[00:00:00] Speaker 02: Case number 20-1499, American Clean Power Association Petitioner versus Federal Energy Regulatory Commission. [00:00:09] Speaker 02: Mr. Tabak for the petitioner, Ms. [00:00:11] Speaker 02: Pacella for the respondent. [00:00:16] Speaker 03: Good morning. [00:00:19] Speaker 00: Good morning, Your Honors. [00:00:21] Speaker 00: May it please the court, Gabriel Tabak on behalf of Petitioner. [00:00:25] Speaker 00: Your Honors, [00:00:26] Speaker 00: Burke's orders under review failed to pass muster under the Administrative Procedure Act for two principal reasons, which are closely related. [00:00:34] Speaker 00: First, the Commission has not squared its orders with its own precedent. [00:00:38] Speaker 00: And second, it made its decisions without substantial evidence. [00:00:42] Speaker 00: Both errors, independently and jointly, require vacature. [00:00:46] Speaker 03: First, these orders, you know, let me just interrupt you in your where you describe the substantial evidence argument you say you put that in terms of. [00:00:59] Speaker 03: For failing to follow its own precedent. [00:01:02] Speaker 03: That's, that's what you said. [00:01:03] Speaker 03: You said, um, you said, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um [00:01:25] Speaker 03: that this conflicted with FERC's prior precedent. [00:01:29] Speaker 03: So even your substantial evidence argument is in terms of conflicting with prior precedent. [00:01:35] Speaker 00: Isn't it? [00:01:36] Speaker 00: Your honor, the substantial evidence argument does reference the past precedent. [00:01:42] Speaker 00: It also does, I believe, at pages 27 and 28 of our opening brief, or 27 through 29. [00:01:54] Speaker 00: expressly make clear that there were, there's a lack of evidence upon which these orders stand distinct from the precedent piece and traditionally failing to- What is that? [00:02:11] Speaker 00: Your Honor, on the substantial evidence point, this is the notion that FERC accepted the concept of risk to transmission-owning utilities and retail customers from a default of an unsecured interconnection customer [00:02:24] Speaker 00: but without any evidence that actually identified such a risk. [00:02:27] Speaker 00: And that's at pages 27 to 29 of our opening brief. [00:02:33] Speaker 01: You mean a risk of non-payment? [00:02:36] Speaker 01: Is that what you're talking about? [00:02:38] Speaker 01: Yeah. [00:02:39] Speaker 01: How do you find evidence of a risk of non-payment? [00:02:44] Speaker 01: That's true anytime somebody has an obligation, there's always a risk of non-payment. [00:02:50] Speaker 01: That's like asking for evidence of [00:02:54] Speaker 01: I'm sorry. [00:02:58] Speaker 00: I'm sorry. [00:03:02] Speaker 00: I'm sorry. [00:03:09] Speaker 00: I'm sorry. [00:03:13] Speaker 00: I'm sorry. [00:03:14] Speaker 00: I'm sorry. [00:03:17] Speaker 00: I'm sorry. [00:03:18] Speaker 00: there's no actual indication that there has ever been a default from a generator who was unable to pay here. [00:03:25] Speaker 03: Why do you have to have evidence like that? [00:03:27] Speaker 03: I mean, as Judge Silberman said, it's sort of econ 101. [00:03:31] Speaker 03: I mean, why does FERC need evidence for the proposition that a defaulting generator, that the possibility of a default increases the risk to the transmission of it? [00:03:45] Speaker 03: I mean, I just don't, what kind of evidence would you put on? [00:03:48] Speaker 03: Would you get some expensive economics expert and have them testify to the obvious? [00:03:58] Speaker 00: Your honor, the type of evidence that not wanting to presume what FERC might find if we're actually to develop a record on this point, but the types of evidence here could include any actual defaults in the past, as well as any near misses. [00:04:11] Speaker 00: The default provision also includes a cure provision [00:04:15] Speaker 00: If there were indications that a generator had missed a payment but been able to make good through the cure period in the facility service agreement, there's simply no evidence that there's ever been even one of those from the record in this case. [00:04:29] Speaker 00: And certainly not one that justifies the duplicative burden of the security and the default obligation [00:04:36] Speaker 00: on interconnecting generators in the region. [00:04:38] Speaker 03: All right then, just so I understand, other than that substantial evidence argument, your whole case boils down to the proposition that FERC ignored its precedent, right? [00:04:49] Speaker 03: Didn't explain. [00:04:52] Speaker 03: That's what your case is all about, right? [00:04:55] Speaker 00: Yes, Your Honor. [00:04:56] Speaker 03: Okay, fine. [00:04:57] Speaker 03: Okay, so go ahead. [00:04:59] Speaker 00: Thank you, Your Honor. [00:05:01] Speaker 00: On the precedent point, the commission had previously declined to require security [00:05:06] Speaker 00: once upgrades to the transmission system were operational and the generator was repaying the transmission owner under a facility service agreement for these operational facilities. [00:05:15] Speaker 01: You're referring to option one, right? [00:05:19] Speaker 00: Yes, your honor. [00:05:19] Speaker 00: That's in the option one context. [00:05:21] Speaker 01: And option one is a situation which FERC subsequently decided quite reasonably, it seems to me, that it was dreadfully unfair to the generators. [00:05:36] Speaker 01: that the transmission owners were way overcharging. [00:05:41] Speaker 01: I won't go through the technical reasons, but it's clear. [00:05:45] Speaker 01: So the fact that FERC did not require security on that can be explained in terms of option one was unfair to the generators in the first place. [00:06:01] Speaker 00: Your honor, for the point at which the facilities are operational, [00:06:05] Speaker 00: We would submit that they're, they're functionally identical as to the option one context and then the orders under review for it in both circumstances. [00:06:14] Speaker 00: I'm right. [00:06:15] Speaker 01: Excuse me, but I'm right on either option one was regarded by FERC as unfair to the general. [00:06:23] Speaker 01: So it's not surprising. [00:06:26] Speaker 01: It's not surprising that they didn't require security to complicated transaction whereby the transmission owner was paying [00:06:35] Speaker 01: was having the generator pay for the upgrade. [00:06:39] Speaker 01: And then the transmission owner would pay them back and then charge them for the return on the capital, which was outrageous. [00:06:51] Speaker 00: Yes, your honor. [00:06:51] Speaker 00: That's an accurate description of how the option one facility service agreement worked. [00:06:57] Speaker 00: However, at the point where the facilities became operational, [00:07:00] Speaker 00: and the transmission owner had reimbursed the generator, in the option one context and here, the generator is obligated to use a facility service agreement to repay the transmission owner for that amount over the full term of the facility. [00:07:17] Speaker 01: I understand, but you're taking out one part of the option one, ignoring the fact that the option one was regarded subsequently by the FERC as unfair [00:07:30] Speaker 01: to the generators. [00:07:31] Speaker 01: So it's not surprising they wouldn't require security to be posted. [00:07:39] Speaker 01: It's a frail read for you to be relying on as inconsistent precedent. [00:07:50] Speaker 00: The unfairness to the generator here was not the decisive factor or the comparability that is most important between the option one context and in the orders under review. [00:08:04] Speaker 00: The issue here is whether having both a default provision and a security provision is duplicative. [00:08:12] Speaker 00: In the option one context, the commission found that security was unnecessary. [00:08:17] Speaker 01: I don't understand the argument that the default [00:08:20] Speaker 01: and the security provisions are duplicate. [00:08:22] Speaker 01: I don't get that at all. [00:08:25] Speaker 01: Again, I'm having trouble with your logic. [00:08:29] Speaker 01: The provision is if you miss a payment, the whole debt is due immediately. [00:08:43] Speaker 01: But what's to guarantee that you'll pay? [00:08:47] Speaker 01: Suppose you're in bankruptcy. [00:08:51] Speaker 00: Several factors, Your Honor. [00:08:53] Speaker 00: The generator is extremely unlikely to default without the ability to pay, in part because to get to this point with the upgrades operational, it has gone through a multi-year interconnection queue with numerous financial milestones along the way. [00:09:12] Speaker 00: It has gone through the generator interconnection agreement [00:09:15] Speaker 00: Under which, in the payment provisions here and not at issue before the court, there is security while the transmission owner is constructing the facilities for the full capital cost. [00:09:26] Speaker 00: And now these facilities are operational after sort of running the financial gauntlet for years. [00:09:31] Speaker 00: The generating facilities operational, the transmission facilities that the generator has paid for are operational. [00:09:37] Speaker 00: It is delivering power to the grid. [00:09:39] Speaker 00: And yes, should they miss a payment, the entire balance due that will be required under the default provision. [00:09:46] Speaker 00: The notion that a generator would be unable to pay is extremely unlikely. [00:09:50] Speaker 00: And one more factor, Your Honor, is that our members, the companies that develop these projects, are not in this business to develop a single project [00:09:59] Speaker 00: They have a portfolio of projects under development at any one time. [00:10:03] Speaker 00: If they were to default without the ability to pay, they would become a completely implausible counterparty to transact with a buyer for their energy. [00:10:14] Speaker 00: The notion that they would default without ability to pay is extraordinarily unlikely here and is not demonstrated in the evidence. [00:10:22] Speaker 01: You know, counsel, if I may rely on my previous banking experience, [00:10:29] Speaker 01: If you're right that the prospect of refusing to pay or declining to pay is quite remote, then the cost of the letter of credit would be very low. [00:10:44] Speaker 01: So if you're right that the cost, that the likelihood of default and or refusal of pay is remote, then your letter of credit will be cheap. [00:11:00] Speaker 00: The letter of credit still comes with real costs. [00:11:03] Speaker 01: Of course, but the cost will be much less in so far as you identify a low risk of non-payment. [00:11:16] Speaker 00: Your Honor, multiplied out across the term of the Facility Service Agreement and multiplied out across a portfolio of projects, [00:11:24] Speaker 00: On a hypothetical $10 million upgrade that the generator is repaying the transmission owner for, the letter of credit for the security would still likely be in the six figures or more every year. [00:11:38] Speaker 00: Again, multiply that over the term and across the portfolio. [00:11:40] Speaker 04: Did you put any of that evidence before FERC? [00:11:44] Speaker 04: I was looking and didn't see any signs of evidence where you talked about the impact on [00:11:52] Speaker 04: There's references to a double burden, but no, I couldn't find any arguments about an actual impact as in this would like deter generators from interconnecting. [00:12:09] Speaker 04: Did you put any such evidence in the record? [00:12:11] Speaker 04: And did you, did I miss it? [00:12:13] Speaker 04: Did you somewhere raise that as a problem? [00:12:18] Speaker 00: Your honor, we raise this as a problem generically, but did not include the specific dollars associated with it. [00:12:23] Speaker 00: I don't mean generically. [00:12:24] Speaker 04: Did you say this would cost money? [00:12:28] Speaker 04: You definitely made that point. [00:12:30] Speaker 04: Did you say it would deter generators from either developing or interconnecting? [00:12:37] Speaker 00: Your honor, the issue, I believe, is less that it would deter generators from interconnecting and more that it takes capital out of the companies that are seeking to invest [00:12:47] Speaker 00: making them unable to invest in incremental additional projects. [00:12:51] Speaker 04: Did you make that point? [00:12:52] Speaker 04: Did you make that point you just said? [00:12:53] Speaker 00: Yes, Your Honor. [00:12:57] Speaker 00: I believe so. [00:12:57] Speaker 00: Page 11 of our hearing request, we discussed the duplicative burden here. [00:13:03] Speaker 04: The duplicative burden is not the same thing as we won't have resources to invest. [00:13:07] Speaker 04: The duplicative burden is just a complaint about [00:13:10] Speaker 04: what they're doing. [00:13:11] Speaker 04: And I understand your point on that. [00:13:13] Speaker 04: You've made that clearly. [00:13:14] Speaker 04: You just made another point about that this has a deterrent on generators. [00:13:22] Speaker 04: It'll prevent further investment in development of generation. [00:13:26] Speaker 04: And had you made that argument, had Serpent Nordic, that would have been something for you to complain about. [00:13:34] Speaker 04: But I didn't see that. [00:13:37] Speaker 04: Did you make that in your petition or rehearing this complaint about actual competing investment? [00:13:45] Speaker 00: Your honor, I'm not certain on that, but I'm happy to respond on rebuttal if there's an appropriate pin site. [00:13:55] Speaker 03: Mr. Tabeck, you're almost out of time, and I want to take you back to your basic argument that FERC's decision here is inconsistent with White Oak 1 and 2, right? [00:14:07] Speaker 03: That's your argument. [00:14:09] Speaker 03: Am I oversimplifying this thing? [00:14:11] Speaker 03: As I read that case, FERC rejected the post-construction security requirement because it wasn't in the tariff. [00:14:21] Speaker 03: They said it has post-construction security requirements, have an impact on rates, it has to be in the tariff. [00:14:29] Speaker 03: And that's why they rejected it. [00:14:31] Speaker 03: And here, by now, MISO has now put it in the tariff. [00:14:37] Speaker 03: And FERC explained that in its decision. [00:14:41] Speaker 03: Am I missing something? [00:14:44] Speaker 00: Your honor, the notion that the inclusion in the tariff is the decisive factor elides an intervening step, which is that this is the 205 proceeding, the rate proceeding under the Federal Power Act in which FERC accepted the Facility Service Agreement into the tariff. [00:14:59] Speaker 00: The consistency with precedent or the ability to explain a break with precedent speaks directly to whether the inclusion in the tariff was itself just and reasonable here. [00:15:09] Speaker 00: Had there been an intervening proceeding in which the commission had accepted into the tariff, [00:15:13] Speaker 00: and we're merely applying it in these cases, I would agree that that might be an appropriate line of reasoning. [00:15:19] Speaker 00: However, the commission needs to demonstrate under 205 and this court's precedent that the acceptance in the tariff is itself just unreasonable. [00:15:31] Speaker 03: All right. [00:15:33] Speaker 03: Unless either of my colleagues have any questions, we'll hear from FERC. [00:15:40] Speaker 01: No questions. [00:15:41] Speaker 01: No questions. [00:15:43] Speaker 02: Good morning, Your Honors, Beth Pacella for the commission. [00:15:46] Speaker 02: The commission found that the security provision was just and reasonable because it would ensure that the transmission owner and its transmission customers would not have to bear the cost of network upgrades that were built for interconnection customers. [00:16:04] Speaker 02: That provided no benefit to these other transmission service customers. [00:16:09] Speaker 02: And so that's why the commission found it was just and reasonable. [00:16:13] Speaker 02: There didn't need to be evidence required for this well-established general principle. [00:16:20] Speaker 02: For example, in Ameren, which is, you know, this court's opinion in 880 F, 3rd, 571, at 577 and 579, recognize that having to provide security to backstop a payment obligation like this is essentially a given. [00:16:37] Speaker 02: There, the court rejected the commission's notion that requiring security increased costs to interconnection customers in the context of transmission owner initial funding. [00:16:56] Speaker 02: Because if the generator found another source of capital to cover the cost of the upgrade, the court said, we can't imagine that the generator wouldn't have to provide the same kind of security even if they [00:17:06] Speaker 02: paid for the upgrade themselves initially. [00:17:10] Speaker 02: So there's really no question that security is appropriate in a circumstance like this because otherwise there is a risk even with default as the commission found with a default provision. [00:17:22] Speaker 04: Was there any evidence of a real world risk? [00:17:27] Speaker 04: I understand the economic theory. [00:17:30] Speaker 04: But it wasn't like this interconnection process was novel. [00:17:36] Speaker 04: FERC had decades and decades of experience. [00:17:40] Speaker 04: And I didn't see FERC talk about any concern, any problem that had arisen. [00:17:46] Speaker 04: I know you're the intervener in support of FERC. [00:17:50] Speaker 04: says sort of elliptically on page 21 that these defaults are, quote, not unusual, end quote, and said they put evidence in, but I couldn't find it. [00:17:59] Speaker 04: Did FERC have evidence that this had ever happened even once? [00:18:04] Speaker 02: Let me say this, Your Honor, in response to the FERC intervener's point that you just said on page 21, that it is not uncommon that [00:18:14] Speaker 02: Excuse me, that it's not uncommon. [00:18:16] Speaker 04: Not unusual. [00:18:17] Speaker 02: To have non payment problems that is unrebutted in the reply briefs they never said. [00:18:25] Speaker 02: We presented anything we've argued to the commission that it's not that it was uncommon that those arguments were never raised commission commission actually did a very good job in these quarters answering the commission. [00:18:37] Speaker 04: Why didn't to decide that this cost I mean it's going to be a cost it's going to be a burden on generators that's also economics 101. [00:18:46] Speaker 04: And so, did they why didn't they need to at least know that there was. [00:18:51] Speaker 04: something broken before they fix it. [00:18:53] Speaker 04: There was actually a real world problem given just the dynamics of the situation. [00:18:58] Speaker 04: This isn't people getting mortgages on homes. [00:19:01] Speaker 04: These are people. [00:19:02] Speaker 02: My first point again, Your Honor, is that it is innately a problem. [00:19:06] Speaker 02: Because again, the default provision will require the interconnection customer to pay now all of the costs. [00:19:14] Speaker 04: I understand theoretically that there's always that risk. [00:19:18] Speaker 04: My question is, was there no? [00:19:20] Speaker 04: It sounds like there was no evidence and to be clear, they didn't. [00:19:25] Speaker 04: I don't know if they put in evidence, it doesn't sound like it, that this never happens. [00:19:31] Speaker 02: They never even raised the notion that this never happens. [00:19:36] Speaker 04: I do understand that. [00:19:37] Speaker 04: So that's a separate question is, is it okay to find that it's just and reasonable without finding when it is definitely adding increased costs, increased burden on generation without finding some need for it, actual need for it, real world need for it? [00:19:53] Speaker 02: Your honor, in the very specific circumstance of FERC, where we have a rehearing requirement in our statute, section 313B16 USC 825L, that matters have to be specifically raised to the commission on rehearing in order for the court to have jurisdiction to address them. [00:20:11] Speaker 02: I apologize. [00:20:12] Speaker 02: It's just not before you. [00:20:13] Speaker 02: It just isn't. [00:20:15] Speaker 02: You don't have the rehearing request in the joint appendix, and I apologize. [00:20:18] Speaker 02: You only have one page of that regarding double burden, I believe. [00:20:21] Speaker 02: We didn't, I'd be happy to submit it to you. [00:20:23] Speaker 02: It's very short. [00:20:25] Speaker 02: It does not raise these claims here. [00:20:27] Speaker 02: What it raises is. [00:20:28] Speaker 04: They're here in order to describe. [00:20:34] Speaker 04: They haven't said that's inaccurate. [00:20:38] Speaker 04: So we can take that. [00:20:39] Speaker 02: It's not inaccurate. [00:20:40] Speaker 02: And there's nothing there for the commission. [00:20:42] Speaker 02: Can not literally this court can't just you just can't remand commission on that point, even theoretically not asking to remand I'm just asking sort of the legal question. [00:20:51] Speaker 04: Do they do they just need to. [00:20:54] Speaker 04: Is it true that they just to add more cost. [00:20:59] Speaker 04: They don't need a reason for it. [00:21:00] Speaker 04: As long as someone says, I'd like to add this additional cost, and it has an economic theory. [00:21:05] Speaker 04: I'm not disputing that they gave reason here, but there is no evidence for it. [00:21:10] Speaker 04: And it's, like I said, it's also economics 101 that increased costs can deter generation, can impede development and investment elsewhere. [00:21:21] Speaker 02: I guess I would turn to the, in the record, we have the system operators filing at JA7 and JA14. [00:21:32] Speaker 02: The system operator is talking about how this is essential to ensure that the interconnection customer pays for this rather than the transmission customers. [00:21:42] Speaker 02: And, you know, that's how it automatically happens. [00:21:44] Speaker 02: If the, if the, no, I get it. [00:21:45] Speaker 04: Absolutely. [00:21:46] Speaker 02: Yeah. [00:21:48] Speaker 04: Absolutely. [00:21:50] Speaker 02: Yeah. [00:21:50] Speaker 02: Right. [00:21:50] Speaker 02: So there's no question that there's real harm potential based on this record on page J 14. [00:21:57] Speaker 02: That's my question. [00:21:58] Speaker 02: That's my question. [00:22:00] Speaker 02: In response to, in response to the system operators claim that this is critical. [00:22:06] Speaker 02: And it's essential. [00:22:08] Speaker 02: We have nothing in the record, no claim ever. [00:22:10] Speaker 04: I understand, but you didn't have you had them saying that, but they didn't give you evidence that there was actually a problem out there. [00:22:18] Speaker 02: So the examples that are provided by in the record and by in the reply brief, excuse me, excuse me, in the FERC intervener brief at 21 are insolvency. [00:22:31] Speaker 02: And again, the FERC intervener said in its brief, [00:22:35] Speaker 02: This is not an unusual scenario, and there is no rebuttal to that. [00:22:39] Speaker 04: My question, though, is they didn't provide that information to you. [00:22:44] Speaker 02: They provided nothing to FERC about this. [00:22:46] Speaker 02: It was never raised by petitioners. [00:22:48] Speaker 04: Neither side provided it. [00:22:50] Speaker 02: Neither side. [00:22:51] Speaker 02: Nothing other than the basic economic 101 concept of default is just not enough. [00:22:59] Speaker 02: And let me say, the commission's precedent never said that default was enough. [00:23:04] Speaker 02: If you look at White Oak 1, for example, at paragraph 39, which the commission cites in its orders, towards the end of paragraph 39, the commission says there, quote, whether or not the default provision addresses the risk to native load is not an issue before us. [00:23:24] Speaker 02: And again, that's because the commission was deciding those cases based solely on the fact that the filed rate doctor was not satisfied there. [00:23:33] Speaker 02: The tariff at the time did not include the requirement that security be provided post-construction. [00:23:42] Speaker 02: And that's actually when the network upgrade charges are paid. [00:23:47] Speaker 02: So there's no payment for these facilities until the post-construction period. [00:23:52] Speaker 02: So default happens either. [00:23:54] Speaker 02: And the other example that the FERC intervener provided, and it provided it below as well, [00:24:02] Speaker 02: is that if an interconnection customer's generating facility never achieves commercial operation. [00:24:08] Speaker 02: So they request this interconnection and that whole process happens and it's built, but their generating facility never gets online and they can just walk away from it. [00:24:18] Speaker 01: Those white oak cases were just dealt with the tariff that existed prior to FERC having decided that option one was unfair and unreasonable. [00:24:32] Speaker 02: No, it actually, Your Honor, it happened after. [00:24:34] Speaker 01: Oh, no, I know that, but they were, they were resilient. [00:24:37] Speaker 02: They were under that tariff. [00:24:38] Speaker 01: That's exactly right. [00:24:38] Speaker 01: They're under the old tariff. [00:24:40] Speaker 01: That's right, Your Honor. [00:24:42] Speaker 01: There's another point, if I understand, it isn't necessary for all generators to have a letter of credit in. [00:24:52] Speaker 01: If they're owned by another corporation, the other corporation can issue a guarantee. [00:25:00] Speaker 02: That's exactly right, Your Honor. [00:25:03] Speaker 02: There's three possibilities of how they can do it. [00:25:13] Speaker 02: They can do it through a letter of, for example, it says at J-23 in section 4A, they can do, for example, a letter of credit, a surety bond, or parent guarantee. [00:25:29] Speaker 04: A parent guarantee doesn't cause them any interest or anything like that. [00:25:33] Speaker 02: That's right. [00:25:35] Speaker 04: That's right. [00:25:35] Speaker 04: Can I ask you just one other thing, just as we think about this? [00:25:40] Speaker 04: How does, when you have all this security at every stage, how does this not present the [00:25:51] Speaker 04: Another version of the problem from Ameren that the transmission owner is not having facing any risks at the end of the day, is getting all benefit and no risk. [00:26:02] Speaker 02: So the transmission owner here has initially funded. [00:26:06] Speaker 02: So they have all the risks during construction. [00:26:08] Speaker 04: They have security then too, right? [00:26:11] Speaker 02: They have security, but that's security is to ensure that the future [00:26:17] Speaker 02: payments, reimbursing them are paid. [00:26:21] Speaker 02: That's not security covering the construction. [00:26:23] Speaker 02: You know what I'm saying? [00:26:27] Speaker 04: No, I'm confused. [00:26:28] Speaker 04: Let me tell you what I thought, and then you can tell me what I brought, because I'm obviously missing something. [00:26:32] Speaker 04: I thought there's security during the construction period. [00:26:35] Speaker 02: There is. [00:26:36] Speaker 04: And I'd assume that was to ensure that money would come to recoup the construction costs. [00:26:43] Speaker 02: That's true, but that doesn't happen until later. [00:26:47] Speaker 02: So that security just sits there. [00:26:50] Speaker 02: And once the, because the network upgrade charges aren't done until the- I see. [00:26:57] Speaker 04: And so then you continue it through the process just to make sure you get them until you- That was just continuity. [00:27:01] Speaker 02: They used it right. [00:27:03] Speaker 02: You know, it was kind of silly that the tariff before didn't include it. [00:27:06] Speaker 02: And I think the commission in the White Oak quarters was probably saying to parties, [00:27:12] Speaker 02: If you want security, you've got to include it in the tariff. [00:27:15] Speaker 02: So include it in the tariff. [00:27:16] Speaker 02: And that's what happened here. [00:27:19] Speaker 02: But it had to be in the tariff. [00:27:21] Speaker 02: And that's just a very strict requirement that FERC faces under its statute. [00:27:26] Speaker 01: Well, interestingly enough, the security does not cover the profit. [00:27:33] Speaker 02: That's right, Your Honor. [00:27:34] Speaker 01: It's interesting. [00:27:36] Speaker 01: Arguably, it could have included the profit. [00:27:39] Speaker 01: But that would be hard to calculate, I suppose. [00:27:42] Speaker 01: But in any event, it's more merciful for the generators than it might theoretically have been. [00:27:50] Speaker 01: It covers just actual costs, not the profit on the cost. [00:27:56] Speaker 02: And the proposals in the earlier cases did include the return on equity part. [00:28:00] Speaker 01: Yes, I wrote the opinion. [00:28:04] Speaker 01: I know. [00:28:06] Speaker 01: And I'm a great believer in profit. [00:28:10] Speaker 02: Absolutely. [00:28:12] Speaker 02: It's that and the possibility to roll over the security so that there wouldn't be additional transactional costs and the opportunity to decrease, not the opportunity, but that the security can be decreased pro rata as network operated charge payments are made. [00:28:32] Speaker 02: All of those things are in favor of the generator. [00:28:35] Speaker 02: It's all about a balance, protecting the commission, taking its [00:28:39] Speaker 02: its obligation to protect consumers, these entities, the transmission customers for whom these are not built, should not have to pay this. [00:28:49] Speaker 02: And that's really what this case is about. [00:28:56] Speaker 02: If the court doesn't have any further questions. [00:28:58] Speaker 03: Anything else, Judge Soloran? [00:28:59] Speaker 01: No question. [00:29:00] Speaker 01: No question. [00:29:01] Speaker 03: No question. [00:29:01] Speaker 03: Thank you. [00:29:03] Speaker 02: Thank you, Your Honors. [00:29:04] Speaker 03: So Mr. [00:29:08] Speaker 03: Mr. Tabak, you are out of time, but you can have two minutes. [00:29:16] Speaker 00: Thank you, Your Honor. [00:29:18] Speaker 00: I would just quickly note here on rebuttal that in terms of the evidence that Judge Millett was discussing with FERC counsel, again, this is a section 205 proceeding where the burden is on the proponent of the rate [00:29:38] Speaker 00: to carry the burden of proof. [00:29:41] Speaker 00: The commission, as Judge Mallette noted, cited to no actual evidence, which, particularly in light of the inconsistency with the option one cases, leaves no real trail of its economic logic here of why it believed that the logic of potential risk to transmission owners from a generator default was substantial here, but did not believe it was the case in the option one cases. [00:30:08] Speaker 00: which did not advance any concern over that particular point. [00:30:12] Speaker 03: In the option one cases, FERC didn't address the question of whether a post-construction security requirement would be just and reasonable if included in a tariff. [00:30:27] Speaker 03: In those cases, it wasn't in the tariff. [00:30:29] Speaker 03: So FERC never addressed that question. [00:30:32] Speaker 00: Yes, Your Honor, that's absolutely true. [00:30:35] Speaker 00: But FERC also considered the precise point of risk to the transmission owner and evinced absolutely no concern in the option one orders. [00:30:43] Speaker 00: FERC had options at its disposal, had it believed there was a real risk. [00:30:47] Speaker 03: Would you point us to that language, please? [00:30:51] Speaker 00: That, I believe, is at the 20 [00:30:58] Speaker 00: The 2015 White Oak case 152. [00:31:01] Speaker 03: My notes say FERC expressly said it was not addressing that question. [00:31:07] Speaker 00: Yes. [00:31:09] Speaker 00: FERC said that whether the default provision addresses a risk to native load is an issue that is not before them. [00:31:14] Speaker 00: However, had the commission believe there was a real risk, it is not uncommon for FERC orders to include admonitions, concern, require further briefing. [00:31:24] Speaker 00: Again, the issue was squarely raised, and even if FERC believed it was obligated to follow the tariff in place for those orders, when faced with a new argument, the Commission has options to explore whether there's merit to that, to view whether it needs to be altered in any future facility service agreement. [00:31:44] Speaker 00: There's no indication of even concern in the White Oak orders. [00:31:47] Speaker 00: And now we have a very sparse trail on what theory the commission found persuasive in the orders under review. [00:31:55] Speaker 03: Why is it surprising that there's no concern since in White Oak, the problem was a file rate doctrine problem. [00:32:03] Speaker 03: It just wasn't in the tariff. [00:32:05] Speaker 03: So there wasn't any reason for the FERC to express itself or raise concerns about post security. [00:32:13] Speaker 03: I don't see why that's a mystery. [00:32:19] Speaker 00: Your honor, well, I understand your point regarding why FERC wouldn't have expressed it there. [00:32:25] Speaker 00: I think that that really speaks to the need for FERC to act clearly in the orders under review, which is not to explain why when generators and transmission owners were similarly situated after the facilities are under construction and the transmission owner is being repaid under the facility service agreement, why they would be treated differently here. [00:32:46] Speaker 00: We simply don't have that explanation, other than FERC's assertion that it found the risk of default to be something that needed to be accounted for. [00:32:55] Speaker 00: But again, as Judge Millett noted, there's simply no actual evidence to support that. [00:33:01] Speaker 04: An argument you haven't made. [00:33:03] Speaker 00: Right. [00:33:06] Speaker 00: That's a problem. [00:33:08] Speaker 00: Your honor, while I'll agree that we did, I will certainly concede we did not make that argument in our brief. [00:33:13] Speaker 00: Again, this is a 205 proceeding. [00:33:16] Speaker 00: The commission's orders need to rest on substantial evidence and there's no evidence of risk here, again, which is concerning in light of the inconsistency with FERC's own precedent. [00:33:26] Speaker 03: Okay, Judge Muller, Judge Solerman, anything else? [00:33:30] Speaker 03: No. [00:33:31] Speaker 03: Okay, thank you. [00:33:32] Speaker 03: The case is submitted.