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Case number 20-1156, Public Citizen, Inc.

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versus the Federal Energy Regulatory Commission.

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Mr. Nelson for petitioner, Ms.

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Perry for respondent, and Mr. Bress for interveners.

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Morning.

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Good morning, your honor, and may it please the court.

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I'm Scott Nelson, representing the petitioner public citizen.

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I've asked to reserve three minutes for rebuttal.

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In this case, the Federal Energy Regulatory Commission rejected complaints that the results of the Mid-Continent Independent System Operators 2015 to 16 Planning Resource Auction for Mid-Continent Zone 4 were unjust and unreasonable.

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because they reflected an exercise of market power by Dynegy, a pivotal supplier for the zone.

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Dynegy's capacity was necessary to meet the zone's local clearing requirement.

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So the auction clearing price could be no lower than its bid of the last increment of capacity needed.

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And that is what happened.

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Dynagy's bid of $150 per megawatt day for the last block of its capacity that was needed to satisfy the local clearing requirement established the auction clearing price and raised capacity prices by over 800% over the previous year.

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The commission's rejection of the complaint that that rate was unjust and unreasonable in violation of the commands of sections 205 and 206 of the Federal Power Act rested exclusively on its conclusion that the auction was held in compliance with the existing terms of mid-continence tariff.

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In this court, both FERC and intervenor Vistra, Dynagy's successor in interest,

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concede that that is not a sufficient answer under Section 206.

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The prior approval by the commission of an auction procedure does not render the results of an auction just and reasonable or preclude a challenge under Section 206.

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Here, that concession alone requires remand.

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Under the Channery principle, FERC's and VISTA's attempts to devise alternative rationales for FERC's decision can't save the Commission's ruling, given that its stated basis is indefensible by their own admission.

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Council's arguments also can't save the commission's rejection of public citizens complaint of manipulation by Dynagy because that decision lacks any rationale at all.

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It rested on a completely unexplained finding that Dynagy's conduct did not amount to manipulation under the commission's rules.

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Again, Mr. Go ahead.

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FERC's response to your, as I understand it, to your market manipulation argument is that market manipulation issues are handled under 306 and that under 306 it did an investigation and concluded there was no evidence of market manipulation and there's no private right of action on that.

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That's your response to your market manipulation and and it's that's not post hoc that's they make that argument in the order deny rehearing.

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So what's your response to that?

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Well, I would say that the way FERC argues that in its brief is post hoc, because what the commission said in its rehearing order was that we were not, in fact, improperly invoking a private right of action.

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and it acknowledged that market manipulation may be raised in a complaint.

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Now, FERC did in its order refer to- Sorry, Mr. Nelson, I didn't understand what you just said.

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FERC says both in the order of denying the hearing and in its brief here, correct me if you think I'm wrong, but as I understand the commission's position, it is a

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market manipulation complaints under 222 are different from 205 and 206, 205 proceedings and that you raise a market manipulation claim under 306 and that it treated it that way.

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Even though you in your petition raised it under 206, the FERC said those are properly raised under 306

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it conducted its investigation and then closed it.

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And it said market manipulation proceedings are different from 205 and 206, they're just totally different animals.

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Isn't that their position in both places?

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Your Honor, I agree that they did say in both places that manipulation is different and it's procedurally not heard under Section 206.

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Do you agree with that by the way?

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Do you accept that?

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I would say that Commissioner Glick's position that market manipulation can be relevant in a 206 complaint is actually the correct one.

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You said it can be relevant?

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Yes, because a rate that is the result of market manipulation in the form of an exercise of market power is not just and reasonable under the commission's own concept of what constitutes a just and reasonable rate.

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But further, what I would say is as to the commission's rationale in its orders, it acknowledged that in raising the issue of manipulation in a complaint,

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We weren't guilty of trying to improperly invoke a private right of action, because the Commission acknowledges that an administrative complaint is not a private right of action within the meaning of Section 222's prohibition on a private right of action.

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And having allowed a party to raise the matter by complaint, regardless of whether it's a complaint under 306 or 206, the commission, once it entertains the complaint and purports to terminate it on the basis not of an exercise of prosecutorial discretion, but an actual finding that under its rules, no manipulation occurred

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You know, once it once it has ruled on the merits, it's incumbent on it to provide an explanation, rather than a mere ipsy dixy, which is what it did here I mean it said we investigated fine.

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And we found no manipulation.

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why they found no manipulation, what it was about the conduct that led it to the conclusion that it was not manipulative, why the claims of manipulation that had been made by the parties were improper.

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Okay, but if this had been just a straight 306 proceeding, there wouldn't have been anything wrong with that, correct?

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No, I'm not sure I would agree with that, Your Honor.

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If the commission had said in response to such a complaint, we've investigated and in the exercise of our discretion, we don't feel that it's appropriate to devote any further resources to this matter.

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I think that would have been the end of it had it not been linked to a challenge to the rates.

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That's what I meant.

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So your point is that because this is connected to a 206 complaint, it's different.

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That's your argument, right?

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That's part of it.

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And it's also that instead of exercising discretion, they made an express finding

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that the complaint was unfounded and that there was no manipulation.

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And that is not an exercise of discretion.

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But in the words of this court in the Southern Union gas case, that's a summary adjudication of the merits.

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And that cannot be done based merely on an unexplained and unreasoned assertion.

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As to the- Can I ask in this regard, one thing that's confusing to me is market manipulation is a pretty, it's defined as to what it is and it's a pretty serious form of behavior.

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But for 206, if you show market power affected the auction,

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That's enough, or that can be.

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Is it your view that, well, market manipulation by definition may also include market power, but to demonstrate market power, you don't have to go all the way to showing market manipulation, do you?

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That's correct.

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And again, the commission acknowledged that in its re-hearing order.

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And that's why, I mean, as you probably noted, my opening argument in the brief is about sections 205 and 206.

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That's what I'm trying to understand, though, when you say what the fight is about the market manipulation, is that you think the

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what you call conclusion, what they say is exercise of discretion, that whatever information they accumulated through that investigatory process should be part of their 206 decision as well.

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Is that your point?

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I think they made a substantive decision.

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That's something that we just get to challenge directly under.

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I think it's the former, Your Honor, that

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You know, again, we don't have to prevail on that to establish that the rates here were the result of market power based on the fact that the way the auction was set up allowed Dynagy to exercise market power

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But, you know, the finding, if there's a determination as to whether it was a deliberately manipulated bidding strategy, that would certainly, I think, also inform the determination.

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I mean, I should think if they found that there was market manipulation, they would be hard pressed to not find.

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Exactly.

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Market power in 2006, but it doesn't work the other way.

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Exactly.

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There's going to be no market manipulation.

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I'm not sure what that has to do with your 206 claim, other than you can still prevail by showing market powers.

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I'm not understanding in your response to Judge Tatel what the bridge is that you're trying to argue here between their sort of conclusory statement as to why they weren't going to investigate further.

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They find a violation and the 206 process.

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Well, I think it's the way you put it at the outset, that although it isn't necessary to find manipulation in order to find the rates unjust and unreasonable, if there were a finding of manipulation, it would ice the map.

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No, I get that if there were, but if there's not, we're in a case where there was not a finding.

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So what barrier does that have on your 206 claim?

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There's not a finding, but the finding that there was no market manipulation is not sustainable because it's unreasoned.

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In your view, they made that determination.

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Yes, they made the determination.

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So now what happens, and is your argument about that's unsubstantiated, is that just a direct challenge under market manipulation provision, or is that something you're now importing into your 206 analysis?

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I'm just not even sure where this analysis that you want us to undertake is supposed to happen.

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It is that if the, if the agency is forced to actually make a reason determination on that matter, uh, it was.

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Our 206 analysis.

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Yes.

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Um, although again, as, as you can doubt, it's not, it's not essential, uh, because the 206 analysis on the space is entirely deficient.

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Um, you know, and conceitedly.

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So.

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I'm sorry to interrupt.

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Just on the 222, you do, I thought, argue that once the commission articulates a finding on the merits, that the sufficiency of that is irreviewable for the adequacy of the articulation or not.

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I mean, in this court, you're not claiming anything directly under 222, or are you?

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I think it's the latter.

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It's before the court because the two proceedings are related and linked.

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If it were just a matter of a 222 complaint without any relationship to the lawfulness of a rate, I don't think we'd be here on it.

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And then how about 205 and 206?

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I mean, I understand the action in your case.

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to be under 206, because as intervener and amicus have argued, the rate here for purposes of 205 and pre-implementation review is the tariff, not the price resulting from the auction.

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So if we were to agree with that, and you can tell me why you think we shouldn't, but if we agree with that, what we're really looking at is public citizens

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complained under 206 that the resulting

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Well, you can tell me what the target of it is, but I take it to be that there was an exercise of market power.

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There was a finding by FERC that the tariff going forward was not just unreasonable and that there was a spike in rates and that those things together demonstrated that the tariff was not adequately

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fulfilling its role.

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Is that your?

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Yeah, I think that captures the 206 aspect of it pretty well.

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The piece that I would add is that the commission's reasoning in 2015 in finding the tariff inadequate going forward as to the local clearing requirement was based entirely on

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on factors that were equally applicable at the time of the 2015 to 16 option and absent that aspect of the tariff that required

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several thousand additional megawatt days to be acquired locally, Dynegy would not have been in a position to be the pivotal supplier.

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And second, as to the conduct threshold that the commission uses to determine whether a rate resulting from the auction

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requires mitigation, the bulk of the commission's reasoning and finding the tariff unreasonable going forward was also equally applicable in 2015 to 16 because it was based on evidence that during the period 2013 to 2015,

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There really were constraints on transmission into PJM that rendered the opportunity cost of selling into PJM an improper measure of whether a rate was reasonable.

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So those things together are the 206 analysis.

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What I would say on 205 is where we differ, I think principally with the commission and VISTA given the existing state of the law is that although courts have accepted this idea, the fiction really that tariff is the filed rate,

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Even in so doing, and this is most evident in the Ninth Circuit's decision in Harris, the courts have still insisted that the commission's role under 205 is not complete unless and until it reviews the resulting rates under 205.

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As part of the quarterly reporting, not as a pre-, not as a,

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review before those prices can be effective.

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I think that that's right the way the Ninth Circuit and this court have looked at it.

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And so therefore the difference really comes down to burden of proof as opposed to time with the burden of proof being on the proponent under 205 and on the complainant under 206.

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But again, here, that really doesn't make any difference because the commission's rationale

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for rejecting the complaint under 206 is just wrong as a matter of law because it rests exclusively on the proposition that the rates were just and reasonable because they were the result of an auction carried out in accordance with the terms of the tariff.

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without regard to whether the terms of the tariff remain just and reasonable at that time, or whether the resulting rates reflected an exercise of market power that the tariff's terms were inadequate to prevent.

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Why isn't it all, I mean, I take them also to be saying that could be wrong as a matter of law where there is, where you've met your burden, where there is reason to think

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that the tariff didn't do its job.

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And so I guess my question for you is, to the extent that even to put before us what might otherwise be the harmless error of simply citing to the price being a result of the tariff,

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What have you done to put that in issue?

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In other words, what's your sort of ticking off the items, how you met your burden of proof under 206?

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Well, I mean, first I would say that the commission itself did not say anyone failed to carry their burden under 206.

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If you look at the relevant portions, the ordering portions of both the initial order and the rehearing order,

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the words burden of proof don't appear, nor did the commission find, as its briefs and vistas suggest, that the rate here was cost justified, that it was not the result of an exercise of market power, that it was reasonable in relation to rates elsewhere, or that it wasn't because Dynagy was a pivotal supplier.

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But I think what we and the other complainants collectively established to carry our burden was that Dynagy was a pivotal supplier.

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In other words, it had market power.

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That the rate here, but for its market power, would not have been anywhere near $150 per megawatt day.

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And that

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there were features of the tariff that resulted in dynagies being able to exercise that, that the commission itself held were unjust and unreasonable for reasons equally applicable in the 2015 to 16 election.

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And that is the local

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local clearing requirement and the conduct threshold initial reference level.

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Unless the court.

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Yeah, well, we'll hear from the commission now.

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Thank you.

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Thank you.

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Good morning, your honors.

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Lona Perry for the commission.

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It is not the case, as Mr. Nelson just stated, that the commission did not make a finding that they failed to meet their burden under 206 to show that there was an exercise of market power in the auction and that resulted in adjusted and reasonable rates.

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I would direct your attention to paragraph 14 of the rehearing order where the commission specifically said

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public citizen has not met its burden as a complaint to demonstrate that activity meeting that definition of market manipulation occurred and resulted in rates that are unjust and unreasonable.

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And similarly in- Can I back you up there and ask the same thing, that seems to turn on market manipulation as opposed to market power.

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Does the commission understand market manipulation and use of market power under 206 to be different things?

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An exercise of market power could include market manipulation.

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I understand that market manipulation is hard to imagine how you don't have market power, but I'm asking the other one.

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So all they found here was burden of proof on market manipulation.

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And for 206 purposes, I thought we were talking about their burden of proof

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that market power infected the auction in a way that caused the race not to be just reasonable.

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Yes, Your Honor.

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Market power is different.

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I mean, the Venn diagrams certainly overlap in parts, but there are forms of market power that fall short of the very high standard of showing market manipulation.

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Is that correct?

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Certainly, your honor, and in paragraph 15 of the rehearing order, the commission recognized that there was a distinct question of whether an exercise of market power in the auction resulted in unjust and unreasonable rates.

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And where the commission addressed the burden of proof under 206 as to market power,

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The commission noted that the arguments that public citizen made with respect to showing that there had been unjust and unreasonable rates were the rates were too high.

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And the commission had made in December of 2015 perspective changes to the market mitigation measures in the tariff.

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And the commission answered both of those in the complaint order in paragraph 84.

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The commission.

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Sorry.

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You're, you're in the initial decision now in the initial decision your honor yes paragraph 84 is page 105 of your joint appendix.

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The commission found specifically, they denied the complaint allegations.

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finding specifically that the auction clearing price is not shown to be unjust and unreasonable because it is higher than expected.

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And that is where they cite.

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But I'm sorry, go ahead, finish your sentence, I apologize.

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Well, because the argument that was made, if you look in particular at what in their hearing request, the argument that was made was The 800% argument.

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This rate was so high, it must be unjust and unreasonable.

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And that was the argument that the Commission was responding to, which is just because

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A rate is high, particularly in an auction market context that it's not a showing that it's unjust and unreasonable you don't meet your burden to show it's unjust and unreasonable.

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It's not just that it was higher than they liked one, it was astronomically higher.

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than it had been in the past and then it was in any of the other zones.

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This was an extraordinary change.

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So this isn't just that's higher than what I think it should be.

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This was a very sharp and acute spike in prices isolated to zone four combined with the evidence

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put in by public citizen, and on which the commission relied, showing that there were problems in the tariff.

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Um, that allowed this sort of change in the RL, the CT numbers, because, um, it was assuming this ability to, to export power to PJM that in fact was the commission found for this very year in question was wrong.

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So I don't, I don't know how just saying, well, just cause that price is higher, isn't enough of a basis as any,

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I don't know how you get from that to saying they didn't meet their burden of proof with the astronomical nature of the change in the price.

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It couldn't very well be legitimate reasons for it.

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I don't know.

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But an astronomical high rate that is a sharp departure from past and from what's going on everywhere around this zone and the problems with the tariff that the commission agreed

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required change, made the tariff incapable of providing just and reasonable rates when those exact same problems existed in 2015-16 auctions.

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So please tell me where they addressed that accumulation of evidence and concluded that they hadn't met their burden of proof.

[00:27:57] Speaker 05:
Several responses to that, Your Honor.

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In the first place, the commission had a separate discussion of the tariff and its perspective changes to the tariff and

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in the 2015 order.

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And I'll get to that in a moment if I could.

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I would like to start first though with your point about the simply being higher, it being so much higher than expected.

[00:28:21] Speaker 05:
And that is the significance of the citation the commission makes to Dynegy's answer to the complaints at 33 to 35, which is- Wait a minute, Ms.

[00:28:32] Speaker 04:
Perry.

[00:28:32] Speaker 04:
That's in the discussion of the party's respective position.

[00:28:38] Speaker 05:
No, Your Honor, that's the footnote.

[00:28:40] Speaker 05:
It's the footnote to the statement that the price is not unjust and unreasonable because it is higher than expected.

[00:28:49] Speaker 05:
It's footnote 243, which follows that sentence.

[00:28:53] Speaker 06:
What page of the JA are you on here?

[00:28:54] Speaker 05:
I'm sorry, it's JA 105.

[00:28:58] Speaker 05:
It's paragraph 84.

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In footnote 243,

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The footnote to that sentence refers to Dynegy's answer to the complaint at 33 to 35, which, as you point out, the Commission had in the preceding paragraph described at some length.

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And what that shows, what that evidence was put in to show was that the prices that were charged, the $150 price that was charged was consistent with the going forward marginal costs of the marginal unit that was bid into that auction.

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And the significance of that is that what happened in the 2015 auction

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is that they ended up going further into the resources that were available, going to more expensive units to obtain the amount of capacity that they needed.

[00:29:55] Speaker 05:
For example, as I understand it, in 2014, Dyna-G had a similar bid structure.

[00:30:00] Speaker 05:
Wait, wait, wait.

[00:30:01] Speaker 06:
As you understand it, I'm looking for commission findings.

[00:30:05] Speaker 05:
Well, the commission finding is pointing to this evidence.

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There was evidence in the record

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that the auction bids that were placed by Dynegy were consistent with their going forward costs.

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And as the commission has pointed out from 2015 forward, a bid even from a pivotal seller that is consistent with going forward marginal cost is a competitive bid.

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And the tariff has always before the changes and after the changes,

[00:30:36] Speaker 06:
But this is still focused on just this price thing.

[00:30:39] Speaker 06:
And I mean, to be fair, it strikes me as a bit indirect.

[00:30:46] Speaker 06:
If somehow you're saying that with this sentence, which Jess said, unreasonable because it's higher than expected, and then a footnote citing these things mean they now have adopted everything as their own decision.

[00:30:59] Speaker 06:
That's every word that's on those pages of the cited briefs.

[00:31:02] Speaker 06:
Is that your position?

[00:31:04] Speaker 05:
suggesting that they adopted this.

[00:31:06] Speaker 05:
What they were pointing out is there is evidence in the record.

[00:31:10] Speaker 06:
This is very important to me.

[00:31:12] Speaker 06:
So if they weren't adopting, by citing to those pages, they weren't adopting that as their own decision.

[00:31:19] Speaker 05:
They were noting that there was evidence in the record that these were just and reasonable rates.

[00:31:25] Speaker 05:
And there was no contrary evidence.

[00:31:28] Speaker 06:
The public citizen never put in any contrary evidence.

[00:31:33] Speaker 06:
They aren't saying, the sentence says, it's not unjust and reasonable because it is higher than expected, which is not necessarily the same thing as the very sharp and acute and sudden divergence we had here.

[00:31:50] Speaker 06:
And then you said, well, they dropped a footnote to Miso and Dynagy's answers.

[00:32:00] Speaker 06:
And the answers are,

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evidence, but they didn't necessarily adopt that evidence.

[00:32:10] Speaker 06:
They just pointed to it, and they didn't have anything to cite from public citizen.

[00:32:15] Speaker 06:
Is that your answer?

[00:32:16] Speaker 06:
And so there wasn't, so public citizen didn't admit its burden of proof?

[00:32:20] Speaker 05:
That's exactly the point, Your Honor, is public citizen had the burden of proof.

[00:32:25] Speaker 06:
The point is there was evidence.

[00:32:27] Speaker 06:
Because when I gave you the list, it wasn't just

[00:32:31] Speaker 06:
higher than expected.

[00:32:33] Speaker 06:
We'll give that your reading, but there was also the very same evidence that caused the commission to say this tariff ain't gonna work anymore with these presumptions about exporting to the PJM market.

[00:32:51] Speaker 06:
It's not gonna work.

[00:32:52] Speaker 06:
It's setting the wrong numbers.

[00:32:55] Speaker 06:
And then again, the commission found that exact same problem was already existing

[00:33:00] Speaker 06:
at the time of the 2015-16 auction.

[00:33:03] Speaker 06:
This is all public citizen evidence.

[00:33:07] Speaker 06:
And yet it said, we don't need to look at the 2015-16 auction.

[00:33:10] Speaker 06:
So I don't understand how just this year is saying they didn't meet their burden of proof when you haven't addressed this additional evidence.

[00:33:17] Speaker 06:
So they had evidence that was so powerful that the commission found so credible, it ordered the changing of the tariff going forward.

[00:33:25] Speaker 06:
Isn't that part of the evidence?

[00:33:27] Speaker 05:
Your honor, the commission addressed the evidence with respect to the tariff in a later part and I'll talk about that now in the rehearing order at paragraphs 20 to 23.

[00:33:36] Speaker 05:
That's a joint appendix at 135 and 136.

[00:33:43] Speaker 05:
And the commission found that the fact that it made specifically in paragraph 22, the commission found that the fact that it made prospective changes in December of 2015 does not support the claim that the April 2015 auction reflected the exercise of market power and produced unreasonable results.

[00:34:07] Speaker 06:
That ignored that the 2015 decision rested on two prompts.

[00:34:13] Speaker 06:
It rested on these changes that were coming to PJM.

[00:34:18] Speaker 06:
But it said, I'm at J940 now, paragraph 86.

[00:34:23] Speaker 06:
In addition, based on the record before us, we have find that the amount of MISO capacity that can be sold on PJM is significantly limited due to the availability of transmission services.

[00:34:35] Speaker 06:
And they're talking about an existing problem, not a future problem.

[00:34:40] Speaker 06:
It's that in addition to these future changes,

[00:34:43] Speaker 06:
The record evidence before us shows that it was much more limited ability to transmit these services to PJM, right?

[00:34:52] Speaker 06:
But that's not mentioned that second prong of the commission's 2015 decision, unless I've missed it, and you can tell me, appears nowhere in this analysis where you say they said they didn't meet their burden of proof.

[00:35:08] Speaker 06:
That's where I'm really confused.

[00:35:10] Speaker 05:
Well, Your Honor, I think

[00:35:12] Speaker 05:
that you have to view this response as being in response to public citizens rehearing request.

[00:35:21] Speaker 05:
And if you look, they're responding to page 21 of the rehearing request, which is at 1054, Joint Appendix 1054.

[00:35:30] Speaker 05:
And if you look at that rehearing request, what it says is,

[00:35:35] Speaker 05:
The Commission didn't determine whether the tariff was just and reasonable in April in the spring of 2015 and this is particularly striking, giving the determination in December that the terrorist provisions were no longer just and reasonable.

[00:35:50] Speaker 05:
In responding to that statement, it says nothing about

[00:35:56] Speaker 05:
explain to us why the existing conditions in spring of 2015 were not sufficient for an unjust and reasonable finding.

[00:36:03] Speaker 05:
It doesn't raise anything about the existing conditions.

[00:36:06] Speaker 05:
It simply says you found in December of 2015 that it was unjust and unreasonable.

[00:36:11] Speaker 05:
Why is that not enough?

[00:36:13] Speaker 06:
into this very two-pronged decision that I just referenced and I guess I don't understand why if it's good enough for the commission to point to answers in a footnote to tell evidence but not really adopt it it's not okay for them to point to the commission's very decision that was a two-pronged decision and say you haven't addressed this

[00:36:37] Speaker 05:
But again, we go back to the burden of proof.

[00:36:39] Speaker 06:
And again, exactly what I'm on is not going back to I am still on the burden of proof.

[00:36:44] Speaker 06:
And I'm asking you why, when they say, look what you said in 2015, which was a two prong explanation about existing problems as well as future problems.

[00:36:56] Speaker 06:
They brought that in.

[00:36:57] Speaker 06:
The commission relied on that evidence.

[00:37:00] Speaker 06:
And the commission said it's both future and present.

[00:37:04] Speaker 06:
And why they didn't say, look at what you said in 2015 about our evidence, isn't meeting their burden of proof.

[00:37:14] Speaker 05:
The 2015 decision was expressly based on both prongs, as you say.

[00:37:20] Speaker 05:
Expressly based on both prongs.

[00:37:22] Speaker 05:
There was no finding that

[00:37:24] Speaker 05:
And that was, in fact, most of the argument that the parties had made to the commission was about the existing conditions.

[00:37:30] Speaker 05:
And the commission didn't make a finding that the existing conditions were, in fact, sufficient all by themselves to justify an unjust and reasonable finding.

[00:37:41] Speaker 04:
Right.

[00:37:41] Speaker 04:
They relied on both.

[00:37:43] Speaker 04:
I'm sorry.

[00:37:43] Speaker 04:
I don't mean to cut you off.

[00:37:46] Speaker 05:
Please go ahead.

[00:37:47] Speaker 04:
I have sort of a procedural version of, I think, the same issue, which is,

[00:37:55] Speaker 04:
Given FERC's position, as you articulated, why did FERC wait until 2019 to respond to public citizens' claim under Section 206?

[00:38:06] Speaker 04:
that the auction results suggested that the price was unjust and unreasonable.

[00:38:12] Speaker 04:
If the prices were just and reasonable because they complied with the tariff and publics are presumptively just and reasonable because they comply with the tariff and public citizen had no evidence to the contrary, then why didn't FERC just say that in the 2015 order?

[00:38:33] Speaker 05:
I don't know the reason for the delay, Your Honor.

[00:38:36] Speaker 05:
I know the reason they didn't say it in the 2015 order, which they expressly stated in the 2015 order, was it needed to be done promptly in order that the new tariff provisions could be implemented in time for the next auction.

[00:38:50] Speaker 05:
And so they declined to resolve all the other issues at that time.

[00:38:55] Speaker 04:
But in your view, it's just open and shut that the auction price results from a tariff that had been

[00:39:03] Speaker 04:
ex ante approved as just and reasonable.

[00:39:07] Speaker 04:
And the burden is on public citizen under 206.

[00:39:12] Speaker 04:
And in your view, nothing that public citizen had said met that burden.

[00:39:17] Speaker 04:
So it seems peculiar to me that the public citizen petition was granted only in part.

[00:39:23] Speaker 04:
And that the commission's I mean, it to me, it legally implies that at that time, the commission thought

[00:39:30] Speaker 04:
that public citizen had at least sort of prima facie raised a 206 claim that needed to be looked into.

[00:39:39] Speaker 04:
And yet now you're saying really harking back to what was on the table in 2015, that it was deficient all along.

[00:39:47] Speaker 04:
And I'm just having trouble squaring that.

[00:39:53] Speaker 05:
Well, a couple of things, Your Honor.

[00:39:57] Speaker 05:
Commission was litigating the 206 complaints of a number of complainants to start off with, and a number of complaints that's made a number of arguments the public citizen didn't make.

[00:40:09] Speaker 05:
We are just now down to public citizen, and public citizen is the only party who sought re-hearing.

[00:40:15] Speaker 05:
So we are now down to only what it is the public citizen was arguing.

[00:40:20] Speaker 05:
But there were a number of other complaints, and a number of parties who put in

[00:40:24] Speaker 05:
evidence of all sorts that were also under consideration.

[00:40:30] Speaker 04:
Let me ask also, is there a circumstance in which the conduct threshold could be met, but the commission nonetheless find an exercise of market power that would show the tariff to be inadequate in shielding consumers?

[00:40:51] Speaker 04:
In other words, the fact that the conduct threshold is not exceeded, again, maybe that creates a presumption that the tariff is adequate.

[00:41:04] Speaker 04:
But it isn't a conclusive presumption, is it?

[00:41:08] Speaker 04:
You could have an exercise of market power and or market manipulation that yielded a price below the conduct threshold.

[00:41:16] Speaker 05:
Well, certainly somebody could file a complaint making that allegation.

[00:41:20] Speaker 05:
The point is just the way the tariff works.

[00:41:23] Speaker 05:
The tariff would not mitigate that bit.

[00:41:25] Speaker 05:
That's what the conduct threshold means is that it would be

[00:41:31] Speaker 05:
market monitor would not mitigate that bid, it would be deemed acceptable under the tariff.

[00:41:36] Speaker 04:
Right, and that went until there's another reason to believe that market power was exercised, or even worse, that there was market manipulation, right?

[00:41:46] Speaker 04:
So the fact, so if you were in sort of, you know, federal court,

[00:41:51] Speaker 04:
a parlance if you wouldn't file like a 12b6 on a section 206 claim, just saying, sorry, price below conduct threshold, no claim, right?

[00:42:07] Speaker 04:
You wouldn't because in fact, there could be some exercise of market power.

[00:42:15] Speaker 05:
It's possible.

[00:42:16] Speaker 04:
I mean, the pay.

[00:42:17] Speaker 04:
It would be evidenced by an above conduct threshold price.

[00:42:21] Speaker 05:
Certainly somebody could file a complaint alleging that it was unjust and unreasonable, and it wouldn't be a 12b6 issue.

[00:42:28] Speaker 04:
The commission recognizes that that might still be legally viable, even though.

[00:42:33] Speaker 05:
Exactly, but they would have to come up with evidence indicating why, even though it was within what had been deemed to be the competitive level, it was nonetheless an exercise, demonstrated an exercise of market power.

[00:42:48] Speaker 04:
And what's your?

[00:42:49] Speaker 03:
I'm sorry, I was going to change the subject.

[00:42:53] Speaker 03:
I'll change the subject.

[00:42:57] Speaker 03:
I want to ask you this period.

[00:43:00] Speaker 03:
I want to go back to the market manipulation issue and approach it from a slightly different perspective.

[00:43:09] Speaker 03:
I understand what the commission said in its order and what you say in your brief about that.

[00:43:16] Speaker 03:
But what I'm

[00:43:17] Speaker 03:
interested in is the commission's view that claims of market manipulation cannot be pursued in a 206 procedure.

[00:43:32] Speaker 03:
That's the commission's view.

[00:43:34] Speaker 03:
The commission's view as I understand it is market manipulation under violating 222 is handled under 306.

[00:43:40] Speaker 03:
You did the investigation.

[00:43:42] Speaker 03:
The investigation was closed and there's no private right of action, end of matter.

[00:43:48] Speaker 03:
But as I read our market manipulation cases, we don't have that many of them, but they're almost all brought by competitors claiming market manipulation by a competitor.

[00:43:59] Speaker 03:
This is a 206 proceeding by rate payers claiming that market manipulation produced an unjust and unreasonable rate.

[00:44:09] Speaker 03:
And my question to you is what, what in the statute or case law supports that

[00:44:16] Speaker 03:
that division that the Commission has adopted here.

[00:44:21] Speaker 05:
I think the Commission clarified on rehearing what its position is on this subject, and there are two separate things going on.

[00:44:32] Speaker 05:
with regard to the allegations of market manipulation.

[00:44:34] Speaker 03:
And the commission said clearly on the one hand, there is the- Before you go into that, will you tell me if my perception of the commission's position is correct?

[00:44:46] Speaker 03:
That is that a claims of market manipulation, market manipulation are properly brought under 306, not 206, right?

[00:45:00] Speaker 05:
Yes, your honor, for violations of section 222.

[00:45:04] Speaker 05:
But that does not mean that the commission does not consider allegations of market power, which could include allegations of marketing.

[00:45:16] Speaker 03:
I'm sorry.

[00:45:18] Speaker 03:
Say again what you said.

[00:45:19] Speaker 03:
I interrupted you and didn't mean to.

[00:45:21] Speaker 03:
That doesn't mean what?

[00:45:24] Speaker 05:
I'm sorry, that doesn't be the commission's investigation of market manipulation allegations under section as violating section 222 are within the commission's discretion.

[00:45:37] Speaker ?:
Correct.

[00:45:37] Speaker 05:
But that doesn't mean that the commission does not consider whether there are unjust and unreasonable rates that resulted from exercises of market power, which could include market manipulation.

[00:45:52] Speaker 03:
But in this particular case, the commission disposed of the market manipulation claims without any explanation.

[00:46:04] Speaker 03:
which would be fine if it was the straightforward 306 case.

[00:46:08] Speaker 03:
But the petitioners have brought their market manipulation claims under 206, claiming that even though the tariff was complied with, market manipulation may have rendered... Look, here's what Commissioner Glick said this.

[00:46:28] Speaker 03:
The fact that NISO and the individual market participants

[00:46:32] Speaker 03:
appear to have followed the relevant tariff does not respond to allegations that the resulting grapes are unjust and unreasonable as a result of market manipulation.

[00:46:46] Speaker 03:
It seems to me, what's wrong?

[00:46:48] Speaker 03:
That seems to me what the petitioners are arguing here.

[00:46:54] Speaker 03:
And why isn't that correct?

[00:46:57] Speaker 05:
That's exactly the dichotomy that the Commission discussed in paragraphs 12 to 15 of the rehearing order.

[00:47:05] Speaker 05:
Although there is the non-public investigation of the 222 violations, which is Commission discretion, the Commission specifically found in paragraph 14, which is the Joint Appendix 131,

[00:47:20] Speaker 05:
that public citizen had not met its burden as a complaint to demonstrate that activity meeting the definition of market manipulation occurred and resulted in rates that are unjust and unreasonable.

[00:47:32] Speaker 03:
But I don't understand that, given the allegations they made.

[00:47:38] Speaker 03:
I mean, the allegations they made in the 2006 proceeding is that capacity was withheld

[00:47:46] Speaker 03:
in order to allow a higher bid here with the withheld capacity that there was history here that there had been an effort to combine the two units that was resisted by the producers.

[00:48:04] Speaker 03:
They have a lot of allegations and the commission

[00:48:08] Speaker 03:
simply rejected them without, it did a full investigation of market manipulation.

[00:48:15] Speaker 03:
As it says itself, it interviewed dozens of witnesses, reviewed hundreds of pages of documents, but dismissed the complaint without any reason.

[00:48:24] Speaker 03:
That's very different from saying dynergies hadn't met its burden.

[00:48:30] Speaker 03:
There's absolutely no explanation.

[00:48:32] Speaker 03:
I mean, the only explanation that is possibly in the record

[00:48:37] Speaker 03:
for why public citizen did meet its burden is in the commission's report on manipulation, which isn't public.

[00:48:48] Speaker 03:
We don't know what's in there.

[00:48:50] Speaker 03:
There's no explanation at all for why it didn't meet its burden.

[00:48:55] Speaker 03:
The commission simply asserts it didn't.

[00:48:57] Speaker 03:
And the reasons presumably are in its secret report on manipulation.

[00:49:05] Speaker 05:
No, Your Honor.

[00:49:06] Speaker 05:
The point is, as public citizens burden of proof, it was their obligation to produce evidence of market manipulation.

[00:49:17] Speaker 03:
Where do I find in the Commission's orders an explanation for why it didn't meet its burden of proof?

[00:49:24] Speaker 03:
Other than a statement that it didn't, where do I find that explanation?

[00:49:29] Speaker 03:
because- Under 206, under 206 Ms.

[00:49:32] Speaker 03:
Perry, 206, that it didn't meet its burden of proof.

[00:49:36] Speaker 03:
I agree with you.

[00:49:37] Speaker 03:
The burden is on public citizen in the 206 proceeding.

[00:49:41] Speaker 03:
It has to convince, it has a burden of proof of showing.

[00:49:46] Speaker 03:
So let me make sure I get this.

[00:49:48] Speaker 03:
I'm sorry to go in a different direction, but you agree then that if public citizen could prove

[00:49:58] Speaker 03:
could attempt to prove under 206 that market manipulation produced unjust and unreasonable rates.

[00:50:04] Speaker 03:
Do you agree with that?

[00:50:06] Speaker 05:
Yes, your honor.

[00:50:07] Speaker 05:
And as a matter of fact, Commissioner Glick on footnote 14 of his dissent at Joint Appendix 140 recognized

[00:50:18] Speaker 05:
that the commission in paragraph 14 was making a section 206 finding.

[00:50:23] Speaker 03:
Okay, so then let's go back to my question now that we agree.

[00:50:27] Speaker 03:
I didn't understand that that would be your position, but now that you agree that a complaint bringing a 206 complaint by public system may argue that

[00:50:45] Speaker 03:
Market manipulation resulted in unjust and unreasonable rates.

[00:50:48] Speaker 03:
We agree on that now.

[00:50:50] Speaker 03:
And the commission, I agree the burden of proof is on them, but where do I find an explanation in the commission's orders as to why it was not, why public citizen had not satisfied its burden of proof?

[00:51:07] Speaker 03:
The only thing I saw was random statements, which are correct, that there's no private right of action.

[00:51:14] Speaker 03:
But where is the explanation for why public citizen failed to meet its burden of proof under 206?

[00:51:22] Speaker 03:
Where is that?

[00:51:25] Speaker 05:
The explanation, Your Honor, would be going back to the same commission statements we have been talking about.

[00:51:32] Speaker 03:
Why don't you just find those for me?

[00:51:33] Speaker 03:
Tell me right now which ones answer that question.

[00:51:37] Speaker 03:
Which ones precisely answer that question?

[00:51:40] Speaker 05:
The closest answer, Your Honor, would be the answer in paragraph 84 of the complaint order, with a joint appendix 105, where the commission found that an auction clearing price is not unjust and unreasonable because it is higher than expected.

[00:51:58] Speaker 03:
Because the thing you have to recall here is that- That's not responsive to Commissioner Glick's point or my point, which is that

[00:52:08] Speaker 03:
The fact that it complies with the tariff is not inconsistent with the proposition that the rates might have resulted from market manipulation.

[00:52:18] Speaker 03:
As he says, he's pretty clear about that.

[00:52:20] Speaker 03:
He says, just because something is legal does not mean that it's not market manipulation.

[00:52:29] Speaker 05:
No, your honor, this goes more to, this doesn't go to tariff compliance.

[00:52:33] Speaker 05:
This goes to it being an unexpectedly high rate.

[00:52:38] Speaker 05:
And you have to bear in mind here that what was alleged was economic withholding and the Commission discusses at paragraph 85 also on J 105 economic withholding and what economic withholding means is that you submit a bid that is substantially higher than a competitive level.

[00:52:58] Speaker 07:
Yeah.

[00:52:59] Speaker 05:
and causes the market clearing price to rise.

[00:53:02] Speaker 05:
So the fact that you have to show, the burden of proof is, show that it was substantially higher than a competitive level.

[00:53:10] Speaker 05:
And that is what the commission was suggesting was not shown.

[00:53:15] Speaker 05:
Okay.

[00:53:16] Speaker 03:
All right.

[00:53:16] Speaker 03:
Well, so just my last question is, I just want to be absolutely sure that when I go back and think about this case, and I look to find where the commission explained

[00:53:26] Speaker 03:
that public citizen had failed to meet its burden of proof.

[00:53:32] Speaker 03:
I look to paragraphs 84 and 85, right?

[00:53:34] Speaker 05:
Paragraphs 84 and 85, and there is the discussion of the tariff at paragraphs 23, 23 of the rehearing order.

[00:53:44] Speaker 03:
And which ones, which ones, 21?

[00:53:46] Speaker 05:
Paragraph 22, 23 of the rehearing order, which is a joint appendix 135 and 136.

[00:53:53] Speaker 05:
But these are in response to public citizens' arguments, which were the price is too high.

[00:54:00] Speaker 03:
That's helpful.

[00:54:02] Speaker 03:
Judge Malik, did you have a question?

[00:54:04] Speaker 04:
I was just trying to figure out about, I mean, I think one of the things that public citizen points to here is not just that the price was high, because as we know, with a vertical

[00:54:19] Speaker 04:
curve, you're going to have a lot of price volatility, prices that are from zero to 60 in no time, to paraphrase, but that it was just in this zone.

[00:54:33] Speaker 04:
So we don't have kind of a Texas system where, or situation where there is a capacity problem and all the prices are going up and they're sending the market signal that new capacity needs to be built.

[00:54:49] Speaker 04:
I don't think anybody understands what happened in this auction as an accurate signal that new capacity needs to be built.

[00:54:58] Speaker 04:
And so when ordinarily you'd have the conduct threshold and you'd say, sometimes the prices are going to be up there when you have a lack of capacity.

[00:55:08] Speaker 04:
And that's why we have the capacity auction is to protect against that.

[00:55:11] Speaker 04:
But here it's anomalous.

[00:55:16] Speaker 04:
And isn't that also pertinent to whether there's a reason for the commission here to think that the tariff did not sufficiently protect against exercise of market power in the 2015-16 auction?

[00:55:40] Speaker 05:
Your honor, the price was higher in zone four during this auction.

[00:55:45] Speaker 05:
because they had to reach further into their resources to more expensive resources in order to provide the capacity they needed.

[00:55:56] Speaker 05:
I don't know why that particular fact would necessary.

[00:56:02] Speaker 06:
I'm sorry, is that what you just said?

[00:56:03] Speaker 06:
Is that a finding by the commission?

[00:56:06] Speaker 05:
It's just the way the auction works.

[00:56:07] Speaker 05:
I mean, the commission explains the auction function, that it's a question of you're taking

[00:56:13] Speaker 05:
you continue taking bids until you get to the marginal unit necessary to satisfy the capacity requirement.

[00:56:21] Speaker 04:
And isn't that exactly the, I know that the commission and intervenors and amicus point to the PJM change, but the other aspect of the going forward determination to change the tariff was that, wasn't it?

[00:56:35] Speaker 04:
And so that was at play in April of 2015, was it not?

[00:56:43] Speaker 05:
Well, the point about the local clearing requirement, Your Honor, is that in the reason why the Commission focused on the mitigation provisions of the tariff,

[00:56:54] Speaker 05:
is that the local clearing requirement is a reliability requirement, and it just defines how much capacity has to come from inside the zone.

[00:57:03] Speaker 05:
And the point is, so long as the tariff mitigation measures are functioning, there will be no ability to exercise market power as a result of the local clearing requirement, even if you're a pivotal seller, because the mitigation

[00:57:18] Speaker 05:
measures are specifically designed to mitigate any market power of that sort.

[00:57:24] Speaker 04:
So you would have to find... If they were held to be inadequate, presumably because they weren't effectively mitigating market power under the particular circumstances that obtained, including the local clearing requirement or not.

[00:57:40] Speaker 05:
The finding was that they would not be sufficient to do that going forward, given the changes in the PJM capacity market.

[00:57:47] Speaker 05:
But not only that, not only that.

[00:57:50] Speaker 05:
Exactly, but the commission specifically said that the changes in the PJM, and this is paragraph 87 of the 2015 order, which is at J941, the commission specifically found that the changes in PJM will further limit the already existing problems.

[00:58:09] Speaker 05:
And so it was the combination of two, it was specifically the combination of the two that made the commission conclude that going forward, it was not a reasonable opportunity.

[00:58:19] Speaker 04:
So your life would have been a lot easier if the commission had also, at some point, made a finding that even without the PGM changes, it would not have needed to change the tariff going forward.

[00:58:35] Speaker 04:
Your life would be much easier.

[00:58:36] Speaker 04:
But it didn't.

[00:58:38] Speaker 04:
so fine, did it?

[00:58:41] Speaker 03:
Yeah, unless there's- No, you're on.

[00:58:43] Speaker 06:
I have another, sorry, I have another question.

[00:58:45] Speaker 06:
Oh, go ahead.

[00:58:46] Speaker 06:
I just wanted to follow up on what makes the tariff process reliable is not just that an auction is conducted consistent with an existing and FERC approved tariff, but there's this ex post process, right?

[00:59:06] Speaker 06:
Exactly.

[00:59:06] Speaker 06:
Yes, there are.

[00:59:07] Speaker 06:
and that ex post process involves filing reports.

[00:59:17] Speaker 06:
But the points of filing reports is so that the commission can engage in what the Ninth Circuit described in the California Expo Harris case is active ongoing review.

[00:59:28] Speaker 06:
And we've required a procedure for monitoring those reports.

[00:59:33] Speaker 06:
But all FERC relied on in paragraph on J134, this is a rehearing, was the fact that reports were filed.

[00:59:43] Speaker 06:
And which has caused me to realize that I don't have any idea how this active ongoing monitoring process applies.

[00:59:54] Speaker 06:
The commission, like I said, relied on the fact that reports were filed, but that of course is not.

[01:00:00] Speaker 06:
the ex post requirement.

[01:00:02] Speaker 06:
The ex post requirement is that it works monitoring and using the reports and maybe anything else that comes to its attention to do so.

[01:00:09] Speaker 06:
The commission didn't rely on its own monitoring or any determination that it might've made based on reports that were filed.

[01:00:18] Speaker 06:
So can you explain to me, first of all, who looks at those reports, the reports that were filed here, before it's referenced by the commission,

[01:00:30] Speaker 06:
And then how and when is a decision made by the commission that, yeah, those reports don't raise any, don't raise our eyebrows.

[01:00:39] Speaker 06:
How did that happen in this case?

[01:00:41] Speaker 06:
And maybe you have to explain it more generally how it goes, but in this case, because the commission doesn't seem to rely on its own monitoring.

[01:00:49] Speaker 05:
Well, generally how it goes is described in the consumer council at page 919, where the court

[01:00:57] Speaker 05:
Discusses how FERC monitors the data that comes in the quarterly reports to ensure that the reported transactions are consistent with a competitive unmanipulated market.

[01:01:09] Speaker 05:
Meaning it's not looking at each individual transaction to see if it's adjusted reasonable rate in the sense of you filing adjusted reasonable rate.

[01:01:18] Speaker 05:
application, but it's looking for what is expected of a competitive, unmanipulated market.

[01:01:26] Speaker 06:
Maybe I'm not clear enough.

[01:01:28] Speaker 06:
So I'm not talking about how courts just describe what FERC's obligation is.

[01:01:32] Speaker 06:
I'm saying, so FERC got these reports in.

[01:01:34] Speaker 06:
It referenced those in its re-hearing order.

[01:01:40] Speaker 06:
What did it do with them?

[01:01:42] Speaker 06:
The commission initiated an investigation in the market manipulation based on those reports as opposed to the complaint.

[01:01:50] Speaker 05:
They initiated the initiation of the investigation to my knowledge that was never tied to the clients.

[01:01:58] Speaker 06:
The reports.

[01:02:01] Speaker 05:
The commission didn't specify, but it was shortly after the auction that the commission initiated the investigation.

[01:02:08] Speaker 06:
The commissions reviewed.

[01:02:11] Speaker 06:
I'm getting really confused here.

[01:02:12] Speaker 06:
So I had thought, so you're saying that the investigation of the market manipulation wasn't triggered by the complaints that were filed, but was triggered by the reports that were filed.

[01:02:27] Speaker 06:
I wouldn't have thought the first report would have been filed until July.

[01:02:31] Speaker 06:
after for the first quarter after?

[01:02:33] Speaker 06:
Maybe it came in, I guess, the end of April right after the auction.

[01:02:38] Speaker 06:
Is that what did it?

[01:02:42] Speaker 05:
Your Honor, if you look at the order of non-public formal investigation, which unfortunately is not apparently in the JA, but it's cited in our brief.

[01:02:52] Speaker 06:
I guess I don't have it in front of me because it's not in the JA.

[01:02:56] Speaker 05:
I'm sorry.

[01:02:58] Speaker 05:
specifies that the auction was commenced shortly after the informal part of the auction, not the formal part, but an informal auction, an informal investigation was initiated shortly after the conclusion of the auction.

[01:03:14] Speaker 06:
But we don't know what it was based on.

[01:03:19] Speaker 06:
Because you began by saying, I thought maybe I misunderstood.

[01:03:21] Speaker 06:
I thought you said, oh, that investigation was based on the report, not the complaint.

[01:03:26] Speaker 06:
But now you're saying we don't know what caused that.

[01:03:28] Speaker 05:
I don't know what specifically caused them to initiate the investigation, but they're the commissions.

[01:03:34] Speaker 05:
that review of rates is ongoing.

[01:03:38] Speaker 06:
It's, it's- I'm asking really in particular what happens with these reports.

[01:03:41] Speaker 06:
Like, is there, is there an office that reviews them?

[01:03:44] Speaker 06:
Does someone do a report to the commission quarterly?

[01:03:47] Speaker 06:
Because the whole, this is really critical sort of belt and suspenders to making sure we can rely on tariffs.

[01:03:55] Speaker 06:
That there be this post hack, not just filing of reports, but active ongoing review by FERC.

[01:04:03] Speaker 06:
And

[01:04:03] Speaker 06:
And if FERC, by its reference and its rehearing decision, was relying on that reporting and concluding that the tariff was sufficient, I'm trying to understand how it came to that determination.

[01:04:18] Speaker 05:
But, Your Honor, paragraph 18, again, is another example of the burden of proof.

[01:04:25] Speaker 05:
Again.

[01:04:26] Speaker 06:
No, because this is exactly my question.

[01:04:29] Speaker 06:
The question has its own burden here.

[01:04:30] Speaker 06:
It has its own obligation.

[01:04:33] Speaker 06:
It's not a burden of proof in a court sense.

[01:04:34] Speaker 06:
It has its own obligation to do this reviewing and to make a determination that, yep, the tariff's still working, or we don't see anything here that raises our eyebrows.

[01:04:46] Speaker 06:
And that's why my question is just about how that process worked.

[01:04:51] Speaker 06:
In this case, and if it helps to describe it more generally, that's fine, that they looked at the reports and

[01:04:58] Speaker 06:
They did exactly what they're required to do at the post.

[01:05:04] Speaker 06:
And they looked at reports.

[01:05:06] Speaker 06:
And I thought your first answer to me was that triggered the investigation.

[01:05:10] Speaker 06:
But now we don't know what triggered the investigation.

[01:05:13] Speaker 05:
What is a non-public investigation, Your Honor?

[01:05:16] Speaker 05:
I mean, they don't disclose.

[01:05:17] Speaker 06:
OK, then I don't know why you're telling me what caused it.

[01:05:19] Speaker 06:
OK, then we don't know what caused it.

[01:05:20] Speaker 06:
So if I misunderstood you, I thought you said it didn't rely on a complaint at all.

[01:05:24] Speaker 06:
It was on the reports.

[01:05:26] Speaker 06:
What is inside purchase?

[01:05:28] Speaker 06:
Please explain to me these, they file these reports, they're massive spreadsheets.

[01:05:33] Speaker 06:
Who looks at them?

[01:05:34] Speaker 06:
How is this determination made?

[01:05:37] Speaker 06:
What happened exposed here?

[01:05:41] Speaker 05:
I, to be honest, your honor, I don't know the answer to that question.

[01:05:45] Speaker 05:
I can find that out.

[01:05:47] Speaker 03:
We do know from the record that it was closed by the chair alone, correct?

[01:05:52] Speaker 05:
That's right.

[01:05:53] Speaker 03:
It never went to the commission, correct?

[01:05:57] Speaker 05:
It was closed by the chairman.

[01:05:59] Speaker 05:
Apparently, given Commissioner Glick's dissent, he apparently was apprised of what was found in the investigation, but he was not consulted on whether it should be closed or not.

[01:06:12] Speaker 03:
In fact, he said that had he been consulted, he would have not agreed with that.

[01:06:19] Speaker 04:
That hasn't been challenged, but is that typical, do we know, for the commissioner alone to act?

[01:06:25] Speaker 04:
I don't know, Your Honor.

[01:06:27] Speaker 04:
I'm sorry, I have two more questions.

[01:06:28] Speaker 04:
We've kept you up here for a long time, but I mean, FERC set a refund effective date in the 2015 order, and I take it that's just because that's a requirement in the statute.

[01:06:39] Speaker 04:
It hasn't ordered any refunds, has it?

[01:06:42] Speaker 04:
No, Your Honor.

[01:06:43] Speaker 04:
With respect to this.

[01:06:44] Speaker 04:
And what would be the effect or how would a refund be framed with that effective date?

[01:06:51] Speaker 04:
In other words, did any of the actual capacity sales flowing from the 2015-2016 auction price take place within the refund period?

[01:07:04] Speaker 05:
Actually, they all did, Your Honor, because the auction is an annual auction that sets the price for the upcoming year.

[01:07:12] Speaker ?:
OK.

[01:07:13] Speaker 05:
It would have all of the prices being charged would have occurred during the refund period.

[01:07:21] Speaker 05:
All of the auction obviously preceded it.

[01:07:28] Speaker 05:
I'm sorry.

[01:07:29] Speaker 04:
And I just had one other question, which is about this.

[01:07:31] Speaker 04:
Throughout the briefs, there's a back and forth about a price and whether the auction price is a rate subject to 205.

[01:07:40] Speaker 04:
And the amicus, I think, takes the hardest line that

[01:07:45] Speaker 04:
that the auction price just is not a rate, although even it sometimes uses the term rate to refer to an auction price.

[01:07:57] Speaker 04:
Is it FERC's position that it has to review whether actual auction price, the capacity price that results from an auction is just unreasonable under 206?

[01:08:11] Speaker 04:
but that it doesn't have to do the ex ante 205 review of that or or what is the what is the commission's position with respect to what is I know rates includes tariffs but does it only include tariffs or.

[01:08:29] Speaker 05:
What the commission monitors the filings for, as it says in paragraph 18 of the rehearing order, which we were just discussing at Joint Appendix 134, it monitors the reporting for evidence of market power.

[01:08:45] Speaker 05:
So it's not looking at whether individual transactions are themselves just and reasonable.

[01:08:50] Speaker 05:
It's looking for whether there are patterns or indicia of exercises of market power in that reporting.

[01:08:58] Speaker 05:
The court in Lockyer at 1013 describes it as reporting requirements for the administration of the tariff.

[01:09:08] Speaker 04:
But in your brief at 29, at 33, at 45 to 46, you refer to the auction price as a rate.

[01:09:22] Speaker 04:
And I'm just trying to, so that's looking at that rate as potentially relevant to whether there's been a failure under the tariff to guard against an exercise of market power?

[01:09:41] Speaker 05:
Well, it's looking at the prices being charged, the rate, if you will, to see whether there is evidence of an exercise of market power.

[01:09:51] Speaker 05:
Exactly.

[01:09:54] Speaker 05:
But not looking at each individual transaction to see if it itself in some cost-based rate filing kind of way is a just and reasonable rate.

[01:10:04] Speaker 04:
On the other hand, it could be key evidence.

[01:10:06] Speaker 04:
So it could on its own actually raise a question.

[01:10:09] Speaker 04:
But I think I understand your position that it's not the object of the 206 inquiry, but it could bear on it.

[01:10:19] Speaker 04:
And often, I assume often does.

[01:10:22] Speaker 06:
Yes.

[01:10:22] Speaker 06:
Wrong.

[01:10:23] Speaker 06:
I'm sorry.

[01:10:24] Speaker 06:
I still have to ask one more question.

[01:10:26] Speaker 06:
It's on my line.

[01:10:29] Speaker 06:
Given the paragraph 18 talks only about the fact that reports were filed.

[01:10:34] Speaker 06:
Is there any evidence in this record that the ex-post review by the commission of the quarterly reports happened and that the commission, not the chair, the commission concluded

[01:10:52] Speaker 06:
that nothing in those reports trigger concerns about the terror?

[01:11:00] Speaker 05:
There is no discussion in the orders of the commission's review of the quarterly reports, Your Honor.

[01:11:06] Speaker 05:
There was the investigation, but there's no independent discussion of what they reviewed in the quarterly reports.

[01:11:16] Speaker 06:
How would they review?

[01:11:17] Speaker 06:
Did the commission come to the ex post conclusion

[01:11:22] Speaker 06:
that's required.

[01:11:28] Speaker 05:
I'm sorry, your honor.

[01:11:29] Speaker 06:
I didn't understand the question.

[01:11:31] Speaker 06:
The ex post requirement that we look at the reports and that's sort of our double check that nothing went haywire with the tariff.

[01:11:41] Speaker 06:
Is there any evidence in the record that the commission came to that conclusion?

[01:11:47] Speaker 05:
The point again, Your Honor, is the argument, it's the burden of proof.

[01:11:53] Speaker 05:
It wasn't the commission's affirmative duty.

[01:11:56] Speaker 05:
This is a 206 complaint.

[01:11:57] Speaker 05:
It's not the commission's.

[01:11:58] Speaker 06:
I thought the affirmative duty was to do this ex post.

[01:12:02] Speaker 05:
Absolutely, Your Honor, but not.

[01:12:04] Speaker 06:
Tell me now where it happened because.

[01:12:07] Speaker 05:
Well, but the ex post, Your Honor, is.

[01:12:09] Speaker 06:
We're talking about it not having happened here.

[01:12:13] Speaker 05:
The ex-post reviewer honor is independent though of this 206 complaint proceeding.

[01:12:18] Speaker 05:
It's like the investigation, just it's the burden of proof.

[01:12:22] Speaker 06:
I'm just asking you, the commission has its own burden here.

[01:12:26] Speaker 06:
It's the one that chose to rely on the tariff and it has its own burden because to rely on the tariff you have to show both prongs.

[01:12:33] Speaker 06:
Commission chose to rely on the tariff, commission asserted the first prong and as to the second prong, the ex-post review had said reports were filed.

[01:12:42] Speaker 06:
That's what that's kind of stark.

[01:12:45] Speaker 06:
And that's all it said.

[01:12:47] Speaker 06:
And then Commissioner Glick says, yeah, the commission didn't make a decision.

[01:12:56] Speaker 06:
That's what I'm trying to ask.

[01:12:58] Speaker 06:
Is there something where you think the commission was responding to that point?

[01:13:02] Speaker 05:
Well, there's nothing specifically about the review of the quarterly reports and the orders, Your Honor, no.

[01:13:07] Speaker 05:
OK.

[01:13:08] Speaker 03:
Thank you.

[01:13:09] Speaker 03:
All right.

[01:13:09] Speaker 03:
OK, we'll hear from the intervener, Mr. Bress.

[01:13:16] Speaker 01:
Thank you, Judge Taylor and may it please the court.

[01:13:19] Speaker 01:
There are issues here that are larger systemic issues that I think are important issues.

[01:13:25] Speaker 01:
There's also very fact specific issues about this record.

[01:13:29] Speaker 01:
I'd like to start with the larger issues, which this court, several of you have asked about in the last few minutes.

[01:13:36] Speaker 01:
I'd like to start with first duty to monitor as Judge Mallette was discussing.

[01:13:42] Speaker 01:
I think there's a real danger here of pushing that to the point where we get to the incorrect position.

[01:13:50] Speaker 01:
The public citizen is arguing that every time there's an auction, the commission has a 205 duty to make a just and reasonable determination before those prices are allowed to go into effect.

[01:14:03] Speaker 01:
I think that's false.

[01:14:04] Speaker 01:
I think that this court has held in interstate among other cases that

[01:14:10] Speaker 01:
It is enough that there's an ex-ante determination of lack of market power or mitigated market power.

[01:14:18] Speaker 01:
And there are ex-post reporting that's done with your backup being the potential for 206 filings.

[01:14:25] Speaker 01:
Now, the 206 filings can be either by the commission or they can be by private parties.

[01:14:31] Speaker 01:
But because these reports are public reports, they serve the function of shedding daylight, frankly, into the process to allow 206 filings.

[01:14:40] Speaker 01:
There was no claim in this case, and it's really not before the court.

[01:14:43] Speaker 01:
That's why I think, Judge Mullight, you probably found some of the answers unsatisfying.

[01:14:48] Speaker 01:
But there was no claim in this case that FERC failed this general monitoring duty.

[01:14:52] Speaker 01:
So there isn't any evidence in any writing about it.

[01:14:55] Speaker 01:
There wasn't anything in the rehearing petition about it.

[01:14:57] Speaker 01:
The argument that was made in the rehearing petition was FERC has a duty under 205.

[01:15:03] Speaker 01:
to review all rates before they go into effect, or at least review the tariffs before the rates go into effect.

[01:15:08] Speaker 06:
My concern is that the commission itself begs a question.

[01:15:12] Speaker 06:
My concern is that the commission begs a question, raises it and begs a question when it says, we're relying to reject this argument about the 2015-16 argument on the tariff and compliance with the tariff.

[01:15:27] Speaker 06:
And we all know that requires two determinations, one,

[01:15:30] Speaker 06:
the approval of a tariff in advance in its terms, which happens here.

[01:15:34] Speaker 06:
No one can test that.

[01:15:36] Speaker 06:
And it requires this after the fact review, not just the filing of reports, but it's after the fact determination, this active ongoing review.

[01:15:47] Speaker 06:
So someone has to look and say, I'm not saying they have to do anything formalized here, but we have to know somehow that the commission paid attention to the reports and nothing to see here.

[01:15:58] Speaker 06:
Yes, but the problem that we have another problem we have here is all the commission said is, and those reports were filed and public citizen doesn't dispute that they were filed.

[01:16:09] Speaker 06:
And then we have this sort of dust up with Commissioner Glick about, you know, the commission didn't come to a conclusion.

[01:16:20] Speaker 06:
how that works, because it was a commission that chose to rely on the tariff.

[01:16:23] Speaker 06:
I'm not saying anything here about prices or anything like that.

[01:16:26] Speaker 06:
I'm talking, I'm looking at the commission's rationality sufficiency.

[01:16:29] Speaker 01:
So your honor, I think I'm trying to at least respond to that question.

[01:16:34] Speaker 01:
I understand the question.

[01:16:36] Speaker 01:
First of all, I think the commission had to rely on the tariff for purposes of the 206 here.

[01:16:42] Speaker 01:
In other words,

[01:16:43] Speaker 01:
there was a tariff, it was in place at the time of the auction.

[01:16:47] Speaker 01:
The commission didn't have the ability at that point after the fact to initiate a 205 proceeding into the tariff.

[01:16:54] Speaker 01:
Now there is a question that's raised by public citizen as to whether the tariff, and it's a 206 question, whether the tariff was sufficient at the time of the auction.

[01:17:04] Speaker 01:
And I agree that the commission had to respond to that.

[01:17:08] Speaker 01:
In terms of the monitoring, this is just a general requirement for the approval

[01:17:13] Speaker 01:
and for the lawfulness frankly of market-based pricing tariffs is that there's an ex ante finding and there are reports that are filed that allow both the commission and the public to review them.

[01:17:27] Speaker 01:
There is no second determination.

[01:17:30] Speaker 01:
In other words, there's not any other section of the act that's neither 205 nor 206 that the commission has to make an affirmative finding on the record

[01:17:42] Speaker 01:
on its monitoring.

[01:17:43] Speaker 01:
There can be a claim perhaps if someone wants to raise it.

[01:17:47] Speaker 01:
Commission, this tariff is no longer itself just and reasonable because you aren't doing any monitoring.

[01:17:53] Speaker 01:
But that claim wasn't made in this case.

[01:17:55] Speaker 01:
You can search the record.

[01:17:57] Speaker 01:
There is no claim in this case of that sort.

[01:17:59] Speaker 01:
It's why you don't see any discussion of that by the commission in its orders or in our briefing.

[01:18:04] Speaker 01:
The only argument that was made is commission you at a 205 duty.

[01:18:08] Speaker 01:
to take a completely fresh approach, putting the burden on the proponent before you allow the prices to go into effect you at a 205 duty.

[01:18:17] Speaker 01:
And a 206.

[01:18:19] Speaker 01:
And I agree with that totally, Judge Feller.

[01:18:22] Speaker 01:
And I'll get to that.

[01:18:23] Speaker 01:
I think the 206 is actually the tricky part of this case.

[01:18:26] Speaker 01:
I think these other issues are quite important systemically.

[01:18:31] Speaker 01:
And I think it's important to get them right.

[01:18:33] Speaker 01:
I think that

[01:18:34] Speaker 01:
When we get to market manipulation, it's another, I think, important systemic point here.

[01:18:41] Speaker 01:
The only argument, first of all, that was made on rehearing, and I invite the court to take another look at the rehearing petition if necessary, the only argument that was made by public citizen there is that the commission had a duty to explain for purposes of its investigatory or enforcement proceeding why it didn't find market manipulation.

[01:19:02] Speaker 01:
all of the references that it's making now in its brief to, oh, this is just 206, it's part of our proof that it was unjust and unreasonable, is not in the argument section at all of the rehearing petition.

[01:19:15] Speaker 01:
But if you get to that, I totally agree again with the commission that certainly market manipulation

[01:19:24] Speaker 01:
as well as market power can be a cause of unjust and unreasonable rates.

[01:19:29] Speaker 03:
I don't think that that- Before you go any further, Mr. Bress, hold on.

[01:19:33] Speaker 03:
I just want to capture what you just said, if you don't mind for a minute.

[01:19:37] Speaker 03:
Oh, of course.

[01:19:38] Speaker 03:
Because it was very helpful.

[01:19:39] Speaker 03:
So your point is that a complainant under 206, in a 206 complaint, can argue that market manipulation produced unjust and unreasonable rates.

[01:19:54] Speaker 03:
that they can do that, but is that correct?

[01:19:58] Speaker 01:
Absolutely, Your Honor.

[01:19:59] Speaker 03:
Okay.

[01:19:59] Speaker 03:
And second, that public citizen didn't argue that in his petition for re-hearing.

[01:20:05] Speaker 03:
Is that your point?

[01:20:06] Speaker 01:
Yes.

[01:20:06] Speaker 01:
That it's forbidden?

[01:20:07] Speaker 01:
The petition for re-hearing was focused on the failure to continue and to have an enforcement proceeding, Your Honor, which would have been a 220.

[01:20:14] Speaker 01:
Okay.

[01:20:15] Speaker 01:
That was my point.

[01:20:17] Speaker 03:
Oh, okay.

[01:20:19] Speaker 03:
So in answer to

[01:20:23] Speaker 03:
So the answer to, I read this sentence from Commissioner Glick, where he says, the fact that they followed the relevant language doesn't respond to an allegation that the resulting rates were unjust and unreasonable because of market manipulation.

[01:20:40] Speaker 03:
You agree with that?

[01:20:41] Speaker 01:
No, actually, I don't, but for a different reason, Your Honor.

[01:20:45] Speaker 03:
I thought you did agree with it.

[01:20:46] Speaker 01:
No, if I can explain.

[01:20:48] Speaker 01:
Yeah, please.

[01:20:50] Speaker 01:
The reason is that there were no unjust and unreasonable rates.

[01:20:53] Speaker 01:
In other words, in theory, certainly market manipulation or market power could lead to unjust and unreasonable rates.

[01:20:59] Speaker 01:
The commission, the bottom line of 206 is, were the rates unjust and unreasonable?

[01:21:04] Speaker 01:
The commission found that there was no proof here or no determination that the rates themselves were unjust and unreasonable in some sense,

[01:21:12] Speaker 01:
That means that any question about market manipulation becomes somewhat irrelevant, because the bottom line here is the rates themselves, what was produced in the end.

[01:21:23] Speaker 03:
Are you talking about the auction price?

[01:21:26] Speaker 03:
Are you saying that because, I'm sorry to interrupt, but are you saying that because the rates were produced by the tariff that had been approved,

[01:21:39] Speaker 03:
they are immune from a claim that they, even though they're sub, even though they complied with the tariff, they were produced by an auction that comply with the tariff, that even though they did, that because they did, they're immune from a claim that they nonetheless resulted from market manipulation.

[01:22:00] Speaker 01:
Is that your point?

[01:22:00] Speaker 01:
What I'm saying to be very precise, Your Honor, and I want to be precise with you, is that if you have a tariff that

[01:22:10] Speaker 01:
has mitigation measures in it that are sufficient to ensure that the clearing price that's produced in the auction is comparable to the price that would be produced in a workably competitive market.

[01:22:26] Speaker 01:
Then yes, the answer is that the tariff itself is just and reasonable.

[01:22:34] Speaker 01:
And the prices that result from that

[01:22:40] Speaker 01:
may go up and down with the market, but they're not individually challengeable.

[01:22:45] Speaker 03:
And why didn't the commission respond that way?

[01:22:48] Speaker 03:
Why was the commission's response to the public citizens complain about market manipulation that they hadn't met their burden of proof?

[01:22:57] Speaker 03:
As I understand your point, they can't, there is no burden of proof for them to satisfy because these were by definition just in reasonable rates, right?

[01:23:07] Speaker 01:
Your honor, two things on that.

[01:23:09] Speaker 01:
Number one, the commission, of course, gives two responses.

[01:23:12] Speaker 01:
One's in paragraph 13, where it discusses its 222 proceeding.

[01:23:18] Speaker 01:
And I think we're past that here, at least in this argument.

[01:23:20] Speaker 01:
There's general agreement on that.

[01:23:23] Speaker 01:
The second is in paragraph 14.

[01:23:25] Speaker 01:
And what they said specifically is, public citizen has not met its burden as a complainant to demonstrate that activity.

[01:23:31] Speaker 01:
Meeting that definition occurred and resulted in rates that are unjust and unreasonable.

[01:23:37] Speaker 01:
And the end there is important, your honor, because if it doesn't result in rates that are unjust and unreasonable, then whether it's market, potential market power, whether it's manipulative conduct, and after all manipulation is a conduct one engages in, is not the 206 ultimate question.

[01:23:58] Speaker 01:
And I'd like to get even more specific for you.

[01:24:00] Speaker 03:
Here- Let me just ask you, so it's, Glick is wrong that just because something is legal doesn't mean

[01:24:07] Speaker 03:
It doesn't mean, is it market manipulation?

[01:24:12] Speaker 01:
I'm not sure I got that, your honor, but let me try to rephrase it.

[01:24:17] Speaker 01:
To the extent that Commissioner Glick is saying that you can have market manipulation that is punishable by the commission, even if prices are just and reasonable, I think that's correct.

[01:24:28] Speaker 01:
I think it's a conduct that the commission can punish, even if, again, using its enforcement power, even if the price is just and reasonable.

[01:24:37] Speaker 01:
On the other end, if the price is just and reasonable, if the end result of the auction is just and reasonable, then whether market manipulation occurred or not is not at that point a 206 issue.

[01:24:51] Speaker 01:
And what ties this together here, and again, this gets me a bit into the fact-specific part of this case, which I agree is tricky, is that you've got a reference level and a conduct threshold here.

[01:25:05] Speaker 01:
What they are is an attempt to isolate and determine what the opportunity cost is of effectively not selling into PJM.

[01:25:14] Speaker 01:
In other words, the opportunity cost.

[01:25:16] Speaker 03:
Wait, I'm sorry to interrupt you, but I still, I want to make sure I understand this.

[01:25:21] Speaker 03:
And then I have no further questions.

[01:25:24] Speaker 03:
As what I heard you say is that even if there is proven market manipulation,

[01:25:34] Speaker 03:
that is subject to fines under 222, it's a curb and the commission imposes fines, that even though that might happen in a case,

[01:25:50] Speaker 03:
it's irrelevant that it might also have produced unjust and unreasonable rates that entitle.

[01:25:57] Speaker 01:
No, the opposite, your honor.

[01:25:59] Speaker 01:
The opposite.

[01:26:00] Speaker 01:
What I'm saying is that someone can engage in conduct that is bad conduct.

[01:26:05] Speaker 01:
Let's assume even they tried to do all sorts of terrible things.

[01:26:10] Speaker 01:
But in the end, for whatever reason, the auction produced just and reasonable rates.

[01:26:14] Speaker 01:
Maybe that person, their conduct was terrible, but

[01:26:18] Speaker 01:
it didn't affect the auction price.

[01:26:20] Speaker 01:
That would be the easiest example to cite.

[01:26:24] Speaker 01:
In that case, you would have market manipulation, but not an unjust and unreasonable rate.

[01:26:29] Speaker 04:
But Mr. Bras, I'm having trouble imagining that.

[01:26:31] Speaker 04:
Isn't it also the case that a clearing price could be below the conduct threshold

[01:26:39] Speaker 04:
but nonetheless reflect an exercise of market power or reflect market manipulation.

[01:26:44] Speaker 04:
So the question is, what is the cross check on what?

[01:26:47] Speaker 04:
How do we know in a case that you're hypothesizing in which there is market manipulation that, oh, we're not worried because the price, we're not worried under 206.

[01:26:57] Speaker 04:
We might be worried under 222, but we're not worried under 206 because the price is just unreasonable.

[01:27:03] Speaker 01:
So I'm glad you asked that question, Judge Billard.

[01:27:06] Speaker 01:
The reason is this.

[01:27:08] Speaker 01:
I guess I take exception to the assumption in the beginning of the question.

[01:27:13] Speaker 01:
I think the answer is that if the conduct threshold is working properly.

[01:27:18] Speaker 01:
And that's a question.

[01:27:19] Speaker 01:
Again, there are arguments in this case that based on the 2015 findings, the commission should have found that the conduct threshold wasn't sufficient to do its job.

[01:27:29] Speaker 01:
I understand those arguments, and we can address them if we wish.

[01:27:32] Speaker 01:
But assuming for right now that the conduct threshold

[01:27:36] Speaker 01:
was adequately constructed to reflect the opportunity cost of the sales.

[01:27:44] Speaker 01:
If that's true, then the commission's initial approval of this mitigation measure holds still, which is that if the price you bid in is less than your opportunity cost, then your price is not a super competitive bid price.

[01:28:03] Speaker 01:
It is competitive.

[01:28:05] Speaker 01:
And if the bid price is competitive, then the market is going to produce clearing prices that are within the range of just and reasonable because there were a workably competitive market would produce prices.

[01:28:20] Speaker 01:
So unless there's a problem with how the conduct threshold is designed or the reference level is designed, you can't challenge what comes out of it unless

[01:28:34] Speaker 01:
you're able to challenge the commission's theoretical but accurate, economically, conclusion that opportunity cost is a real cost and that prices under opportunity cost are competitive.

[01:28:49] Speaker 01:
That's not an argument that was even made in this case.

[01:28:53] Speaker 01:
Public citizen has never taken issue with that construct.

[01:28:57] Speaker 04:
All that they've said is that... Go ahead.

[01:28:59] Speaker 04:
I'm sorry.

[01:28:59] Speaker 04:
Finish your sentence.

[01:29:00] Speaker 01:
I was just going to say all that they've said is that it wasn't

[01:29:03] Speaker 01:
correctly set, that the provisions for how to set it using PJM essentially as a proxy for opportunity costs didn't work right.

[01:29:11] Speaker 01:
But they've never argued that if you had a

[01:29:16] Speaker 01:
mitigation measure based on opportunity cost, and you were below that opportunity cost, it could nonetheless be unjust and unreasonable.

[01:29:24] Speaker 04:
As a matter of economics and certainly- Couldn't it though in theory?

[01:29:26] Speaker 04:
I mean, we shouldn't put that off the table.

[01:29:29] Speaker 04:
It very much could be, right?

[01:29:30] Speaker 01:
I think economists might argue about it, Judge Pillard, but the commission is so far within its deference

[01:29:39] Speaker 01:
to come to the conclusion, which it came to, of course, when it approved these mitigation measures, that a price below opportunity cost is going to be just and reasonable, that it's absolutely not something this court could overturn.

[01:29:52] Speaker 04:
So just in common sense terms, same question that I had for prior counsel.

[01:30:00] Speaker 04:
To me, it's one thing where the whole market

[01:30:05] Speaker 04:
is you know all the zones are like there's a capacity problem right and everybody's pushed up to up to the higher price as opposed to the near zero lower prices that obtain when there's plenty of capacity and you know when the the reason these sort of

[01:30:24] Speaker 04:
anomalous seeming to the average econ student curves that's steeply downward sloping or vertical actually makes sense is because this is a capacity market.

[01:30:34] Speaker 04:
And if there's plenty of capacity, no need for price signals, where there is enough capacity, boom, immediate need for price signal.

[01:30:42] Speaker 04:
What is odd to me here is that it doesn't seem like anybody's saying that there was an accurate price signal in

[01:30:53] Speaker 04:
what Dynagy ended up getting or the price that was set in the auction at issue here?

[01:31:01] Speaker 01:
Your honor, I think there's two answers if I can for this.

[01:31:04] Speaker 01:
The first is that if it were true, and again, I understand the arguments back and forth, but if it were true that outside of this market, the price for capacity, let's say in PJM was $150 or $160 or $170.

[01:31:22] Speaker 01:
And it's absolutely true that for Dynagy to bid it into the auction as opposed to selling it, bid in the auction at 150, as opposed to selling it outside of MISO as a whole, would not be an unjust and unreasonable bid and would not be an unjust and unreasonable price because the prices in PJM would be relevant to understanding that.

[01:31:47] Speaker 01:
Now, in terms of why this zone is different,

[01:31:50] Speaker 01:
And again, it's not something that the briefs go into because the question really isn't put on a T. But it's different for a number of reasons.

[01:31:58] Speaker 01:
I mean, one of them is that several of the other zones, in fact, I think all but one, all but seven, zone seven, are zones where you have integrated operators who are both generating power, serving load, et cetera.

[01:32:14] Speaker 01:
They've got no incentive to bid a non-zero price in the auction.

[01:32:19] Speaker 01:
They're on both sides of the auction.

[01:32:21] Speaker 01:
They've got to serve load in the end.

[01:32:23] Speaker 01:
This is one of just two competitive zones in the MISO system.

[01:32:28] Speaker 01:
And it's the most competitive zone inside the MISO system.

[01:32:31] Speaker 01:
Here you do have an incentive, particularly if you're a generator like DynaG to bid in at least up to your going forward costs.

[01:32:40] Speaker 01:
And that's what they did.

[01:32:42] Speaker 01:
And again, the commission pointed evidence.

[01:32:44] Speaker 01:
I'm not saying the commission made a finding on it, but the commission pointed to evidence.

[01:32:48] Speaker 01:
that dynagy bid below its going forward cost.

[01:32:52] Speaker 01:
And by the way, in common sense terms, going forward cost means what the cost would be to shut down.

[01:33:00] Speaker 01:
And the theory here is that if your bid is less than the costs that you would incur basically to shut down, then your bid for capacity is going to be a competitive bid.

[01:33:11] Speaker 01:
So that's the answer to the question.

[01:33:13] Speaker 01:
I think it goes a bit deeper than

[01:33:15] Speaker 01:
then again, any of the parties have gone here and so the commission didn't make a finding on it.

[01:33:25] Speaker 03:
What you said so far about market manipulations is actually quite helpful, but I just have one.

[01:33:29] Speaker 03:
I know I said I only didn't have any more questions, but I do have one.

[01:33:33] Speaker 03:
Take this case for example.

[01:33:35] Speaker 03:
So in a situation where the auction produced, the auction by definition produced just in reasonable rates, correct?

[01:33:44] Speaker 03:
In this case, but the commission nonetheless undertook its own investigation of market manipulation, right?

[01:33:51] Speaker 01:
It did.

[01:33:52] Speaker 03:
Okay, what kind of evidence could the commission have uncovered which would suggest that there was market manipulation even though the auction procedures were complied with?

[01:34:13] Speaker 03:
What would it look like?

[01:34:14] Speaker 03:
What would that be?

[01:34:16] Speaker 01:
So Your Honor, I'll address this in again, two parts if I can.

[01:34:20] Speaker 01:
The only one that really gets any real play in the public citizen complaint is economic withholding, which I do think is dealt with already in the commissioning complaints in paragraph 85 by the conduct threshold.

[01:34:34] Speaker 01:
Now, Your Honor mentioned a couple of other things that public citizen brought up.

[01:34:38] Speaker 01:
It brought up, for example, the initial, the acquisition that occurred in 2012.

[01:34:44] Speaker 01:
Now, the commission approved that acquisition under its Section 203 authority, and public citizens didn't seek rehearing.

[01:34:52] Speaker 01:
So that one's kind of old and stale, honestly, and beyond at least a current challenge for market manipulation.

[01:34:59] Speaker 01:
The second issue that I think Your Honor raised is how MISO makes decisions.

[01:35:05] Speaker 01:
In other words, how the stakeholders within MISO contribute to making decisions

[01:35:09] Speaker 01:
That issue actually was litigated in the 2015 order.

[01:35:14] Speaker 01:
And the commission responds to it and says, I'm not buying it.

[01:35:18] Speaker 01:
We think that the decision-making apparatus functions satisfactorily.

[01:35:24] Speaker 01:
And again, there was no challenge to that by public citizen.

[01:35:27] Speaker 01:
I don't see a market manipulation theory that public citizen has advanced here that isn't already taken care of by all of that.

[01:35:35] Speaker 01:
Now, if your question was more theoretical.

[01:35:36] Speaker 03:
I understand that.

[01:35:37] Speaker 01:
If your question was more theoretical.

[01:35:39] Speaker 03:
Okay.

[01:35:40] Speaker 03:
But suppose, just for hypothetical purposes, if the commission had concluded in its market manipulation analysis that there had been market manipulation, the remedy would have been a fine, correct?

[01:35:53] Speaker 03:
It wouldn't have affected the rates.

[01:35:54] Speaker 01:
If you find it could be disgorgement, your honor, there's various remedies.

[01:35:57] Speaker 03:
Oh, it could be disgorgement.

[01:35:59] Speaker 01:
It could be.

[01:36:00] Speaker 03:
But it wouldn't go back and reconsider the fairness or justice of the rate, right?

[01:36:06] Speaker 01:
not if it believed that the tariff provisions were satisfactory to mitigate the exercise of power in a way that would create super competitive prices.

[01:36:18] Speaker 03:
Okay, thank you.

[01:36:20] Speaker 03:
Thank you very much.

[01:36:21] Speaker 03:
I understand.

[01:36:22] Speaker 04:
So, Mr. Bress, the first argument you dealt with when you said you're going to respond to Judge Tatel's question in two parts, you said that public citizens says there was economic withholding, and you said that was dealt with by the conduct threshold.

[01:36:36] Speaker 04:
And I'd love one of your crystal clear common sense explanations of that because

[01:36:42] Speaker 04:
To my mind, that's sort of apples and oranges, that in fact, given the steep or vertical curve, that precisely one way that a provider with market power could make sure that the price is on the high side of the curve rather than the zero side is through withholding.

[01:37:07] Speaker 01:
Your honor, the type of withholding that's an issue here and that's been discussed in this case is called economic withholding.

[01:37:14] Speaker 01:
And what it means is that you bid your resources in at a super high price.

[01:37:21] Speaker 01:
Let's say you've got, let me give you an example.

[01:37:23] Speaker 01:
You've got 10 resources, 10 facilities you might be able to bid from.

[01:37:27] Speaker 01:
And for six of them, you bid them in at ungodly high prices, effectively taking them out of consideration for the auction, leaving only four facilities left to bid in at other prices.

[01:37:39] Speaker 01:
And by doing that, rendering the highest of those four, perhaps, as the clearing price in the auction.

[01:37:45] Speaker 01:
And so one of the questions here was that the commission looked at is, well, were any of the prices that were bid by Dynagy super high, if you will, in that way?

[01:37:55] Speaker 01:
How they analyzed whether they were too high was by looking at the opportunity cost of what could they, if they didn't bid it into this auction, what could they have sold it for to PJM?

[01:38:08] Speaker 01:
And because the bids were lower than what they could have sold it to in PJM, they concluded that these bids were not economic withholding.

[01:38:18] Speaker 01:
They could have just sold elsewhere and it wouldn't have been available for the auction anyhow.

[01:38:22] Speaker 01:
but they sold to this auction at a lower price than they could have sold to PJM.

[01:38:26] Speaker 01:
Therefore, their bidding prices were perfectly competitive.

[01:38:29] Speaker 01:
That's what the commission deals with that at paragraph 85 of the initial order.

[01:38:37] Speaker 04:
And the PJM prices have not themselves been challenged?

[01:38:41] Speaker 01:
No.

[01:38:42] Speaker 01:
No, and the PJM prices, Your Honor, were

[01:38:44] Speaker 01:
you know, in or around 150, some of them were higher than that.

[01:38:48] Speaker 01:
And again, you know, a lot of this is discussed even in the 2015 order from the court.

[01:38:55] Speaker 01:
So that's, again, there is a question and it's been, you know, public citizens argued it and the commission has responded to it already in this argument about, okay, but did the commission do a good enough job answering public citizens argument that the conduct threshold or reference level

[01:39:15] Speaker 01:
was not sufficient.

[01:39:16] Speaker 01:
It was not set at the right place, given what the commission had found in 2015.

[01:39:20] Speaker 01:
I don't know that I have a lot that I can add to this court's consideration on that.

[01:39:25] Speaker 01:
It's absolutely true that the commission's 2015 order gave two reasons why the reference level sort of combined, I'd say, why the reference level was insufficient.

[01:39:38] Speaker 01:
And those two reasons were basically transmission constraints on the one hand, which existed at the time of the auction and future changes to the PJM capacity construct, which hadn't gone into effect yet.

[01:39:49] Speaker 01:
And I agree completely that that leaves the question and left the question.

[01:39:54] Speaker 01:
Well, OK.

[01:39:55] Speaker 01:
But does the first of those reasons was that sufficient in and of itself to render

[01:40:02] Speaker 01:
the conduct threshold insufficient or unjust and unreasonable as the case may be.

[01:40:09] Speaker 01:
The question, I think the harder question in this case is, did public citizen do enough to put the commission on full notice?

[01:40:18] Speaker 01:
I agree that a generous reading of public citizens re-hearing petition, you can get there.

[01:40:25] Speaker 01:
But they certainly didn't raise it specifically.

[01:40:28] Speaker 01:
And if you look at that petition, they don't say there were two reasons why in 2015 the commission found the conduct threshold insufficient.

[01:40:38] Speaker 01:
They don't point that out.

[01:40:39] Speaker 01:
They don't say what's left is the question of transmission constraints.

[01:40:43] Speaker 01:
What they essentially say is, look, in 2015 you found it to be

[01:40:48] Speaker 01:
unjust and unreasonable, you have to explain why it's just and reasonable as of the time of the auction.

[01:40:55] Speaker 01:
The commission gave an answer that I will agree is general and high level.

[01:40:59] Speaker 01:
And I think the real question is, is this a Sal's ear answer to a Sal's ear argument, or is public citizens argument fairly, did it fairly apprised FERC enough that it should have given a better answer?

[01:41:15] Speaker 01:
I think that's a closer question, but that's sort of the best I can do to explain how we view it.

[01:41:20] Speaker 04:
What about, Mr. Bras, the commission's own assessment implicit in its decision not to simply dismiss in 2015 on the ground that public citizen had made a sows ear argument

[01:41:40] Speaker 04:
To me, the very fact that they said, we're only granting in part, this is super serious, we have to further look into it.

[01:41:47] Speaker 04:
And then only 2019 said, actually, oh, you never met your burden of proof in the first place.

[01:41:52] Speaker 04:
There's something about that that does not sit well.

[01:41:56] Speaker 01:
Your honor, I don't think the commission, I'm not saying that the argument was a sales year argument in 2015.

[01:42:05] Speaker 01:
And I want to be very precise about that.

[01:42:08] Speaker 01:
I think the commission did leave open a question in its 2019 order that it had said earlier it was going to address.

[01:42:17] Speaker 01:
And that's effectively whether the transmission constraints alone would have been enough to render the conduct threshold insufficient.

[01:42:28] Speaker 01:
I agree with that.

[01:42:29] Speaker 01:
I don't think

[01:42:31] Speaker 01:
that public citizens re-hearing petition did a particularly good job of focusing on that issue and explaining what it was, what evidence there had been before FERC and what FERC had to do to address it.

[01:42:44] Speaker 01:
You may end up taking FERC to task for not, you know, reading the specificity into it and answering the question and I understand that.

[01:42:51] Speaker 01:
But certainly, public citizen could have raised it in a way that was clear enough that it couldn't have been missed.

[01:42:57] Speaker 01:
And I think that's their duty under 313, which is a particularly demanding exhaustion requirement.

[01:43:04] Speaker 01:
They have to have made, as this court said in Asarco, the very argument that they raise on appeal.

[01:43:10] Speaker 01:
And I don't think, with all due respect to public citizen,

[01:43:14] Speaker 01:
I don't think that they made the very argument that you see in your appellate briefs.

[01:43:19] Speaker 01:
There was no reference in their rehearing petition to the transmission constraints that the commission had already found substantially limited the amount of capacity that could be exported to PJM.

[01:43:32] Speaker 01:
But I understand that's a closer call, Your Honor.

[01:43:35] Speaker 01:
And again, I don't think I've got any more I can do on that to help the court.

[01:43:41] Speaker 06:
I'm sorry.

[01:43:43] Speaker 06:
Did you have a question?

[01:43:44] Speaker 06:
Yeah, I do.

[01:43:45] Speaker 06:
I'm sorry.

[01:43:45] Speaker 03:
Go ahead.

[01:43:46] Speaker 06:
These transmission constraints that the commission, as you agree, acknowledged existed at the time of the 2015-16 auction.

[01:43:57] Speaker 06:
So these transmission constraints on this, this whole premise that you would, that you'd have the opportunity to sell this energy to PJM rather than here.

[01:44:08] Speaker 06:
Do you don't disagree that those transmission constraints were important factors in calculating both the conduct threshold and the, sorry, is it ILR?

[01:44:18] Speaker 06:
I can't even keep.

[01:44:19] Speaker 01:
It's the reference level, your honor.

[01:44:21] Speaker 06:
Reference level, thank you, IRL, right?

[01:44:23] Speaker 06:
Initial reference level.

[01:44:26] Speaker 06:
That they were important factors in calculating those two numbers?

[01:44:31] Speaker 01:
I think I'd phrase it differently, Your Honor.

[01:44:34] Speaker 01:
I think we may be seeing this the same way.

[01:44:36] Speaker 01:
I think the question I think you've asked is, do transmission constraints into PJM affect the reasonableness of relying on sales into PJM?

[01:44:53] Speaker 06:
And the answer is they might.

[01:44:56] Speaker 01:
The commission came to no conclusion about that right in 2015.

[01:44:59] Speaker 01:
They said there are substantial limitations, but they didn't conclude whether those limitations at the time of the auction themselves would have been enough to render

[01:45:10] Speaker 06:
You talked a lot about opportunity costs, the ability to sell into PJM versus.

[01:45:16] Speaker 01:
And how constrained was it, I guess, is the question, Your Honor.

[01:45:19] Speaker 01:
That's the question.

[01:45:20] Speaker 01:
Yes, it was limited.

[01:45:22] Speaker 01:
Was it limited enough to affect whether PJM was an adequate proxy for opportunity cost, is I guess how I'd phrase it.

[01:45:29] Speaker 06:
I mean, they found that, in fact, these sales just weren't even happening.

[01:45:32] Speaker 01:
No, they found they weren't happening.

[01:45:34] Speaker 06:
At a very low level.

[01:45:35] Speaker 01:
They were happening at a low level, Your Honor.

[01:45:37] Speaker 01:
And the question is, is that enough?

[01:45:38] Speaker 01:
And the commission obviously didn't address that in 2015.

[01:45:41] Speaker 01:
All right, thanks.

[01:45:44] Speaker 01:
Certainly.

[01:45:45] Speaker 04:
Hey, can we all just agree, Mr. Bress, that FERC needs to explain in response to Section 206 why market power, exertion of market power, market manipulation did not occur?

[01:45:59] Speaker 04:
Just as a legal matter.

[01:46:01] Speaker 04:
commission has a duty under 206 in response to a complaint to explain its conclusion that there was none.

[01:46:10] Speaker 01:
No your honor I think if the commission is able to conclude that the rate was just and reasonable it doesn't have to give any answer to was there conduct in the market that was that would count as

[01:46:25] Speaker 01:
market manipulation.

[01:46:26] Speaker 01:
That becomes irrelevant if the rate was just unreasonable.

[01:46:28] Speaker 04:
But it does need to explain why the rate was just unreasonable.

[01:46:34] Speaker 01:
It has to explain why there was a failure of proof on the 206th.

[01:46:39] Speaker 01:
If that's its basis.

[01:46:40] Speaker 01:
That it was unjust and unreasonable.

[01:46:45] Speaker 03:
All right.

[01:46:45] Speaker 03:
Okay, Mr. Gress, thank you.

[01:46:47] Speaker 01:
You're welcome.

[01:46:48] Speaker 03:
Thank you.

[01:46:50] Speaker 03:
Mr. Nelson, you were out of time, but you can have two minutes.

[01:46:56] Speaker 02:
Thank you, your honor.

[01:46:58] Speaker 02:
I want to just say at the outset that if the commission had in fact made findings that the sales prices were reasonable in light of the opportunity costs of selling into PJM in paragraph 85 of its initial decision, this would be a very different case.

[01:47:18] Speaker 02:
But that isn't what it said.

[01:47:20] Speaker 02:
All it said was,

[01:47:22] Speaker 02:
The tariff includes these provisions.

[01:47:24] Speaker 02:
They're designed to do this.

[01:47:27] Speaker 02:
It was complied with.

[01:47:28] Speaker 02:
It didn't say that those provisions were actually adequate to do what they were intended to do at the time.

[01:47:36] Speaker 02:
And for that reason,

[01:47:37] Speaker 02:
You know, saying that we should have focused more on a particular distinction in the in the rehearing request seems excessive because the commission explained absolutely nothing about its reasons for concluding that.

[01:47:56] Speaker 02:
that these prices were just and reasonable other than that the tariff provisions had been complied with.

[01:48:02] Speaker 02:
And these were tariff provisions that it itself had held prospectively unjust and unreasonable in 2015 for reasons that in the main were applicable to the 2015 auction.

[01:48:16] Speaker 02:
And it's not only the reference level that is critical here, it's also the initial clearing, the local clearing requirement, because that is the feature that made Dynagy a pivotal supplier.

[01:48:33] Speaker 02:
That's why Dynagy's bid was sufficient to set the clearing price.

[01:48:39] Speaker 02:
And had the,

[01:48:44] Speaker 02:
zones and the local clearing requirement in effect not been gerrymandered at the outset, then it wouldn't have mattered whether the bid was within the reference level because the auction never would have cleared anywhere near that price.

[01:49:00] Speaker 02:
So it's not only one feature of the auction design that the commission needed to explain.

[01:49:09] Speaker 02:
They needed to explain both

[01:49:10] Speaker 02:
features that it had held unreasonable before, and it didn't explain either one in either the initial order or the rehearing order.

[01:49:19] Speaker 04:
Mr. Nelson, can you explain exactly what relief you're seeking under which of your claims, especially the 206 claim?

[01:49:31] Speaker 02:
Well, the initial relief would be for the commission to explain in a reasoned way whether we have stated a claim that these rates were unjust and unreasonable.

[01:49:51] Speaker 04:
And when you say rates, whether the tariff at the time of the auction was unjust and unreasonable as evidenced by unjust and unreasonable auction prices?

[01:50:09] Speaker 02:
Well, you know, our ultimate position is that the prices are rates, but even under the commissions view and Vistras, the auction has to have been conducted under procedures and circumstances in which participants could not exercise market power to produce a rate that would not have obtained in a competitive market.

[01:50:39] Speaker 02:
And the initial question the commission has to explain is why it concludes or whether it can conclude that the result was just and reasonable.

[01:50:57] Speaker 02:
Ultimately, what we've maintained throughout is that this can't be decided without a hearing and discovery.

[01:51:08] Speaker 02:
But, you know, as an initial matter, the commission just has to make a reasoned explanation, which so far it hasn't provided for the disposition of the complaints, which goes to both manipulation and justness and reasonableness.

[01:51:26] Speaker 03:
Okay.

[01:51:27] Speaker 03:
Ms.

[01:51:27] Speaker 03:
Perry, Mr. Bress, Mr. Nelson, thank you for your arguments.

[01:51:30] Speaker 03:
The case is submitted.