[00:00:00] Speaker 00:
Case number 15-1183 et al.

[00:00:03] Speaker 00:
Consolidated Edison Company of New York, Inc.

[00:00:06] Speaker 00:
Petitioner versus Federal Energy Regulatory Commission.

[00:00:09] Speaker 00:
Mr. Bress for the petitioners, Ms.

[00:00:11] Speaker 00:
Rylender for the respondents, Mr. Gossett for the respondents' interveners.

[00:00:18] Speaker 09:
Morning, Mr. Bress.

[00:00:21] Speaker 08:
Good morning, Judge Katz, and may it please the court.

[00:00:24] Speaker 08:
The Federal Power Act tasks with ensuring that rates are just and reasonable.

[00:00:30] Speaker 08:
Among other things, this means it's FERC's job to ensure that cost allocations when challenged are at least roughly commensurate with the benefits received.

[00:00:40] Speaker 08:
Petitioners are here this morning because FERC failed to do its job in this case.

[00:00:45] Speaker 08:
Petitioners demonstrated with undisputed evidence in the proceedings below that the cost allocations here were vastly disproportionate even to the inflated benefits that PJM

[00:00:58] Speaker 08:
the cost of the Seaworn project.

[00:01:01] Speaker 08:
They demonstrated that Lyndon ultimately was allocated.

[00:01:04] Speaker 08:
100% of the costs of the Seaworn project, even though it was credited with only 28% of the benefits.

[00:01:12] Speaker 01:
They demonstrated that Council, I saw that in your brief.

[00:01:17] Speaker 01:
And do you have a principal line?

[00:01:28] Speaker 01:
what percentage would be the principal line?

[00:01:33] Speaker 08:
Your honor, I don't know that it comes down to a particular percentage, but certainly these cost allocations are even more disproportionate, your honor, than the cost allocations that this court struck as grossly disproportionate in the Old Dominion case.

[00:01:47] Speaker 08:
So even if you just wanted to compare it to what this court has previously done, these cost allocations would be disproportionate.

[00:01:54] Speaker 08:
But there are actually administrative law bases, your honor,

[00:01:58] Speaker 08:
that rise above this that I think this court can look to in deciding that FERC got this wrong.

[00:02:05] Speaker 08:
And I think there are three of them that I would focus on today.

[00:02:07] Speaker 08:
One is just a failure to examine relevant considerations because FERC refused over and over to even look at the evidence of the cost allocations that were an issue here, even though it was undisputed evidence.

[00:02:22] Speaker 08:
Second, FERC failed to treat like cases alike because it departed without any

[00:02:28] Speaker 08:
reason justification from its determination in the artificial island case that the flow based method can't reasonably be used to allocate costs for non-flow based projects.

[00:02:38] Speaker 08:
And third, it upheld without any reason justification, the application of the 1% de minimis exclusion, even though that exempted larger zones from paying their fair share, shifted those costs onto petitioners and led to directly to the grossly disproportionate

[00:02:57] Speaker 08:
allocations that are issue in this case.

[00:03:01] Speaker 08:
I'd be happy to go through those, your honor, unless you'd like me to return to your question, because I don't think there is, we're not asking for exacting precision.

[00:03:13] Speaker 08:
This court has made quite clear that that's not necessary.

[00:03:16] Speaker 08:
On the other hand, when you've got allocations that are A,

[00:03:26] Speaker 08:
incredibly disproportionate and be unnecessary, unnecessarily so.

[00:03:31] Speaker 08:
That's something that FERC can't say okay to.

[00:03:33] Speaker 08:
Another way to think about this is as the seventh circuit put it, if crude is the best that can be done, then crude will have to be good enough.

[00:03:41] Speaker 08:
Here in this case, we've demonstrated that the methodologies that were used were inappropriate for these projects and that the 1% de minimis that was thrown on top of the flow-based method and used with it

[00:03:54] Speaker 08:
is utterly unnecessary and just introduces discrimination.

[00:03:58] Speaker 06:
If I could ask you a question about that, you say in your brief that the the de minimis exception is a administrative override.

[00:04:07] Speaker 06:
And here you just said it's laid on top of the flow based method.

[00:04:12] Speaker 06:
But my understanding is that it's part of the flow based method, that it's sort of baked into the tariff.

[00:04:18] Speaker 06:
So I'm

[00:04:20] Speaker 06:
If you could just clarify what you mean when you say it's laid on top of the tariff.

[00:04:25] Speaker 08:
Certainly, Your Honor.

[00:04:26] Speaker 08:
First of all, the de minimis exclusion preceded and predated the flow based methodology.

[00:04:32] Speaker 08:
It was used by PJM prior to PJM's movement to the flow based methodology.

[00:04:40] Speaker 08:
It was when it was still using the violation based method previously.

[00:04:45] Speaker 08:
Secondly,

[00:04:46] Speaker 08:
it adds nothing of value to the application of the flow-based method.

[00:04:50] Speaker 08:
In other words, the flow-based method works by effectively determining how much each zone uses the new facility or the improved facility as compared to how much other zones use it.

[00:05:03] Speaker 08:
I'm simplifying a bit, but that's basically what it does.

[00:05:06] Speaker 08:
And then it allocates each a proportionate cost based on their relative use.

[00:05:12] Speaker 08:
When you throw in the 1% de minimis value

[00:05:15] Speaker 08:
It exempts certain zones from any cost allocation whatsoever, even if those zones use the new facility far more than the other zones who end up having to pay for it.

[00:05:27] Speaker 08:
It's not an integral part in any sense of using flow-based.

[00:05:30] Speaker 08:
It actually is contrary to and undermines what the flow-based method is trying to do in the first place, which is to allocate based on relative flows.

[00:05:41] Speaker 08:
You use this method and suddenly someone who uses it 10 times as much

[00:05:46] Speaker 08:
doesn't have to pay anything.

[00:05:48] Speaker 08:
And someone that uses it 10 times as little ends up having to carry the other one's load.

[00:05:53] Speaker 06:
It is part of the tariff.

[00:05:54] Speaker 06:
So it's applied in every allocation.

[00:05:57] Speaker 06:
It's not as though FERC or PJM could choose when to apply.

[00:06:02] Speaker 08:
Your Honor, we absolutely agree that it's part of the tariff.

[00:06:06] Speaker 08:
And I'm sorry if we caused any confusion in that front.

[00:06:09] Speaker 08:
Our point is simply that it's not an inherent and necessary part of the flow-based method.

[00:06:16] Speaker 08:
If I could start from the top, perhaps.

[00:06:20] Speaker 01:
Excuse me.

[00:06:22] Speaker 01:
There are a couple of technical questions I have.

[00:06:25] Speaker 01:
Is it correct to say, as you said, that artificial island, South Jersey case excludes all non-flow based interferences?

[00:06:39] Speaker 01:
Isn't that an unfair statement?

[00:06:42] Speaker 08:
Your honor.

[00:06:43] Speaker 08:
That case involved stability-based non-flow violation.

[00:06:48] Speaker 01:
And all that the case had, all that the case determined.

[00:06:50] Speaker 01:
Wouldn't you just answer my question?

[00:06:52] Speaker 01:
Isn't it an overstatement to say that it established a principle that interferences other than flow-based were treated differently?

[00:07:03] Speaker 01:
All interferences, whether it's a stability question or a short-circuit question, that's not fair, is it?

[00:07:12] Speaker 08:
I think it is fair, Your Honor, even though that case involved a stability-based violation, the essential reading, what a court would consider the holding of the case was that the flow-based method works and works well and fine in circumstances where what you're trying to achieve is relief of a flow constriction, whether that's voltage-based or thermal-based.

[00:07:34] Speaker 01:
Well, didn't the court limit their decision to stability?

[00:07:41] Speaker 08:
What it said in that case, Your Honor, is that stability is a unique circumstance, but you can't limit the essential reasoning.

[00:07:49] Speaker 08:
A court can't do it and FERC can't do it simply by calling something unique.

[00:07:53] Speaker 08:
In other words, in the next case that comes up, you can't throw away the essential reading or holding because you want to come to a different result.

[00:08:01] Speaker 08:
And if this court looks to what FERC said in Artificial Island, as this court understood it in the appeal from that case, the entire reasoning that FERC employed in that case

[00:08:11] Speaker 08:
was that the flow-based method reasonably establishes the beneficiaries when what you're trying to accomplish for the project is more flow.

[00:08:22] Speaker 08:
In other words, if we're putting more flow in line, those that use that more flow are the beneficiaries.

[00:08:27] Speaker 08:
On the other hand, what the court said is that even though Artificial Island involved construction of a new transmission line, use of that transmission line was not itself a benefit

[00:08:38] Speaker 08:
because there was no need for additional flow.

[00:08:40] Speaker 08:
In other words, the system was already sufficient as it was flow-wise.

[00:08:44] Speaker 01:
The same thing is true here.

[00:08:45] Speaker 01:
Excuse me for interrupting.

[00:08:46] Speaker 01:
Your argument is that the logic of artificial island supports you, but you overstated when you stated that there was a holding that any non-flow interference was treated separately.

[00:09:04] Speaker 08:
Your Honor, I accept that.

[00:09:06] Speaker 08:
What I would say is that the logic compels the same results.

[00:09:08] Speaker 01:
I understand your argument.

[00:09:10] Speaker 01:
Now, the second question I have, which really mystifies me, is the netting issue.

[00:09:18] Speaker 01:
I don't understand it.

[00:09:19] Speaker 01:
I don't understand why.

[00:09:23] Speaker 01:
I see your argument.

[00:09:25] Speaker 01:
I think I understand your argument, but I don't understand the whole question.

[00:09:31] Speaker 01:
If we're dealing with

[00:09:33] Speaker 01:
flow going both ways, then only one way would go over the new facility.

[00:09:39] Speaker 01:
So I don't understand why flows both ways count.

[00:09:43] Speaker 01:
I don't get it.

[00:09:45] Speaker 08:
So your honor, I can't explain this, fortunately.

[00:09:49] Speaker 01:
You can.

[00:09:49] Speaker 08:
So the answer is I can.

[00:09:51] Speaker 08:
I can and will.

[00:09:52] Speaker 08:
I'm doing so now.

[00:09:54] Speaker 08:
The way that it's been presented by FERC is as though you've got a river

[00:10:00] Speaker 08:
that always goes in one direction, even though there are flows that might be trying to go the other way, it always goes in one direction over a dam, let's say.

[00:10:10] Speaker 08:
In fact... Oh, I see.

[00:10:13] Speaker 01:
I see.

[00:10:13] Speaker 01:
So, FERC's position is if there is flow going the other direction, it reduces the amount of pressure going in the direction over... I finally saw it.

[00:10:25] Speaker 01:
I see.

[00:10:26] Speaker 08:
So, that's FERC's position, Your Honor.

[00:10:28] Speaker 08:
But in fact,

[00:10:30] Speaker 08:
These projects involve, first of all, multiple lines.

[00:10:33] Speaker 08:
So they're lines going both directions.

[00:10:35] Speaker 08:
Some of them are akin to two-way highways, where the transmission facility allows flows in both directions.

[00:10:41] Speaker 08:
And some of them are more like Canal Road, Your Honor, where at certain times they're in one direction, and at certain times they're in the other, depending on how much flow there is in one direction or the other.

[00:10:51] Speaker 08:
And this method recognizes that.

[00:10:53] Speaker 08:
As we've explained in our brief, this method recognizes that there are flows in both the positive and negative direction.

[00:11:00] Speaker 08:
and assigns costs to the zones that have flow in one direction or the other.

[00:11:07] Speaker 08:
They just pretend with netting that they completely offset one another.

[00:11:12] Speaker 01:
Now I understand logically that's correct because if you're measuring the flow over a new facility to the right and the transmission, whoever sends a certain amount of flow to the left,

[00:11:29] Speaker 01:
that reduces the amount that would go to the right.

[00:11:32] Speaker 01:
So therefore that would be a correct analysis and netting makes sense then.

[00:11:39] Speaker 08:
So netting wouldn't make sense, your honor, under a violation based method, which is where it came from.

[00:11:43] Speaker 01:
In other words, if you're trying to see- No, no, no, no, no, no, no, no, no.

[00:11:46] Speaker 01:
I'm thinking of it not as a violation baser, but rather the amount of flow that's used over the new facility.

[00:11:55] Speaker 01:
If you go backwards the other way,

[00:11:58] Speaker 01:
you reduce the amount that you're sending over the new facility, right?

[00:12:02] Speaker 08:
No, well, not really, Your Honor, for a couple of reasons.

[00:12:05] Speaker 08:
First of all, again, some of these facilities have flow and sometimes the predominant flow is positive and sometimes it's negative.

[00:12:12] Speaker 08:
So taking, saying that because a zone has flow in both directions doesn't mean that it doesn't in fact go in both directions.

[00:12:21] Speaker 08:
On some days it goes one way, on some days it goes the other way.

[00:12:24] Speaker 08:
You can't fairly net that.

[00:12:26] Speaker 01:
Holy cow.

[00:12:27] Speaker 08:
It's complicated, Your Honor, but this court actually, this court doesn't have to actually hit the merits of it because FERC has already recognized in the Neptune proceeding that it itself has doubts whether netting is just and reasonable.

[00:12:43] Speaker 01:
Oh, that's raised in the Neptune.

[00:12:45] Speaker 01:
I thought it was only the de minimis question.

[00:12:49] Speaker 08:
Now, netting is well, Your Honor, and that's been raised in that proceeding.

[00:12:51] Speaker 08:
FERC has already held that it may be unjust and unreasonable.

[00:12:55] Speaker 08:
and is ordered a hearing on that.

[00:12:56] Speaker 08:
At the very least, this court shouldn't permit FERC to come to contrary results in two proceedings that are still live.

[00:13:03] Speaker 01:
Well, we're not allowed an administrative law to look at subsequent proceedings to an ordinary court.

[00:13:10] Speaker 08:
Actually, Your Honor, in the Williston Basin case, this court did precisely that.

[00:13:16] Speaker 08:
I can give the court the sight of it.

[00:13:19] Speaker 08:
Williston Basin is at

[00:13:24] Speaker 08:
165 F third 54.

[00:13:28] Speaker 08:
I'm looking at pages 61 to 63.

[00:13:31] Speaker 08:
In that case, FERC came to a conclusion while one case was up here being reviewed.

[00:13:38] Speaker 08:
FERC came to a conclusion in a different case it was looking at that went precisely the other way.

[00:13:43] Speaker 08:
This court remanded so that FERC could treat light cases alike.

[00:13:47] Speaker 08:
And there wasn't asked to remand by FERC.

[00:13:50] Speaker 08:
It was the court's decision to do so.

[00:13:51] Speaker 01:
But in this case, FERC hasn't yet decided either the de minimis or the flow question or the netting question.

[00:13:59] Speaker 08:
No, and Your Honor, to be fair, we're not even, our view is that the de minimis issue is clear cut enough that this court should address it straight out.

[00:14:09] Speaker 01:
But not so much for netting, which you didn't start with.

[00:14:15] Speaker 08:
we'll acknowledge your honor that netting is a more technical issue and it's appropriate for FERC to look at both cases in the first instance.

[00:14:24] Speaker 09:
Suppose we think on netting, suppose we think there are reasonable arguments on both sides and on the one hand that cuts in favor of FERC.

[00:14:39] Speaker 09:
If it's reasonable either way, their decision is not arbitrary and capricious.

[00:14:44] Speaker 09:
On the other hand, it cuts, it might cut in favor of not getting in front of Neptune.

[00:14:51] Speaker 09:
But I mean, we don't usually hold one case just because it has an overlapping issue with the pending administrative proceeding.

[00:15:00] Speaker 09:
So what do we do in those?

[00:15:01] Speaker 08:
And we're not asking, Your Honor, we're not asking that this case to be stayed or held in advance.

[00:15:06] Speaker 08:
We've been held in advance for many years already.

[00:15:09] Speaker 08:
Our request would be as to netting, your honor, that when this court remands the case and vacates for other reasons, that it directs to decide the netting issue the same way as to both proceedings so as to not treat again like cases unlike.

[00:15:29] Speaker 08:
We do believe that this court should, as I said, flat out hold that the 1% de minimis exclusion is unjust and unreasonable.

[00:15:37] Speaker 08:
There is and has been,

[00:15:39] Speaker 08:
no rationale put forward in either law or logic or fact for it.

[00:15:43] Speaker 08:
The only things that FERC has said are number one, when it came up with this 1% de minimis, it said, well, we want to make sure that non-adjacent zones are not held responsible for remote and distant projects.

[00:15:57] Speaker 08:
Here, of course, they're not throwing that argument to this work because PSEG itself was excluded and that's the zone in which the projects are being done.

[00:16:06] Speaker 08:
and for whose customers benefit they're being done.

[00:16:10] Speaker 08:
So FERC here has two arguments it's made.

[00:16:13] Speaker 08:
One is that the 1% to minimis is a non-discriminatory and efficient way to ensure that zones aren't tasked with costs for benefits that are small in relation to their overall use of the grid.

[00:16:33] Speaker 08:
We think that accurately describes what the 1% de minimis does, but the fact that it discriminates in favor of larger zones efficiently is a problem, not a benefit to it.

[00:16:46] Speaker 08:
Secondly, FERC has suggested that, well, sometimes they redo the defects calculation every year.

[00:16:53] Speaker 08:
And so who gets benefited and who suffers the consequences of the 1% may differ over time.

[00:17:01] Speaker 08:
That's, again, not much of an excuse for it, Your Honor.

[00:17:04] Speaker 08:
If it's an irrational methodology that leads to unjust and reasonable cost calculations, the idea that, well, sometimes it might work to hurt other people or help other people, again, isn't a rational justification for it.

[00:17:19] Speaker 08:
Besides, here, we know that it operates systematically.

[00:17:22] Speaker 08:
It operates systematically to help larger zones because they're more likely to be exempted and to hurt smaller zones who are less likely to be exempted.

[00:17:32] Speaker 08:
And that led here to really extreme results.

[00:17:34] Speaker 08:
Empirical data that we presented the court with and we presented FERC with directly came out of the 1%.

[00:17:40] Speaker 08:
So when we learn that Hudson and Linden had only 10% of the flow-based method benefits and yet we're forced to pay 86% ultimately of the costs of the corridor project, that's solely and entirely due to the application of the 1% de minimis convention.

[00:18:02] Speaker 08:
And so it is led here, and that's true of all of the statistics that we used to the results were faced with.

[00:18:08] Speaker 08:
Now, first, we gave those results.

[00:18:10] Speaker 06:
Mr. Grass, could you just explain to me why, as a practical matter, was it not apparent to Con Ed that this would be the result of the application of the tariff?

[00:18:20] Speaker 06:
Because all of these provisions were set out in the tariff.

[00:18:25] Speaker 06:
Why did it come, was it a surprise that this was the outcome of the calculations?

[00:18:32] Speaker 08:
So we're talking just about de minimis right now, Your Honor?

[00:18:35] Speaker 06:
About the de minimis.

[00:18:36] Speaker 08:
Yeah.

[00:18:37] Speaker 08:
Your Honor, what de minimis was defended as when it first came out again was a method that was going to really just work to ensure that distant zones were not held responsible for costs to which they had only sort of very small connections.

[00:18:53] Speaker 05:
That's not as sad.

[00:18:54] Speaker 08:
And I know the math is the math.

[00:18:56] Speaker 08:
Yeah.

[00:18:56] Speaker 08:
I realize the math is the math, Your Honor.

[00:18:58] Speaker 08:
But in most projects, most of the flow-based projects that have been an issue at FERC,

[00:19:02] Speaker 08:
There have been 1,200 of them that are flow-based.

[00:19:05] Speaker 08:
And we haven't seen these kinds of results come out of them.

[00:19:10] Speaker 08:
These projects are different.

[00:19:11] Speaker 08:
They have produced different results, Your Honor.

[00:19:14] Speaker 08:
And it couldn't have been predicted earlier because the whole modeling technology that PJM uses is a proprietary technology.

[00:19:23] Speaker 08:
And so trying to predict at first, yeah, we could have seen that it was irrational, but trying to predict at first who was going to hurt and therefore who has standing to challenge it

[00:19:33] Speaker 08:
wouldn't have been something that we could have done.

[00:19:36] Speaker 08:
There are a lot of things that are wrong in life, Your Honor, but we don't complain about them unless they're going to hurt us.

[00:19:40] Speaker 06:
So I have another question then about that.

[00:19:42] Speaker 06:
So is the relief that you suggest that the tariff itself is unjust and unreasonable because it leads to these unjust and unreasonable cost allocations?

[00:19:55] Speaker 06:
As applied.

[00:19:56] Speaker 06:
Right, as applied to the petitioners here.

[00:20:03] Speaker 06:
Is the solution to that to say that the tariff is unjust and unreasonable or that FERC should have given the petitioners some type of exception here the way they did for artificial island?

[00:20:16] Speaker 06:
And what difference does it make to the petitioners if we choose one remedy or another?

[00:20:23] Speaker 08:
Your honor, petitioners don't care because in this circumstance, petitioners are no longer using these services within

[00:20:33] Speaker 08:
PJM that would allocate these costs to them going forward.

[00:20:37] Speaker 08:
So long as FERC does its job and reforms the rates, petitioners are satisfied.

[00:20:43] Speaker 09:
And one of the difficulties- But the relief is going to be prospective from the filing of your complaint, right?

[00:20:51] Speaker 08:
Or from our protest, Your Honor.

[00:20:53] Speaker 09:
We also thought- In other words, we wouldn't say that the tariff was unlawful as applied going back to day one.

[00:21:04] Speaker 08:
No, Your Honor, just from the date of our protest, basically to these complaints and then our actual complaints under 206 ourselves.

[00:21:14] Speaker 08:
And Your Honor, just one last point, if I may, which is the third point that I was going to hit today is that FERC failed to take into account relevant considerations when it just completely ignored our undisputed empirical evidence of the

[00:21:28] Speaker 08:
grossly disproportionate allocations here.

[00:21:30] Speaker 08:
Now, what FERC said is we don't have to look at what actually comes out of the methodology.

[00:21:36] Speaker 08:
We just have to look at whether the methodology itself is just and reasonable.

[00:21:39] Speaker 08:
The problem with that is the Federal Power Act says that rates must be just and reasonable.

[00:21:45] Speaker 08:
And when FERC is presented with rates that on their face are unjust and unreasonable, it can't shrug and say, yeah, well, the underlying methodology.

[00:21:53] Speaker 01:
The problem with that argument is you have no principled ground

[00:21:58] Speaker 01:
principle line to draw at which the disproportion between benefit and cost is too much, number one.

[00:22:07] Speaker 01:
And number two, you're challenging the ex ante approach that FERC has developed.

[00:22:16] Speaker 01:
Now it seems to me your argument is stronger on the de minimis.

[00:22:20] Speaker 01:
Now let me go back to artificial island again.

[00:22:25] Speaker 01:
I had one hell of a time trying to understand

[00:22:29] Speaker 01:
FERC's technological explanation as to why artificial island was different from your case.

[00:22:39] Speaker 01:
Could you explain why you think they're the same?

[00:22:44] Speaker 01:
I know you can make a general statement saying all non-flow interferences should be treated the same, but that's not what FERC said.

[00:22:55] Speaker 01:
Can you give your

[00:22:57] Speaker 08:
I'll do my best, Your Honor.

[00:23:00] Speaker 08:
Yes.

[00:23:01] Speaker 01:
So.

[00:23:03] Speaker 01:
In other words, they made a distinction between stability and short circuit.

[00:23:09] Speaker 08:
So the only distinction that they made, Your Honor, in the order here, which is all we can look at, the rehearing order where they addressed artificial island and its application to this case, is that they said the solution in this case is more like the solutions that you come up with in cases

[00:23:25] Speaker 08:
that involve flow constraints, in other words, thermal and voltage constraints.

[00:23:29] Speaker 08:
The problem with that argument is that the solution here was building new transmission line.

[00:23:35] Speaker 08:
That was the same solution that was used in artificial island.

[00:23:39] Speaker 08:
In artificial island, that new transmission line created another pathway, an additional pathway from generators to the grid.

[00:23:46] Speaker 08:
In this case, the new transmission lines bypassed circuit breakers that were not up to the task.

[00:23:53] Speaker 08:
In either case, though, were those transmission lines created like they are in flow-based projects in order to enable greater flow.

[00:24:02] Speaker 08:
And because of that, you can't measure benefits here by the flow that goes over those transmission lines any more than you could in artificial island.

[00:24:11] Speaker 08:
So the only distinction they came up with

[00:24:14] Speaker 08:
really isn't a distinction at all, because it's the same in both cases.

[00:24:19] Speaker 08:
What FERC said, by the way, to be clear, is FERC addressed the fact that there was a new transmission line in Artificial Island, because as this court will recall, the transmission owners didn't like the results in Artificial Island.

[00:24:30] Speaker 08:
And they said, well, there's a new transmission line here.

[00:24:32] Speaker 08:
And what FERC said is, sure, there's a new transmission line, but because the old transmission facilities already carried the Demarva party's power just fine,

[00:24:43] Speaker 08:
The fact that their power is now going to ride on this new line doesn't give them any benefit.

[00:24:47] Speaker 08:
The same thing is true here, Your Honor.

[00:24:50] Speaker 08:
There was no constraint of flow that was going on.

[00:24:53] Speaker 08:
We were already using... I'm sorry, Your Honor.

[00:24:58] Speaker 09:
I see your point.

[00:25:01] Speaker 09:
But on the other hand, in the stability situation,

[00:25:07] Speaker 09:
you can solve the problem by building any number of transmission lines going to anywhere.

[00:25:15] Speaker 09:
You can connect artificial island to Delaware, you can connect it to Philadelphia, you can connect it to Cape May.

[00:25:23] Speaker 09:
And so there's an element of capriciousness in figuring which of those

[00:25:33] Speaker 09:
which of those non-flow necessary lines will be built and then who will get saddled with the cost if you apply defects.

[00:25:45] Speaker 09:
That's not really true for short circuit.

[00:25:50] Speaker 09:
I mean, if the problem, let me just, let me state it and then tell me why this is wrong.

[00:25:55] Speaker 09:
But if the problem is that the circuit breakers going from A to B

[00:26:03] Speaker 09:
Bergen to Linden or wherever, if the circuit breakers can't handle the flow or whatever else is associated with that line, 99 times out of 100, you fix the circuit breakers, but this is the hundredth case where you fix the breaker problem on the A to B line by upgrading A to B.

[00:26:31] Speaker 09:
you upgrade the transmission line, which is what the Bergen project was.

[00:26:36] Speaker 09:
And that seems like it's much more in the model of you're improving transmission from A to B, even if you're doing it for collateral reasons, as opposed to the stability situation where the line only needs to radiate out from the nuclear plant.

[00:26:58] Speaker 08:
So, Your Honor, I don't think that's a correct understanding.

[00:27:02] Speaker 08:
First of all, the short-circuit problems, and no one, not even FERC, has said that the short-circuit problems were just along sort of an A to B to the Bergen corridor.

[00:27:10] Speaker 08:
In fact, there were short-circuit problems here in Newark and in Jersey City.

[00:27:14] Speaker 08:
The short-circuit, let me just take a step back, is something that is a surge in current that is caused by lightning strikes and the like, where current can suddenly go 40 times as high

[00:27:26] Speaker 08:
And if you don't stop the short-circuit current, it can melt or even explode facets of the system.

[00:27:34] Speaker 08:
So, for example, if a short-circuit current is not stopped, it could blow up a substation.

[00:27:40] Speaker 08:
And the problem that occurs there, and of course, what you're trying to solve when you're curing for a short-circuit is, it means that the load that is served from that substation no longer can be served and the lights go out.

[00:27:52] Speaker 08:
That's a huge problem for PSEG because the local load is the one that primarily suffers.

[00:27:59] Speaker 08:
Sure, everyone else's electricity gets rerouted in some way, but they still get their electricity.

[00:28:04] Speaker 08:
So it's a local problem.

[00:28:06] Speaker 08:
And that's why when you just get a new circuit breaker, the tariff provides at page 1975 that the local utility pays 100% of the costs.

[00:28:17] Speaker 08:
Here, instead of fixing it that way, they didn't improve

[00:28:20] Speaker 08:
network to fix it or improve the lines to fix it, they literally bypassed, they created transmission lines that just bypassed what they call over-dutyed circuits.

[00:28:29] Speaker 08:
In other words, circuit breakers, circuit breakers that weren't up to the task.

[00:28:33] Speaker 08:
So they created a loop around them, that sort of thing to bypass them.

[00:28:36] Speaker 08:
But that doesn't provide us a benefit just because our traffic now goes on that new line, your honor.

[00:28:43] Speaker 09:
But I mean, one of the shorthand

[00:28:47] Speaker 09:
for the Bergen project.

[00:28:49] Speaker 09:
I'm sure this is oversimplified, but just on the A to B point is that they upgraded that particular line from 138 kilovolts to 345 kilovolts on that line.

[00:29:05] Speaker 09:
And I'm sure a little bit of knowledge is a dangerous thing, but to me that sounds like they're upgrading that line.

[00:29:13] Speaker 08:
Your honor, there's no doubt that along the way, they gold plated what they were doing.

[00:29:17] Speaker 08:
In other words, they did more things than just cure the basic short-circuit problem.

[00:29:24] Speaker 08:
But the purpose, of course, of the project, and you can look at JA 378 or JA 176, unquestionably was to address the short-circuit problems.

[00:29:34] Speaker 08:
It was the primary benefit of the project was to solve those problems.

[00:29:39] Speaker 08:
And to be clear, FERC didn't defend the result here.

[00:29:42] Speaker 08:
Otherwise, it didn't say we're treating this case differently from how we treated artificial island because there are substantial other benefits that are created and the flow-based method is the way to measure them.

[00:29:55] Speaker 08:
They've never advanced that as a rationale, Your Honor.

[00:29:58] Speaker 08:
They're free, of course, to try to do that on remand, but given that the only thing they've done is a one-sentence comment that the solution here looks a lot more like the solutions that you use in flow-based.

[00:30:12] Speaker 08:
I would say intolerably so to use this for its own terminology.

[00:30:17] Speaker 09:
Unless you go back and dig into Mr. Hurling's testimony, which I actually did, and he

[00:30:25] Speaker 09:
I think it's consistent with what I've been enforcing.

[00:30:29] Speaker 08:
And of course, Your Honor, if you look at Mr. Hurling's testimony, he treats short-circuit problems and stability problems the same way.

[00:30:36] Speaker 08:
And so did PJM generally, and so did PJM's president.

[00:30:40] Speaker 08:
And FERC relied on all of this PJM input to decide the artificial island case.

[00:30:45] Speaker 08:
So I fully would embrace Steve Hurling's testimony here, Your Honor, and just say that what he said and what PJM said

[00:30:53] Speaker 08:
didn't draw any lines between the two.

[00:30:57] Speaker 08:
Okay.

[00:30:57] Speaker 08:
I'm sure I've gone way over my time for my, um, affirmative presentations to draw anything else.

[00:31:04] Speaker 09:
Judge Silverman.

[00:31:05] Speaker 09:
Oh, okay.

[00:31:07] Speaker 09:
Thank you, Mr. Bress.

[00:31:08] Speaker 09:
Uh, we'll give you some bottle.

[00:31:11] Speaker 09:
Mr. Islander Europe.

[00:31:15] Speaker 02:
Good morning.

[00:31:16] Speaker 02:
May it please the court.

[00:31:17] Speaker 02:
Elizabeth Rylander for the commission.

[00:31:19] Speaker 02:
I'd like to go to the essential point in this case, which all three of your honors asked questions about, and that is why this case is not the same as Artificial Island.

[00:31:29] Speaker 02:
And the commission's best explanation.

[00:31:32] Speaker 09:
Can I just start where Mr. Bress left off?

[00:31:35] Speaker 09:
Because this was on my list of questions for you, which is, if you look at Hurling's testimony, he does not distinguish stability issues from short-circuit issues.

[00:31:48] Speaker 02:
The commission dug into that, your honor, in the technical conference, where it took an entire day with experts from parties.

[00:32:00] Speaker 01:
You may have looked into it in a technical conference, but I'll be damned if I can understand your explanation.

[00:32:09] Speaker 01:
It's your burden, is it not?

[00:32:11] Speaker 01:
Under APA, the party that wishes to defend an order

[00:32:17] Speaker 01:
as the burden of persuasion.

[00:32:21] Speaker 01:
And neither in your brief nor in the FERC's opinion could I understand the logic.

[00:32:31] Speaker 01:
And if we can't understand the logic, aren't we obliged to remand?

[00:32:40] Speaker 02:
Yes, your honor.

[00:32:42] Speaker 02:
But if you could please clarify which logic.

[00:32:47] Speaker 01:
The logic distinguishes artificial island from the present case.

[00:32:53] Speaker 01:
What did you say in the brief?

[00:32:56] Speaker 01:
That's where I would like.

[00:32:57] Speaker 01:
You were pretty.

[00:33:00] Speaker 01:
Excuse me, you were pretty terse in the brief and certainly didn't give enough to explain it.

[00:33:05] Speaker 01:
So then I look back at the order and I couldn't

[00:33:12] Speaker 01:
figure that out either.

[00:33:14] Speaker 02:
Okay.

[00:33:16] Speaker 02:
I hope this will also address Judge Kansas' question at the same time.

[00:33:19] Speaker 02:
It is the same.

[00:33:20] Speaker 02:
Okay.

[00:33:22] Speaker 02:
The reason this case is different from Artificial Island is that when you're resolving a stability constraint around, which in that case was around a nuclear power plant in southern New Jersey, it's important to carry electrical flow away from the source of the problem.

[00:33:38] Speaker 02:
And the strength of the grid in that area was not sufficient to carry enough power away.

[00:33:46] Speaker 01:
So as earlier, what was the stability problem.

[00:33:51] Speaker 02:
The stability problem refers to the operation of the plant itself.

[00:34:00] Speaker 02:
If not enough power is being carried away, it can cause problems with the rotation of the electrical equipment generating power within the facility.

[00:34:16] Speaker 01:
So you don't- It's an exterior issue other than flow.

[00:34:24] Speaker 02:
A exterior in that it's part of the grid.

[00:34:27] Speaker 01:
The grid has to carry the analytically exterior.

[00:34:31] Speaker 02:
Yes.

[00:34:33] Speaker 02:
So in order to solve a stability problem, you carry power away from the problem.

[00:34:39] Speaker 02:
And in order to solve a flow-based problem, you carry power to the problem, i.e.

[00:34:44] Speaker 02:
there's not enough generation to serve load.

[00:34:49] Speaker 02:
And that is what was happening here is the short circuit problems and impending thermal problems on this North Jersey project were making it more difficult or would soon make it more difficult.

[00:35:02] Speaker 02:
for PJM to carry load, to carry power to the places it was going in North Jersey and New York.

[00:35:11] Speaker 09:
I'm not sure that's right.

[00:35:16] Speaker 09:
If you look at the technical conference again, the way they seem to be conceiving of short circuit problems is that,

[00:35:28] Speaker 09:
The breakers are as strong as the breakers are.

[00:35:32] Speaker 09:
And as the flow increases over that line and the breakers stay the same, at some point the breakers become not strong enough to support whatever flow is going over that line.

[00:35:49] Speaker 09:
Is that not right?

[00:35:51] Speaker 02:
No, that is right.

[00:35:52] Speaker 02:
But the solution is that similar to solving a thermal problem, you need to build additional transmission capacity or install additional equipment to carry more power.

[00:36:07] Speaker 02:
The essential point, as your honors brought up earlier, is that FERC did not make this exemption from the flow-based method.

[00:36:19] Speaker 02:
according just to whether the violation in question was non-flow-based.

[00:36:27] Speaker 02:
In artificial island, it subdivided that category and found the exemption was only for stability-related issues.

[00:36:38] Speaker 02:
In this case, FERC drew the same technical distinction that we discussed earlier,

[00:36:46] Speaker 02:
and determined that the nature of the upgrades were such that the flow-based method did appropriately allocate costs and could be reasonably applied to this case.

[00:37:05] Speaker 02:
As Judge Rao asked earlier regarding what Con Ed could and couldn't foresee,

[00:37:11] Speaker 02:
All of the rules are set out in the tariff.

[00:37:14] Speaker 02:
And this flow-based method has been uneventfully allocating costs for nine years to a total of over 1,200 projects.

[00:37:23] Speaker 01:
That's not in dispute in this case.

[00:37:26] Speaker 02:
Correct.

[00:37:26] Speaker 02:
It is not in dispute.

[00:37:28] Speaker 01:
And it's... So I don't know what that has to do with the price of tea.

[00:37:40] Speaker 02:
What it means, Your Honor, is that in a case like this one where the rate works the vast majority of the time the commission has held that there's a very high chance that it's just and reasonable.

[00:37:52] Speaker 02:
And what the petitioners say that they want here is just an exception.

[00:37:55] Speaker 02:
They say they don't care what the court decides in terms of whether the rate is or is not just and reasonable.

[00:38:01] Speaker 02:
They just don't want to pay the costs that they're owed.

[00:38:04] Speaker 01:
May I ask you a question about the de minimis rule?

[00:38:07] Speaker 01:
How, in Lord's name, can you defend the logic of that rule?

[00:38:13] Speaker 02:
The demented rule.

[00:38:16] Speaker 01:
If I'm a real big guy, I can avoid any cost responsibility if, even though I use a massive amount of electricity from a particular source, as long as it's a small percentage of my total load.

[00:38:37] Speaker 01:
What's the logic of that.

[00:38:39] Speaker 02:
Yes, Your Honor, the de minimis rule is set in terms of percentage as opposed to a number of megawatts or some other measure in order to measure the total impact of his own.

[00:38:51] Speaker 02:
I'm sorry, I'm looking at the wrong place in my, in my notes.

[00:38:57] Speaker 02:
The intent is to prohibit the assignment of costs to far distance zones.

[00:39:01] Speaker 02:
For example, as the seventh circuit noted in Illinois Commerce Commission, to prevent the assignment of costs to Illinois for these upgrades being built in New Jersey.

[00:39:11] Speaker 02:
The reason it's set as a percentage is that everybody has a percentage.

[00:39:14] Speaker 01:
So the New Jersey utility, which is PG, something rather, is a far distant operation, far distant from where?

[00:39:25] Speaker 02:
No, certainly it's not a farthest enough utility, Your Honor.

[00:39:29] Speaker 01:
So what is this relevant to?

[00:39:31] Speaker 02:
What we know we can't do is assign costs far out of the zone.

[00:39:37] Speaker 02:
And what there seems no principled way to do is to choose a number of megawatts that should be exempt.

[00:39:44] Speaker 02:
So the commission has opted for percentages.

[00:39:47] Speaker 09:
And as noted at the very beginning of this argument, that's... It's a percentage, but a percentage of the wrong denominator.

[00:39:56] Speaker 09:
The point of this method is to measure for any given facility, what's the percentage use by any particular utility.

[00:40:12] Speaker 09:
And instead of using that percentage to cut off de minimis users,

[00:40:20] Speaker 09:
Your denominator is not total use of the facility, it's total use by the utility, which is going to be wildly arbitrary when you have situations like this one where one of the utilities at issue is 30 times bigger than other ones.

[00:40:42] Speaker 02:
Again, Your Honor, the commission, the commission in applying what has been baked into the tariff since the beginning, said that that's not the case, and that is that it is a non discriminatory way not the case that my description of the percentages is wrong.

[00:41:00] Speaker 02:
The commission, what the commission said is that it's a non-discriminatory way of ensuring that costs are allocated only to the zones that benefit.

[00:41:11] Speaker 02:
I said, I do understand your honor's point that public service electric and gas is a very large zone.

[00:41:19] Speaker 06:
So even if the tariff itself is just and reasonable, it's application here to PSE and GE

[00:41:28] Speaker 06:
Out you know into the petitioners here, I mean doesn't that mean isn't that allocation itself unjust and unreasonable.

[00:41:35] Speaker 06:
Because of the application of the tariff in these circumstances, a circumstance you've acknowledged wasn't the one that the de minimis rationale was implemented for.

[00:41:46] Speaker 02:
judge well i'm sorry I missed the beginning of your question, could you could you ask it again.

[00:41:51] Speaker 06:
Yeah, so my question is, I mean, this de minimis convention is a different type of circumstance, right?

[00:42:00] Speaker 06:
Where utility is far away from a particular facility.

[00:42:04] Speaker 06:
And here, even if maybe the tariff in general is just and reasonable for most applications, its application in this case seems to be wildly disproportionate.

[00:42:21] Speaker 06:
I mean, isn't FERC required to ensure that the allocation is itself just and reasonable?

[00:42:30] Speaker 02:
Certainly it is, Your Honor.

[00:42:31] Speaker 02:
The commission and PJM have spent many years developing first, in FERC's case, a rule to ensure appropriate allocation of costs.

[00:42:42] Speaker 02:
And in PJM's case, a rate that accurately makes that allocation.

[00:42:54] Speaker 02:
What happens when you start to look at every single cost allocation after the fact is that the ex ante principle of the rate is undermined.

[00:43:05] Speaker 02:
The idea is that everybody understands ahead of time by reading the tariff, how cost allocation works, what they can reasonably expect, and how the allocation process will play out.

[00:43:21] Speaker 02:
Here, the rate identifies beneficiaries over years as the grid shifts and changes.

[00:43:27] Speaker 02:
And PJM found that both parties both in New York and New Jersey benefit.

[00:43:34] Speaker 02:
There will certainly be instances, and the petitioner's brief does refer to individual sub-projects, not to the project as an entirety, where it looks as though the netting and de minimis made larger exemptions than they felt were warranted.

[00:43:53] Speaker 02:
But they talk only about individual pieces of these projects.

[00:43:58] Speaker 02:
They don't talk about the projects.

[00:43:59] Speaker 02:
They don't talk about the projects as whole, particularly the Bergen-Linden process project.

[00:44:06] Speaker 02:
So what I'm saying is that I think where you started off in your discussion with petitioners is that it's very important that

[00:44:14] Speaker 02:
there be settled expectations in terms of how PJM will analyze beneficiaries, how the cost of those beneficiaries will be allocated, and who is presumed to benefit?

[00:44:29] Speaker 06:
Ms.

[00:44:29] Speaker 06:
Freylander, I absolutely take your point about the importance of setting ex ante rules for allocations, but

[00:44:38] Speaker 06:
Old dominion suggests that FERC cannot simply rely on the fact that it has an ex ante rule, right?

[00:44:44] Speaker 06:
It also has to examine whether the particular allocation is just and unreasonable if that's raised before it.

[00:44:56] Speaker 06:
Balance those two things.

[00:44:58] Speaker 06:
I mean, I think that is like, that is, I think the real question I have, I mean, in a situation where say maybe the tariff is just and reasonable, what is FERC obligation

[00:45:08] Speaker 06:
to evaluate whether a particular allocation is just reasonable.

[00:45:12] Speaker 06:
It can't simply say, well, apply the tariff properly.

[00:45:17] Speaker 06:
So what does it have to do in the particular application of the tariff?

[00:45:22] Speaker 02:
So this case involves both filings under Federal Power Act 205 and under Federal Power Act 206.

[00:45:29] Speaker 02:
And as I was explaining earlier, FERC expects that because the formula here is sound, it will produce good results.

[00:45:36] Speaker 02:
And in those Federal Power Act 205 cases, it ensured that the tariff was followed and that the results were as expected.

[00:45:44] Speaker 02:
That's the corridor order, the subprojects order, and so forth.

[00:45:48] Speaker 02:
But FERC has always allowed, and in this case entertained on three separate occasions, Federal Power Act 206 challenges to the rate itself.

[00:45:58] Speaker 02:
I can't remember exactly what this procedural setup was in Old Dominion, but that is, but in the same, but regardless, FERC has provided the same opportunity to petitioners here to challenge the way the costs were allocated.

[00:46:16] Speaker 09:
Old Dominion was you approved an amendment for a certain category of projects that we thought didn't work.

[00:46:27] Speaker 09:
And we were sensitive to this concern that rules are rules and you don't have to go around creating an exception every time you think the rules might not work.

[00:46:41] Speaker 09:
But we also were careful or we tried to be careful to say that

[00:46:46] Speaker 09:
The distinction that we thought you were missing in that case was between high voltage and low voltage lines and that was one that the commission itself had told us was important.

[00:47:02] Speaker 02:
And certainly you're right.

[00:47:03] Speaker 02:
I am quite familiar with the case.

[00:47:04] Speaker 02:
I just couldn't remember Federal Power Act 205 versus 206.

[00:47:09] Speaker 02:
And in old opinion, what we had approved, as you said, was an amendment to this very cost allocation that's issued here to limit the application of

[00:47:20] Speaker 02:
to limit the allocation of the cost allocation for high voltage lines.

[00:47:24] Speaker 02:
We've not done anything like that here.

[00:47:26] Speaker 02:
This is the cost allocation that has been, again, uneventfully allocating costs in more than a thousand projects for some years.

[00:47:37] Speaker 09:
So on that rules are rules point, one conclusion that you might draw out of that is that

[00:47:48] Speaker 09:
this is a collateral attack on the tariff, but FERC does, the intervenors make that argument, but FERC does not.

[00:47:55] Speaker 09:
So do you have a position on that question?

[00:48:03] Speaker 02:
We did not raise that argument because again, FERC has allowed parties to raise challenges to individual findings as an artificial island.

[00:48:18] Speaker 02:
but here as there, there's no issue of an exception or a change to the rate.

[00:48:28] Speaker 02:
So I would say broadly, no, I don't think this is a collateral attack, but an as applied challenge in which the petitioners are requesting an exemption from the rates.

[00:48:41] Speaker 09:
It's tough sledding for them if you posit that the general rule

[00:48:49] Speaker 09:
is fine qua rule and they're saying, well, but it doesn't work well in this case.

[00:48:53] Speaker 09:
And assume for purposes of argument, I think if you think of this as did FERC explain why one might reasonably think of a circuit breaker case as being akin to a flow case, maybe I agree with you on that, but we're still left with artificial island.

[00:49:18] Speaker 09:
You did what you did there, and it seems like you need to give us some reason to justify treating circuit breakers different from stability.

[00:49:28] Speaker 09:
And I think that's the tough part of the case for you.

[00:49:33] Speaker 02:
Stability, again, Your Honor, is electrically and analytically a strange situation.

[00:49:41] Speaker 02:
in which, as your honor pointed out, as discussed in the tech conference, you can build a transmission line going anywhere, and it will help the situation.

[00:49:51] Speaker 02:
And then at that point, the designation of benefits becomes very arbitrary.

[00:49:56] Speaker 02:
It could be Philadelphia, it could be Allentown, could be, as in this case, Delmarva, which did not need the power.

[00:50:05] Speaker 01:
So there are the flow-based- Excuse me.

[00:50:09] Speaker 01:
Your colleague, your counsel on the other side said in the case before us, there was the same transmission lines built to avoid the circuit breaker.

[00:50:27] Speaker 01:
Is that correct?

[00:50:29] Speaker 02:
I'm sorry, I'm not.

[00:50:31] Speaker 02:
I'm not sure I understand your question, your honor.

[00:50:34] Speaker 01:
I'm not sure I understand it either, but he did say, he did say that in both cases, transmission lines were built to get around the problem, to get around the problem.

[00:50:46] Speaker 02:
Yes, there were, in both cases, transmit transmission lines were built, but the distinction- To get around the problem, to get around the problem, right?

[00:50:55] Speaker 02:
To carry power away from the problem.

[00:50:58] Speaker 01:
in artificial islands, and yes.

[00:51:00] Speaker 01:
I'm sorry if I'm being imprecise when I said get around the problem, but of course I'm referring to power.

[00:51:06] Speaker 01:
Okay.

[00:51:07] Speaker 01:
I wasn't referring to pencils.

[00:51:11] Speaker 02:
Okay.

[00:51:12] Speaker 02:
The critical difference legally between this case and artificial island is that in artificial island, the flow-based method did not accurately identify the beneficiaries because of the arbitrariness of where that new line goes.

[00:51:28] Speaker 02:
And in this case, where the facilities were built and the commission said at least twice in the orders, these facilities, this project is an upgrade to facilities used to carry power to New York, then the benefits do follow the flow of power.

[00:51:44] Speaker 02:
And you can tell who is benefiting by doing the flow-based analysis and seeing where the power goes.

[00:51:56] Speaker 02:
Con Ed's contract allows it to take 1,000 megawatts from PJM.

[00:52:03] Speaker 02:
The merchants take another 600 and some megawatts.

[00:52:07] Speaker 02:
It's a significant amount of power that's going to New York and that these facilities are supporting.

[00:52:16] Speaker 09:
In Artificial Island, what FERC eventually came up with

[00:52:26] Speaker 09:
is something called a disruption analysis.

[00:52:31] Speaker 09:
In other words, you would allocate flows, you would figure out what happened, who would be harmed if a stability problem came to fruition and you would allocate flows.

[00:52:43] Speaker 09:
The benefit being measured is avoiding that harm and you would allocate flows accordingly.

[00:52:50] Speaker 09:
Why wouldn't that same logic apply here?

[00:52:55] Speaker 09:
Which is, you're not building or upgrading the line to enhance flow.

[00:53:01] Speaker 09:
You're building the line to prevent a separate problem, which is the circuit breakers fail, which could cause all these explosions and such.

[00:53:12] Speaker 09:
So why couldn't you just figure out what would happen if that

[00:53:18] Speaker 09:
Who would be harmed if that very bad contingency came to pass and then allocate benefits in terms of avoiding that harm?

[00:53:29] Speaker 09:
It seems like that's pretty analogous.

[00:53:32] Speaker 02:
The replacement rate that was developed in artificial island was not an issue in the appeal.

[00:53:37] Speaker 02:
No one ever challenged it.

[00:53:39] Speaker 09:
It goes to the underlying question of whether

[00:53:45] Speaker 09:
circuit breaker problems are more like artificial island or more like run of the mill upgrading the line projects.

[00:53:55] Speaker 02:
Um, it sounds as though if you're looking at who would be harmed that looks that sounds more like a violation based analysis to me.

[00:54:04] Speaker 02:
And the commission has some has some time ago.

[00:54:08] Speaker 09:
I'm sorry, who would get the benefit of not having explosions when the breakers fail, who would get the benefit of not being harmed.

[00:54:23] Speaker 09:
Fair enough, but that's a little bit different from the violation question, which would ask who caused the situation, who caused the circuit breakers to no longer be good enough.

[00:54:39] Speaker 09:
It's not that question.

[00:54:42] Speaker 02:
And I suppose the commission or PJM could look at the problem that way.

[00:54:48] Speaker 02:
But it hasn't and doesn't it looks at benefits from the flow of power which this court mentioned which this court said only the week before last was a reasonable way to identify beneficiaries under the flow based analysis in the Long Island case.

[00:55:04] Speaker 02:
I would bring that back to the essential question of this case, which is not whether some other rate might be just and reasonable, but whether this rate is just and reasonable.

[00:55:16] Speaker 02:
The commission certainly could have resolved this case some other way.

[00:55:20] Speaker 02:
It certainly could have weighed the evidence.

[00:55:24] Speaker 02:
It could have come to some different conclusion.

[00:55:26] Speaker 02:
But the court's task here is to decide whether the conclusion the commission did reach is a just and reasonable one.

[00:55:35] Speaker 01:
And I would say again- Well, but our problem, councilor, our problem first is to fully understand the FERC's rationale.

[00:55:47] Speaker 01:
And if it has not been articulated either in the order or in the brief adequately, then what is our appropriate response as the judge?

[00:56:02] Speaker 02:
Your honor, is there

[00:56:05] Speaker 02:
You've asked several specific questions about how to distinguish this case from artificial island.

[00:56:10] Speaker 02:
It sounds as though, Your Honor may have further questions.

[00:56:20] Speaker 01:
No, my problem, my problem, I don't know about my colleagues, is I don't find the explanation that FERC gave distinguishing the two situations adequate.

[00:56:34] Speaker 01:
That's my concern.

[00:56:38] Speaker 02:
I would say that the commission is not required to carve out exemptions for arguably different subcategories of projects.

[00:56:47] Speaker 02:
The commission went to an extraordinary amount of effort to analyze this case, including issuing 17 or so orders, holding a technical conference, setting it for settlement on two separate occasions.

[00:57:02] Speaker 02:
in the end concluded that this case was different enough from artificial island that the approved cost allocation that everybody expected should apply.

[00:57:12] Speaker 02:
I am happy to continue trying to help understand where the distinction comes from.

[00:57:31] Speaker 09:
Judge Silberman, anything further on that?

[00:57:33] Speaker 09:
No.

[00:57:34] Speaker 09:
Judge Rath.

[00:57:37] Speaker 09:
Just one more from me, I guess, which is, to what extent does the commission have concerns?

[00:57:46] Speaker 09:
Put aside what should happen in this case, but to what extent do you have concerns about de minimis and netting as reflected in the Neptune proceedings?

[00:57:57] Speaker 02:
The order of the complaint proceeding in Neptune stated only that the commission was interested in gathering more information.

[00:58:10] Speaker 02:
Briefs and responses have been submitted and the commission is considering the matter.

[00:58:14] Speaker 02:
There's no ruling yet.

[00:58:15] Speaker 09:
And if you were to afford relief in Neptune, would that just

[00:58:28] Speaker 09:
If you were to agree with the concern with that would just change the tariff provisions going forward and then Mr. Bress' all of the clients involved in this case would effectively get relief going forward.

[00:58:47] Speaker 02:
I don't want to speculate on exactly what the commission might or might not do.

[00:58:52] Speaker 02:
I can say that the refund effective date in that complete proceeding was set, I believe, December 31st, 2020.

[00:58:58] Speaker 02:
And there were questions asked about what would occur if the commission ruled a certain way.

[00:59:08] Speaker 02:
And the best thing I can say is that we will address that at the appropriate time.

[00:59:12] Speaker 02:
But the matter remains pending before the commission.

[00:59:15] Speaker 09:
Okay.

[00:59:16] Speaker 09:
Do my colleagues have anything else?

[00:59:18] Speaker 09:
No.

[00:59:19] Speaker 09:
Okay.

[00:59:19] Speaker 09:
Thank you, Ms.

[00:59:19] Speaker 09:
Rhinelander.

[00:59:22] Speaker 09:
We'll hear from Mr. Gossett for the interveners.

[00:59:32] Speaker 06:
Mr. Gossett, I think you're muted.

[00:59:34] Speaker 06:
Mr. Gossett, you're muted.

[00:59:36] Speaker 06:
I can't hear you.

[00:59:39] Speaker 07:
Sorry sorry, yes, I had turned off the zoom mute mute on my microphones.

[00:59:44] Speaker 07:
I'm very sorry about that.

[00:59:47] Speaker 09:
Go ahead.

[00:59:47] Speaker 07:
Several technical problems this morning.

[00:59:51] Speaker 07:
Good morning, Your Honor.

[00:59:51] Speaker 07:
In my limited time, I want to touch briefly on five points all very, very quickly.

[00:59:57] Speaker 07:
And the first, and I think it's important to return to that because all the judges, all three judges have flagged it, but I think we need to remember its importance, which is that

[01:00:13] Speaker 07:
FERC in this system designed this process to be an ex ante process where these costs are allocated in advance and that we don't necessarily go through exactly the endeavor we're involved with here.

[01:00:26] Speaker 07:
Judge Rao pointed to the old Dominion case where and for the proposition that FERC has to examine whether that system led to a clearly flawed

[01:00:37] Speaker 07:
allocation of costs but they did that here.

[01:00:40] Speaker 07:
That's part of the technical conference and it frankly that to my mind is the real lesson from artificial island.

[01:00:48] Speaker 07:
I mean the technical conference addressed both artificial island and the northern New Jersey projects and FERC determined that one situation was sufficiently extreme to warrant an exemption from the ex ante system and the other was not.

[01:01:04] Speaker 07:
So

[01:01:04] Speaker 09:
And where is the substantial evidence within the technical conference to support Burke's assertion that the Bergen-Linden circuit breaker problem is more like a routine upgrade than like artificial island?

[01:01:28] Speaker 07:
I'm pulling up my copy.

[01:01:30] Speaker 07:
I believe I wrote that down as being page 1166.

[01:01:34] Speaker 07:
Yes, where it says circuit breakers are components that are parts of facilities that carry flows.

[01:01:43] Speaker 07:
In the end, it's a component of the interconnected grid whose purpose is to carry flows.

[01:01:47] Speaker 07:
So you can measure against those flows to see who's using those facilities.

[01:01:51] Speaker 07:
That's in the technical conference.

[01:01:54] Speaker 07:
And where I was actually going to point the court in response to Judge Silverman's questions about whether FERC had said this in its order,

[01:02:03] Speaker 07:
in its orders were in two separate places.

[01:02:05] Speaker 07:
First on page 362.

[01:02:08] Speaker 09:
Sorry, let's just tie down 1166 because I don't read that as supporting the proposition that artificial island and Bergen are different.

[01:02:28] Speaker 09:
That's really an argument that

[01:02:32] Speaker 09:
making an exception for either would be moving too much back to a violation-based method.

[01:02:41] Speaker 07:
And Paige, well, I didn't interpret it that way.

[01:02:45] Speaker 07:
I believe it was, I mean, because it specifically differentiates the two, because it's about circuit breakers being a component that it carries existing flow.

[01:02:57] Speaker 07:
And I think that's the critical point here is,

[01:03:01] Speaker 07:
My friend Mr. Brest wants to claim that the distinction is whether a problem is flow-based, but I think the real issue is whether the solution can be appropriately determined based on flows.

[01:03:17] Speaker 07:
And so again, in the technical conference, and I believe this was at page 1140,

[01:03:23] Speaker 07:
is that's where in the technical conference there was further discussion of the proposition that Judge Katz, you and I believe also Judge Rao made about how

[01:03:35] Speaker 07:
With respect to artificial island, it was almost random on whom these costs would be allocated because it just depended on where artificial island was connected to the net.

[01:03:47] Speaker 07:
It could have been 90% in Delmarva, could have been 90% in Pennsylvania based on that connection.

[01:03:53] Speaker 07:
But here, and this is true of a thermal load problem or a circuit breaker problem,

[01:04:01] Speaker 07:
There is an existing facility.

[01:04:05] Speaker 07:
That facility has a problem that needs to be fixed.

[01:04:08] Speaker 07:
And in fixing that problem, you see who benefits from that facility.

[01:04:14] Speaker 09:
And just to be clear, when you say facility, we're talking about the transmission line from Bergen to Lynden, from A to B.

[01:04:26] Speaker 07:
As well as the Sea Warren facility as well, but yeah.

[01:04:30] Speaker 09:
But just simplifying.

[01:04:33] Speaker 09:
Yes.

[01:04:33] Speaker 09:
Bergen versus artificial island.

[01:04:35] Speaker 09:
Bergen is an A to B problem.

[01:04:38] Speaker 09:
Artificial island is an A to anywhere problem.

[01:04:41] Speaker 07:
And, um, at page three, 62 of the joint appendix, which is in, um, one of the commission's orders, they specifically make this point and they say in contrast to stability related reliability issues for the Bergen Linden quarter project.

[01:04:59] Speaker 07:
PJM must upgrade or reconfigure the transmission system specifically to reduce short-circuit current on the over-duty element in a manner similar to the planning process for resolving thermal overloads.

[01:05:13] Speaker 07:
That's the commission's own words saying the distinction between thermal and short circuit is wrong.

[01:05:21] Speaker 07:
The distinction is between stability like artificial island and projects like Bergen-Linden or a traditional thermal problem.

[01:05:31] Speaker 09:
I see it, but you do have to squint a little bit.

[01:05:35] Speaker 07:
You do, but Your Honor, that's where it's important also, of course, to remember that FERC is the expert here.

[01:05:44] Speaker 07:
I mean, I am hard pressed to come up with a case that is more technical and deeply involved with FERC's expertise than this one.

[01:05:53] Speaker 07:
They looked so carefully at this over the course of an eight-year period to make these nuanced distinctions between the two projects.

[01:06:02] Speaker 06:
Mr. Gossett, why, I mean, why when, you know, if the Bergen project is a kind of A to B project, why, I mean, I guess maybe you can explain why that isn't about stability from A to B. I mean, why is that more about flow?

[01:06:20] Speaker 06:
Because in part, the artificial island is about stability in a particular place, in a particular facility, and this,

[01:06:26] Speaker 06:
Maybe you know one could say is about stability on a particular line it's not about increasing the flow it's just making sure that the flow in this corridor is.

[01:06:38] Speaker 06:
is done without any short circuits.

[01:06:41] Speaker 07:
Your honor, stability is, as I understand it, a technical term of art.

[01:06:47] Speaker 07:
And the real issue with respect to Artificial Island is that it's power generation, and it's a stability problem with respect to the generation of power at these three nuclear plants on Artificial Island.

[01:07:01] Speaker 07:
Stability is not a question of, is the line stable?

[01:07:06] Speaker 07:
the Bergen-Linden line had a short circuit and a fire and blew out, then power would not flow to New York in the way that they have a contractual right for it to work, to get.

[01:07:22] Speaker 07:
And therefore, they are directly affected by a stability problem on this line, just as they'd be directly

[01:07:30] Speaker 07:
affected if there was a flow problem because too many people are trying to get energy over this line and we can't get enough energy to the people that have have a demand on it.

[01:07:39] Speaker 07:
Both are about this line and let's just call it the A to B line as Judge Katz has said and there's a problem with

[01:07:47] Speaker 07:
the ability of energy to flow across this line to its recipients.

[01:07:52] Speaker 07:
And the New York entities were major recipients of this.

[01:07:56] Speaker 07:
I mean, the 1,600 megawatts of power that we're talking about here is the equivalent of two nuclear plants worth of energy.

[01:08:04] Speaker 07:
This is not a small amount of energy we're talking about that flowed to New York City through these projects.

[01:08:12] Speaker 07:
I'm mindful that I'm sort of over my time, but if I may, I would like to briefly touch on the de minimis point, which does work here.

[01:08:23] Speaker 07:
It's designed to eliminate small diffuse benefits.

[01:08:26] Speaker 07:
So that's why it was designed.

[01:08:28] Speaker 09:
It doesn't do that.

[01:08:31] Speaker 09:
It would be a perfectly sensible rule if the cutoff were percentage use by the individual

[01:08:43] Speaker 09:
utility relative to total use of the facility.

[01:08:47] Speaker 09:
But that's not how this cutoff works.

[01:08:51] Speaker 01:
But it's designed to see how much the utility cares about it, which I have to say, Council, I thought that was an ingenious effort to provide an explanation for FERC.

[01:09:06] Speaker 01:
But I don't think it quite works.

[01:09:09] Speaker 01:
First of all, FERC didn't use it.

[01:09:11] Speaker 01:
But secondly,

[01:09:12] Speaker 01:
I don't think it quite works.

[01:09:16] Speaker 01:
I give you a lot of credit for imagination.

[01:09:20] Speaker 07:
Thank you, Your Honor.

[01:09:21] Speaker 07:
I do think it was what the parties intended, and I also think it's what the tariff says.

[01:09:27] Speaker 07:
I also think it's important to look at some of the numbers here, because the petitioners talk about the de minimis problem as if it's about exempting PSEG from paying for this project.

[01:09:42] Speaker 07:
But if you actually look at the

[01:09:43] Speaker 07:
the numbers at J one thirty five.

[01:09:47] Speaker 07:
You see that the effects on PSEC are actually quite small for Bergen Linden.

[01:09:52] Speaker 07:
It reduces their allocation of costs from 17 percent to seven percent.

[01:09:58] Speaker 07:
And for Seaworn it's from four point eight percent to zero percent.

[01:10:02] Speaker 07:
So it's not like most of this cost would otherwise have been on them.

[01:10:05] Speaker 07:
J.A.

[01:10:06] Speaker 07:
551 is a chart, 552 is even better, is a chart that shows that the vast majority of the effect of the de minimis rule is exactly what it's supposed to be, which is exactly what Judge Casta says it's supposed to be, which is about exempting all of the 22

[01:10:27] Speaker 07:
sub-zones in PJM that are far away in Illinois or Ohio from this because their effects are small.

[01:10:36] Speaker 07:
But really the, I mean,

[01:10:39] Speaker 07:
A de minimis rule is a decision by the members of PJM on how to allocate the costs of a project.

[01:10:48] Speaker 07:
It doesn't allocate costs to someone who doesn't bear a large burden.

[01:10:52] Speaker 07:
It exempts certain ones of them.

[01:10:54] Speaker 07:
And that's reasonable.

[01:10:56] Speaker 07:
The rule that Judge Katz has seemed to be advocating for that it should be based on 1% of use rather than 1% of that entity's use is certainly a reasonable rule.

[01:11:09] Speaker 09:
It's not just some reasonable rule plucked out of the air.

[01:11:15] Speaker 09:
It is what solution-based defects is measuring.

[01:11:21] Speaker 07:
Solution-based defects is measuring to whom the power goes.

[01:11:26] Speaker 07:
But then the question of how to allocate that cost is one that is not just a question of applying a formula.

[01:11:37] Speaker 07:
It involves some choices made by the PJM members about how to divide up those costs.

[01:11:46] Speaker 07:
And the choice that they made was to include a de minimis rule of this form.

[01:11:51] Speaker 07:
they can change it.

[01:11:53] Speaker 09:
The conceptual point, tell me if I'm wrong, but the conceptual point of solution-based defects is if PSE and G uses

[01:12:11] Speaker 09:
I may say this imprecisely, I'm sorry, but you have some new facility and PSE&G uses 10% of it.

[01:12:23] Speaker 09:
They should bear 10% of the cost, right?

[01:12:28] Speaker 07:
No, Your Honor, that's not it.

[01:12:30] Speaker 07:
Well, because, of course, solution-based defects, and this was a point of Judge Rouse earlier, is a system that includes a vast number of specific formulas and conventions about how you determine the allocation.

[01:12:46] Speaker 07:
And the de minimis rule is one of the very bases of the system.

[01:12:52] Speaker 07:
It's not an exemption.

[01:12:53] Speaker 07:
It's part of the formula for deciding where to allocate the costs.

[01:12:57] Speaker 07:
And the decision made by the PJM members was that what they cared about was, in allocating the cost, was who actually cared about this project.

[01:13:11] Speaker 07:
And who cares about this project depends on how important it is to them.

[01:13:16] Speaker 07:
And a project that is relevant to 0.8% of a utility's

[01:13:25] Speaker 07:
energy flows isn't very important to them.

[01:13:29] Speaker 07:
Whereas a project that affects 20% of entities' flows is very important to them.

[01:13:35] Speaker 07:
And that's true irrespective of the absolute number of how much energy flows over them.

[01:13:41] Speaker 07:
It's about relative importance, not about relative use.

[01:13:46] Speaker 09:
I think we understand your position on that.

[01:13:51] Speaker 09:
Judge Rao, anything else?

[01:13:53] Speaker 09:
Judge Silberman?

[01:13:54] Speaker 07:
No.

[01:13:55] Speaker 09:
OK, thank you, Mr. Gossett.

[01:13:56] Speaker 07:
Thank you, Roddick.

[01:14:00] Speaker 09:
Mr. Bress, rebuttal.

[01:14:04] Speaker 08:
Sorry, Judge Cass, this may please the court.

[01:14:06] Speaker 08:
On one preliminary note, we agree, by the way, that just shifting costs to PSEG wouldn't cure the whole problem.

[01:14:15] Speaker 08:
But that's not actually a saving grace of the 1% de minimis.

[01:14:19] Speaker 08:
It actually damns it.

[01:14:21] Speaker 08:
If this court were to look at, for example, JA576, it shows with regard to the Bergen or corridor project who has what percentage of use with and without the de minimis.

[01:14:34] Speaker 08:
And what it shows is that there are certainly other entities, not just PSEG, who had greater use, for example, than Linden or HTP and that were exempted.

[01:14:46] Speaker 08:
And the problem is,

[01:14:47] Speaker 08:
You can see they're more distant, which is one of the things Burke said is we don't want to attribute costs to more distant zones.

[01:14:55] Speaker 08:
They're really misusing the Seventh Circuit's holding there.

[01:14:58] Speaker 08:
The Seventh Circuit was saying, well, more distant zones that are using these new facilities less shouldn't have to pay most of the costs here.

[01:15:06] Speaker 08:
Solution-based defects is purporting to tell us how much they actually use it.

[01:15:10] Speaker 08:
And we're just saying, let's charge them for how much they use it rather than give them an artificial exemption.

[01:15:16] Speaker 08:
Number two, I'd like to correct one factual issue, if I may, that has I think crept into the discussions here.

[01:15:27] Speaker 08:
The court has been addressing whether the short circuit issue is something that is caused by flows.

[01:15:39] Speaker 08:
And it is not something that's caused by flows.

[01:15:43] Speaker 08:
It's caused by short circuit currents

[01:15:46] Speaker 08:
rather than by flows.

[01:15:48] Speaker 08:
This is at 537 of the JA.

[01:15:50] Speaker 08:
If the court would look at that, there is a description of how this works.

[01:15:58] Speaker 08:
What it says is that to determine the beneficiaries of a project designed to address short circuit violations, it's not reasonable from an engineering perspective to use the flow-based method

[01:16:14] Speaker 08:
because instantaneous fault currents rather than steady state energy flow are key components of the problem.

[01:16:21] Speaker 08:
Energy flow is not a contributing factor to short-circuit violations.

[01:16:26] Speaker 08:
Now there's no evidence in this record to the contrary because that's actually how it works.

[01:16:31] Speaker 08:
Short-circuit currents are just caused by instantaneous surges caused by lightning or such.

[01:16:38] Speaker 08:
It can be caused by how much generation is on the line

[01:16:41] Speaker 08:
but they're not by generators that are near the line, but it's not proportionate to flow.

[01:16:47] Speaker 08:
So the idea that it is incorrect.

[01:16:51] Speaker 09:
Next.

[01:16:52] Speaker 09:
Sorry, help me out with that, because I have not looked at 537, 538.

[01:16:57] Speaker 09:
Yes.

[01:16:58] Speaker 09:
I was working off of Hurling's testimony, and he seemed to describe

[01:17:09] Speaker 09:
the short circuit problem as one that would become incrementally more acute as projects are built and flow expands.

[01:17:25] Speaker 09:
Is that not right?

[01:17:26] Speaker 08:
It's not quite right, Your Honor.

[01:17:28] Speaker 08:
It's basically as you get more generation on the line, it's actually and again, we're getting pretty technical for me, but it's actually caused by the amount of inertia that's in the generators that are feeding into the line.

[01:17:40] Speaker 08:
I'm not by the amount of flow that the line happens to be carrying.

[01:17:44] Speaker 08:
In any event, if I may, I'd like to address the ex-ante issue.

[01:17:52] Speaker 08:
This court addressed it already in artificial island.

[01:17:56] Speaker 08:
In artificial island case, the transmission owners as they do today came in and said, well, the whole point here is to have an ex-ante system and you can't change it just because you don't like the results as to a particular project.

[01:18:10] Speaker 08:
This court rejected the transmission owner's argument directly, and it pointed to three things.

[01:18:16] Speaker 08:
Number one, it said, or actually two are relevant here.

[01:18:19] Speaker 08:
Number one, it said that order 1000 itself requires as its first and principle rule, the cost causation principle.

[01:18:29] Speaker 08:
That is its very first principle that costs must be allocated in a way that are roughly commensurate with benefits.

[01:18:36] Speaker 08:
Number two, the court pointed out, so in other words, there's no inconsistency with ex ante,

[01:18:40] Speaker 08:
the causation rule trumps ex ante.

[01:18:43] Speaker 08:
Number two, the court pointed out that certainly whatever order 1000 says, section 206 of the Federal Power Act trumps it.

[01:18:57] Speaker 08:
The next point is that the tech conference did not look at the results.

[01:19:03] Speaker 08:
There was an argument that was made here that the tech conference looked at the results.

[01:19:07] Speaker 08:
You can look in vain through the tech conference

[01:19:10] Speaker 08:
and nobody averted in that conference to the cost misallocations that are at issue in this case.

[01:19:18] Speaker 08:
So the tech conference had nothing to do with that.

[01:19:21] Speaker 01:
Next, there's an argument that there's no need to make this- Suppose council, we were to conclude that the first rationale in distinguishing the two was perfectly logical.

[01:19:39] Speaker 01:
By that, I mean artificial island in the present case.

[01:19:43] Speaker 01:
Would the disparity and cost any longer be relevant?

[01:19:50] Speaker 08:
Well, the disparity would be exactly what it is, Your Honor.

[01:19:54] Speaker 08:
It would be relevant because the disparities that we've pointed to are entirely caused by the 1% de minimis condition.

[01:20:00] Speaker 01:
Oh, yeah.

[01:20:00] Speaker 01:
Put aside the 1%.

[01:20:02] Speaker 01:
Well, that's what's causing the disparities.

[01:20:04] Speaker 01:
You make a powerful point.

[01:20:07] Speaker 01:
Put aside the 1%.

[01:20:09] Speaker 01:
You understand my question.

[01:20:12] Speaker 01:
If we thought it was a logical distinction between Artificial Island and this case, then the misallocation of costs in your view would be irrelevant, wouldn't it?

[01:20:28] Speaker 08:
Yes, Your Honor, only because if we're putting Artificial Island to the side, all of the numbers that we presented the court as to the misallocation,

[01:20:37] Speaker 08:
have to be put to the side too, because those are all just the result of the 1% rule.

[01:20:44] Speaker 08:
So in other words, if you take that rule out, we don't have empirical evidence that there is a misallocation.

[01:20:49] Speaker 01:
Your point is even if we were to disagree with you concerning artificial island, but agreed with you on the 1%, the major change would be made in terms of cost allocation.

[01:21:03] Speaker 08:
It would eliminate the cost misallocations that we presented to this court.

[01:21:07] Speaker 08:
The empirical evidence of cost misallocations would disappear.

[01:21:11] Speaker 01:
Well, then the artificial island is irrelevant.

[01:21:14] Speaker 08:
No, Your Honor, it's not.

[01:21:16] Speaker 08:
What our proofs are, are that even if you accepted the low-based method as a correct method.

[01:21:23] Speaker 01:
Wait, wait, wait.

[01:21:24] Speaker 01:
I want to make sure I understand.

[01:21:25] Speaker 01:
If we agreed with you on the 1%, then

[01:21:32] Speaker 01:
for what I've just heard you say, the misallocation of costs and benefits would be solved without ever discussing artificial island.

[01:21:42] Speaker 08:
No, your honor.

[01:21:43] Speaker 08:
And let me try to be more precise in my answer for you.

[01:21:48] Speaker 08:
The numbers that we've presented such as Bergen and Lyndon, I mean, sorry, Lyndon and Hudson having 10% of the allocated benefits and 86% of the allocated costs

[01:21:59] Speaker 08:
those numbers are purely a result of the 1% rule.

[01:22:04] Speaker 08:
However, putting aside the 1% rule, we have the same issue here that Delmarva had in artificial island, which is there's also a basic non-quantitative problem here that leads to misallocation, which is they're measuring the wrong thing by measuring by close.

[01:22:23] Speaker 01:
So you made clear at the beginning that if without the cost problems, you wouldn't have an injury.

[01:22:29] Speaker 01:
So are you now telling me that if you prevailed on the 1%, you no longer have an injury?

[01:22:39] Speaker 08:
No.

[01:22:40] Speaker 08:
No, Your Honor.

[01:22:41] Speaker 01:
What I'm saying is- What is your injury if you prevail on the 1%?

[01:22:44] Speaker 08:
Even if we prevail on the 1%, the methodology for determining our benefits, we'll agree at that point that if you buy into the methodology for determining our benefits at that point,

[01:22:59] Speaker 08:
the cost and benefits will be allocated correctly.

[01:23:01] Speaker 08:
The problem is that the methodology for determining the benefits to begin with is flawed.

[01:23:07] Speaker 01:
It is- Council, you're not really responding to my question.

[01:23:13] Speaker 01:
If we agreed with you on the 1%, is it correct to say that the misallocation of cost and benefits would disappear?

[01:23:24] Speaker 01:
And therefore, why is there any relevance to you

[01:23:29] Speaker 01:
because you made very clear in the beginning that if there wasn't a misallocation of cost, you wouldn't have an injury.

[01:23:34] Speaker 01:
Why does the artificial island issue or the claim that these should be treated the same, why is that any longer relevant to your case?

[01:23:48] Speaker 08:
All right, Your Honor.

[01:23:48] Speaker 08:
The answer is the cost of misallocation doesn't disappear.

[01:23:54] Speaker 08:
One component of it does.

[01:23:56] Speaker 08:
In other words,

[01:23:57] Speaker 08:
the numbers we've presented the court with are assuming for purposes of argument that the flow-based method correctly identifies our benefits.

[01:24:06] Speaker 08:
We are still being charged far more costs than that because of the 1% issue.

[01:24:12] Speaker 08:
But now we can say that we also don't think that the flow-based method is correctly determining our benefits.

[01:24:21] Speaker 08:
It is overestimating our benefits to begin with.

[01:24:25] Speaker 08:
So in other words,

[01:24:26] Speaker 08:
The real cost misallocations are larger than the numbers we've presented.

[01:24:31] Speaker 01:
It sounds like you're saying these two issues are belt and suspenders for you.

[01:24:38] Speaker 01:
Are you saying that?

[01:24:39] Speaker 08:
No.

[01:24:40] Speaker 01:
No, I'm not, Your Honor.

[01:24:41] Speaker 08:
In terms of... Your Honor, I can try one more time on this.

[01:24:49] Speaker 08:
The numbers we've presented that show the gross misallocations are based on the

[01:24:55] Speaker 08:
assumption for purposes of argument that the flow-based method, for example, correctly says that Lyndon gets 28% of the benefits of the Seaworn project.

[01:25:09] Speaker 08:
And our argument about the 1% issue is, gosh, because you apply that, you're not charging us 28, you're charging us 100%.

[01:25:18] Speaker 08:
So that's the effect of the 1% issue.

[01:25:22] Speaker 08:
And that would cure that problem.

[01:25:25] Speaker 08:
But we're also arguing that the idea that we get 28% of the benefit to begin with is also wrong, because the flow-based method is an incorrect and unreasonable method to determine our benefits to begin with.

[01:25:38] Speaker 08:
We believe our benefits are actually far less than 28%.

[01:25:40] Speaker 08:
So yes, giving us the 1% gives us a lot, but not everything.

[01:25:46] Speaker 01:
Does it matter in terms of the cost to you?

[01:25:50] Speaker 08:
Yes, absolutely, Your Honor.

[01:25:52] Speaker 08:
We have paid $150 million, Your Honor.

[01:25:56] Speaker 08:
If you strike the 1%, that will give us about half of what we've paid back.

[01:26:03] Speaker 08:
We still think that the 75 we're left with is an overcharge because the flow-based method isn't an adequate method to demonstrate the benefits that we get

[01:26:16] Speaker 08:
from curing these short circuits or from storm hardening seawater.

[01:26:21] Speaker 06:
That's all.

[01:26:21] Speaker 06:
Is your position then that the petitioners owe nothing for these upgrades?

[01:26:26] Speaker 08:
Absolutely not, Your Honor.

[01:26:28] Speaker 08:
A couple of answers.

[01:26:29] Speaker 08:
First of all, happy to pay our fair share.

[01:26:31] Speaker 08:
Secondly, for the high voltage parts of projects or subprojects within these, as this court recognized in Old Dominion and is recognized before, there's a 50-50 methodology.

[01:26:45] Speaker 08:
So in other words, some of the costs are already being paid for those sub projects on a postage stamp basis for 50% of it and by solution-based defects for the other 50%.

[01:26:58] Speaker 08:
So we're already paying on a postage stamp basis our fair share for the high voltage projects.

[01:27:06] Speaker 08:
Our complaint on those projects is we're being overcharged for the other 50%.

[01:27:11] Speaker 08:
For the low voltage projects,

[01:27:14] Speaker 08:
We're not claiming that we should own nothing.

[01:27:16] Speaker 08:
We're saying it, as Judge Katz has indicated before, and I'm not ascribing a conclusion to you, Judge Katz.

[01:27:23] Speaker 08:
We're just asking the commission to do the same thing it did in artificial island, which is to tell PJM to go back and say, look, who benefited from fixing this problem?

[01:27:32] Speaker 08:
There was who benefited from fixing the stability problem.

[01:27:35] Speaker 08:
Here it's who benefits from fixing the short circuit problem.

[01:27:38] Speaker 08:
We're happy to pay our fair share of those benefits.

[01:27:43] Speaker 09:
Okay, just silverman.

[01:27:45] Speaker 09:
Anything else?

[01:27:46] Speaker 09:
No, Judge Ralph.

[01:27:50] Speaker 09:
Okay, thank you, Mr Bress.

[01:27:52] Speaker 09:
Thank you so much for your time.

[01:27:54] Speaker 09:
Cases submitted.