need fair cost-based rates to compete in global markets.

[01:18:00] Speaker 01:
Yes, FERC also owes fairness to the owners, global shareholders.

[01:18:05] Speaker 01:
When FERC pins fairness to model estimated cost, then jiggers those models until they exceed 10% and presumes customers should pay even more.

[01:18:14] Speaker 01:
Fairness demands explanation.

[01:18:16] Speaker 01:
We briefed many explanatory misses.

[01:18:18] Speaker 01:
I'll highlight three regarding models and one regarding burden.

[01:18:23] Speaker 01:
FERC's capital method has diversified stocks

[01:18:27] Speaker 01:
returning nearly 12% per year forever by always growing much faster than the economy or any independent estimate.

[01:18:35] Speaker 01:
In contrast, FERC sister agency, the SEC uses 8.71%, JP Morgan 6.5.

[01:18:42] Speaker 01:
FERC's exaggeration contradicts its own findings that, quote, over the long-term companies cannot maintain their short-term growth rates, unquote, and that they converge toward, quote, the growth rate of the overall economy.

[01:18:54] Speaker 01:
Now, FERC excuses that contradiction by speculating that the S&P 500 index can grow immoderately because its roster revolves.

[01:19:02] Speaker 01:
But the index hasn't grown that way, and there's no evidence that it will.

[01:19:05] Speaker 01:
FERC used 370 specific stocks, not that slowly evolving index, and FERC refused to measure utilities risk data against that index.

[01:19:14] Speaker 01:
And even if FERC's irrelevant and unsupported claim were true, that would mean that FERC wrongly used the growth of selected winners, not the market portfolio the method demands.

[01:19:25] Speaker 01:
Now, over a baseball season, batting averages converge toward 250 or so.

[01:19:31] Speaker 01:
FERC's like, well, that's true for every batter, but the league will average 400 because we're Yankees fans and they can trade with the Royals.

[01:19:37] Speaker 01:
It's just a non-sequitur.

[01:19:40] Speaker 01:
Method error two is FERC's adoption of a risk premium variant that nobody else uses.

[01:19:46] Speaker 01:
Not investors, not other regulators.

[01:19:49] Speaker 01:
Opinion 569 detailed its flaws as did later dissents.

[01:19:53] Speaker 01:
It's intensely circular, perpetuating past FERC returns by ignoring the evidence and published findings that equity returns followed by yields down.

[01:20:03] Speaker 01:
It mainly perpetuates settlements that trade off other issues and lock in the error that MRO reversed.

[01:20:10] Speaker 01:
569A flipped to ignoring this method's flaws, not curing them, just to blend it in with other methods.

[01:20:18] Speaker 01:
Method error three concerns FERC's model results distillation.

[01:20:23] Speaker 01:
Under this court's 2005 Kentucky and 2013 Southern California precedents and the statistical principles they cite, FERC normally uses medians, but FERC may use midpoints in the unusual situation of setting a region-wide return when the top and bottom results are for the region's owners themselves, making it reasonable to emphasize their extremes.

[01:20:46] Speaker 01:
But here, FERC never examined whether the broad national proxy groups extremes represent this region's owner extremes.

[01:20:53] Speaker 01:
Instead, FERC erroneously viewed the 2005 precedent as dictating midpoints in this new context.

[01:21:01] Speaker 01:
In these and other ways, FERC exaggerated what investors need.

[01:21:05] Speaker 01:
Worse, for its two a six prong one evaluation of existing returns, FERC adopted a rule favoring yet more.

[01:21:14] Speaker 01:
FERC now keeps returns until they become grossly excessive, reaching the results upper third.

[01:21:20] Speaker 01:
For this region, that excess means roughly $100 million a year.

[01:21:24] Speaker 01:
Now, FERC's so-called presumption really means disregarding evidence.

[01:21:28] Speaker 01:
Complaints have always faced a presumption of reasonableness, meaning they must prove unreasonableness.

[01:21:33] Speaker 01:
But until now, they could carry that burden using the central result of FERC's own equity cost models.

[01:21:40] Speaker 01:
FERC's new rule treats that central evidence as no evidence at all that a return should fall.

[01:21:46] Speaker 01:
Now contrast that to when owners see great heights.

[01:21:49] Speaker 01:
In that situation, FERC's adopted models alone suffice to prove their central result reasonable.

[01:21:55] Speaker 01:
Only when customers see great cuts does FERC discredit its own models and demand other evidence.

[01:22:01] Speaker 01:
Under the court's 2014 first energy decision, customer and owner proof burdens should have remained symmetrical.

[01:22:09] Speaker 01:
FERC then made customers prove burdened impossible by demanding that they overcome a return not known before the record closed.

[01:22:16] Speaker 01:
It made customers fire blanks at a moving target.

[01:22:19] Speaker 01:
Now FERC tries to pin its new role on this court, but the court doesn't defer to agency interpretations of its own opinions and the sense below dispel FERCs.

[01:22:29] Speaker 01:
Emmer did not conflate potentially reasonable with presumptively reasonable.

[01:22:34] Speaker 01:
Nor did it reverse the 1942 Supreme Court opinion it cited, and other opinions it cited, under which Frick may judge unreasonable any return exceeding cost.

[01:22:45] Speaker 01:
Emmery merely demanded that Frick explain such judgment.

[01:22:49] Speaker 01:
Here, Frick's only explanation for retaining returns approaching the upper third was, well, the upper sixth would have been even higher.

[01:22:57] Speaker 01:
But comparing two wrongs doesn't make one of them right.

[01:23:00] Speaker 01:
And less unreasonable does not mean reasonable.

[01:23:04] Speaker 01:
On all of these issues, FERC falls back on agency expertise and discretion, but FERC said it was exercising its discretion by relying on model estimated cost.

[01:23:13] Speaker 01:
Under AMRA, the court examines whether FERC's method employed and implemented in that policy was rational, and here it wasn't.

[01:23:20] Speaker 01:
Let me pause and invite questions, but that lays out the key points.

[01:23:26] Speaker 06:
I'll ask my colleagues if they have any questions for you, Mr. Popper.

[01:23:31] Speaker 06:
Do you have reserved some time for rebuttal?

[01:23:33] Speaker 06:
We'll give you the time for rebuttal after hearing from folks council.

[01:23:37] Speaker 06:
Mr. Wolf, we'll hear from you on the refund question regarding the second complaint.

[01:23:44] Speaker 03:
Thank you, Your Honor.

[01:23:45] Speaker 03:
May it please the court, Eric Wolf for customers.

[01:23:48] Speaker 03:
There's been some discussion about whether the refund issues are something that you should address.

[01:23:54] Speaker 03:
You should.

[01:23:55] Speaker 03:
And the reason you should is that

[01:23:56] Speaker 03:
FERC made a fairly clear error of statutory interpretation because they said that the denial of the refunds was, in their words, dictated by the language of the statute.

[01:24:07] Speaker 03:
Basically, Chevron step one made them do it.

[01:24:10] Speaker 03:
The statute made them do it the way they did it.

[01:24:13] Speaker 03:
That is not defensible.

[01:24:15] Speaker 03:
That should be corrected.

[01:24:17] Speaker 03:
And I'll just walk through how what they did really does not fit 206A or 206B.

[01:24:24] Speaker 03:
And we think it's clear that refunds can be available.

[01:24:29] Speaker 03:
At the very least, it's ambiguous.

[01:24:31] Speaker 03:
And it has to go back to them under PRIL.

[01:24:33] Speaker 03:
And they have to exercise their discretion.

[01:24:36] Speaker 03:
And on a number of these things that have been discussed, I mean, they have policy choices to make.

[01:24:42] Speaker 03:
And they can't claim that the statute dictates what they did.

[01:24:46] Speaker 03:
So in 206A, what the statute requires is that you look to the rate that was charged, observed charged or collected or demanded.

[01:24:55] Speaker 03:
And that's the money that was paid.

[01:24:58] Speaker 03:
That's the rate that was actually charged.

[01:25:00] Speaker 03:
But they didn't do that.

[01:25:02] Speaker 03:
They said, well, we'll look to the rate that we just set in the first complaint.

[01:25:06] Speaker 03:
So right there, they're going beyond the statutory language of 206A.

[01:25:10] Speaker 03:
They can't legitimately claim that the statute dictated that choice, although that is what they claim.

[01:25:16] Speaker 03:
Now, if you find that gap, and here, everybody, it's not being disputed that on the second complaint, there was an unjust and unreasonable rate that was charged.

[01:25:27] Speaker 03:
And so if we follow 268, if that's the circumstance, then the commission shall determine the just and reasonable rate.

[01:25:35] Speaker 03:
There's no discretion there.

[01:25:36] Speaker 03:
They have to do it.

[01:25:38] Speaker 03:
And then they shall fix the same by order.

[01:25:41] Speaker 03:
Now, I suppose it could be that it's the same rate that they come up with in the first complaint.

[01:25:46] Speaker 03:
But just following the statutory language, you have to do different things than what they did.

[01:25:51] Speaker 03:
So what they did was look at a rate that was not the rate that was charged.

[01:25:54] Speaker 03:
And then they dismissed the complaint.

[01:25:56] Speaker 03:
The statute requires that they look at the rate that was charged.

[01:25:59] Speaker 03:
And if it's unreasonable, which it was here, then they shall determine the just and reasonable rate.

[01:26:05] Speaker 03:
They shall fix the same by order.

[01:26:07] Speaker 03:
They didn't have any discretion to do what they did.

[01:26:11] Speaker 03:
When we go to B, you don't look at hypothetically what people would have paid.

[01:26:17] Speaker 03:
You look at the amounts paid.

[01:26:19] Speaker 03:
And amounts paid, that's plain enough.

[01:26:21] Speaker 03:
That's the money that was paid.

[01:26:23] Speaker 03:
Here, that money was paid in excess of a just and reasonable rate.

[01:26:28] Speaker 03:
And so then you could possibly have a refund.

[01:26:30] Speaker 03:
And what's curious about how FERC resolved all this, and I must confess I'm sort of baffled by it,

[01:26:37] Speaker 03:
is that the refunds, they have discretion on refunds.

[01:26:40] Speaker 03:
They may, like the statute is filled with shalls, but on the refunds, it says they may order a refund.

[01:26:47] Speaker 03:
And so they really, they did not need to contort the statute the way they did.

[01:26:54] Speaker 03:
If for policy reasons, they want to say that refunds on the second complaint are not appropriate.

[01:27:01] Speaker 03:
But what they do have to do then is give us those reasons, explain them,

[01:27:06] Speaker 03:
and then it can be reviewed under arbitrary and capricious review.

[01:27:12] Speaker 08:
What is left of the 15 month limit for 206 refunds if a customer can file sequential complaints that are identical except to the extent that the later complaint offers

[01:27:36] Speaker 08:
more recent information that becomes available with the passage of time?

[01:27:42] Speaker 03:
I think there's a formalism to saying there's the first complaint and the second complaint, and they each get their own refund period.

[01:27:50] Speaker 03:
And the way you frame it is the way our opponents frame it, which is it effectively extends the refund period.

[01:28:02] Speaker 03:
That's understandable that they frame it that way.

[01:28:04] Speaker 03:
But like formalistically, just following the statute, nothing prevents that.

[01:28:10] Speaker 03:
And you've posited, well, you could stop it on the front end or you could stop it on the back end.

[01:28:15] Speaker 03:
And I suppose you can.

[01:28:18] Speaker 03:
I mean, they could have a heightened threshold under 206A.

[01:28:22] Speaker 03:
And AmeriMain emphasized that there are different burdens and they have to do unjust and unreasonable on the front end.

[01:28:32] Speaker 03:
They could address it there again issues of policy that they are free to address and and you can get to it on the back end they have discretion.

[01:28:40] Speaker 03:
I don't think reading into the statute, adding to the statute, something that says you can't bring a successive complaint and really you'd have to even construct some kind of

[01:28:55] Speaker 03:
window because we know you have to be able to bring successive complaints, right?

[01:29:00] Speaker 03:
Because like a year or two or three could go by.

[01:29:01] Speaker 03:
So it's really, you know, we don't want them too successive.

[01:29:05] Speaker 03:
We don't want them too close.

[01:29:06] Speaker 03:
I mean, now you're just rewriting the statute.

[01:29:09] Speaker 03:
So they may have, in their view, a policy problem that they want to solve.

[01:29:16] Speaker 03:
To say that the way they solved it by saying no refunds was dictated by the language, it is not.

[01:29:25] Speaker 03:
They need to give their policy reasons and make their choice and then that gets reviewed by you all under arbitrary, capricious review.

[01:29:34] Speaker 03:
But they've made a mess of the statutory language and it is not clear and it does not dictate what they did.

[01:29:42] Speaker 03:
And I don't know if I've really answered your question, Judge Katz, but I mean, it's a formal distinction.

[01:29:49] Speaker 03:
I mean, it's a literalism that there's nothing that prevents it.

[01:29:56] Speaker 03:
This whole little scheme here is kind of outside of what Congress anticipated in lots of ways.

[01:30:01] Speaker 03:
I mean, Congress thought that FERC would act as speedily as possible and, you know, maybe all this will be done in 15 months or two years.

[01:30:10] Speaker 03:
And so to say, oh, we're, you know, cut off at 15 months, no matter how long it goes, I don't think there's any support for saying, well, yeah, that's what Congress would have wanted there too.

[01:30:21] Speaker 08:
What about fixing this on the front end by reference to some sort of, I don't know, general background race judicata principles?

[01:30:39] Speaker 08:
I mean, ordinary rules, you bring a claim seeking prospective relief,

[01:30:47] Speaker 08:
and you have whatever evidence you have and time goes by as the case is pending.

[01:30:52] Speaker 08:
No one in their right mind would think that when you get newly developed evidence in the pending case, what you do is file a second complaint seeking exactly the same relief and saying, oh no, this case is different because I have new evidence.

[01:31:12] Speaker 08:
And that you could litigate both of those cases to judgment.

[01:31:17] Speaker 08:
I mean, you would just litigate the first case and put in the new evidence.

[01:31:22] Speaker 03:
Or you would consolidate them or something like that.

[01:31:25] Speaker 08:
Yeah, exactly.

[01:31:26] Speaker 03:
Yeah.

[01:31:27] Speaker 03:
I mean, here, they address them together.

[01:31:30] Speaker 03:
I mean, if you want to get very literal under B, like literally, they entered an order that fixed a rate in this proceeding.

[01:31:40] Speaker 03:
And so a refund would be available.

[01:31:42] Speaker 03:
I mean, that's literally what they did because they addressed it together.

[01:31:47] Speaker 03:
I think it's going to be, I don't want to speak too broadly here just to be perfectly candid.

[01:31:53] Speaker 03:
I mean, I do not make my living doing the trial type for proceedings that some of my friends do.

[01:32:01] Speaker 03:
They clearly have a fair amount of discretion to set their own proceedings, to work with the burden of proof, and to try to solve this problem

[01:32:13] Speaker 03:
to the extent there even is a problem of what you call duplicative complaints.

[01:32:18] Speaker 03:
Now I can tell you that talking with the customers, they pointed out that there's a lot of investment that goes into bringing one of these.

[01:32:27] Speaker 03:
And the kinds of economic analysis that they have, this requires experts.

[01:32:33] Speaker 03:
You have to do a discounted cashflow analysis.

[01:32:36] Speaker 03:
Now you might have to do risk premium, maybe other methods.

[01:32:39] Speaker 03:
You have to come up with proxy companies.

[01:32:42] Speaker 03:
If you try to seek a new rate under 26A, and it doesn't come packaged with that kind of evidence, you're not likely to get very far.

[01:32:53] Speaker 03:
So it is not the case that you can just sort of casually file one of these things and hope to get in there for a refund.

[01:33:02] Speaker 03:
A lot more goes into it.

[01:33:05] Speaker 03:
But if they think that is a problem,

[01:33:08] Speaker 03:
they have discretion to address that problem.

[01:33:11] Speaker 06:
Just one question, which is I thought I heard you say something contrary to this, but I may have misunderstood.

[01:33:15] Speaker 06:
Isn't the very premise of the 15 month period that Congress contemplated that the commission would take longer than that to issue decisions?

[01:33:25] Speaker 03:
I think some of this is going into some legislative history, but they thought it might take around two years.

[01:33:32] Speaker 03:
It's my understanding.

[01:33:33] Speaker 03:
So it is definitely there to provide certainty.

[01:33:37] Speaker 03:
But if you look at the full text of 206B, they put in there that they're supposed to act as speedily as possible.

[01:33:46] Speaker 03:
And then if no decision is rendered by the conclusion of 180 day period, then they have to give reasons why they failed to reach a decision.

[01:33:55] Speaker 03:
There's nothing in there that suggests

[01:33:59] Speaker 03:
the Congress would have been fine having this run for four, five, six years or more, and everything's cut off at 15 months.

[01:34:07] Speaker 03:
So if they're thinking, well, it could take 15 months, maybe it takes two years, three years, perhaps, but when it's taking so much longer, I don't think the folks on the other side can say, well, this is what Congress would have wanted.

[01:34:23] Speaker 03:
They would have wanted it all cut off.

[01:34:25] Speaker 03:
at 15 months, no matter how long it takes.

[01:34:28] Speaker 03:
I just don't think there's any evidence that Congress would support that, nor that that's a good idea.

[01:34:33] Speaker 03:
Because as Mr. Pomper said, this is hundreds of millions of dollars.

[01:34:37] Speaker 03:
And the purpose of 206A and B is to protect consumers, which is, as he said, they're big industrial customers who are trying to stay globally competitive.

[01:34:50] Speaker 06:
So, I make sure my colleagues don't have additional questions for you, Mr. Wolf.

[01:34:58] Speaker 06:
Thank you, Mr. Wolf.

[01:35:00] Speaker 06:
We'll hear from again from Ms.

[01:35:01] Speaker 06:
Perry now on this set of issues.

[01:35:06] Speaker 04:
Thank you, your honor.

[01:35:06] Speaker 04:
I believe I will start with the issue of the refunds for beginners.

[01:35:17] Speaker 04:
In the first place, the Commission interpreted the language of 206B.

[01:35:23] Speaker 04:
The Commission did not find that the language was unambiguous.

[01:35:29] Speaker 04:
Rather, in paragraph 568 of order 569, which is the Joint Appendix 719,

[01:35:38] Speaker 04:
The commission looked at the language of the statute and found we interpret this language to mean the refunds may be ordered in a complaint proceeding only when the commission grants prospective relief.

[01:35:51] Speaker 04:
Because having not ordered a new just and reasonable rate to be thereafter observed, there are no amounts paid in excess of that rate that the commission could order to be refunded.

[01:36:04] Speaker 04:
And the Commission further went on in paragraph 569 to point out that this interpretation was supported by the 15-month limitation on refunds, which were clearly intended to limit the refund exposure of public utilities.

[01:36:23] Speaker 04:
And this interpretation would prevent having multiple refund periods tied to the same unjust and unreasonable findings.

[01:36:41] Speaker 06:
Can I ask you a question on the, the arguments that the customers have raised not on the refund questions but on the challenges to the to the methodology giving rise to the rate that's being challenged.

[01:36:53] Speaker 06:
That's on the, the addition of the risk premium model so you have a scenario here in which the commission itself explain why.

[01:37:01] Speaker 06:
where there's risk premium model didn't make sense to include.

[01:37:04] Speaker 06:
And then a subsequent iteration in which the commission reconsidered that and thought that it would consider the risk premium model.

[01:37:11] Speaker 06:
And at least one of the predicates was for the initial determination that it would not be used was that customers don't rely on it.

[01:37:20] Speaker 06:
Was that investors, I'm sorry, investors just don't rely on it.

[01:37:23] Speaker 06:
And that seems true.

[01:37:25] Speaker 06:
And I didn't see anything in the commission subsequent decision that called that into question.

[01:37:32] Speaker 04:
What the commission ultimately determined was, well, let me state first that as Mr. Roger Moran said in his textbook that this methodology examining the risk premium that's applied in return on equities versus the treasury bond yield is an accepted method of doing a risk premium model.

[01:37:59] Speaker 04:
And that's at 569 paragraph 305.

[01:38:02] Speaker 04:
With respect to the argument that investors don't use this model, what the commission ultimately concluded was that investors expect risk premiums above bonds, and that this model, as evidenced by Mr. Moran's textbook, is an accepted method of estimating that risk premium.

[01:38:27] Speaker 04:
The investors do observe the return on equities and how they affect earnings.

[01:38:33] Speaker 04:
But so the commission felt that because of those reasons, this premium risk premium model was on balance helpful to the analysis because the commission ultimately determined that the defects, which it acknowledged and had discussed at some length,

[01:38:53] Speaker 04:
of the model didn't outweigh the benefits of having model diversity, having the additional model averaged in with the other models and the decreased volatility that comes from having this particular model averaged in with the other models.

[01:39:14] Speaker 08:
In 569,

[01:39:18] Speaker 08:
the commission had a fairly robust criticism of this model, risk premium model on the ground that I think it was you would expect interest rates to be inversely correlated to stock prices and that's not what this produces.

[01:39:38] Speaker 08:
And you went on at some length about that.

[01:39:40] Speaker 08:
And then you changed course on rehearing

[01:39:47] Speaker 08:
And without much explanation, you just said, well, we're no longer persuaded by that.

[01:39:54] Speaker 08:
So why is that sufficient explanation to change course like that?

[01:40:02] Speaker 04:
I think the commission's basic explanation on that with talking about the regression analysis that we're trying to show a lack of relationship between

[01:40:14] Speaker 04:
market changes and the changes in the return on equity and the risk premium implied from that.

[01:40:21] Speaker 04:
And the commission ultimately concluded that there was, it ultimately rejected the idea that there was not market influence on the risk premiums that were being awarded.

[01:40:38] Speaker 04:
A large number of them are settlements.

[01:40:41] Speaker 04:
And the Commission's found in 569B at paragraph 119.

[01:40:48] Speaker 04:
JA 1081, the commission found that there were sophisticated parties engaging in complex negotiations and trial staff, all of whom are relying on market data to inform their positions.

[01:41:01] Speaker 04:
And so the commission ultimately rejected the notion that there was no market tie between the risk premium results and the market conditions.

[01:41:22] Speaker 08:
The only other one I had, there's a lot of detail here and it tends to be very technical, but could you address the argument on beta about the mismatch between New York Stock Exchange data and S&P 500 data

[01:41:48] Speaker 08:
So as I understand it, and correct me if I'm wrong, but when you calculate the market risk premium, you use S&P.

[01:42:04] Speaker 08:
And when you calculate the betas from value line, you use the New York Stock Exchange as the baseline for comparison.

[01:42:17] Speaker 08:
And as to each half of that, you have what seem to be fairly plausible arguments.

[01:42:27] Speaker 08:
But on the other hand, you are mixing and matching and the selection of each one in the particular context tends to produce a higher rate of return.

[01:42:41] Speaker 08:
So why shouldn't that

[01:42:45] Speaker 08:
At least raise an eyebrow.

[01:42:49] Speaker 04:
Well, for starters, your honor.

[01:42:51] Speaker 04:
This is an issue that goes back to this, the Supreme Court's decision in Prometheus radio that we talked about that we talked about in our brief.

[01:43:04] Speaker 04:
Which essentially where the Supreme Court essentially recognize that agencies rarely have perfect empirical or statistical data to deal with, and what they need to do is to make the best decision they can based on the record before them.

[01:43:19] Speaker 04:
In the case of the value line betas and the S&P risk premiums, the commission acknowledged that it was in a perfect correspondence, but the commission found that there was substantial value in using the value line adjusted betas and that investors substantially relied on those betas.

[01:43:46] Speaker 04:
And

[01:43:47] Speaker 04:
that there wasn't an equivalent, there wasn't equivalent information in the record about S&P data that adjusted betas that the commission could use to make that calculation.

[01:44:02] Speaker 04:
And so I would just say in that regard, the Louisiana Public Service Commission has pointed on several occasions making the argument that they put in

[01:44:16] Speaker 04:
evidence of adjusted betas for the S&P 500, that is at JA 362.

[01:44:24] Speaker 04:
And I would point out to you that those betas are from 2019.

[01:44:28] Speaker 04:
And so the commission's orders are quite clear that financial evidence had to be from the relevant time period, which would be during 2015.

[01:44:40] Speaker 04:
And so the Commission did not have in the record, the adjusted betas available for the S&P 500, and so the Commission made the judgment on the record that it valued having the adjusted betas in the calculation and that no one had made a showing

[01:45:02] Speaker 04:
that using the value line New York stock exchange adjusted betas with the S&P 500 risk premium analysis would result in an adjusted reasonable rate.

[01:45:13] Speaker 06:
It was- Is that timing discrepancy the same explanation for why there was that recent order by the commission and constellation mystics or mystics constellation?

[01:45:23] Speaker 06:
I can't remember which direction it goes, but where instead of the value line,

[01:45:29] Speaker 06:
NYSE adjusted betas, there was Bloomberg, which were pegged to the S&P 500.

[01:45:36] Speaker 06:
So there was an alternative there.

[01:45:37] Speaker 04:
There was an alternative there because the trial staff in that case came up with the method, their expert came up with the methodology for adjusting the S&P 500 betas.

[01:45:51] Speaker 04:
And they put into the record the methodology and the adjusted betas for the test period.

[01:45:58] Speaker 04:
And so the commission decided that there was substantial evidence that supported the methodology for adjusting the betas and that they had the actual adjusted betas in the record for that test period.

[01:46:11] Speaker 04:
And under those circumstances, the commission decided that it

[01:46:15] Speaker 04:
that it was better to use the matching betas when it had the information available to it.

[01:46:21] Speaker 04:
And that's the issue here is that the information was just not available to the commission.

[01:46:27] Speaker 04:
And it made a choice to use the imperfect match, finding that that was better than the alternative.

[01:46:39] Speaker 09:
Ms.

[01:46:39] Speaker 09:
Perry, FERC's model

[01:46:44] Speaker 09:
with the three different types of methods is new.

[01:46:51] Speaker 09:
If it's the right model, what does that say about all of the existing rates outside of the MISO territory?

[01:47:06] Speaker 09:
Are they also based on

[01:47:10] Speaker 09:
the old methodology where I think it was mainly discounted cash flow.

[01:47:14] Speaker 09:
And I guess I guess I'm just wondering, like, how much of what happened here affects the rest of the country?

[01:47:25] Speaker 04:
Well, it will certainly affect new calculations, returns on equity, particularly in this kind of situation where you're dealing with a region wide return on equity.

[01:47:39] Speaker 04:
would certainly affect ones going forward.

[01:47:41] Speaker 04:
And parties would be free to file complaints based on existing returns on equity if they felt they were not just reasonable, but it would not have any immediate effect on any of the improved returns.

[01:47:59] Speaker 09:
And maybe this is too far astray from the merits of this case, which are complex enough, but what are the chances that

[01:48:09] Speaker 09:
that all of the rates outside of MISO, or a lot of the rates outside of MISO, are unjust and unreasonable from a 206B perspective because they're based on the old methodology.

[01:48:24] Speaker 04:
I don't know the answer to that, Your Honor.

[01:48:26] Speaker 04:
It's not the case, though, that there have never been changes in the methodology.

[01:48:31] Speaker 04:
one of the issues that was not put up for argument today, but is the change that the commission made in its discounted cashflow methodology.

[01:48:41] Speaker 04:
And so the discounted cashflow methodology itself changes.

[01:48:45] Speaker 04:
And so it's not the case that everything had been static up until this point, and there were suddenly changes.

[01:48:52] Speaker 04:
There have been variations in methodology throughout.

[01:48:59] Speaker 09:
I appreciate that.

[01:49:01] Speaker 09:
I have one hypothetical that probably ties more to the first discussion we were all having than this current discussion, but the discussion of the risk premium model made me think of it.

[01:49:15] Speaker 09:
So imagine a 206B complaint is brought in 2017 and in 2020,

[01:49:27] Speaker 09:
an order goes out using the methodology that you used here, a combination of the discounted cashflow, the capital asset pricing, and the risk premium model.

[01:49:39] Speaker 09:
And that gets challenged.

[01:49:41] Speaker 09:
And we say, we think the risk premium model was not sufficiently explained.

[01:49:48] Speaker 09:
And so we remand.

[01:49:52] Speaker 09:
And then FERC says, well,

[01:49:54] Speaker 09:
while we're on remand, we're gonna just completely redo the whole model.

[01:50:00] Speaker 09:
We're gonna use totally different things.

[01:50:03] Speaker 09:
We're not gonna do capital asset pricing.

[01:50:05] Speaker 09:
We're gonna do some fourths or fifths or sixths.

[01:50:10] Speaker 09:
If it does that, can it order refunds going back to the 2020 order?

[01:50:24] Speaker 09:
that did like this order, just counted cash flow, capital asset pricing and risk premium model and whose only flaw was that the risk premium model was not sufficiently explored.

[01:50:38] Speaker 04:
This goes back again, your honor, to the commission's ability to correct its legal errors and to the extent its application of methodology was a legal error, it should have the ability to

[01:50:51] Speaker 04:
place parties in the position.

[01:50:55] Speaker 09:
But in my hypothetical, the only legal error that this court is declaring is that the risk premium model is insufficiently explained.

[01:51:04] Speaker 09:
And yet, then on remand, FERC not only fixes that error, but it completely redos all of the other aspects of its model.

[01:51:16] Speaker 09:
And I think you're saying in that situation, FERC could order a refund going back to

[01:51:21] Speaker 09:
2020, is that right?

[01:51:24] Speaker 04:
Because the legal error ultimately is fixing a rate that is not shown to be just and reasonable.

[01:51:31] Speaker 04:
And when the commission fixes the just and reasonable rate that should have been fixed had it applied a correct methodology at the time, then that would be correction of legal error.

[01:51:45] Speaker 04:
And the commission that should be within the commission's remedial discretion to fix that.

[01:51:51] Speaker 08:
Okay, thanks.

[01:51:53] Speaker 08:
Which is the same theory they're asserting here for 2016.

[01:52:03] Speaker 06:
Unless you have a response to that, Ms.

[01:52:06] Speaker 06:
Perry, let me make sure that my colleagues don't have additional questions for you.

[01:52:10] Speaker 09:
Is that right, Ms.

[01:52:11] Speaker 09:
Perry, that in my hypothetical, the air is

[01:52:17] Speaker 09:
of a similar magnitude to the error that FERC was correcting with its 2016 error?

[01:52:26] Speaker 04:
I don't agree, Your Honor, that it's of a similar magnitude in the sense of, again, I would go back to the commission felt that it was specifically addressing the criticisms in AmeriMain with its treatment of these other methodologies, of its alternative methodologies in these orders.

[01:52:45] Speaker 04:
It's not

[01:52:47] Speaker 04:
that it went out and found entirely new mechanisms of calculating the return on equity viewed itself as directly addressing the concerns that Ameramain had expressed.

[01:53:01] Speaker 04:
So I wouldn't say this is the same magnitude as your hypothetical.

[01:53:07] Speaker 08:
But if we were to set aside the

[01:53:12] Speaker 08:
rates here because the risk premium model was insufficiently explained, you would have a range of options on remand ranging from trying to shore up that explanation and maintaining the exact approach you're using to a complete overhaul.

[01:53:33] Speaker 04:
Yes, Ronner, but that is common in remands that the court finds error in remands the case without directing the commission to come up with a specific result on remand.

[01:53:48] Speaker 08:
It is, but it tends to suggest that what happens on remand might or might not be fairly characterized as simply correcting legal error.

[01:54:01] Speaker 09:
I'm sorry I interrupted you, Judge Walker.

[01:54:03] Speaker 09:
No, that's great.

[01:54:05] Speaker 09:
I'm curious to hear Ms.

[01:54:07] Speaker 09:
Perry's response to that.

[01:54:08] Speaker 09:
And Ms.

[01:54:08] Speaker 09:
Perry, I think I'm asking you, even if it doesn't sound like it, somewhat friendly questions.

[01:54:15] Speaker 09:
But can you answer Judge Katz's?

[01:54:17] Speaker 09:
I know what Ferg's answer is to that.

[01:54:23] Speaker 04:
I apologize, but I have entirely forgot.

[01:54:27] Speaker 04:
Could you ask your question again, please?

[01:54:31] Speaker 09:
That's you Judge Casas.

[01:54:33] Speaker 09:
What's that?

[01:54:34] Speaker 04:
I think.

[01:54:35] Speaker 04:
I'm sorry Judge Casas, I entirely forgot your question in between though.

[01:54:41] Speaker 08:
I was just making the point that you have a lot of, if hypothetically we were to set aside this order on the ground that the risk premium component was inadequately explained,

[01:55:00] Speaker 08:
You would have a range of options.

[01:55:05] Speaker 08:
You're absolutely right.

[01:55:07] Speaker 08:
You could pick on remand whether you try to do something very narrow on response or in response or try to do something very aggressive.

[01:55:17] Speaker 08:
And the one might look like merely correcting legal error.

[01:55:22] Speaker 08:
If you were to redesign, that would look to me like you're doing something more than that.

[01:55:32] Speaker 08:
I mean, we've talked about this.

[01:55:35] Speaker 09:
But that would affect whether you can do a refund going back or not.

[01:55:39] Speaker 09:
Yes.

[01:55:41] Speaker 09:
I think it's a really good opportunity for you and FERC to explain what happened in this case with the fixing of the 2016 order was not

[01:55:59] Speaker 09:
fixing one small legal error and aggressively doing a bunch of other stuff while you have the opportunity, but was instead fixing the 2016 legal error, nothing more, nothing less, which makes a refund sound a lot more reasonable, especially in light of our precedence along those lines.

[01:56:21] Speaker 09:
So can you say why what you did in 2016 was nothing more, nothing less than correcting legal error?

[01:56:29] Speaker 04:
Again, your honor, this is exactly what the Commission said that its methodology was the methodology being implied here was specifically in response to a mirror main the briefing order and.

[01:56:46] Speaker 04:
Paragraphs 10 and Paragraph 16, the commission said, we are proposing this specifically response to the issues remanded in a Mayor-Main.

[01:56:57] Speaker 04:
The reliance on the four models, specifically.

[01:57:02] Speaker 06:
It sounds like the limiting principle.

[01:57:03] Speaker 06:
So I think the way this plays out in my mind, at least, and I think it's commensurate with the way that my colleagues are thinking about it is, if you think that there's some distinction between correcting a legal error

[01:57:15] Speaker 06:
and then doing other things that go beyond what you need to do to correct the legal error, then how do you draw that line?

[01:57:23] Speaker 06:
And it sounds to me that what you're saying is as long as the commission in its recitation of what it's doing tethers it to the correction of the legal error and says, this is all part and parcel of responding to the legal error that's been identified to us, then we defer to that.

[01:57:42] Speaker 06:
But then on some of the hypothetical hypotheticals you've gotten from Judge Walker and Judge Katz's.

[01:57:48] Speaker 06:
I mean you could imagine it and envision imagine a commission that would say we're going to collect the correct the legal error.

[01:57:54] Speaker 06:
And then we're just going to tell you we're going to go on doing a bunch of other stuff that has nothing to do with the legal error, but we're going to do it anyways because we now have an occasion to revisit what we did the first time that it sounds like.

[01:58:05] Speaker 06:
even you would say that falls outside the 309 authority.

[01:58:09] Speaker 06:
But then it sounds like what you're saying is what always falls within the 309 authority is anytime the commission professes to be tethering its remedy to the legal error that was identified and that caused the commission to act.

[01:58:25] Speaker 04:
And it depends on if you're defining what the legal error was.

[01:58:32] Speaker 04:
Here, the legal error was

[01:58:35] Speaker 04:
the applying incorrect methodology to reach a just and reasonable rate.

[01:58:40] Speaker 06:
But that's a thing at a very high level of generality because I mean, you're right.

[01:58:45] Speaker 06:
It's hard to quibble with what you've said.

[01:58:47] Speaker 06:
It was the methodology that led to the rate, but it was some particular things about the methodology that were identified as being problematic vis-a-vis 531 that also carried over to 551.

[01:59:02] Speaker 04:
Yes, runner, but these, and that is what I was trying to explain the commission viewed itself as addressing those specific criticism specifically the American criticism of the commission using these alternative models, just to

[01:59:18] Speaker 04:
vary the discounted cash flow result without using those alternative models to support the return on equity that it ultimately selected.

[01:59:27] Speaker 04:
That's a very specific criticism from a mayor of Maine.

[01:59:31] Speaker 04:
And the commission was trying to address that very specific criticism in this case by using the alternative models, not just to vary the discounted cash flow result, but to support the ultimate just and reasonable return on equity that it selected.

[01:59:51] Speaker 06:
Okay, unless my colleagues have additional questions for you, Ms.

[01:59:56] Speaker 06:
Perry.

[01:59:57] Speaker 06:
Thank you, Mr. Popper.

[01:59:58] Speaker 06:
I think you had six minutes left in your argument.

[02:00:03] Speaker 02:
Your honor, I apologize.

[02:00:04] Speaker 02:
I'm also here to support for on.

[02:00:07] Speaker 02:
Oh, I'm sorry.

[02:00:08] Speaker 02:
I'm sorry.

[02:00:09] Speaker 06:
Yep.

[02:00:09] Speaker 06:
I completely overlooked you.

[02:00:10] Speaker 06:
Sorry, Mr. Bennett.

[02:00:12] Speaker 06:
You're you're up again.

[02:00:13] Speaker 02:
Thank you, your honor.

[02:00:15] Speaker 02:
And may it please the court.

[02:00:17] Speaker 02:
Yes, we've also intervened in this case on behalf of FERC on certain limited issues.

[02:00:23] Speaker 02:
We did not brief the methodology issues either in support of FERC or taking issue with what FERC did.

[02:00:29] Speaker 02:
So I really would not be addressing those issues.

[02:00:33] Speaker 02:
Really what we're concerned about is the refunds.

[02:00:35] Speaker 02:
And it's really, as Judge Katz has pointed out, it's two sides of the same coin.

[02:00:41] Speaker 02:
You know, in this case, FERC ultimately addressed our concern on the back end, and we think it should have been addressed on the front end.

[02:00:49] Speaker 02:
But that being said, I do appreciate Judge Katz's asking the flip side question to Mr. Wolfe, because I think it's an important one.

[02:00:57] Speaker 02:
But what I think is even more important is that in this proceeding, what the customers are asking for is pretty extreme relief.

[02:01:08] Speaker 02:
They've posited in their briefs,

[02:01:11] Speaker 02:
give you a couple of examples, page 11 of their initial brief and page 16 of their reply brief that they believe this court should interpret the Federal Power Act to allow that a customer can lose on a complaint proceeding on the merits, but yet still obtain the remedy that they sought for that complaint.

[02:01:30] Speaker 02:
And they do that by twisting the words any proceeding to this expansive meaning far beyond that which could conceivably been Congress's intent.

[02:01:41] Speaker 02:
I mean, that interpretation defies both the language of the statute and the logic.

[02:01:46] Speaker 02:
I think it's important to emphasize that by receiving 15 months worth of refunds,

[02:01:54] Speaker 02:
In the first complaint case for the 12.38% base RRE that was determined to be unjust and unreasonable, they received all the relief that they were entitled to under the statute.

[02:02:05] Speaker 02:
And the reason that is, is that the refund authority in section 206B is premised on the setting of a new rate, which happens under section 206A.

[02:02:16] Speaker 02:
Under section 206A, FERC must find a rate unjust and unreasonable,

[02:02:20] Speaker 02:
and then determine the just and reasonable rate to be thereafter observed and enforced, and then shall fix the same by order.

[02:02:28] Speaker 02:
Only once FERC has completed these steps can it even consider refunds.

[02:02:32] Speaker 02:
While Mr. Wolf indicated that FERC has discretion, it may grant refunds.

[02:02:36] Speaker 02:
It can't grant refunds beyond what that statute contemplates.

[02:02:42] Speaker 02:
So FERC can only grant refunds in a proceeding where it has actually ordered a new rate to be thereafter observed and enforced.

[02:02:50] Speaker 02:
FERC didn't do that in the second complaint proceeding because it dismissed the complaint.

[02:02:53] Speaker 02:
There can be no other interpretation than that.

[02:02:56] Speaker 02:
FERC made the determination that the miso transmission owner's base return on equity was unjust and unreasonable in response to the first complaint.

[02:03:05] Speaker 02:
Once they made that determination, that's it.

[02:03:08] Speaker 02:
The rate has been declared unjust and unreasonable and Section 206A then starts the process by requiring FERC

[02:03:14] Speaker 02:
to fix a new just and reasonable going forward rate and based on that rate FERC can grant refunds, but it can only grant refunds for 15 months.

[02:03:24] Speaker 02:
It can't take the 12.38% base RRW that is just declared to be unjust and unreasonable and then turn around and re-declare that rate that is no longer

[02:03:35] Speaker 02:
in effect because they declared it unjust and reasonable, unjust and reasonable a second time, and then turn around and use that as the basis for granting refunds in a second complaint proceeding.

[02:03:47] Speaker 02:
Now, turning to Mr. Wolf's concern about the length of time that these proceedings take and that Congress surely never intended five years of no refund protection.

[02:03:59] Speaker 02:
You know, I can sympathize with Mr. Wolf and his clients

[02:04:04] Speaker 02:
that this proceeding has taken a very long time to conclude.

[02:04:07] Speaker 02:
And if you look at the amicus brief, the timeline in that brief, New England's been facing this even longer than we have.

[02:04:16] Speaker 02:
But Congress made a deliberate choice to provide some refunds, but yet to insulate utilities from never ending refunds.

[02:04:26] Speaker 02:
And Congress also included a safety valve in section 206B.

[02:04:31] Speaker 02:
If the delay is caused by the utility,

[02:04:34] Speaker 02:
The customers are entitled to refunds for as long as the proceeding goes on.

[02:04:38] Speaker 02:
That didn't happen here.

[02:04:40] Speaker 02:
So Congress was aware that proceeding can take longer than 15 months.

[02:04:44] Speaker 02:
In fact, Mr. Wolf said that Congress thought about two years.

[02:04:48] Speaker 02:
And that's true.

[02:04:50] Speaker 02:
But Congress initially considered open-ended refunds.

[02:04:54] Speaker 02:
The House bill actually would allow for unlimited refunds.

[02:04:58] Speaker 02:
The Senate rained that into 15 months and then put in what I called the safety valve in the event that the utility is the reason why the case has been delayed.

[02:05:08] Speaker 02:
So Congress contemplated all of these issues and struck a balance.

[02:05:12] Speaker 02:
And what the customers are asking this court to do is upend that balance.

[02:05:19] Speaker 06:
Thank you, Mr. Bennett.

[02:05:20] Speaker 06:
Let me make sure my colleagues don't have questions for you at this time.

[02:05:24] Speaker 06:
Thank you.

[02:05:25] Speaker 06:
Now, I believe, Mr. Pomper, you had six minutes left.

[02:05:29] Speaker 01:
Thank you, Your Honor.

[02:05:30] Speaker 01:
I'll let you address the risk premium and the beta issues a bit, but I have to start by saying I'm a little bit nervous about doing that because under the owner's position, if I persuade you that FERC was arbitrarily and capricious in its methodology and that resulted in the rate being set too high, I'm actually worse off because the

[02:05:52] Speaker 01:
I can't get the reduction below 1238 until for deals with the remand.

[02:05:57] Speaker 01:
That's the logic of their position.

[02:06:00] Speaker 01:
It's pretty convoluted, but that's how you get there.

[02:06:03] Speaker 01:
So I don't know if I wanna win given that construct.

[02:06:06] Speaker 01:
However, I'll assume that that's not gonna be appellate as the law and proceed to argue why there are arbitrary.

[02:06:13] Speaker 06:
What would be, I mean, if you do win, what would be the rate that's in place while things get worked out by the commission on remand?

[02:06:22] Speaker 01:
Well, there's two issues about what is actually charged on a day-to-day basis in the interim, and then what can the remedy ultimately be?

[02:06:30] Speaker 01:
This issue arose in the New England case as the interim rate.

[02:06:33] Speaker 01:
And what FERC did there is they have left in place the same 10.57 rate that was at issue in Emerimaine, but they've said once we finally resolve the issues on remand, which they haven't done yet, we can either surcharge or refund to get the results to what it should have been.

[02:06:50] Speaker 06:
So as long as it all gets reconciled at the end of the day, I take it that everybody's okay.

[02:06:57] Speaker 01:
I was also involved representing clients in the New England case.

[02:07:00] Speaker 01:
We were okay with it there.

[02:07:02] Speaker 01:
So that's where things set at the New England context.

[02:07:06] Speaker 01:
And here, likewise, FERC had on rehearing issues very similar to the methodology issues you're seeing now on a rehearing of opinion 551.

[02:07:18] Speaker 01:
And then whenever a main came out they said you know what these there's something to these hearings, we have to reconsider the methodology, and they, they wound up with the revised methodology that they have done here but it was within the scope of what had been litigated earlier.

[02:07:34] Speaker 01:
We think there still are arbitrariness issues in what they've done.

[02:07:38] Speaker 01:
I'll get to those.

[02:07:39] Speaker 01:
But I think FERC has to have the ability to correct its errors and not just legal errors on remand, but under the rehearing provisions of the statute, section 313, the statute is explicit that FERC on rehearing can correct any component of its orders that it finds should be corrected.

[02:07:57] Speaker 01:
So they can retain the effective date and change the number, which is what they did.

[02:08:04] Speaker 01:
On the details of the methodology, the risk premium methodology that was referenced to Dr. Moran, first of all, I should note that Dr. Moran is an expert witness for utilities.

[02:08:14] Speaker 01:
He's not exactly an academic source, but he's treated as such by FERC.

[02:08:20] Speaker 01:
He does not recommend or support in any way the use of the intensely circular risk premium methodology that FERC used here.

[02:08:30] Speaker 01:
There are risk premium methodologies in state commissions where the commission looks at all state commission orders across the country.

[02:08:37] Speaker 01:
And so it's not just looking at its own orders, which is what FERC did here.

[02:08:42] Speaker 01:
And what that did, among other things, FERC settlements, in the cases that were included in the risk premium data set,

[02:08:52] Speaker 01:
bake in the errors that M Remain found arbitrary and capricious.

[02:08:57] Speaker 01:
Because when utilities and customers resettlement, of course they're not just looking at cost, they're looking at what would FERC do?

[02:09:04] Speaker 01:
And at the time they reached these settlements, they had to say, well, FERC will probably set the rate at the top quarter of the DCF results.

[02:09:11] Speaker 01:
Even though that was later found to be arbitrary and capricious, that's in the numbers that feed into the rich premium data set here.

[02:09:17] Speaker 01:
That's part of the problem with the circularity.

[02:09:20] Speaker 01:
And that, in combination with the bond yield anomalies of the Great Recession and its aftermath, mean that in that study, it's supposed that ROEs stay exactly the same, no matter what.

[02:09:33] Speaker 01:
We're very close to the same, no matter what happens to the bond yield.

[02:09:38] Speaker 01:
So there's no market input that acts as a circuit breaker and brings things back to the cause of equity.

[02:09:42] Speaker 01:
It's just a hall of mirrors about what the Commission would do, including its errors.

[02:09:47] Speaker 09:
Mr. Popper.

[02:09:49] Speaker 09:
Mr. Pomper, if I asked Ms.

[02:09:51] Speaker 09:
Perryman why FERC in 569A changed its mind about the risk premium modeling, I'm sure she would say they did it on the merits, they realized the errors of their way, they explained it sufficiently, et cetera, et cetera.

[02:10:11] Speaker 09:
Why do you think FERC adopted the risk premium modeling in 569A?

[02:10:20] Speaker 01:
Well, I mean, I don't want to speculate as the motives Commissioner Glick has has done that has spoken to motives and gives the sense that he's level the pretty forcefully stated charge that the commission was trying to back into a number.

[02:10:32] Speaker 01:
And it's interesting that they got to a number just over 10%.

[02:10:36] Speaker 01:
But, you know, I don't know I'm not I'm not previous to those discussions at all.

[02:10:44] Speaker 01:
on the beta issue.

[02:10:47] Speaker 01:
It's important to understand what beta is.

[02:10:48] Speaker 01:
It's a measure of the relative volatility of one stock against a broad market portfolio.

[02:10:55] Speaker 01:
And so it just naturally follows that if you look at a beta based on the New York Stock Exchange,

[02:11:02] Speaker 01:
The New York Stock Exchange being much more larger and more diverse is not as volatile as the S&P 500.

[02:11:08] Speaker 06:
What about the point that the commission makes that the data just wasn't available?

[02:11:16] Speaker 01:
Well, the inference is certainly permitted.

[02:11:20] Speaker 01:
There's substantial evidence based on what Louisiana put in about the 2019 data that there is a material difference when you do the beta based on one data set versus the other.

[02:11:30] Speaker 01:
And I think the commission could have made an inference that that would also be the case in the 2015 data.

[02:11:36] Speaker 01:
Now it is true that because the commission had said you need to use the value on betas, the study period data for the baseline value line was not put in because we were following FERC's instructions.

[02:11:50] Speaker 01:
But they could have reopened the record for that.

[02:11:52] Speaker 01:
They could do that on remap.

[02:11:53] Speaker 01:
or they can make a judgmental inference from the 2019 data.

[02:11:57] Speaker 01:
But it does logically follow that when you compare it to a more broadly based index, your relative volatility of utilities is lower when you compare it to the S&P 500, that would have been consistent with what they did on the growth rate.

[02:12:16] Speaker 01:
And let's take it back again to that growth rate that they use is just way higher than

[02:12:23] Speaker 01:
anybody else uses.

[02:12:24] Speaker 01:
And I think, frankly, I think any investor, and judges are investors too, you have to ask yourself, would I be happy knowing that I'd be earning 12% on an index fund forever?

[02:12:39] Speaker 01:
You'd be very happy.

[02:12:40] Speaker 01:
That's not what has happened historically.

[02:12:41] Speaker 01:
That's not what anybody expects to happen prospectually.

[02:12:44] Speaker 01:
It's just FERC's

[02:12:45] Speaker 01:
a unique methodology here, where they only look at the short term and assume that continues forever, even though they said that's inappropriate, that's how they get to such a high number.

[02:12:53] Speaker 01:
And that's the tent pole of the capital asset pricing model.

[02:12:57] Speaker 01:
You're basically going to get to a result very close to whatever you assume the markets can return, and they've got an unrealistically high number.

[02:13:03] Speaker 01:
That has not been explained.

[02:13:05] Speaker 01:
Of course, I'm not asking you to reverse them because they got to the wrong numbers.

[02:13:08] Speaker 01:
The question of was the methodology arbitrary and coefficient were radically explained, and here it was arbitrary.

[02:13:15] Speaker 06:
Thank you.

[02:13:15] Speaker 06:
Let me make sure my colleagues don't have additional questions for you, Mr. Pomper.

[02:13:20] Speaker 06:
Thank you.

[02:13:20] Speaker 06:
Thank you, counsel.

[02:13:23] Speaker 06:
And thank you to all counsel for your arguments this morning and stretching into this afternoon.

[02:13:27] Speaker 06:
We'll take this case under submission.