[00:00:00] Speaker 00: Case number 20-1286 et al. [00:00:03] Speaker 00: Wabash Valley Power Association Inc. [00:00:05] Speaker 00: petitioner versus Federal Energy Regulatory Commission. [00:00:09] Speaker 00: Mr. Elliott for the petitioner, Ms. [00:00:11] Speaker 00: Pacella for the respondent. [00:00:16] Speaker 03: Thank you. [00:00:17] Speaker 03: Mr. Elliott, good morning. [00:00:19] Speaker 04: Good morning. [00:00:20] Speaker 04: Please proceed. [00:00:21] Speaker 04: Thank you. [00:00:23] Speaker 04: May it please the court, this petition concerns Burke's flawed interpretation [00:00:29] Speaker 04: an application of the Supreme Court's Mobile Sierra Doctrine. [00:00:34] Speaker 04: The court's review of FERC's interpretation of the Mobile Sierra Doctrine is de novo. [00:00:41] Speaker 04: FERC's orders do not explain why the rate and the rate setting procedure in these 20 long-term wholesale power contracts is not protected under Mobile Sierra. [00:00:56] Speaker 06: Here's a question I have for you, counsel. [00:00:59] Speaker 06: I was trying to understand why this structure would be set up whereby there's a board of directors really dominated by the distributors. [00:01:13] Speaker 06: And that if I understand correctly, the distributors actually own Wabash. [00:01:22] Speaker 06: Is that correct? [00:01:24] Speaker 04: That is correct. [00:01:25] Speaker 06: So what we have in this case [00:01:29] Speaker 06: is the distributors are paying themselves. [00:01:37] Speaker 06: And if they're paying themselves, how can it be argued that there is equal bargaining power? [00:01:51] Speaker 06: Isn't that meaningless? [00:01:56] Speaker 06: No, it is not. [00:01:57] Speaker 06: I mean, there are 20, [00:01:59] Speaker 06: In other words, this distributor has in some respects has an interest in having a high rate because it's going to get the benefit back on that. [00:02:11] Speaker 06: So how can, even if mobile theory applies, how can you be saying there's equal bargaining power when in fact the distributors are on both sides of the transaction? [00:02:24] Speaker 04: Well, there are 20 bilateral contracts between [00:02:29] Speaker 04: each member owner in Wabash Valley. [00:02:33] Speaker 04: And you are correct, the distributors own Wabash Valley. [00:02:36] Speaker 06: It is formed- So they are on both sides of the transaction. [00:02:44] Speaker 04: Not in the sense of- In economic reality. [00:02:50] Speaker 06: In economic reality. [00:02:51] Speaker 04: Contracts are not arm's length deals because each of the 20 distribution co-ops [00:02:58] Speaker 04: is a separate corporate entity with its own interest. [00:03:01] Speaker 06: They have a common interest in- Am I not correct on my proposition that the distributors are on both sides of the transaction? [00:03:10] Speaker 04: As a matter of corporate law, that is not entirely correct because Wabash- And economic terms. [00:03:21] Speaker 04: In economic terms, they have a common interest in Wabash Valley procuring the lowest cost [00:03:28] Speaker 04: rates and they have a cost of service. [00:03:32] Speaker 06: They also have a common interest in having Wabash get a high rate. [00:03:36] Speaker 04: No. [00:03:36] Speaker 06: They get the economic benefit from that. [00:03:40] Speaker 04: Well, it would be a complete wash. [00:03:42] Speaker 04: I mean, Wabash Valley is a nonprofit. [00:03:45] Speaker 04: It passes through its costs to the 20 member owners. [00:03:50] Speaker 04: So Wabash Valley either bills generation or it purchases wholesale power in the wholesale power market [00:03:57] Speaker 04: on behalf of the 20 members and then passes through the costs that it incurs to these 20 members under their long-term contracts and the formulary rate tariff. [00:04:07] Speaker 04: So it has a complete pass-through entity. [00:04:11] Speaker 04: So the 20 members have an interest in Wabash Valley holding down their costs and making the rates to them as low as possible, because it's a nonprofit. [00:04:22] Speaker 06: Perhaps, but they also get the benefit if the rates are higher. [00:04:27] Speaker 04: Well, there's a flavor in FERC's, in some of FERC's orders, particularly the orders involving RTO transmission owners in which they have a common interest as transmission owners joining an RTO in excluding other competitors. [00:04:49] Speaker 04: And FERC likened that to a lack of arm's length bargaining to entities that were merging, [00:04:55] Speaker 04: or entities that were corporate affiliates. [00:04:58] Speaker 04: But that's simply not the case with these co-ops. [00:05:03] Speaker 04: They don't have that kind of common interest. [00:05:05] Speaker 04: They're not trying to exclude other competitors and they have no interest in Wabash Vality increasing the race to them because the distribution co-ops themselves are nonprofit entities and they have to pass through whatever costs they incur to their end-use consumers that own them. [00:05:23] Speaker 04: So the entire [00:05:24] Speaker 04: interest of all the co-ops is to keep their costs down. [00:05:28] Speaker 06: Council, when a judge tries to ask a question, you're supposed to pause. [00:05:34] Speaker 04: I apologize and I know better. [00:05:37] Speaker 04: I'm sorry. [00:05:37] Speaker 06: All right. [00:05:38] Speaker 06: Now with respect to the two members who did not wish Titmont and the other one who did not wish to agree. [00:05:49] Speaker 06: Yes. [00:05:50] Speaker 06: How much bargaining power do they have? [00:05:53] Speaker 04: They have equal bargaining power with the other members. [00:05:56] Speaker 06: Well, once the majority has voted against them, what bargaining power do they have? [00:06:05] Speaker 04: Well, they've agreed in their contracts and in the bylaws of Wabash Valley to the democratic organization and governance of the Wabash Valley. [00:06:17] Speaker 06: Isn't it fair to say they had [00:06:22] Speaker 06: very little bargaining power at this point once the majority have voted against them to adopt the public interest standard? [00:06:37] Speaker 04: Well, let me clarify the record. [00:06:40] Speaker 04: I don't think either of the two, we don't know why the two co-ops who did not sign these contracts did not sign them. [00:06:46] Speaker 03: They have the same bargaining power as any other owner, but they may have very small bargaining power relative to the joint venture, the corporate entity, right? [00:07:03] Speaker 03: This is true. [00:07:04] Speaker 03: Which makes this case arguably different from a classic mobile Sierra where you have the large, [00:07:16] Speaker 03: equally powerful entities on both sides of a wholesale power transaction? [00:07:23] Speaker 04: It is unique in that the distribution cooperatives are both the hotel customers and the member owners of the BNT. [00:07:34] Speaker 04: It's different, right? [00:07:36] Speaker 03: I mean, the owner [00:07:38] Speaker 03: The owner seems very small relative to the joint venture, which to me is a fact that cuts against you. [00:07:49] Speaker 03: On the other hand, [00:07:54] Speaker 03: The fact that this is a joint venture and Judge Silverman's point about being on both sides of the transaction, I had thought that sort of cuts in your favor because you might think that these are, this is a group of people just making arrangements among themselves rather than unilaterally imposing tariffs on economically separate entities. [00:08:22] Speaker 03: Um, it just seems to me it's different from the classic mobile Sierra one-on-one large wholesale entities. [00:08:34] Speaker 04: You are exactly right. [00:08:36] Speaker 04: And I think that is our point that it is a multilateral deal involving multi-parties long-term and they want to protect it from being attacked either by a one disaffected member [00:08:49] Speaker 04: or by an outside entity or by the commission itself. [00:08:52] Speaker 04: And that's the very purpose of Mobile Sea Area is to protect the long-term contractual arrangement like that. [00:08:58] Speaker 03: If it's different in that way, why wouldn't we give FERC a measure of deference in assessing whether this is the kind of transaction [00:09:14] Speaker 03: likely to produce a just and reasonable rate either because of the economic power or the ownership relationship? [00:09:26] Speaker 04: Well, I believe the problem as a matter of matter, you are correct. [00:09:35] Speaker 04: They would get some deference in applying the facts to the law. [00:09:42] Speaker 04: And in this case, we think they have misstated the law, and we've explained that in our brief, why they've added additional restrictions on Mobile Sierra that are not in the case law. [00:09:52] Speaker 04: And they haven't really explained why the facts, which seem to be undisputed here, lead to the result to reject the application of Mobile Sierra to this. [00:10:03] Speaker 04: for the reason, the policy reason that you gave, that this is exactly the kind of thing that should be protected on Mobile Sierra. [00:10:10] Speaker 02: Mr. Elliott, what are the things that I think it's important to clarify? [00:10:16] Speaker 02: I think some of this discussion goes to whether Mobile Sierra should apply to the new contracts themselves, as opposed to whether that standard should apply to the types of changes that are mentioned in section [00:10:31] Speaker 02: 22. [00:10:32] Speaker 02: And so I guess I have a couple of questions about that section. [00:10:37] Speaker 02: So section 22, the briefing focuses a lot on the second clause of that, that there could be a unilateral change to the tariffs. [00:10:46] Speaker 02: But I guess I'm not sure I understand how the second clause fits with the first clause. [00:10:50] Speaker 02: So the first clause suggests that there can be no unilateral changes. [00:10:54] Speaker 02: And then the second clause [00:10:56] Speaker 02: says, well, if not withstanding the foregoing provision, a modification is made unilaterally, then, you know, we apply the mobile Sierra presumption. [00:11:08] Speaker 02: So I guess if you could just explain to me, what is, you know, how does section 22 to work? [00:11:15] Speaker 04: Yes, it is a classic among utility lawyers, mobile Sierra clause. [00:11:21] Speaker 04: The first clause waives the rights of the utility [00:11:26] Speaker 04: of any of the parties, I'm sorry, to unilaterally file a new rate or to file a complaint under the ordinary just and reasonable standard to effect a rate change. [00:11:43] Speaker 04: So it's bilateral waiver of rights under the ordinary just and reasonable standard, if you will. [00:11:51] Speaker 04: That's basically what Mobile and Sierra allow. [00:11:57] Speaker 04: parties can bilaterally waive their rights to change the rates. [00:12:00] Speaker 04: And so that's the first clause. [00:12:02] Speaker 04: The second clause is, if you will, a clarification that if any party nonetheless attempts to file a complaint, it's governed by the public interest standard. [00:12:17] Speaker 04: And that's because the courts have held that you cannot waive that public interest [00:12:24] Speaker 04: ability of a party to complain under the public interest standard. [00:12:28] Speaker 04: That's non-wavable. [00:12:30] Speaker 04: So the first part waives everything to the maximum extent possible. [00:12:33] Speaker 04: The second clause explains that where it cannot be waived, the public interest standard applies. [00:12:40] Speaker 02: So how does that second clause then interact with the cases which suggest that Mobile Sierra doesn't apply [00:12:47] Speaker 02: to contracts that indicate there could be a unilateral change to the rates. [00:12:53] Speaker 02: Like does the second clause suggest there can be unilateral changes? [00:13:00] Speaker 02: That means the presumption doesn't apply? [00:13:02] Speaker 04: Right. [00:13:03] Speaker 04: There are so-called Memphis Clause is an example of that. [00:13:08] Speaker 04: That would be a contract that says we agree to pay [00:13:14] Speaker 04: for 10 years, we'll buy power from you at whatever rate is then you file and is approved by FERC. [00:13:21] Speaker 04: And that would be a waiver of the right to a fixed rate by the purchaser and the seller. [00:13:32] Speaker 04: And it would preserve the seller's right to unilaterally replace the rate at any point. [00:13:37] Speaker 04: It would also preserve the buyer's right to unilaterally say, this rate is too high and needs to be replaced. [00:13:43] Speaker 04: at any point. [00:13:44] Speaker 04: So it would essentially remove the contract from the protections of Mobile Sierra. [00:13:50] Speaker 04: And so that's one of the beauties of Mobile Sierra is that it allows the parties to devise in their contract what protections they want and do not want. [00:14:02] Speaker 04: And that flexibility, whether it's to agree to a stated rate that's fixed for a long time or to a formula that's agreed upon [00:14:13] Speaker 04: but whose the input values would vary from year to year, which is what Wabash Valley has in place here. [00:14:20] Speaker 04: So Mobile Sierra protects that. [00:14:23] Speaker 04: I think it also protects an agreement like this where the purchasers, the distributors here have agreed to allow the Wabash Valley Board of Directors to devise the tariff [00:14:38] Speaker 02: So I guess my question is whether the tariff itself here is a contract rate or not. [00:14:47] Speaker 02: The second, I mean, whether it is or not, you know, the second clause of section 22 seems to suggest that, you know, there could be a unilateral change to the tariff. [00:15:00] Speaker 02: And it seems to me that partly what FERC is saying is that Mobile Sierra doesn't apply to those changes because they're unilateral. [00:15:10] Speaker 04: Well, the... So even if the tariff itself was a contract rate. [00:15:15] Speaker 02: Yeah, I'm sorry. [00:15:16] Speaker 02: I said, even if the tariff was, you know, the formulary tariff was a contract rate, a unilateral change to that tariff would not be part of the contract rate. [00:15:27] Speaker 02: And so therefore not get the Mobile Sierra presumption. [00:15:31] Speaker 04: I'm not sure if that's FERC's rationale because they basically say it's a tariff and it doesn't [00:15:39] Speaker 04: Mogo Fierro does not apply, period. [00:15:43] Speaker 04: But embedded within the idea of a tariff in all of the case law is the idea that you just expressed of the ability of the seller to unilaterally set the rate. [00:15:54] Speaker 04: That's what a tariff is. [00:15:57] Speaker 04: And that's lacking here because Wabash Valley's management cannot unilaterally change the rate. [00:16:04] Speaker 04: It's the board of directors controlled by the members. [00:16:07] Speaker 04: And that's [00:16:08] Speaker 04: preserved in the contract. [00:16:09] Speaker 04: And that's an important distinction in that, as Judge Silverman said at the beginning, in some sense puts the distribution on both sides of the contract, but it enables them to control the rate and through the board of directors that is charged to them and to contain the costs. [00:16:28] Speaker 04: So in that sense, it's not unilateral. [00:16:31] Speaker 04: It is part and parcel of their contractual agreement with Wabash Fowling. [00:16:37] Speaker 04: and by extension with each other to have this tariff be the rate that is in every contract. [00:16:45] Speaker 04: That's a feature, and that's deliberate. [00:16:48] Speaker 04: Everybody wants to be charged the same rate and not be discriminated against. [00:16:52] Speaker 04: And by design, they have incorporated in each contract a common tariff. [00:16:57] Speaker 04: They could have written it into each contract, been more cumbersome. [00:17:01] Speaker 04: They've done it this way, and I don't think that makes a difference legally from what we'll see [00:17:06] Speaker 06: But isn't it fair to say, going back to my point, that the distributors have somewhat less incentive to insist on the lowest price because they get the benefit economically of a higher price. [00:17:26] Speaker 06: So therefore, couldn't it be argued that the consumer is hurt then possibly by this arrangement? [00:17:37] Speaker 06: Because FERC can't use its normal standard of just and reasonable. [00:17:47] Speaker 04: Well, I would begin by saying that FERC accepted this cost-based tariff in 2005 as just and reasonable. [00:17:53] Speaker 04: And that's an important point that I want the court to know. [00:17:56] Speaker 04: That's not changing here. [00:17:58] Speaker 04: It's just a new set of contracts that are continuing to use the same existing cost-based tariff that FERC [00:18:06] Speaker 04: long ago approved. [00:18:08] Speaker 04: So FERC has already found that consumers are protected by this cost-based rate. [00:18:16] Speaker 04: But we're talking about future changes. [00:18:18] Speaker 04: We're talking about future changes. [00:18:20] Speaker 04: Yes. [00:18:21] Speaker 04: But this entire enterprise, I mean, the members have boards of directors and they're controlled by consumers. [00:18:29] Speaker 04: And the Wabash Valley then is in turn controlled by the distributors through its board of directors. [00:18:35] Speaker 04: This is a consumer-owned, consumer-governed enterprise. [00:18:40] Speaker 06: Well, it depends on who you're talking about as a consumer, not the house that buys electricity. [00:18:49] Speaker 06: But you've seen the point. [00:18:52] Speaker 06: Well, it's a two-level cooperative, a cooperative of cooperatives, but in the end, they are all... May I ask you, what is the economic reason to set up this unusual structure? [00:19:05] Speaker 04: It's not unusual. [00:19:06] Speaker 04: There are 65 of these entities. [00:19:08] Speaker 04: They cover much of the country. [00:19:10] Speaker 04: Wabash Valley is very typical. [00:19:12] Speaker 04: Only about eight of them are regulated by FERC. [00:19:15] Speaker 06: Well, okay. [00:19:16] Speaker 06: What is the reason for it? [00:19:17] Speaker 04: The reason is economies of scale to build generation on their own or to acquire it through long-term wholesale power contracts. [00:19:29] Speaker 04: That Wabash Valley, it's a much larger enterprise than any of the small distributors, [00:19:33] Speaker 04: It has more bargaining leverage and more technical capabilities. [00:19:38] Speaker 04: It's just able to procure rates at a more competitive lower cost than the individual distributors could on their own. [00:19:47] Speaker 06: They were set up mainly. [00:19:48] Speaker 06: Let me go back to Judge Katz's point. [00:19:53] Speaker 06: Although in the Morgan case, Justice Scalia said, [00:20:03] Speaker 06: we could affirm on any grounds, we wouldn't have to remand. [00:20:10] Speaker 06: His point seems to me very powerful, that this is an arrangement which is really not contemplated by Mobile Sierra at all. [00:20:28] Speaker 06: It's an unusual situation compared with the hypotheticals [00:20:33] Speaker 06: that Mobile Sierra deals with. [00:20:35] Speaker 06: So therefore, why shouldn't we defer to FERC on this? [00:20:41] Speaker 04: Well, FERC Mobile Sierra says that contracts freely negotiated are to be presumed to be just and reasonable under the Mobile Sierra Doctrine and protected. [00:20:54] Speaker 04: The fact that this is not an investor-owned utility selling to 20 distributors [00:21:02] Speaker 04: does not change the fact that these are long-term contracts that are used by the distribution co-ops and the GNT that they're a member of for purposes of investment. [00:21:14] Speaker 04: I mean, a GNT cooperative goes into the capital markets to get loans in order to finance its generation purchases and its generation building. [00:21:24] Speaker 04: These are large, they go to Wall Street for money. [00:21:28] Speaker 04: Protecting these long-term 50-year contracts is the lifeblood [00:21:32] Speaker 04: of a G and T cooperative. [00:21:34] Speaker 04: That's why the policy of Mobile Sierra would apply here even more strongly than it would in the case of a bilateral power contract like in Morgan Stanley. [00:21:44] Speaker 06: What prompted the WABOSH Board of Directors to wish to add in the new contract the public interest standard rather than just unreasonable? [00:21:58] Speaker 06: To protect the contract. [00:22:01] Speaker 06: I shouldn't say, [00:22:02] Speaker 06: rather than just unreasonable, rather than just unreasonable as implemented by FERC. [00:22:11] Speaker 04: To protect, to provide further protection of the contracts from either being modified by a single member who could file a complaint at FERC and say, and upset the whole apple cart for everyone. [00:22:27] Speaker 04: They don't want that to happen. [00:22:29] Speaker 04: And so all the members agreed not to do that. [00:22:32] Speaker 04: And it's to protect the integrity of the contracts. [00:22:38] Speaker 02: I mean, a related question to what Judge Silverman just asked. [00:22:44] Speaker 02: I mean, can private parties change FERC standard of review by contract? [00:22:50] Speaker 02: I mean, so either Mobile Sierra applies because there's contract rate or it doesn't, but why does it matter what a private contract says about the standard that FERC should apply? [00:23:04] Speaker 04: Well, that is a good question. [00:23:07] Speaker 04: I mean, I think if Section 22, the second clause of Section 22 were not there, the contract would still be protected by Mobile Sierra because that is the default rule. [00:23:18] Speaker 04: So if the parties agree to a long-term contract and they waive their rights to change it during the term of the contract, that's mobile Sierra. [00:23:26] Speaker 02: So then why does Wabash care if this clause remains in the contracts? [00:23:36] Speaker 04: Well, it clarifies, I'm sorry. [00:23:39] Speaker 02: No, I mean, since FERC rejected the contracts without prejudice, I mean, why not resubmit the contracts without this clause? [00:23:45] Speaker 02: I mean, I guess just practically speaking, what is so important about including this clause in the contracts? [00:23:52] Speaker 04: Yeah. [00:23:53] Speaker 04: Well, given FERC's rationale in this order, and then they noted they've repeated it in a couple of other recent orders involving other distribution co-ops that have become newly regulated by FERC, unlike Wabash Valley, which has been regulated for years. [00:24:09] Speaker 04: FERC has essentially said the tariff, a G&T cooperative cannot adopt a common tariff that applies to all of its members, whether that is a stated rate as in the tri-state case or a formula rate as in the case of Longash Valley, and then have it protected as mobile Sierra. [00:24:30] Speaker 04: And before this, the orders in these cases [00:24:34] Speaker 04: I think Wabash Valley would have presumed that its formulary rate tariff was protected because it's part and parcel of their contracts. [00:24:42] Speaker 04: Given FERC's order now rejecting these three words in the section 22, the implication seems to be that any member of Wabash Valley or a third party who wants to cherry pick off some of the members of Wabash Valley and come in and could attack the formulary rate tariff and say that [00:25:03] Speaker 04: that it's unjust and unreasonable. [00:25:06] Speaker 04: And that's not beyond the realm of contemplation. [00:25:10] Speaker 06: So- Can I interrupt for a moment? [00:25:13] Speaker 04: Really undermine- What do you mean? [00:25:15] Speaker 06: What do you mean council to say someone could pick off cherry pick from outside? [00:25:21] Speaker 06: What are you talking about? [00:25:23] Speaker 04: A power marketer that would like to sell to one of the distribution cooperative members of Wabash Valley could argue, could attempt to [00:25:31] Speaker 04: undermine the integrity of the entire enterprise by attacking the formulary rate tariff saying that it's unjust and unreasonable because it excludes them or it handcuffs the ability of one of the distributors to buy power from someone else. [00:25:50] Speaker 04: And say that the rate that they've all agreed to is unlawful and unjust and unreasonable. [00:26:00] Speaker 04: essentially deprives the GNT and its members of the ability to protect their long-term contractual arrangement, including the rates. [00:26:11] Speaker 06: What about a consumer group? [00:26:14] Speaker 06: Could a consumer group attack this? [00:26:17] Speaker 04: The purpose of the mobile Sierra clause, as clarified in the NRG power case, is to protect it from all comers, including the non-contractive parties. [00:26:28] Speaker 06: But if you did not have the public interest standard by contract, a consumer group would more easily be able to attack this as the standard just and reasonable calculation on the part of FERC. [00:26:45] Speaker 04: Yes, anyone could, yes. [00:26:49] Speaker 02: Would the contract make a difference in that case? [00:26:52] Speaker 02: I mean, wouldn't FERC simply apply the standard FERC was going to apply? [00:26:58] Speaker 02: Like, could the contract change the standard that FERC applies? [00:27:03] Speaker 04: Well, Mobile Sierra does implicitly do that, yes. [00:27:10] Speaker 04: It says that FERC is required to presume that a contractually agreed upon rating. [00:27:16] Speaker 02: No, no, I understand that, but the inclusion of a Mobile Sierra clause, would that change? [00:27:23] Speaker 04: Yes. [00:27:24] Speaker 04: Yeah, well, I mean, the case law, [00:27:27] Speaker 04: is that if the contract is silent, but it's a fixed rate or a long-term contract, Mobile Sierra applies to that contract by default. [00:27:38] Speaker 04: And so the rates agreed upon are protected by default. [00:27:42] Speaker 04: That's the case law now. [00:27:44] Speaker 04: And- Could I ask you about- Including a Mobile Sierra clause clarifies beyond per adventure, what the rules are, I guess. [00:27:54] Speaker 03: Could I ask you about how the system worked under the old contracts? [00:28:02] Speaker 03: The old contracts, the members agree to rates established by the board, by the board of directors, but there's a very important caveat in that, which is the revisions don't become effective [00:28:21] Speaker 03: unless and until FERC approves them. [00:28:25] Speaker 03: So FERC has been reviewing these rates. [00:28:31] Speaker 03: Did they review them under the ordinary just and reasonable standard or under the public interest only standard? [00:28:42] Speaker 04: They reviewed them in 2005 when the formulary rate tariff was applied under the ordinary just and reasonable standard. [00:28:51] Speaker 03: And the changes to the rates? [00:28:54] Speaker 04: I mean, the rate is the formula. [00:28:57] Speaker 04: And so Wabash Valley is not required annually to update that with the filing at FERC under section 205. [00:29:06] Speaker 04: So the rate. [00:29:07] Speaker 03: But whenever they seek to change a rate, whether in 2005 or later, FERC reviewed that under the ordinary standard, correct? [00:29:19] Speaker 04: Yes. [00:29:20] Speaker 03: Okay, so I mean that if the antecedent arrangement was order directors sets the rate subject to ordinary, just and reasonable review, right? [00:29:38] Speaker 03: That's what Tipmont and all the other owners agreed to. [00:29:45] Speaker 03: And now, [00:29:47] Speaker 03: Tipmont and all the other owners are having imposed on them the different standard of review over Tipmont's objection. [00:29:57] Speaker 03: Why isn't that an abrogation of the old contract? [00:30:06] Speaker 03: You're imposing that on Tipmont without Tipmont's agreement. [00:30:12] Speaker 04: The procedure's not changed. [00:30:14] Speaker 04: The operative language of the contracts is the same. [00:30:17] Speaker 04: except for the Mobile Sierra Clause in Section 22. [00:30:21] Speaker 04: Everything else is the same. [00:30:23] Speaker 04: I think the 1977 contracts were written before Wabash Valley was regulated by FERC, and so they have a bit more general reference to regulatory authority. [00:30:34] Speaker 04: But when the contracts were filed and the Formulary Rate Tariff in 2004, FERC said the 1977 contract allows [00:30:46] Speaker 04: FERC to review the formulary rate tariff and it's consistent with the contracts. [00:30:51] Speaker 03: Under the under ordinary justice standards. [00:31:02] Speaker 03: I read the old contracts as effectively having a Memphis clause. [00:31:10] Speaker 03: The parties are preserving FERC's ability to review the rate under ordinary, just and reasonable standards. [00:31:23] Speaker 04: Well, the contracts then were silent as to the standard that applied. [00:31:29] Speaker 03: They explicitly said the rates don't become effective [00:31:33] Speaker 03: until FERC approves. [00:31:36] Speaker 03: And if you construe that to mean only that FERC reviews for just and reasonable, I'm sorry, for public interest, then A, that's not what actually happened based on what you told me. [00:31:48] Speaker 03: And B, that contract provision would do nothing since public interest review is a non-wavable feature of the statute anyway. [00:32:00] Speaker 03: Yes. [00:32:00] Speaker 04: Well, in [00:32:03] Speaker 04: This is before Morgan Stanley. [00:32:08] Speaker 04: FERC's position was that when a contract is first filed with them, they review it under the ordinary, just, and reasonable standard. [00:32:16] Speaker 04: Morgan Stanley reversed that rule and said that FERC is required to apply the mobile Sierra presumption when a contract is first filed. [00:32:30] Speaker 03: unless the parties contract around that default rule. [00:32:34] Speaker 06: Yes. [00:32:35] Speaker 06: By the Memphis clause. [00:32:36] Speaker 03: Yeah. [00:32:37] Speaker 04: Well, as I recall, in the 2004 order where they accepted the formulary rate tariff and the contracts for filing, they dealt with this contractual language and said, which was contemplating state regulation of Wabash Valley in 1977, and said that it was consistent with [00:32:59] Speaker 04: Section 205 and it enabled Wabash Valley to file the contracts, notwithstanding the reference to other regulatory authorities. [00:33:13] Speaker 03: Suppose the old contracts had said the following. [00:33:21] Speaker 03: Order directors gets to set the rate, but [00:33:26] Speaker 03: FERC gets to review the rates. [00:33:32] Speaker 03: And then it had one more step from the actual contract, which is it explicitly said FERC's review is under ordinary, just and reasonable standards. [00:33:43] Speaker 03: If that was what the antecedent contracts had said, this amendment would be no good, correct? [00:33:54] Speaker 04: by, by, well, I mean, the parties have agreed to it, agreed to this and that. [00:34:01] Speaker 04: And they didn't sign a contract. [00:34:03] Speaker 04: I mean, so that doesn't matter. [00:34:05] Speaker 04: The 2020 members, 21 members agreed to it. [00:34:08] Speaker 04: Tim Mount was given the opportunity to keep their existing contract and they did. [00:34:13] Speaker 04: So how are, how are, they're not made any worse off. [00:34:16] Speaker 04: They kept, they offered a better deal and they turned in, in Wabash Alley's view, [00:34:20] Speaker 04: they turned it down. [00:34:23] Speaker 03: You said earlier that the tariff rates, this arrangement is not severable by owner. [00:34:31] Speaker 03: The tariff rates are going to be what they're going to be and they're going to apply to Tipmont no less than to the 22 owners who approved the contract, right? [00:34:40] Speaker 03: That is correct. [00:34:41] Speaker 03: So all of the owners, whether they approve the new contract or not, are giving up at the [00:34:50] Speaker 03: their antecedent right to have FERC review the rates under an ordinary, just and reasonable standard. [00:35:01] Speaker 04: Well, I think they gave up that right when the contracts were filed at FERC under Morgan Stanley. [00:35:06] Speaker 06: Which contracts? [00:35:08] Speaker 06: I'm a little confused. [00:35:10] Speaker 06: The original contracts or the amended contracts? [00:35:14] Speaker 04: I believe Judge Katz's question was about the original. [00:35:18] Speaker 04: About the original, right. [00:35:20] Speaker 03: In other words, I understand your argument that the original contracts don't have a Memphis clause because they're silent on the standard of review. [00:35:34] Speaker 03: And we can debate that point. [00:35:36] Speaker 03: I'm just saying if they did have a Memphis clause, I don't see how the amended contract [00:35:46] Speaker 03: would be valid because it is imposing the new standard of review and therefore the new tariff rates on the objecting members. [00:36:00] Speaker 03: It's abrogating their antecedent contract, which includes the right to FERC review. [00:36:13] Speaker 04: Assuming there was a [00:36:15] Speaker 04: a Memphis clause in the original contracts I think you may be correct. [00:36:27] Speaker 03: So this ultimately comes down to how we should construe the original contracts which on the one hand say FERC gets to review rates but on the other hand is silent about standard of review. [00:36:47] Speaker 04: Yes, Senator Morgan, but of course, in these orders, FERC undertakes none of these examinations of fact-finding of any of the contractual relationships between the parties, either in 1977, 2006, or today. [00:37:04] Speaker 04: And so FERC has made none of that kind of fact-finding inquiry and has not construed the original contracts. [00:37:11] Speaker 03: Fair enough, fair enough. [00:37:12] Speaker 03: But if we're construing Mobile Sierra rather than [00:37:17] Speaker 03: I'm construing a discretionary decision by FERC. [00:37:21] Speaker 03: I'm not sure that matters. [00:37:25] Speaker 06: I would like to make sure I understand what the I thought the new contract simply extended the period of time. [00:37:36] Speaker 06: Isn't that correct? [00:37:37] Speaker 06: And they do bend and immediately extended the period of time and immediately apply they [00:37:47] Speaker 06: a public interest standard? [00:37:51] Speaker 06: Yes. [00:37:51] Speaker 06: To the existing contracts? [00:37:54] Speaker 06: No, to the new contracts. [00:37:55] Speaker 06: To the new contracts which replace the existing contracts? [00:37:59] Speaker 04: Yes. [00:38:00] Speaker 06: Okay. [00:38:01] Speaker 06: So the old contracts are null and void under your theories? [00:38:08] Speaker 04: Only to the signatories. [00:38:11] Speaker 04: I mean, there are two members who did not sign the new contract. [00:38:14] Speaker 06: That's what I really want to focus on. [00:38:16] Speaker 06: The two members that didn't sign, therefore have the benefit of the old contract at least up to, what is it, 2050. [00:38:27] Speaker 06: So they're perfectly fat and happy with the old contract up until 2050. [00:38:34] Speaker 04: They are bound by them. [00:38:39] Speaker 04: I don't know how, what TIPMOD is it? [00:38:41] Speaker 04: Another litigation is attempting to terminate that contract. [00:38:44] Speaker 06: Oh, well, okay. [00:38:45] Speaker 06: Now I'm really confused. [00:38:46] Speaker 06: Tidmon wants to terminate that contract. [00:38:48] Speaker 04: They do. [00:38:49] Speaker 04: In other litigation, they're attempting to do so before the 2050, immediately. [00:38:57] Speaker 04: For what purpose? [00:38:59] Speaker 04: So they can purchase from someone else. [00:39:01] Speaker 06: Yeah, that's what I thought. [00:39:04] Speaker 06: So they have that option. [00:39:06] Speaker 06: Does that make them have bargaining power, in your view? [00:39:12] Speaker 04: Well, they have the option to buy out their existing contract and the dispute between Wabash and Tipmott, which is in litigation at FERC right now, is the amount of the buyout and the period of the buyout, the notice period. [00:39:30] Speaker 04: And that gives Tipmott some bargaining leverage, yes, in answer to your question. [00:39:42] Speaker 04: The important, a key thing that I think I don't want the court to lose sight of is that the formula rate is a cost-based rate already approved by FERC. [00:39:51] Speaker 04: It's just unreasonable. [00:39:53] Speaker 04: It's going to apply to all the members under both contracts. [00:39:58] Speaker 06: Let me ask you again, what do you know is the position of Titmont as to why they didn't want to agree to the modified contract? [00:40:11] Speaker 04: didn't like the extended term. [00:40:14] Speaker 04: They didn't like some of the provisions that dealt with the respective rights and obligations of Wabash and the members to implement PURPA, to buy from qualifying facilities. [00:40:26] Speaker 04: They wanted to retain the ability to purchase from qualifying facilities, distributed generation. [00:40:32] Speaker 04: They wanted more liberal rules to allowing them to use local distributed generation rather than buying from Wabash Valley. [00:40:40] Speaker 04: But they wanted a looser. [00:40:41] Speaker 06: But their challenge here is to the public interest standard. [00:40:46] Speaker 04: Well, they, yes, I mean, they've intervened in support of FERC here. [00:40:51] Speaker 04: But if you go look at their protest, pages 16 to 18 of their protest back in the Joint Appendix, you'll see they didn't raise any of the arguments that are in FERC's orders about Section 22. [00:41:02] Speaker 04: In fact, they made a claim that the contracts, Section 5 and 11, prevent them from filing any [00:41:09] Speaker 04: protest to the rates and deprive them of all rights. [00:41:13] Speaker 04: And that's clearly not the case because they retain the rights to file a complaint under the public interest standards. [00:41:19] Speaker 04: So they overplay their hand in their protest. [00:41:22] Speaker 04: They object to the contracts for many reasons, if you see in their protest in the joint appendix. [00:41:32] Speaker 04: But the argument that we're now having about the formulary rates era was not one of their arguments. [00:41:38] Speaker 04: and they've never protested the formulary rate tariff or sought to change it at first. [00:41:44] Speaker 04: So it works as a completely separate. [00:41:47] Speaker 06: I'll have some questions for the intervener on that respect. [00:41:51] Speaker 06: Okay. [00:41:53] Speaker 03: Jeff Silberman, anything else? [00:41:55] Speaker 03: No, sir. [00:41:56] Speaker 03: All right. [00:41:57] Speaker 03: Thank you, Mr. Elliott. [00:41:59] Speaker 03: Thank you. [00:42:00] Speaker 03: Ms. [00:42:00] Speaker 03: Pacella, we'll hear from you. [00:42:02] Speaker 01: Good morning, Your Honors. [00:42:07] Speaker 01: Consistent with the Supreme Court's discourse and the Commission's precedent, the Commission reasonably rejected Wabash's proposal to require the Commission to presume the justness and reasonableness of Wabash's tariff, not its contracts, its tariff, since its terms are not individually negotiated, but are set by Wabash's board of directors and applied generally. [00:42:29] Speaker 06: You're not suggesting that that term formula, formulary tariff, [00:42:35] Speaker 06: is inconsistent with a contract. [00:42:38] Speaker 06: Are you? [00:42:40] Speaker 01: Yes, the commission found that the tariff is not a contract, your honor. [00:42:45] Speaker 06: No, they found that there was no contract here, but not because of the label of formula tariff. [00:42:52] Speaker 01: No, no, no, no. [00:42:53] Speaker 01: Okay. [00:42:54] Speaker 01: Because the because the tariff is generally applicable and it is not individually negotiated. [00:43:00] Speaker 06: Here's my question for you on that. [00:43:05] Speaker 06: Suppose two companies negotiate with two distribution companies negotiate together with a power company. [00:43:16] Speaker 06: Is that, in your view, [00:43:18] Speaker 06: automatically a tariff because there's more than one company negotiating? [00:43:22] Speaker 01: No, if it's individual negotiation, if each of the members is actually part of that negotiation and is able to do, because listen, the underlying premise of Mobile Sierra, Your Honor, is that in wholesome markets- Wait, wait, wait, wait, Council, I'm just trying to understand your position before the argument. [00:43:40] Speaker 06: So if four companies were to agree to bargain together with a powerful generator, that would be [00:43:48] Speaker 06: perfectly all right as a contract under Mobile Sierra. [00:43:54] Speaker 01: Yes, because that would have the arms lane bargaining, the parties with adversarial. [00:43:58] Speaker 06: Then why do you use this term individualized? [00:44:02] Speaker 06: It doesn't make any sense. [00:44:03] Speaker 01: It's individualized negotiation, Your Honor. [00:44:05] Speaker 01: So the point is that it has to be each individual has to on [00:44:10] Speaker 01: who's gonna end up, I'm sorry. [00:44:12] Speaker 03: I think Judge Silverman's hypothetical is two powerful owners make the structure we have here, which is they create a co-op, which has a board of directors, which sets the rate. [00:44:31] Speaker 06: In other words, by the use of the word individualized negotiation, you don't mean it has to be a negotiation [00:44:40] Speaker 06: with just two companies? [00:44:42] Speaker 01: No, it means it can't be by majority vote, Your Honor. [00:44:45] Speaker 01: So the problem with the tariff being subject to mobile Sierra presumption of justice and reasonableness is that you don't have what the underlying premise and forgive me for going back to that, but I really think that that's the key to this case. [00:45:00] Speaker 01: The underlying premise of requiring the commission to apply the presumption of justice and reasonableness to contracts [00:45:08] Speaker 01: is because in wholesale markets, the party charging the rate and the party charged are often sophisticated businesses enjoying presumptively equal bargaining power who could be expected to negotiate a just and reasonable rate as between the two of them. [00:45:23] Speaker 01: So that's where the commission is getting the individual language from is because it's between the two of them. [00:45:28] Speaker 01: But that can happen the same way if it's a room filled with everybody, if everybody's there. [00:45:33] Speaker 01: and everybody doesn't just get an equal vote, but they can't be overruled by the majority. [00:45:39] Speaker 01: You have to have an individual negotiation. [00:45:42] Speaker 01: You have to be able to go head to head with your equal bargaining power. [00:45:45] Speaker 01: And that's not what it was regarding the tariff here. [00:45:48] Speaker 06: So in this case, if you had the same structure, board of directors, in which the provision was we can't [00:46:01] Speaker 06: We do not have a position with respect to the contract relating to the rates. [00:46:08] Speaker 06: Unless you have unanimous agreement, then you would say that's mobile Sierra. [00:46:16] Speaker 01: I think that the commission would find that part of the problem is solved for sure. [00:46:23] Speaker 01: I think, I think, yes, arguably, the commission would find that you would know that you would know that these entities with equal bargaining power have the opportunity to get in there and actually negotiate something. [00:46:36] Speaker 01: And that's why you can presume it's just unreasonable. [00:46:41] Speaker 06: I see. [00:46:42] Speaker 06: So even if all the parties agreed in this case, the fact that the provision requiring majority vote [00:46:53] Speaker 06: would be objectionable to FERC, even if none of the members objected. [00:47:00] Speaker 01: That's right, Your Honor, because it's going forward. [00:47:03] Speaker 01: The board can change the rate going forward, right? [00:47:07] Speaker 01: And that's, again, that's fine. [00:47:10] Speaker 01: The board can change the rate going forward. [00:47:11] Speaker 06: The problem is you can't then presume. [00:47:15] Speaker 06: That is a very interesting response to my question. [00:47:20] Speaker 06: But why didn't FERC say that? [00:47:23] Speaker 06: Burke did say that. [00:47:24] Speaker 01: What the commission said in the orders was, first it said the mobile CR presumption, public interest presumption applies only to rates set out in a freely negotiated wholesale energy contract. [00:47:39] Speaker 01: That's in paragraph 12 at JA 184. [00:47:42] Speaker 01: And then it explains thus to ascertain whether the instrument at issue is a freely negotiated contract. [00:47:48] Speaker 01: The commission determines whether it embodies an individualized contract. [00:47:53] Speaker 06: Council, FERC did not say the point that you made. [00:47:57] Speaker 06: Now it may well be under Morgan, we can consider matters that FERC did not rely on, but they certainly didn't say what you just said, which I must say makes more sense than the FERC order. [00:48:16] Speaker 06: FERC never said the problem with this case is that [00:48:23] Speaker 06: that you have majority vote amongst the members that could bind members who disagree, like Titmott. [00:48:39] Speaker 01: I think that you can discern that from the commission's order, Your Honor. [00:48:43] Speaker 01: Forgive me. [00:48:45] Speaker 01: Let me point you to the hearing order at JA 223, paragraph 15, where the commission said, [00:48:52] Speaker 01: the mobile CR presumption doesn't apply to this formulary rate tariff since it's generally applicable and it's not negotiated between Wabash and its executing members on an individualized basis. [00:49:04] Speaker 01: Rather, the Wabash Board of Directors determines the rates provided in the formulary rate tariff. [00:49:10] Speaker 06: And we know from the record that that means- You can stretch, you can stretch on that. [00:49:14] Speaker 06: Well, it's a very- It's discernible. [00:49:19] Speaker 06: It's a very interesting point, counsel. [00:49:21] Speaker 03: Would Mobile Sierra apply to this set of contracts if the members had unanimously approved them? [00:49:41] Speaker 01: If the members had unanimously approved the tariff, the provision regarding the tariff, because again, the commission's orders are only regarding the tariff, not regarding the contracts. [00:49:51] Speaker 01: The commission did not rule whether the contracts could have a mobile CI. [00:49:56] Speaker 01: If all of the members had agreed, I think not because the commission said it also is a generably applicable tariff, and that's the other part of the commission's holding it. [00:50:10] Speaker 01: It has two [00:50:11] Speaker 01: there are two criteria that are alternative. [00:50:15] Speaker 01: And one is that it's generally applicable. [00:50:17] Speaker 01: The other one is that it has to be individually negotiated. [00:50:20] Speaker 01: And so I think the tariff could apply to new members that join. [00:50:29] Speaker 01: And it's not hard. [00:50:30] Speaker 01: And as we pointed out in our brief, it's not hard to become a member of Wabash Valley. [00:50:34] Speaker 01: You really just have to apply and you agree to [00:50:39] Speaker 01: agree by the bylaws and whatever other rules there are. [00:50:42] Speaker 01: So it's not difficult to become a member. [00:50:45] Speaker 01: It's not inconceivable. [00:50:46] Speaker 06: The petitioner says that's speculative, that you don't know how they would treat a new member. [00:50:54] Speaker 01: Well, we know that the tariff would apply to the tariff applies to all Wabash members. [00:50:59] Speaker 01: That's conceded and that's a given. [00:51:01] Speaker 01: So anyone who's a member of Wabash Valley has to pay that tariff rate. [00:51:06] Speaker 01: And if it's subject to the public interest standard, that entity certainly hasn't agreed. [00:51:11] Speaker 01: And we know under NRG that this is going to be applicable to third parties. [00:51:17] Speaker 01: So new members would have to pay a tariff rate, not have the ability to challenge it as not being ordinary just from reasonable standard, but only could challenge it for purposes of public interest. [00:51:30] Speaker 06: I don't understand that it's generally applicable. [00:51:34] Speaker 06: as being a different point from the individualized notion. [00:51:40] Speaker 06: What do you mean? [00:51:41] Speaker 01: So the commission's point about that is that it would automatically apply to new members, not just, they weren't even there to potentially try to individually negotiate this, because they weren't members at the time. [00:51:58] Speaker 01: But because the tariff automatically applies to all Wabash Valley members, [00:52:03] Speaker 01: That is a general belief. [00:52:06] Speaker 06: That's really quite related to the question I was trying to get to in which Judge Katz has pointed out. [00:52:15] Speaker 06: If I understand the logic of your position, even if everybody agreed in this case, all the members, all the distributors agreed, you would say it's still [00:52:34] Speaker 06: The provision that allows majority rule to govern makes it inconsistent with an individualized, whether you have a strange use of the term individualized, and therefore would not qualify under Mobile Sierra. [00:53:00] Speaker 06: Is that correct? [00:53:01] Speaker 06: That's right, because- Whether or not anybody disagreed in this case. [00:53:08] Speaker 01: Yes, because that tariff with the mobile Sierra presumption of justice and reasonableness would apply to new members as well. [00:53:18] Speaker 01: And they were not part of this negotiation. [00:53:20] Speaker 06: No, no, no, no, no, no. [00:53:22] Speaker 06: Even if there were no new members, your position is, [00:53:27] Speaker 06: Even if this didn't apply to new members at all, there was no question about that. [00:53:33] Speaker 06: You would say, if I understand you correctly, even if we only deal with the members that we have, the provision in the contract that requires majority rule is inconsistent with individualized negotiation. [00:53:52] Speaker 01: Yeah, the provisions on the contracts, Your Honor, it's in the bylaws. [00:53:55] Speaker 01: But yes, that provision makes it innately because it makes it innately inconsistent with being able to presume that entities with equal bargaining power got together and negotiated something. [00:54:07] Speaker 01: That's why we can presume that the rate is just unreasonable, because when you have wholesale sophisticated entities, [00:54:14] Speaker 01: doing that kind of bargaining, you can presume that they'd come out to adjust a reasonable rate. [00:54:19] Speaker 01: But you can't presume that when not everybody actually gets their say in this negotiation. [00:54:26] Speaker 06: What do you make of the observation, which Judge Casas and I perhaps disagree as to the significance, that in this case, the members are on both sides of the transaction? [00:54:41] Speaker 01: What do you make of that? [00:54:43] Speaker 01: For sure, the Supreme Court and this court's case law do talk about the importance of arm's length negotiations. [00:54:52] Speaker 01: And arm's length negotiations have to be between adversarial parties with different interests. [00:55:00] Speaker 01: And I think that arguably the, not even arguably, I mean, these are all member owner customers [00:55:12] Speaker 01: So they are both buyers and sellers here, and they have a common interest. [00:55:21] Speaker 01: This is or not arm's length. [00:55:24] Speaker 01: But that's really, I think, more towards the, well, maybe not. [00:55:30] Speaker 01: It is a tariff question, too. [00:55:34] Speaker 01: the intervener Titmon talks about either in the record or in their appellate brief, talks about how not every member has the same purchasing. [00:55:47] Speaker 01: Some buy more than other entities within Wabash Valley. [00:55:54] Speaker 01: And so even though each member gets an individual vote, some parties might be more interested in trying to get a rate higher [00:56:03] Speaker 01: set higher than someone else because these are also competing entities. [00:56:08] Speaker 01: So it's kind of an interesting quagmire there. [00:56:13] Speaker 01: So the one equal vote, it's not really based on how much you actually purchased through Wabash Valley. [00:56:21] Speaker 01: And I'm sorry, Mr. Elliott, please correct me if I'm not correct about that. [00:56:30] Speaker 01: I think it is important [00:56:33] Speaker 01: to recognize that while we don't get deference in interpreting the Supreme Court's case law, we do get deference in applying that case law to these facts. [00:56:44] Speaker 01: And what the commission found here is in this unusual circumstance, this is not a typical multiple Sierra provision in a contract. [00:56:55] Speaker 01: This provision not only binds the commission and others to public interest review regarding the contract itself, [00:57:03] Speaker 01: but also regarding the tariff. [00:57:04] Speaker 01: And that is unusual. [00:57:05] Speaker 01: That is not a typical circumstance. [00:57:08] Speaker 01: And it is extreme. [00:57:09] Speaker 01: And it's not the type of, this is a tariff, it's not the type of contract that Mobile Sierra is intended to apply to. [00:57:17] Speaker 01: It's not a contract. [00:57:18] Speaker 01: This is, and even though it's not unilaterally set the tariff rates by Wabash staff members, it is unilaterally set by Wabash's board of directors. [00:57:31] Speaker 01: And that is not something to which Mobile Sierra can apply. [00:57:34] Speaker 02: Ms. [00:57:34] Speaker 02: Pasoli, if I could just ask you a question. [00:57:36] Speaker 02: I also asked Mr. Elliott, I mean, can parties change FERC's standard of review by contract? [00:57:44] Speaker 01: I think if they, your honor, I think if they can by including a Memphis clause in the contract, right? [00:57:53] Speaker 01: With Mobile Sierra being the default. [00:57:56] Speaker 01: And again, it has to be a contract first. [00:57:58] Speaker 01: for that to apply. [00:57:59] Speaker 01: Mobile Sierra presumption only applies to contracts. [00:58:02] Speaker 01: But so I think in that way, they can change the standard of review. [00:58:05] Speaker 02: But can they, I mean, can they require FERC to apply the Mobile Sierra presumption to things that FERC determines are not contract rates? [00:58:16] Speaker 01: Absolutely not, Your Honor. [00:58:17] Speaker 01: Mobile Sierra presumption only applies to contract rates. [00:58:20] Speaker 01: And again, it's based on that underlying presumption that you can presume rates are just reasonable because this head-to-head negotiation occurred. [00:58:28] Speaker 06: You know, I have a question about that footnote in the first opinion that they don't reach the Mobile Sierra question at all. [00:58:39] Speaker 06: Well, I found that a little puzzling because don't you have to answer the question, discuss the premise of Mobile Sierra, whether this is a contract or a tariff. [00:58:52] Speaker 06: And in considering that, you have to consider whether or not there's arm length [00:58:59] Speaker 06: bargaining between roughly equal parties with equal bargaining power. [00:59:08] Speaker 06: Isn't that right? [00:59:08] Speaker 06: So it's a little artificial to say, as Ferck says, we don't even reach the mobile Sierra question, because they have to consider the premise of mobile Sierra, whether this is a contract or a tariff. [00:59:24] Speaker 01: Sure, what the what that what the footnote in each order that you're referring to your honor says that what it says is the commission didn't reach, whether the contracts are subjected to mobile Sierra presumption, whether that's okay or not, what the commission's whole orders are about is whether the whether the [00:59:45] Speaker 01: is subject to the mobile Sierra presumption. [00:59:48] Speaker 01: So the whole point of these orders is about mobile Sierra and applying mobile Sierra cases. [00:59:54] Speaker 06: So I was over reading the footnote. [00:59:56] Speaker 01: Yes, Your Honor. [00:59:59] Speaker 06: I see how you're dividing that, but it's almost, again, almost metaphysical. [01:00:04] Speaker 01: Well, no, the point is, Burke is saying [01:00:08] Speaker 01: Burke, you know, it addressed the big issue here, which was, can you apply Mobile Sierra to something that's not a contract rate? [01:00:18] Speaker 01: It's a tariff. [01:00:19] Speaker 06: So we- Well, that's the problem with that, it assumes the conclusion. [01:00:24] Speaker 01: No, the commission's point, that's what it addressed and it didn't assume the conclusion. [01:00:28] Speaker 01: The commission determined that it's not a contract rate because it's generally, you can't, the underlying assumption doesn't work in a circumstance where you have [01:00:38] Speaker 01: The board of directors making the determination what the rates are going to be. [01:00:42] Speaker 01: Okay. [01:00:44] Speaker 06: I understand it. [01:00:45] Speaker 06: The key is the key to your whole case is the provision requiring each member to comply with the majority vote of the board of directors. [01:00:56] Speaker 06: That's the key to your case. [01:00:58] Speaker 01: Yes, is that the board of directors doesn't, and as the record reflects, that is by majority vote. [01:01:03] Speaker 01: Yes. [01:01:03] Speaker 01: And that is what the commission said in paragraph 15 of J 2223. [01:01:07] Speaker 01: These are not, these are not in individualized basis. [01:01:14] Speaker 01: The tariff is not the tariff rate because the board of directors determine the rates in the formulary rate tariff. [01:01:20] Speaker 01: Again, there's no problem. [01:01:22] Speaker 01: The commission is not saying you can't have the tariff rate be the contract rate. [01:01:28] Speaker 01: And the commission's not saying that can't change over time. [01:01:30] Speaker 01: The commission's not saying that here. [01:01:32] Speaker 01: The commission is just saying you can't require the commission to presume that that will then be just and reasonable because this is not a negotiated rate. [01:01:40] Speaker 06: So your view would be entirely different if the bylaws required unanimity. [01:01:48] Speaker 01: Yes, that would be a completely different circumstance, Your Honor. [01:01:52] Speaker 06: What one you would treat as a contract under Mobile Sierra. [01:01:57] Speaker 01: I think I was saying before, the commission also found that it's generably applicable. [01:02:04] Speaker 01: The tariff is generably applicable. [01:02:06] Speaker 01: So I think there's that wrinkle there. [01:02:08] Speaker 01: Again, when you look at the way the commission determines, when it explains in paragraph 14 at J222-223, when it determines whether mobile Sierra presumption can apply to an instrument, it looks at in the second paragraph. [01:02:26] Speaker 06: Wait a minute, wait a minute. [01:02:27] Speaker 06: Let's talk about it generally applicable. [01:02:30] Speaker 06: If under the bylaws, you had to have unanimity and other members could be brought in and they would have the same benefit. [01:02:42] Speaker 06: It had to be unanimous. [01:02:49] Speaker 01: So if new members would have it, okay, I see what you're saying, Your Honor. [01:02:54] Speaker 01: So it's generally applicable, but everybody gets that actual vote that those entities themselves will have an opportunity to determine the rate. [01:03:03] Speaker 01: That's a circumstance that wasn't before the commissions. [01:03:05] Speaker 01: It's hard for me to speak for sure. [01:03:06] Speaker 01: I guess there would be some period of time before the year. [01:03:11] Speaker 01: We don't know how often the board is changing the rate. [01:03:13] Speaker 01: There's some period of time where these new entities would be subject to that tariff rate without being able to challenge it, except under the, [01:03:24] Speaker 01: presumption of justice and reasonableness. [01:03:27] Speaker 06: So- Well, no, by contract, they wouldn't be bound unless they agreed. [01:03:37] Speaker 01: Under my hypothetical. [01:03:38] Speaker 01: So in that circumstance, I think the commission would not have an issue with that. [01:03:42] Speaker 01: I think the commission would find that the underlying premise of having, of the mobile Sierra presumption of assuming that something is just and reasonable would be satisfied in that circumstance. [01:03:53] Speaker 06: Thank you. [01:03:57] Speaker 06: Dr. Silver, anything else? [01:03:59] Speaker 06: No, thank you. [01:04:02] Speaker 01: Thank you, Your Honor. [01:04:03] Speaker 03: Ms. [01:04:03] Speaker 03: Pacella. [01:04:04] Speaker 03: Mr. Elliott, we'll give you two minutes. [01:04:10] Speaker 04: Thank you, Your Honor. [01:04:13] Speaker 04: As a plenary matter, just to clarify one point that Ms. [01:04:16] Speaker 04: Pacella raised, and that is that is a one member one vote [01:04:22] Speaker 04: rule in the board of directors at Wabash Valley. [01:04:25] Speaker 04: Each member has an equal vote and that's true not just in Wabash Valley but every cooperative in America that I'm aware of. [01:04:38] Speaker 04: The focus on that point of the democratic governance of the cooperative and how that is somehow inconsistent with Mobile Sierra [01:04:51] Speaker 04: is a dramatic extension of the noble Sierra doctrine that I don't know if there's any basis in any case law anywhere. [01:05:00] Speaker 04: The case law in noble Sierra. [01:05:02] Speaker 06: Well, this is a- Can you point to- Oh, excuse me. [01:05:05] Speaker 02: Oh, sorry. [01:05:07] Speaker 02: Go ahead, please. [01:05:09] Speaker 02: Okay, sorry. [01:05:10] Speaker 02: Can you point to any case where they have, where FERC has applied the presumption to a cooperative with a similar structure to Wabash's? [01:05:20] Speaker 02: since you said those are the pretty common structure. [01:05:23] Speaker 04: Yes, but there are only about eight, by my account, cooperatives who are regulated by FERC. [01:05:28] Speaker 04: Most of them are not regulated by FERC, statutorily. [01:05:31] Speaker 04: So there are only a handful of them. [01:05:34] Speaker 04: And this issue has not come up very often. [01:05:38] Speaker 04: There was a case involving Old Dominion Cooperative that I think is referred to in some of the orders cited in the FERC orders here. [01:05:49] Speaker 04: that applied a immobile Sierra presumption to a member's long-term contract, all requirements contract. [01:05:59] Speaker 04: But a tariff like we're talking about here has never come up. [01:06:03] Speaker 03: And FERC's involvement is sporadic because many of these arrangements involve intrastate transactions? [01:06:11] Speaker 04: Well, they're just statutorily exempt because a lot of cooperatives are borrowers from the rural utility service. [01:06:19] Speaker 04: federal agency and uh are exempt so Wabash Valley is not and there are a handful who are not okay so they're regulated by FERC important point that I think uh uh for council has emphasized here is that Wabash the the FERC orders presume do not reach the question whether these contracts were freely negotiated at arms like they presume they were and reject this [01:06:49] Speaker 04: this Mobile Sierra Clause, even if they were. [01:06:51] Speaker 04: So there could have been unanimity, free the perfect contracts, perfectly negotiated. [01:06:56] Speaker 04: First rule is that you can't do it this way. [01:06:59] Speaker 04: You cannot protect a mutually agreed upon contract rate through a common tariff controlled by the board of directors. [01:07:09] Speaker 04: We've had a wide ranging discussion today as to about the negotiating power and bargaining leverage and, [01:07:17] Speaker 04: None of that is in the FERC orders, of course. [01:07:19] Speaker 04: So I think there's really no question you have to remand this for a more searching examination of the real issues by the commission, because this Delphic one paragraph explanation is just completely inadequate to constitute reason decision-making. [01:07:38] Speaker 04: So I would leave you with that point that I think the orders here are just completely deficient [01:07:46] Speaker 04: as a matter of recent decision-making, they haven't grappled with the real issues of why Mobile Sierra should apply or not to this arrangement. [01:07:56] Speaker 03: Any other questions from the panel? [01:07:59] Speaker 03: Thank you, Mr. Elliott. [01:08:00] Speaker 03: The case is submitted.