[00:00:00] Speaker 03: Case number 21-1195 et al. [00:00:03] Speaker 03: Fairless Energy LLC petitioner versus Federal Energy Regulatory Commission. [00:00:09] Speaker 03: Mr. Guggles for the petitioner, Ms. [00:00:12] Speaker 03: Penta for the respondent, Mr. Bennett for the intervener. [00:00:28] Speaker 01: Good morning, Your Honors. [00:00:28] Speaker 01: May it please the court, Jeffrey Buckles, for petitioner, Fairless Energy. [00:00:33] Speaker 01: Your Honor, Your Honors, I'd like to make two points about the two related errors that FERC made in the decision below here. [00:00:40] Speaker 01: We had a state law contract claim governed by Texas law that the parties, our predecessor, Dominion and Transco, agreed on the rate that would apply under this contract and that they agreed that the zone six to zone six rate would apply. [00:00:53] Speaker 01: FERC made two points. [00:00:55] Speaker 01: Burke erred grabbing that Texas law contract issue from the Texas court and deciding to exercise primary jurisdiction. [00:01:03] Speaker 01: And second, Burke compounded that error by then refusing to actually adjudicate our Texas law claim under Texas law and instead assuming it away. [00:01:12] Speaker 01: So first, I want to make sure that I'm clear about what our claim is because Burke has persistently refused or been unable to understand what our claim is. [00:01:24] Speaker 01: Our claim is that, notwithstanding Exhibit C, saying that there's not a quote unquote negotiated rate, that the parties nonetheless, our predecessor Dominion and Transco, had a meeting of the minds that the Zone 6 to Zone 6 rate would apply. [00:01:38] Speaker 01: And PERC has just never acknowledged that that's our claim. [00:01:42] Speaker 01: They've never acknowledged that's our claim. [00:01:43] Speaker 01: They've never dealt with that claim. [00:01:45] Speaker 07: Because PERC takes the position that you signed a contract [00:01:53] Speaker 07: with Transco, you had a chance in that contract specifically to state any negotiated rate and that contract says there is none. [00:02:10] Speaker 07: And so that's clear and there's no basis to consider extrinsic evidence. [00:02:18] Speaker 07: And why isn't that law applicable here? [00:02:22] Speaker 00: But your honor, again, I want to be clear what our claim is. [00:02:24] Speaker 00: We understand. [00:02:26] Speaker 07: I get your claim. [00:02:28] Speaker 07: And I'm just saying your client signed a contract. [00:02:32] Speaker 07: And whatever your Texas claim was as to the contract it signed with Transco, here's what it said. [00:02:42] Speaker 07: And there's no ambiguity about what it said. [00:02:47] Speaker 01: So, Your Honor, first of all, Texas law recognizes the concept of latent ambiguity where the analysis is not as simple as you look at the document in isolation. [00:02:55] Speaker 01: We understand that exhibit C says none. [00:02:57] Speaker 07: We're not arguing that there is... I don't see Texas law to say that when the contract, the four corners of the contract are clear on its face, it is permissible to consider extrinsic evidence to the party's contrary intent. [00:03:17] Speaker 07: What's your best take for that? [00:03:20] Speaker 01: There's two Texas Supreme Court cases that Coker and J.W. [00:03:25] Speaker 01: Hampton say that the contract is not unambiguous despite what it might look like on its face. [00:03:34] Speaker 01: But again, the Texas Supreme Court doesn't repeatedly recognize the concept of a latent ambiguity where you take the document to apply it to particular facts, then that ambiguity arises. [00:03:42] Speaker 01: And in those two cases, the Texas Supreme Court remanded for the trial court [00:03:47] Speaker 01: determine the actual intent of the parties. [00:03:49] Speaker 07: And what is your latent ambiguity? [00:03:54] Speaker 01: Latent ambiguity here, Your Honor, is not whether there's a negotiated rate. [00:03:58] Speaker 01: We understand that there isn't a negotiated rate. [00:04:00] Speaker 01: Exhibit C says that there isn't. [00:04:02] Speaker 01: Our claim is that nonetheless, the parties here, our predecessor, Dominion and Transco, had a meeting of the minds about what rate would apply under the tariff. [00:04:11] Speaker 01: That agreement was zone six, the zone six rate. [00:04:14] Speaker 01: The contract says, this is a J76 in the article governing rates, it says that the buyer shall pay the seller in accordance with the seller's tariff that's been filed with FERC, as that tariff may be amended from time to time, et cetera. [00:04:31] Speaker 01: So the contract here, I want to be clear about this, does not say that the party's [00:04:37] Speaker 01: agreed that the market link incremental rate will apply. [00:04:40] Speaker 01: If that's what the contract said, then it would be fair to say we'd be trying to change the terms of the contract. [00:04:44] Speaker 01: But that's not what it says. [00:04:46] Speaker 01: The contract doesn't specify which rate under the tariff applies. [00:04:49] Speaker 01: Our position is the parties in their negotiations had a meeting of the minds about which rate under the tariff. [00:04:55] Speaker 01: There's 30 something rates under the tariff. [00:04:58] Speaker 01: And our position is the parties had a meeting of the minds that the rate that would apply was the zone six, the zone six rate. [00:05:04] Speaker 07: Why is that? [00:05:07] Speaker 07: not a negotiated rate when the contract that your client was taking over, as you point out, always had these different rates specified. [00:05:27] Speaker 07: And now in the contract, the new contract that your client signs with Transco, [00:05:33] Speaker 07: It says there is none, and it doesn't deny that it's receiving service over this extension where Transco has [00:05:50] Speaker 07: always charge this additional higher rate in the absence of a negotiated rate. [00:05:57] Speaker 07: I mean, why would your client say none? [00:06:00] Speaker 07: That's what's inexplicable. [00:06:02] Speaker 07: I don't know why that's latent. [00:06:05] Speaker 01: Your Honor, first, I want to make clear that it wasn't our client. [00:06:08] Speaker 01: Our client, Fairless. [00:06:09] Speaker 07: I'm sorry. [00:06:10] Speaker 07: Whoever was representing Fairless at the time or if it was proceeding pro se. [00:06:16] Speaker 07: I didn't mean to bring your law firm into this. [00:06:19] Speaker 01: I'm sorry, that's not what I meant. [00:06:21] Speaker 01: This is an important point. [00:06:22] Speaker 01: Feralist is not the original party to this contract. [00:06:25] Speaker 01: Feralist's predecessor, Dominion, was. [00:06:29] Speaker 01: I know! [00:06:29] Speaker 07: We negotiated a new contract with Transco. [00:06:36] Speaker 01: Your Honor, I'm trying to answer your question about why parties to the 2018 contract wrote what they wrote. [00:06:42] Speaker 01: And part of my answer to that is, I don't know, because my client wasn't one of those parties. [00:06:47] Speaker 01: My client came in later and inherited this contract from Dominion. [00:06:51] Speaker 01: And so that's why we've said throughout in the Texas court and in all the FERC proceedings that we need discovery and an evidentiary hearing, including to take evidence from Dominion, which has that first evidence that we don't have for no fault of our own. [00:07:03] Speaker 01: about what occurred during those negotiations. [00:07:05] Speaker 01: Our position is we're not claiming to approve this yet. [00:07:08] Speaker 01: We haven't had the opportunity to prove it yet. [00:07:10] Speaker 01: Our position is that evidence will show that Dominion and Transco agreed that the Zone 6 rate would apply it. [00:07:18] Speaker 01: To answer Your Honor's question about why they nonetheless said there's no negotiated rate in light of the history of these contracts, some of the prior contracts, Your Honor, didn't just choose one of the many rates available under the tariff. [00:07:31] Speaker 01: they negotiated a different rate, a rate that didn't appear in the tariff. [00:07:34] Speaker 01: So the predecessor contract from 2014 for this very same stretch of transportation, 210 Pulling Plant to Fairless's facility, agreed on a rate of 16 cents. [00:07:45] Speaker 01: Now that rate didn't appear in the tariff. [00:07:47] Speaker 01: That wasn't choosing one tariff rate versus a different tariff rate. [00:07:49] Speaker 01: That was negotiating an entirely new rate. [00:07:52] Speaker 01: That rate, of course, had to be set forth on exhibit C as a negotiated rate because otherwise the rate didn't exist, wasn't in the tariff. [00:07:58] Speaker 01: But here, our position is parties agreed that one of the tariff rates, zone 6 to zone 6 rate, which FERC has already decided is just and reasonable, would apply. [00:08:08] Speaker 01: That rate, by the way, is consistent with the parties that with our predecessor, Dominion, and Transco's course of dealing under these contracts going back many years, many iterations. [00:08:19] Speaker 01: And what's not consistent with that, and what doesn't make any sense under the circumstances of this contract, [00:08:23] Speaker 01: They're saying that all of a sudden the contract rate doubled to the market link incremental rate, which is about 25 cents. [00:08:30] Speaker 01: from the 12 cent rate that applied for part of the time period or the dramatic increase that we represented from 16 cents to that 25 cent rate. [00:08:40] Speaker 01: The parties never agreed to pay anything like 25 cents for this part of the pipeline. [00:08:46] Speaker 01: There are other parts of the pipeline, other parts of transportation at issue under other contracts where the parties agreed that the incremental market length rate would apply because those parts of the contract called for transportation over [00:08:59] Speaker 01: more of the market link stretch so that it was fair to pay more of the market link rate. [00:09:05] Speaker 01: But here, it's really anomalous. [00:09:07] Speaker 01: And again, we just don't have the firsthand knowledge because we weren't the party to the 2018 negotiations. [00:09:11] Speaker 01: It's really anomalous to think that Dominion agreed to double the rate from 12 to 25 cents or 13 to 25 cents. [00:09:19] Speaker 01: And even if you think of it as going up from 16 to 25, that's still a huge increase in the rate. [00:09:24] Speaker 01: We're absolutely no change. [00:09:25] Speaker 01: The same quantity of gas, same stretch of pipeline, all the same terms. [00:09:29] Speaker 01: Nothing changed. [00:09:30] Speaker 01: Why would the rate double? [00:09:31] Speaker 01: Doesn't make sense. [00:09:32] Speaker 01: So that's why we think that if there were an evidentiary hearing and we had an opportunity for discovery, that we would be able to prove our claim that there is a meeting of the minds by the parties on this rate. [00:09:42] Speaker 01: But we're not asking this court to hold that we're right about that. [00:09:44] Speaker 01: All we're asking for is a chance to be heard somewhere. [00:09:47] Speaker 01: We think that should have been in Texas State Court. [00:09:50] Speaker 01: All of FERC's precedents support the idea that if it's a state law contract claim, and the claim is that there was a meeting of the minds between the parties under perhaps idiosyncratic negotiation conditions, that FERC has no interest in that. [00:10:01] Speaker 01: FERC has no expertise in that. [00:10:03] Speaker 01: That's an issue that FERC should leave to the Texas State Court. [00:10:06] Speaker 04: Endeavor... Was this agreement filed with FERC? [00:10:09] Speaker 01: The 2018? [00:10:10] Speaker 01: Yes, yes. [00:10:11] Speaker 01: All the FERC jurisdictional contracts get filed with FERC. [00:10:14] Speaker 01: That's right, Your Honor. [00:10:15] Speaker 01: But what I was, what I was wanting to say is all of first precedents and again, this is a, you know, an APA review case. [00:10:21] Speaker 01: So Burke has to be affirmed, if at all, based on the reasons that it gave I under January. [00:10:28] Speaker 01: Burke's precedents like Endeavor, [00:10:30] Speaker 01: and BG and Northern Natural and Farmland and many others that we cite in our briefs, there's a whole line of them, say in general that FERC doesn't have any particular expertise in state law contract claims, doesn't have any particular need to resolve those issues. [00:10:46] Speaker 01: In BG and Farmland, FERC made the good point that it actually can't definitively resolve those issues. [00:10:53] Speaker 01: If they're issues of state law, the state Supreme Court can definitively resolve them, not FERC. [00:10:57] Speaker 01: Why does it make sense for FERC to devote its resources [00:11:00] Speaker 01: grabbing these issues out of the state courts where the state courts are perfectly competent to decide them. [00:11:04] Speaker 04: And Endeavor, I'm sorry, your honor, go ahead. [00:11:10] Speaker 04: I'm sorry, your honor, I didn't hear the question. [00:11:18] Speaker 01: I think that the most analogous case to try to answer that question is Endeavor. [00:11:23] Speaker 01: In Endeavor, [00:11:24] Speaker 01: The parties had a state law contract dispute. [00:11:26] Speaker 01: And then behind that, depending on the outcome of the state law contract dispute, there would have been a tariff interpretation question that might or might not have arisen depending on the outcome of the state law contract claim. [00:11:36] Speaker 01: The party that one party brought out state law case in state court, bringing that state law claim in state court, the other party went to FERC and said, you should grab this case under primary jurisdiction because there's a tariff interpretation question. [00:11:49] Speaker 01: FERC said, well, there may or may not be. [00:11:50] Speaker 01: There may or may not be a tariff interpretation question. [00:11:52] Speaker 01: It depends on what happens with the threshold state law question. [00:11:55] Speaker 01: I'll just read the relevant line of paragraph 13 of Endeavor. [00:11:59] Speaker 01: Burke says, this argument only may become relevant after the contract has been interpreted. [00:12:05] Speaker 01: This issue will not become right until the ongoing state court proceeding is completed and may never become right at all. [00:12:11] Speaker 01: At this stage, no need exists for the commission to exercise jurisdiction. [00:12:14] Speaker 01: That was just as true here. [00:12:16] Speaker 01: Here we had a state law contract claim. [00:12:18] Speaker 01: We might succeed. [00:12:19] Speaker 01: We might not in state court. [00:12:20] Speaker 01: If we succeeded, then by definition, there was a contractual agreement on a rate, no issue about how to interpret the tariff, whatever arise. [00:12:28] Speaker 01: If we lost in state court, then that means that whatever the rate is under the tariff applies. [00:12:32] Speaker 01: Yes, Burke has an interest in that question, but that question wasn't presented yet. [00:12:36] Speaker 01: And it might never be, depending on the outcome of our state case. [00:12:39] Speaker 01: Burke didn't grapple with Endeavor, because I think the reason is, just as this court said in Dynagy, [00:12:45] Speaker 01: It's not clear that Burke ever understood what our claim was. [00:12:48] Speaker 01: Burke persistently said that we didn't have a contract claim, that this was really just a dispute about how the tariff would be interpreted. [00:12:55] Speaker 01: That just assumes our claim away. [00:12:57] Speaker 01: And I think Burke's brief encapsulates this. [00:12:59] Speaker 01: The beginning of their summary of argument, and this is a fair summary of what Burke did below, is this rate dispute is a matter of tariff, not contract interpretation. [00:13:08] Speaker 01: On its face, the fearless contract undisputedly does not specify a negotiated rate. [00:13:12] Speaker 01: Therefore, therefore, I'll come back to that, [00:13:14] Speaker 01: All parties agree that the rate for service under the contract is a recourse rate established in the tariff. [00:13:19] Speaker 01: Well, no, we don't agree. [00:13:21] Speaker 01: We don't agree that just because there's no negotiated rate on exhibit C, that that means that there can't be a contractual agreement on a rate. [00:13:29] Speaker 01: Burke is assuming that claim away. [00:13:31] Speaker 01: Therefore, in that quote that I just read, it just doesn't follow. [00:13:34] Speaker 01: Burke is pretending that our claim is something other than it is and isn't grappling with the reality of our claim, just like in dynology. [00:13:39] Speaker 01: So it can't be sustainable under the APA for FERC to first exercise primary jurisdiction on the premise that there isn't really a state law contract claim here at all when there is, and then to compound that error by refusing to actually adjudicate it. [00:13:54] Speaker 01: It'd be one thing if FERC could exercise primary jurisdiction, and we think that would have been wrong, but then if FERC could put itself in the shoes of the Texas court and said, okay, we're going to apply Texas law. [00:14:04] Speaker 01: We're going to put ourselves in the shoes of the Texas court. [00:14:06] Speaker 01: We're going to do what the Texas court would do. [00:14:07] Speaker 01: We're going to convene an evidentiary hearing. [00:14:09] Speaker 01: We're going to allow discovery. [00:14:11] Speaker 01: And we're going to decide this as if we're a Texas court. [00:14:13] Speaker 01: But FERC didn't do that. [00:14:14] Speaker 01: FERC assumed the claim away. [00:14:15] Speaker 01: And I want to point out what FERC said in its order here and just show how far it goes, how far it comes from sustaining what FERC did. [00:14:25] Speaker 01: We're really just talking about three paragraphs in FERC's rehearing order, 22, 23, and 24, where FERC gives its rationale. [00:14:33] Speaker 01: So in paragraph 22, FERC says that to determine [00:14:37] Speaker 01: whether to examine extrinsic evidence, you consider if the contract unambiguously addresses the issue. [00:14:42] Speaker 01: That's true as far as it goes, but it ignores the concept of a latent ambiguity. [00:14:47] Speaker 01: And what's notable is that when FERC said that in paragraph 22, it didn't say anything about Texas law, didn't cite anything to do with Texas law, and it didn't cite anything having to do with any private contract under any state's law. [00:14:58] Speaker 01: Instead, it cited three cases having nothing to do with that situation at all. [00:15:02] Speaker 01: One was this court's decision in transmission agency of Northern California, [00:15:05] Speaker 01: What happened there was the California system operator asked FERC to approve consolidating two districts into one for pricing authority. [00:15:13] Speaker 01: FERC approved that, and someone challenged FERC's decision. [00:15:16] Speaker 01: Nothing to do with state law. [00:15:17] Speaker 01: Nothing to do with private contracts. [00:15:18] Speaker 01: This court applied Chevron, not state law, in reviewing that decision by FERC. [00:15:22] Speaker 01: That has nothing to do with this case. [00:15:24] Speaker 01: And then FERC cited Southwest Power Bowl, its own decision, where FERC interpreted not just a contract within its four corners, but a long history of FERC proceedings, settlements, [00:15:35] Speaker 01: tariffs to determine whether there was a carve out under a settlement that Burke had previously approved. [00:15:40] Speaker 01: There's no issue of state law, not a private contract case. [00:15:44] Speaker 01: And because the tariff was ambiguous, I mean, notably in that case, Burke looked not just to the four corners of the tariff, but it looked to the whole history of carve out treatment in that matter. [00:15:52] Speaker 01: And in paragraph 20 of Burke's rehearing order in Southwest Harlepool, which again, Burke cites here in paragraph 22, Burke recognizes the concept of a latent ambiguity. [00:16:00] Speaker 01: There's a latent ambiguity often arises [00:16:02] Speaker 01: even though our language is unambiguous on its face. [00:16:05] Speaker 01: Well, exactly. [00:16:06] Speaker 01: But FERC refused to do that here. [00:16:07] Speaker 01: And it perversely cited that very principle as a purported justification for not giving us a chance to be heard, not giving us a chance to flesh out our claim under Texas law. [00:16:16] Speaker 01: And then the third and last authority that FERC cited here for its decision is this course decision in Missouri River affirming FERC's decision in Southwest Power Bowl. [00:16:24] Speaker 01: where the argument there made to this court was that FERC erred by considering extrinsic evidence, that FERC should have just applied interpretive canons to the four corners and not looked beyond it. [00:16:34] Speaker 01: In this court, no. [00:16:35] Speaker 01: This court said, no, FERC was right to look at extrinsic evidence. [00:16:38] Speaker 01: Again, how that supports FERC's treatment of our Texas law claim here is completely beyond me. [00:16:44] Speaker 01: And then paragraph 24, the last paragraph of FERC's hearing order shows what FERC really thought, what FERC really was saying. [00:16:51] Speaker 01: FERC says there, I'm quoting, if the party's intended to apply a tariff rate that diverged from the applicable recourse rate under the tariff, then that understanding would need to have been expressly reflected in the fearless contract as a negotiated rate, unquote. [00:17:04] Speaker 01: That's a J244. [00:17:06] Speaker 01: There's no site for that proposition whatsoever. [00:17:09] Speaker 01: FERC cites nothing for it. [00:17:10] Speaker 01: Nothing under Texas law, nothing under federal law, nothing. [00:17:13] Speaker 01: And what FERC is saying there in paragraph 24 is, it's either on exhibit C or it can't exist. [00:17:20] Speaker 01: That's not right as a matter of Texas law, where the parties could have a meeting of the minds on a rate, but they didn't call a negotiated rate and didn't put on exhibit C. They could still have a meeting of the minds as a matter of contract. [00:17:30] Speaker 01: And there's no federal law that would bar Texas from adopting [00:17:35] Speaker 01: That's sort of a contractual principle. [00:17:37] Speaker 01: I don't know, maybe FERC could convene a rulemaking proceeding and say, we're going to adopt a new rule prospectively, that either it's on exhibit C or it doesn't exist. [00:17:46] Speaker 01: I don't know if that would be valid or not. [00:17:47] Speaker 01: I don't know if FERC could do that. [00:17:49] Speaker 01: But I do know that FERC can't just announce this principle in paragraph 24, citing nothing, making it up. [00:17:55] Speaker 01: Comes from nowhere, has no basis in anything, and have that be its decision for refusing to grapple with the reality of the claim that we brought. [00:18:02] Speaker 07: So what is your best citation? [00:18:05] Speaker 07: for the proposition that negotiated rate means only one of the alternative rates mentioned in Transco's tariff. [00:18:25] Speaker 01: I don't have a site for that proposition and BERT doesn't have a site in its order for any contrary proposition. [00:18:31] Speaker 07: I know, but this is [00:18:34] Speaker 07: FERC's interpretation, having decided that the basic issue here is not state contract law, but rather what the tariff provides. [00:18:51] Speaker 07: And a premise of your argument, I thought, was that since Ferlus was not choosing one of the listed alternative rates in the tariff, [00:19:05] Speaker 07: it necessarily had to answer the question, none, all right? [00:19:19] Speaker 07: But I didn't see you arguing that, and maybe I missed it, that in fact, [00:19:32] Speaker 07: FERC has already recognized this concept of latent ambiguity. [00:19:39] Speaker 07: And it decided there was none here. [00:19:42] Speaker 07: And that's the era of law. [00:19:47] Speaker 07: In other words, I'm trying to understand here, your client takes over somebody else's contract. [00:19:55] Speaker 07: It knows what the deal was with that other party. [00:20:01] Speaker 07: Now it's signing its own contract with Transco when it agrees to have this new agreement with Transco filed with FERC. [00:20:24] Speaker 00: Your honor, may I stop you there? [00:20:25] Speaker 01: Because that's an important point. [00:20:27] Speaker 01: It's not factually accurate. [00:20:28] Speaker 01: Our client did not sign 2018 contract. [00:20:31] Speaker 01: That's an issue here. [00:20:32] Speaker 01: That was Dominion signing that contract. [00:20:35] Speaker 07: I understand that. [00:20:37] Speaker 07: And that's critical here. [00:20:39] Speaker 07: All right, I understand that. [00:20:41] Speaker 07: But I'm trying to get you to acknowledge what Fairless did vis-a-vis Transco's tariff. [00:20:55] Speaker 00: So, your honor, let me try to answer your question a couple of different ways. [00:20:58] Speaker 01: Perlis itself didn't do anything vis-a-vis Transco in terms of the tariff. [00:21:03] Speaker 01: Perlis bought this contract from Dominion. [00:21:06] Speaker 01: So, but I also wanted to respond to what your honor said a minute ago about latent ambiguity and what Ferg said in- No, I need you to address my next point. [00:21:17] Speaker 07: I don't, my premise of my question is not [00:21:21] Speaker 07: that Fairless didn't buy the contract from Dominion. [00:21:27] Speaker 07: But then, and this is what you need to address, did not Fairless agree to this tariff that was filed with the commission where it stated that [00:21:49] Speaker 07: There was no alternative rate. [00:21:57] Speaker 07: That's what I'm trying to understand. [00:22:00] Speaker 01: So I'm not sure what Your Honor's referring to and referring to Fairless agreeing to a rate filed in the tariff. [00:22:08] Speaker 01: I mean, I suppose Fairless could have filed some sort of a- No, not counsel. [00:22:11] Speaker 07: Come on, you heard my question. [00:22:14] Speaker 07: I asked you whether the tariff language [00:22:19] Speaker 07: was referring only to a rate that was not one of the alternative rates mentioned in the tariff itself, but rather was something that the parties had previously negotiated and it wanted to apply, to continue to apply. [00:22:48] Speaker 07: as to the tariff that was being filed showing it had taken over Dominion's contract. [00:23:07] Speaker 00: Your honor, let me try to answer your question. [00:23:09] Speaker 00: I really am trying. [00:23:10] Speaker 01: There's a lot of a lot of things going on in your question. [00:23:12] Speaker 07: So first, I'm trying to make it simple because I understand your responses, but I think you're sliding over this one point I'm trying to understand. [00:23:23] Speaker 07: And maybe I am misunderstanding the point, but I need to be clear about it. [00:23:30] Speaker 01: So I think I heard your honor say a moment ago that that what we're arguing is that fearless [00:23:38] Speaker 01: is arguing that the parties here in the 2018 contract at issue agreed on a rate that isn't in the tariff. [00:23:49] Speaker 01: That's not, if I heard that correctly, that's not correct. [00:23:53] Speaker 01: In a prior contract, and this is what I was addressing a few moments ago in response to a different question by your honor, in a prior contract, not at issue directly here, the parties, Dominion and Transco, agreed on a specific rate of 16 cents. [00:24:08] Speaker 01: That rate was set forth on exhibit C as a negotiated rate because it had to be. [00:24:13] Speaker 01: 16 cents wasn't the tariff rate. [00:24:14] Speaker 01: It wasn't one or another of the rates set out in the tariff. [00:24:16] Speaker 01: It was a separately negotiated rate that, as such, had to be set out on exhibit C or else it just didn't exist. [00:24:22] Speaker 01: That's not what is at issue here. [00:24:24] Speaker 01: Our claim here is not that there is a negotiated rate that isn't in the tariff that the parties agreed on. [00:24:29] Speaker 01: That's not our claim. [00:24:30] Speaker 01: Our claim is there are a lot of different rates in the tariff. [00:24:33] Speaker 01: Parties can agree on one or another of those tariff rates. [00:24:35] Speaker 01: They're all just and reasonable. [00:24:37] Speaker 01: They've all been approved by FERC. [00:24:38] Speaker 01: And here our claim is the party's agreed on the Zone 6 to Zone 6 tariff rate as opposed to some other tariff rate. [00:24:45] Speaker 07: Well, why wouldn't that have been indicated? [00:24:48] Speaker 07: That's what I'm trying to understand, where the contract, when the tariff was filed, why wouldn't that have been indicated? [00:25:01] Speaker 01: Well, Your Honor, obviously this would be clearer and we would be better off if Dominion had on Exhibit C noted what our position is. [00:25:12] Speaker 01: But again, our position under Texas law, and I can't answer exactly what happened in 2018 because we weren't, our client wasn't involved in those discussions. [00:25:20] Speaker 01: Our client came in later. [00:25:21] Speaker 07: The implication here that Transco acted suesponte without Farrell's knowledge. [00:25:32] Speaker 01: Well, Terencico didn't act suespante in agreeing to this contract in 2018 with Dominion, but again, Ferlis wasn't in the picture yet. [00:25:41] Speaker 07: You're always Ferlis. [00:25:44] Speaker 01: I guess I'm not sure what your honor means by acting suespante. [00:25:46] Speaker 07: I mean, when Ferlis... He didn't file an agreement and a tariff that was filed with FERC that said Ferlis was now [00:26:01] Speaker 07: stepping in to Dominion's shoes, basically? [00:26:07] Speaker 01: Your honor, I don't know anything one way or the other about that. [00:26:11] Speaker 01: I don't know how to answer your honor's question. [00:26:13] Speaker 01: I don't know actually what occurred. [00:26:15] Speaker 07: I am assuming just because- It's a matter of law. [00:26:19] Speaker 07: Did Transco have the authority? [00:26:24] Speaker 07: Is that part of your response? [00:26:28] Speaker 01: No, I don't think it is. [00:26:29] Speaker 01: I mean, my understanding is that the pipeline which has the tariff on file with FERC would need to file with FERC contracts, you know, so that those contracts are available with FERC. [00:26:45] Speaker 01: I assume that Transco did that. [00:26:47] Speaker 01: I don't know one way or the other. [00:26:48] Speaker 01: As a matter of fact, what if any involvement Fairless had in that? [00:26:51] Speaker 01: So that's what I'm saying. [00:26:52] Speaker 01: I just don't know how to answer that question, Your Honor. [00:26:54] Speaker 01: I don't know the facts. [00:26:55] Speaker 07: But I think here- But don't come under the latent ambiguity doctrine. [00:27:00] Speaker 07: But what's latent about this is what I'm trying to understand. [00:27:05] Speaker 01: What's latent is how the language in the contract applies to the unique circumstances of these parties and their negotiations in 2018. [00:27:14] Speaker 01: Where again- With whom? [00:27:16] Speaker 01: Between Dominion and Transco. [00:27:18] Speaker 01: Those were the parties that negotiated- That's right. [00:27:20] Speaker 07: So now we're talking about Fairless and Transco. [00:27:26] Speaker 07: in the tariff file there. [00:27:29] Speaker 01: I don't think anyone disputes that if we're right that Dominion and Tarantino agree that the Zone 6 to Zone 6 rate would apply, that Fairless gets the benefit of that agreement. [00:27:38] Speaker 01: Fairless inherited this contract. [00:27:41] Speaker 01: But I think the question again is just what did Dominion and Fairless agree to as a matter of contract? [00:27:45] Speaker 01: Did they agree on a contractual rate, or did they just hunt and say whatever rate applies under the tariff is what applies? [00:27:52] Speaker 07: And what I'm getting at, and you probably know more about this than I do, if I'm out in the private market, you know, and I buy out your interest in an operation, I'm not clear that I would automatically get the benefit of any [00:28:19] Speaker 06: negotiated rate that you may have obtained. [00:28:28] Speaker 06: I'm buying your interest and so I have to indicate clearly [00:28:38] Speaker 07: what I wanna do in this new situation. [00:28:43] Speaker 07: That's the way I understand FERC to argue and maybe FERC can clarify for me. [00:28:49] Speaker 07: But that's what I'm having difficulty understanding where FERC says this is primarily a matter of a tariff interpretation, not state contract law. [00:29:06] Speaker 07: And so it says, look at the four corners of the tariff, end of discussion. [00:29:15] Speaker 07: And you say, no, no, no, that's wrong because I don't know what you call it, but there was some kind of agreement with Transco and Fairless that it too would have [00:29:36] Speaker 06: a negotiated rate? [00:29:41] Speaker 01: Your honor, we're not arguing that Fairless itself, as opposed to by operation of law, inheriting a contract from Dominion. [00:29:47] Speaker 01: We're not arguing that Fairless itself negotiated an agreement on a rate with Fransko. [00:29:54] Speaker 01: We're arguing that Dominion did, and that Fairless inherits that contract, steps in Dominion's shoes, and gets whatever the rate is under that contract. [00:30:01] Speaker 07: And what I tried to do with my hypothetical, whereas I buy your interest, [00:30:08] Speaker 07: in a corporation. [00:30:12] Speaker 07: There's a proposition of law that I'm not hearing here that if I buy your interest, suppose you own 51% of the shares in a building. [00:30:29] Speaker 07: Am I, as a matter of law, entitled to any special arrangements that you've made? [00:30:35] Speaker 07: Or do I have to [00:30:38] Speaker 07: negotiate my own contract with the other shareholders or the owner of the company. [00:30:48] Speaker 07: That's all I'm trying to understand here. [00:30:50] Speaker 01: I understand. [00:30:51] Speaker 01: And I guess maybe the simplest answer is that's just not what happened here. [00:30:54] Speaker 01: This isn't about acquiring a majority interest in a corporation, maybe the assets and liabilities go to different places. [00:31:00] Speaker 01: That's not what happened here. [00:31:01] Speaker 01: This is just a contract that Dominion had, that Dominion sold [00:31:06] Speaker 01: Fairless, and that as a matter of the FERC plot, I think Your Honor asked a few minutes ago what FERC's position is, and I don't want to speak for FERC, but certainly there's no suggestion in any of the FERC decisions below that Fairless doesn't stand in Dominion's position. [00:31:24] Speaker 01: Let me take out the double negatives there. [00:31:26] Speaker 01: As far as I know, everyone here agrees [00:31:30] Speaker 01: Yeah, that if Dominion and Transco agree that the 6 to 6 rate would apply, which is our position, that's what happened, that we, Fairless, get the benefit of that because it's the same contract. [00:31:38] Speaker 01: We just inherited it. [00:31:39] Speaker 01: We don't think there's any dispute about that. [00:31:41] Speaker 01: The dispute is who decides, right? [00:31:43] Speaker 01: Does the Texas court get to decide whether we're right that there was such a contractual agreement or does FERC get to decide? [00:31:51] Speaker 01: And if FERC gets to decide, did FERC actually decide? [00:31:54] Speaker 01: Did FERC actually grapple with the claim that we brought and decide it, putting itself in the shoes of the Texas court, applying Texas law? [00:32:00] Speaker 01: Our position is no, if you look at what FERC actually said, FERC didn't cite any Texas law. [00:32:05] Speaker 01: didn't say anything about Texas law. [00:32:07] Speaker 01: In fact, it cited only the three cases I mentioned before, which have nothing to do with private contracts or state law at all. [00:32:13] Speaker 01: And in fact, in one of those cases, it actually exemplifies how FERC recognizes that it does sometimes have to look beyond the four corners of a document because of latent ambiguity, which is what FERC should have done here, but refused to do, because FERC maybe never understood the reality of the claim that we were bringing, just as in dynagy. [00:32:31] Speaker 01: And as a matter of basic APA principles, [00:32:34] Speaker 01: The court can't sustain an agency's decision. [00:32:36] Speaker 01: If the agency didn't understand the claim that it was adjudicating, if the agency misunderstood what was before it, then it can't have issued a decision that was not arbitrary and capricious or an abuse of discretion. [00:32:47] Speaker 01: The basic principle of APA review is the agency has to actually understand and grapple with the arguments that are made. [00:32:53] Speaker 01: hundreds of cases by this court that I could cite for that proposition. [00:32:56] Speaker 01: A few of them are in our brief. [00:32:57] Speaker 01: Dynasties may be the most on point because it involves FERC. [00:33:00] Speaker 01: Just as here, there the court said, not clear that FERC ever really understood what the petitioner was arguing. [00:33:06] Speaker 01: And here, if FERC did understand that we had a state law claim that there was an agreement on a rate notwithstanding the fact that it's not a negotiated rate on exhibit C. If FERC did understand that, [00:33:18] Speaker 01: Then FERC improperly swept that under the rug, and it never really grappled with that issue, which is why I think FERC actually just didn't understand that, why this case at the very least needs to be remanded to FERC, for FERC to grapple with what it didn't grapple with adequately first time around. [00:33:32] Speaker 01: What we really think should happen is this case should go back to the Texas State Court, just as in Endeavor, just as in BG, just as in ARCLA itself, where FERC set out the factors governing primary jurisdiction, where FERC says in general and state law issues, we don't have any particular expertise, [00:33:47] Speaker 01: We don't have any particular dog in a fight about state law issues. [00:33:51] Speaker 01: As long as the rate under state law one way or the other, whichever rate it is, is going to be just and reasonable, which both of these are, then it's really not FERC's concern. [00:33:59] Speaker 01: And it's an idiosyncratic here, potentially this really genuinely sui generis issue about what these parties in 2018 agreed to. [00:34:07] Speaker 01: That really isn't any concern of FERC's as long as what they agree to is otherwise just reasonable, which no one here disputes that it is. [00:34:14] Speaker 07: So thank you. [00:34:16] Speaker 07: Thank you, counsel. [00:34:17] Speaker 07: And thank you, Judge Charles, for letting me try to clarify this. [00:34:22] Speaker 01: Thank you very much. [00:34:44] Speaker 05: Good morning. [00:34:45] Speaker 05: Carol Banser for the commission. [00:34:46] Speaker 05: And Judge Rogers, I will address some of the confusion and some of the questions that you were asking. [00:34:55] Speaker 05: But I have to begin by correcting something. [00:35:00] Speaker 05: It is entirely incorrect to say that all of the tariff rates would be just and reasonable as to parallel. [00:35:08] Speaker 05: Because these are tariff recourse rates. [00:35:10] Speaker 05: Meaning that it's what's there if there is no negotiated rate. [00:35:13] Speaker 05: And we will get to discussing why there isn't one in the contract when we look at it and why this is, in fact, a pair of interpretation. [00:35:22] Speaker 05: Recourse rates are not something that parties agree to. [00:35:26] Speaker 05: You can state it as a negotiated rate. [00:35:29] Speaker 05: As these same parties explicitly did in 2006 and 2014 in what we call the 2014 other contract, they actually did agree to [00:35:39] Speaker 05: give the equivalent of the Zone 6 system rate. [00:35:42] Speaker 05: And they stated it as a negotiated rate in Exhibit C, where it said the negotiated rate is the equivalent of Zone 6. [00:35:49] Speaker 05: Setting aside a negotiated rate stated in Exhibit C, a tariff recourse rate is a specific rate that the commission has approved as just and reasonable for a particular service. [00:36:01] Speaker 05: It is a cost-based rate. [00:36:03] Speaker 05: It's based on cost of service plus a particular profit margin. [00:36:06] Speaker 05: In this case, so there are 32 incremental rates for various expansions on transcript system in its tier. [00:36:13] Speaker 05: And there's the general system rate. [00:36:15] Speaker 05: And it is true that the commission has approved every one of those rates as a just and reasonable cost-based rate. [00:36:21] Speaker 05: But it's only just and reasonable as to the service, the costs of which it considered when it approved it. [00:36:30] Speaker 05: So for instance, the general system rate has made up the costs of the whole system, [00:36:35] Speaker 05: upgrades and it's the mainline system that may be quite old parts of it may have been upgraded when since the 1999 certificate policy statement that we cited, the commission said with regard to expansions for purposes of correct price signaling and also avoiding subsidization and surprise rate changes for existing customers, the mainline system, we will insist that expansions be paid for by expansion customers. [00:37:04] Speaker 05: So when we look at the orders that we cited for this particular expansion that was approved in 1999 and then amended in 2000, in the amending order in 2000, that's when Virginia Marketing first comes into the picture. [00:37:17] Speaker 05: Their precedent shipper on this new to be built expansion, they dominated phase two of the expansion. [00:37:25] Speaker 05: They had 100,000 decathermes per day of the 130 on that part. [00:37:29] Speaker 05: So Transco was building this expansion [00:37:32] Speaker 05: And it was justifying the need to build the expansion to the commission based on the fact that it had these two customers, one of which was Virginia Marketing. [00:37:39] Speaker 05: And the commission said, that's fine. [00:37:40] Speaker 05: Those are your precedent shippers. [00:37:42] Speaker 05: Your recourse rates have to be based on the cost of that expansion. [00:37:47] Speaker 05: And those recourse rates will be allocated to the customers of that expansion and not on everyone else. [00:37:54] Speaker 05: Transco is free, although not obligated, to negotiate rates with its shippers. [00:38:00] Speaker 05: A pipeline often finds it in its interest to do. [00:38:02] Speaker 05: It's trying to attract new shippers to an expansion that it wants to build. [00:38:06] Speaker 05: So maybe it does negotiate a rate that's lower than the cost-based rate that it can justify to the commission. [00:38:12] Speaker 05: But the cost-based rate is there in the tariff as what's there when there's no negotiated rate or when a negotiated rate expires, which is what happened in the 2014 predecessor agreement. [00:38:25] Speaker 05: There was a negotiated rate that expired in November 2018. [00:38:28] Speaker 05: And then in December 2018, there's the fearless contract that says none. [00:38:35] Speaker 05: So from the expiration on November 1st, it was back to the recourse rate because there was no negotiated rate as of that date. [00:38:42] Speaker 05: And then there was no negotiated rate in the new contract either. [00:38:44] Speaker 05: But the expansion rate was based on the costs of building and operating the market link expansion. [00:38:52] Speaker 05: And that recourse rate is what the commission found just unreasonable to be the rate [00:38:58] Speaker 05: for those expansion customers. [00:39:00] Speaker 05: It has never, and it explicitly said this in 1992 in the declaratory order, it has never found that it's just and reasonable for market link shippers to pay the general system rate. [00:39:12] Speaker 05: So no, we do not agree that all rates are just and reasonable as to every party. [00:39:16] Speaker 05: The tariff is not a choose your own recourse rate menu. [00:39:19] Speaker 05: If you cannot reach an agreement with the pipeline, the recourse rate you pay is the specific rate for the service that you [00:39:27] Speaker 05: And that's the analysis that the commission did in these orders. [00:39:30] Speaker 05: What service do you have? [00:39:32] Speaker 05: And it started with that history of when Virginia marketing committed the capacity, the 100,000 Zekathurms per day capacity to serve a plant. [00:39:43] Speaker 05: The Fairless plant hadn't been built yet. [00:39:44] Speaker 05: It was coming online in 2004. [00:39:46] Speaker 05: And as we say in our brief, Fairless has repeatedly acknowledged that Transco's existing system could not have served it with the amount of fuel that it needed for its plant. [00:39:57] Speaker 05: The reason Virginia Marketing signed on for the market link expansion was because it needed to serve this new plant that it was building, and the existing transco system did not have that capacity available to serve. [00:40:09] Speaker 04: Let's talk a little bit about the jurisdiction, though. [00:40:12] Speaker 04: I mean, what factors would the commission use when it's looking to determine whether it's going to total a contract dispute? [00:40:20] Speaker 05: And that ties in the commission's [00:40:26] Speaker 05: holding to what recourse rates are and what they mean was its key. [00:40:30] Speaker 05: And when it cited it for uniformity, it said in the rehearing order that it could have invoked its primary jurisdiction based entirely solely on the uniformity because it's very important. [00:40:40] Speaker 05: There are other shippers on the market like expansions. [00:40:43] Speaker 05: There are other shippers on the 31 other expansion incremental rates that Transco also has. [00:40:48] Speaker 05: And there are numerous pipelines around the country that have expansion incremental rates and general system rates as a matter of tariff interpretation. [00:40:57] Speaker 05: If we have a case where one particular party says, well, I don't like the incremental rate, I think I should get the general system rate, even though you've never approved the general system rate for market link shippers, I think I should have it. [00:41:11] Speaker 05: If that works to prevail, if that viewer prevails, then what stops all the other expansion shippers, both on Transcause pipeline and any other pipeline, [00:41:19] Speaker 05: We're going to court to say, no, we don't like our incremental rates either. [00:41:22] Speaker 05: We'd really like the general system rate. [00:41:25] Speaker 05: We think it's lower. [00:41:26] Speaker 05: And you should just give it to that because we agreed to it even though we didn't state it as a negotiated rate. [00:41:30] Speaker 05: So the commission found it important as a matter of what tariffs mean and what we're even doing when we approve these rates as just and reasonable and when we want to guard against subsidization. [00:41:43] Speaker 05: If the pipeline can't recover its costs for the expansion from its shippers, [00:41:49] Speaker 05: then, I mean, we approved it to enable them to recover its cost, and we also stand by not allowing the pipeline to get those costs from the other customers to subsidize the expansion because the expansion customers didn't pay for it. [00:42:05] Speaker 04: But what do we rely on as precedent for the primary jurisdiction for that proposition about consistency, review of contracts here, versus this being what the [00:42:17] Speaker 04: Fairness would consider a tariff issue as opposed to not a tariff issue, but a true contract. [00:42:24] Speaker 05: Well, you're not illuminating certainly the key case that the commission cited. [00:42:30] Speaker 05: In that one, now the commission, after invoking primary jurisdiction, did find there was an ambiguity in that contract instead of carrying. [00:42:38] Speaker 05: But the commission isn't citing that here for ambiguity versus four corners of contract, citing it for the importance of its primary jurisdiction. [00:42:47] Speaker 05: We had several cases that we cited. [00:42:49] Speaker 05: I think Northern Natural Gas. [00:42:54] Speaker 05: The commission rejected an argument that the case was about a contract rather than a tariff interpretation, and that it was important for a tariff interpretation to invoke primary jurisdiction. [00:43:04] Speaker 05: United Illuminating, in particular, is important also because it goes to the expertise, which was another thing that the commission cited. [00:43:15] Speaker 05: We're not going to argue that the idea of recourse rates is a simple concept. [00:43:20] Speaker 05: And recourse versus negotiated rates, incremental expansion rates versus general system rates, this is the bread and butter of FERC. [00:43:29] Speaker 05: It's not necessarily the bread and butter of state courts. [00:43:31] Speaker 05: So as a matter, it's very similar to in United Illuminating. [00:43:38] Speaker 05: The commission was dealing with reliability must run agreements. [00:43:45] Speaker 05: ISO reliability charges, the kind of thing that the commission had approved these charges to begin with. [00:43:51] Speaker 05: And then also this is the third prong of the regulatory responsibility. [00:43:55] Speaker 05: In United Illuminating, the commission said, because we have approved these reliability charges to be recovered, we have an interest in this dispute to make sure they are, in fact, recovered. [00:44:07] Speaker 05: And that goes back to what I was saying about incremental expansion rates, that the commission, having set out a policy decades ago that [00:44:15] Speaker 05: Incremental expansion shippers should pay for expansion facilities with incremental rates that cover the cost of those facilities. [00:44:22] Speaker 05: Having made that as a policy and said that those will not be subsidized by general system customers, the commission has an interest in making sure that there is a distinction between which rate you pay and that you don't just get to say outside the context of a specific negotiated rate, of course. [00:44:38] Speaker 05: You don't just get to say we want that recourse rate. [00:44:41] Speaker 05: because we like that one better, even though it has nothing to do with the facilities we're being served on. [00:44:45] Speaker 05: And we've been extension shippers all along, but we'd rather have that rate. [00:44:50] Speaker 05: That is not how recourse rates work, and that's why the commission invoked its primary jurisdiction. [00:44:56] Speaker 05: And to this date, I don't think the petitioner has ever cited a case where a court reviewed or let alone overturned that. [00:45:06] Speaker 05: We're not saying it's nonreviewable. [00:45:07] Speaker 05: We never argued that. [00:45:08] Speaker 05: But the discretion is broad. [00:45:11] Speaker 05: And the bar is high. [00:45:13] Speaker 05: But you believe this is beyond a typical contract dispute. [00:45:17] Speaker 05: It is a tariff dispute. [00:45:18] Speaker 05: And I'd like to go to the contract to really highlight that. [00:45:23] Speaker 05: But this contract is a form agreement that Transco uses. [00:45:29] Speaker 05: The commission has approved for that purpose. [00:45:30] Speaker 05: So this is not a unique contract that the commission has never seen. [00:45:36] Speaker 05: In this world, where there are two kinds of rates that you can pay. [00:45:39] Speaker 05: And I do want to get a case set up, because it also goes to another point. [00:45:41] Speaker 05: I want to make sure that I highlight Eberdrohler Renewables from this court in 2010. [00:45:46] Speaker 05: It talks a lot about negotiated rates versus recourse rates. [00:45:49] Speaker 05: It also has a successor to a contract that didn't like the deal that their predecessor made. [00:45:54] Speaker 05: It did not matter. [00:45:55] Speaker 05: This court talks a great deal in that about negotiated rates. [00:45:59] Speaker 05: And it's a very helpful piece, just for the whole context. [00:46:01] Speaker 05: But today, Eberdrohler Renewables [00:46:06] Speaker 05: is 597 F3rd, I don't know the. [00:46:12] Speaker 07: That's good enough. [00:46:14] Speaker 05: The particular part about the successor is at 1305, but the case starts at 1299. [00:46:22] Speaker 05: But looking at J76, which is this contract, all the same languages in nearly all of these contracts, and looking at Article 5, Section 1. [00:46:34] Speaker 05: So we have the first sentence that says, buyer shall pay seller in accordance with seller's rate schedule FT. [00:46:40] Speaker 05: That means if you don't say anything else, what's the tariff say? [00:46:43] Speaker 05: What's the recourse rate? [00:46:44] Speaker 05: And that's why the commission would look at that as a tariff interpretation. [00:46:48] Speaker 05: It goes on at the end and says, if the buyer and seller mutually agree to a negotiated rate, provisions governing such a negotiated rate and term shall be set forth on exhibit C. I don't think petitioners ever addressed [00:47:04] Speaker 05: what the meaning of shall, we understand it to be mandatory. [00:47:08] Speaker 05: If there's a negotiated rate, you say it on Exhibit C. I don't think I've ever heard this argument that you only have to use Exhibit C if you're picking some rate like 30 cents, but it's patently just proven by what they did themselves in the 2006 and the 2014 other contracts were on Exhibit C. They did pick a rate from the tariff. [00:47:28] Speaker 05: They weren't entitled to that rate as recourse rates, so they got it as a negotiated rate. [00:47:32] Speaker 05: And so on J90, which is the 2014 other contract, the parallelist's other contract got a negotiated base reservation rate and commodity equal to seller's generally applicable zone 6 to zone 6 daily reservation and commodity rate. [00:47:50] Speaker 05: So they don't get it as a matter of recourse under rate schedule FT, but if they can agree to it, usually between the parties and stated [00:48:00] Speaker 05: they've shown that they can actually pluck a number from the terror. [00:48:04] Speaker 05: But absent that agreement that shall be stated on exhibit C, and they didn't leave exhibit C blank, they said none. [00:48:10] Speaker 05: Absent that, it's a terrorist case and not a contract case because you don't just get to decide which recourse rate you like better. [00:48:20] Speaker 07: And if the parties- So going back to a question Judge Childs asked at the very beginning, [00:48:28] Speaker 07: were for to be affirmed here, then is there no recourse for fearless to prove what's being tossed around here is a latent ambiguity? [00:48:47] Speaker 07: I would like in the state court, in other words, where FERC refers this question to the state court. [00:48:55] Speaker 07: The state court, let's just hypothetically say, rules in Fairless's favor that there was a negotiated rate. [00:49:06] Speaker 07: Then does Fairless have to wait until the term of the current tariff expires, or can it renegotiate? [00:49:17] Speaker 05: I can always try to renegotiate, but it would be now by its contract. [00:49:20] Speaker 05: Let me say a couple of things about latent ambiguity. [00:49:22] Speaker 05: I did a word search and I see no mention of it in the hearing request. [00:49:27] Speaker 07: I did it page 24 in re-hearing at any rate of the re-hearing order. [00:49:33] Speaker 07: Any event, I just want to be clear as to what your understanding of the law is here. [00:49:40] Speaker 05: The law is in the world of pipeline [00:49:46] Speaker 05: The pipeline is authorized to negotiate rates. [00:49:50] Speaker 05: And that would be memorialized in the agreement. [00:49:53] Speaker 05: This agreement says if you negotiate a rate, you set it forth in this contract. [00:49:58] Speaker 07: And suppose you didn't. [00:50:02] Speaker 07: Then you're just stuck with the tariff or the term of the tariff. [00:50:10] Speaker 07: Yes. [00:50:11] Speaker 07: Unless FERC would agree to rehearing. [00:50:19] Speaker 07: I don't know what Kirk would agree to a rehearing on. [00:50:22] Speaker 07: I mean, the recourse rates are... Well, it would say there was this latent ambiguity. [00:50:26] Speaker 07: We thought... [00:50:29] Speaker 07: you know, we didn't have to fill in Exhibit C the way we needed to. [00:50:36] Speaker 07: But, I mean, Burke would have discretion as to whether grants re-hearing, but I just want to be sure. [00:50:43] Speaker 07: So once you're stuck, you're stuck, and then whatever the term of the tariff is, you have to wait until you get a chance to enter into a new agreement with. [00:50:56] Speaker 05: I can't agree with the characterization of stuff. [00:50:58] Speaker 05: It is the recourse rate and it always was the recourse rate. [00:51:00] Speaker 05: And again, I would point to Iberdrola renewables. [00:51:03] Speaker 05: Yeah, I mean, this court said in Iberdrola renewables that when you enter a contract, you are bound by the terms of that. [00:51:10] Speaker 07: I just want to understand, is it different in tariff law than it is in general contract law? [00:51:20] Speaker 07: The other party may not want to renegotiate, but it doesn't mean it's barred from renegotiating. [00:51:27] Speaker 05: They can renegotiate the contract. [00:51:28] Speaker 05: The tariff is not negotiated. [00:51:33] Speaker 05: The tariff rate is proposed and then justified by the pipeline and the commission determines based on [00:51:39] Speaker 05: of showing of cost of service, it decides what the recourse rate is as a cost-based rate, not a negotiated rate. [00:51:47] Speaker 05: So what the commission believes that, I mean, on its face, Article 5 says, if you want to negotiate a rate, fine, it shall be stated in this contract. [00:51:58] Speaker 05: When it says that a buyer shall pay seller in accordance with seller's rate schedule FT, that means you shall pay in accordance with the tariff. [00:52:08] Speaker 05: is a matter of tariff interpretation that the commission gets Chevron deference in interpreting the tariff that it approved. [00:52:14] Speaker 05: But the tariff is not something that any parties negotiated and submitted. [00:52:19] Speaker 05: Transco had to come in to the commission when it was actually looking for certificate approval to build the pipeline. [00:52:28] Speaker 05: It had to propose its rates. [00:52:30] Speaker 05: It had to substantiate those rates. [00:52:32] Speaker 05: It had to show its costs. [00:52:33] Speaker 05: The commission had to look at that and say, [00:52:36] Speaker 05: These cost of service rates are just unreasonable under Natural Gas Act section four. [00:52:40] Speaker 05: I should correct myself. [00:52:41] Speaker 05: There is one other recourse that Fairless or any other party could have. [00:52:46] Speaker 05: Any party that believes that a rate under the tariff is unjust and unreasonable or unduly discriminatory or preferential can bring a complaint under Natural Gas Act section five. [00:52:58] Speaker 05: There are two ways to change tariff. [00:52:59] Speaker 05: The pipeline can propose its own change under section four [00:53:04] Speaker 05: subject to finding it's just and reasonable, any other party or the commission itself could initiate a proceeding to find, potentially find that rate unjust and unreasonable and then replace it with a just and reasonable rate. [00:53:18] Speaker 05: So they're not effective without recourse. [00:53:19] Speaker 05: They have the same recourse any other party under a tariff has. [00:53:23] Speaker 05: of challenging that rate pursuant to Section 5, that has been no part of this case. [00:53:28] Speaker 05: That has not happened yet. [00:53:29] Speaker 07: No, no, no, no. [00:53:30] Speaker 07: But yes, all right. [00:53:31] Speaker 07: But I thought Section 5 was more limited than would embrace what Fairless is arguing here. [00:53:38] Speaker 07: But maybe I'm wrong about that. [00:53:38] Speaker 05: They might not be able to make the showing. [00:53:40] Speaker 05: But I'm just saying that a party with a long-term contract that is not happy with the recourse rate would have, if they could make the necessary showing, they're not without that. [00:53:53] Speaker 04: But as fearless as latent ambiguity claim lose strength based on its payment of the market link rate? [00:54:06] Speaker 05: They're trying to argue that there's a latent ambiguity in what the reference to the tariff means. [00:54:11] Speaker 05: And I've just never seen anything like it. [00:54:13] Speaker 05: It's a tariff. [00:54:14] Speaker 05: It's a tariff rate that the commission approved. [00:54:16] Speaker 05: It's the recourse rate if you don't have a negotiated rate. [00:54:19] Speaker 05: There's nothing ambiguous about what the contract says. [00:54:21] Speaker 05: The contract says the tariff rules. [00:54:23] Speaker 05: If there is any ambiguity about which price in the tariff applies, that's a straight up question of tariff interpretation that the commission gets deference for. [00:54:32] Speaker 05: And the commission went through it in this order looking at what facilities service. [00:54:37] Speaker 05: It looked at the history of the fact that this all started with service deferralist that could not be provided under the existing system. [00:54:45] Speaker 05: So Virginia Marketing was a market link shipper. [00:54:49] Speaker 05: Every filing that Transco has made [00:54:53] Speaker 05: across the time has continued. [00:54:56] Speaker 05: And it's never had authority to charge a different recourse rate. [00:55:00] Speaker 05: It has authority to negotiate a different rate. [00:55:02] Speaker 05: But it doesn't have authority to change that recourse rate itself. [00:55:05] Speaker 05: It has to make a showing to the commission that no one has ever proposed. [00:55:10] Speaker 05: And so the commission looked at Fairless's admissions that it does. [00:55:16] Speaker 05: Station 210 is part of the MarketLink expansion. [00:55:19] Speaker 05: So it is sort of MarketLink facilities. [00:55:21] Speaker 05: It always was served from the market link expansion. [00:55:25] Speaker 05: And the commission looked at the orders that approved the market link expansion, including the precedent agreement with Virginia Marketing. [00:55:33] Speaker 05: And it has more than a scintilla of substantial evidence, which is what the commission would need to be affirmed on its finding under the contract. [00:55:42] Speaker 05: I'd say it's much more than a scintilla, but it certainly meets the substantial evidence [00:55:45] Speaker 05: a standard in the Natural Gas Act. [00:55:47] Speaker 07: And so the argument that, well, Dominion's special rate, negotiated rate, expired in 2018, absent, fearless, indicating something to the contrary, it was going to be stuck with the rate on these expansion facilities. [00:56:14] Speaker 05: which it's still being served by. [00:56:16] Speaker 05: But I mean, it certainly could renegotiate if Transco were open to it. [00:56:21] Speaker 05: And it did negotiate that contract in 2018. [00:56:24] Speaker 05: What I would say is, I'm sorry, I lost that thought. [00:56:32] Speaker 07: So under the commission's view, the latent ambiguity exception, if I can put it that way, does not apply. [00:56:45] Speaker 05: Right. [00:56:45] Speaker 05: I mean, again, since the commission didn't see that issue raised, so it didn't address it that explicitly. [00:56:51] Speaker 05: But the commission does understand that the reference in the first sentence of that Article 5 in the contract says buyer shall pay seller in accordance with the tariff unless you state the negotiated rate in Exhibit C. So Exhibit C on its face says none. [00:57:06] Speaker 05: Article 5 on its face says it shall be there if it exists. [00:57:11] Speaker 05: And it doesn't because it says none. [00:57:13] Speaker 05: So all Article 5 says is buyer, seller, base, seller, the tariff rate. [00:57:19] Speaker 07: And now we're in... Okay, so when Transco files the tariff with the commission, has Fairless seen it in advance? [00:57:34] Speaker 05: Well, the tariff, these rates were added in the orders in 2000, or the tariff is publicly available [00:57:43] Speaker 05: I think it's online. [00:57:45] Speaker 07: I forget whether it's here. [00:57:47] Speaker 07: Okay, so Fairless could have reviewed it. [00:57:52] Speaker 07: Oh, sure. [00:57:52] Speaker 07: What I'm trying to get at is at what point does Fairless have a chance to raise this point? [00:58:01] Speaker 07: And I get your point about, well, they just simply misread the contract. [00:58:06] Speaker 07: They misunderstood the history of events here, the plain terms of the contract. [00:58:13] Speaker 07: and what FERC was doing with expansion facilities. [00:58:18] Speaker 05: I think there are two, maybe two more direct answers to your question about what Fairless could have done or could do. [00:58:24] Speaker 05: And it goes to the same bifurcation between whether you have a negotiated contract rate or a tariff recourse rate. [00:58:30] Speaker 05: You either reach an agreement with Transco and Transco's counsel, I think may speak to this, but there may be some evidence in the record that Transco didn't, Transco isn't obligated to agree to a negotiated rate. [00:58:43] Speaker 05: It had for a long time. [00:58:44] Speaker 05: It could. [00:58:45] Speaker 05: Maybe it could in the future. [00:58:46] Speaker 05: It certainly has the right to, but it doesn't have to. [00:58:49] Speaker 05: You can try to renegotiate with Transco, or if you think you can meet the burden under natural gas section five, you can challenge the tariff rates. [00:58:59] Speaker 05: So those are your recourses under the contract. [00:59:03] Speaker 05: Either have negotiated the contract rate or now that you haven't, you're in the tariff world and your recourse, I don't want to confuse the term recourse, your avenue is natural gas section five. [00:59:17] Speaker 04: Thank you. [00:59:18] Speaker 06: Thank you. [00:59:51] Speaker 02: Good afternoon, Your Honor, and may it please the Court, Matt Vannette for Transco. [00:59:57] Speaker 02: I'd like to start with the very last question that was asked about whether Ferris has notice of these rates and rate changes. [01:00:03] Speaker 02: They do. [01:00:05] Speaker 02: Whenever the market link rate or any other rate in the tariff is changed, it has to be filed at PERC before the change takes effect and it is publicly noticed and people have the opportunity to intervene, protest, comment, do whatever they will. [01:00:17] Speaker 02: In addition, whenever [01:00:19] Speaker 02: Transco negotiates a rate with an individual customer. [01:00:22] Speaker 02: Transco files a rate sheet in its tariff, section 13 of the tariff, that specifies that rate sheet. [01:00:29] Speaker 02: The rate sheets at issue here, in this case, were filed in 2014 for the 2014 contract. [01:00:34] Speaker 02: And in those rate sheets, they actually specified the rate schedule FT market link as the rate that was applicable to this service, but for the negotiated rates that they negotiated at the time. [01:00:48] Speaker 02: One of those rates in the contracted issue here expire in November, 2018, the parties did not renegotiate. [01:00:55] Speaker 02: And when they signed a new agreement, they reflected none, which is judge Rogers pointed out is pretty unambiguous. [01:01:01] Speaker 02: In fact, it is unambiguous. [01:01:03] Speaker 02: A rate that is a negotiated rate is one that has to be specified in exhibit C in order to be effective. [01:01:11] Speaker 02: And that's per article five of the contract as Ms. [01:01:15] Speaker 02: Vanta acknowledged. [01:01:18] Speaker 02: Fairless, what have you believed that not withstanding placing the word none in the contract, that they actually, Fairless and Franco had agreed to some other unspecified rate, but for some reason did not put it in the contract, which is actually contrary to the other contract, the other 2018 contract that specified the zone six, zone six rate as the applicable negotiated rate for that contract service. [01:01:44] Speaker 02: And one other point I'd like to make is, as Ms. [01:01:46] Speaker 02: Banta alluded to, these negotiator rates are often negotiated at the outset when a pipeline is building an expansion. [01:01:54] Speaker 02: As to attract shippers to that expansion, those rates do tend to be time limited. [01:01:59] Speaker 02: The initial rate in this, the initial negotiator rate in this case was time limited to 10 years. [01:02:05] Speaker 02: Transco was willing to renegotiate that with the shipper of first Virginia Power and Energy Marketing and later with Dominion Energy Fairless over time. [01:02:15] Speaker 02: But Transco has never agreed to a negotiated rate for any of this pipeline expansion service in perpetuity. [01:02:24] Speaker 02: And I will just note that over time, as the MarketLink project has been in service, when it was first placed in service, most of the agreements were with negotiated rates. [01:02:36] Speaker 02: And since over the course of time, that has actually flipped and now most shippers on the MarketLink [01:02:42] Speaker 02: pipeline are actually paying the recourse rate in the tariff and not a negotiated rate. [01:02:47] Speaker 02: One last point I would like to make, just to reinforce, I don't want to repeat or tread on a little ground, but perilous as the theory of this case is that [01:02:57] Speaker 02: The tariff is a menu, and you can pick and choose whichever rate you want. [01:03:00] Speaker 02: That is not the case. [01:03:02] Speaker 02: When FERC approved the MarketLink project, they specifically approved it at a recourse rate based on the incremental cost of service of that specific facility, or parties could negotiate an alternative rate. [01:03:17] Speaker 02: In this case, that's what happened. [01:03:18] Speaker 02: The parties negotiated an alternative rate that was in effect for a certain amount of time and then has since expired. [01:03:23] Speaker 02: And so the default is to the recourse rate that is set forth in the tariff. [01:03:28] Speaker 02: I'm out of time and happy to entertain any questions that the court has. [01:03:33] Speaker 04: Nothing here, Judge Rogers. [01:03:35] Speaker 07: Nothing from me, thank you. [01:03:37] Speaker 02: Thank you for your time. [01:03:38] Speaker 02: Thank you. [01:03:52] Speaker 01: Very brief, four quick points. [01:03:53] Speaker 01: First, most of what we heard from my friend Ms. [01:03:56] Speaker 01: Banta [01:03:57] Speaker 01: is about why in the absence of a contractual agreement, a rate, the rate that would apply to the 210 pulling plant to transcode, excuse me, to perilous facility under the tariff, the absence of a contractual agreement is a market link rate. [01:04:12] Speaker 01: We're not disputing that. [01:04:13] Speaker 01: I want to be clear about that. [01:04:14] Speaker 01: I think we've been clear about that, but I want to be totally clear about that. [01:04:16] Speaker 01: We're not disputing that. [01:04:17] Speaker 01: The question is, was there a contractual agreement, which I think everyone agrees, would Trump [01:04:23] Speaker 01: whatever would otherwise apply under the tariff at the point of a contractual agreement. [01:04:27] Speaker 01: And I think the next thing I wanted to say about that is I may have been perilous in the way I phrased something earlier when I said that every rate in the tariff is just and reasonable. [01:04:40] Speaker 01: That's true in the abstract. [01:04:42] Speaker 01: Ms. [01:04:42] Speaker 01: Banta is right, that it doesn't necessarily mean that every rate in the tariff is just and reasonable as applied to any particular set of facts. [01:04:49] Speaker 01: But what doesn't matter, what matters is there's no dispute that both rates at issue here, the one we say applies six to six and the one they say applies are just and reasonable as applied to the transportation of gas covered by this contract. [01:05:02] Speaker 01: In fact, six by six rate is what applied to the very same transportation of the very same quantity of gas from the very same point to the very same point for a long time with not a hint of [01:05:12] Speaker 01: of suggestion from FERC that somehow that wasn't just and reasonable. [01:05:16] Speaker 01: So to be more precise than I was earlier, there's no dispute that the rate we're advocating here under the contract would be just and reasonable. [01:05:24] Speaker 01: That's why it's particularly stalling to us for FERC to have gone out of its way to take this issue out of the state court and decided itself because FERC shouldn't care really whether one of two equally just and reasonable rates [01:05:38] Speaker 01: applies to this particular contract under three generous conditions about contractual negotiations. [01:05:44] Speaker 01: My friend relied on United Illuminating at the podium, and FERC relied on it in its initial decision, although not through a hearing order here. [01:05:51] Speaker 01: I think it's worth talking for a moment about United Illuminating. [01:05:54] Speaker 01: That's a case where FERC said, yes, it's kind of a contract issue, but we're going to exercise primary jurisdiction [01:06:03] Speaker 01: because it's a really technical contract issue. [01:06:05] Speaker 01: It requires interpreting terms like, quote, transmission, congestion costs, unquote, and, quote, reliability must run, unquote. [01:06:13] Speaker 01: Nothing like that here. [01:06:13] Speaker 01: There's no technical aspects of this contract. [01:06:16] Speaker 01: It's simply what the parties in 2018 intended, whether they had a meeting of the minds or not. [01:06:21] Speaker 01: And if so, what was it? [01:06:22] Speaker 01: There's nothing technical about that. [01:06:23] Speaker 01: And FERC has no particular insight into that. [01:06:26] Speaker 01: That's what FERC has recognized in case after case after case involving state law claims. [01:06:30] Speaker 01: The other thing that's particularly [01:06:32] Speaker 01: interesting about United Illuminating, why it's especially calling for FERC to be relying on it as a ground for its decision here. [01:06:39] Speaker 01: Because there, as my friend acknowledged, FERC found that the contract was ambiguous. [01:06:44] Speaker 01: And it applied New York law, recognizing that there could be such a thing as ambiguity, that there could be a need to take evidence. [01:06:50] Speaker 01: And it referred the case to an ALJ. [01:06:52] Speaker 01: And the ALJ granted discovery and held an inventory hearing and ultimately found that the parties had a meeting of the minds. [01:06:58] Speaker 01: That's the ALJ's language in paragraph 119 of the initial decision. [01:07:01] Speaker 01: on the issue that was in dispute. [01:07:04] Speaker 01: And then FERC approved that initial decision by the ALJ. [01:07:07] Speaker 01: That's what should have occurred here. [01:07:08] Speaker 01: If FERC really thought that the possibility that depending on the outcome of the contract issue that FERC might have to construe the tariff, that that possibility was so important and the construction of the tariff was so important to FERC's regulatory responsibilities that FERC would take this case from the state court, then FERC should have done what it did in United Eliminating, instead of sweeping under the rug our state law claim. [01:07:27] Speaker 01: One other point, Your Honor, Judge Shiles, you asked whether, I hope I'm getting this right, whether our claim that there was latent ambiguity would lose strength because we paid the market link rate. [01:07:38] Speaker 01: We never paid the market link rate under this contract without immediately and clearly protesting. [01:07:42] Speaker 01: As soon as Perilous inherited this contract, the very first time that we were billed under it by transfer, we were billed for the market link rate. [01:07:49] Speaker 01: We said, hold on, what gives? [01:07:50] Speaker 01: We thought it was the six by six rate and we protested. [01:07:53] Speaker 01: We had to pay under protest because that's how it works in the Fert world. [01:07:57] Speaker 01: we always project. [01:07:58] Speaker 01: And the final point is that a lot of what we heard from my friend Miss Banta is that exhibit C says none and therefore this is a simple case. [01:08:09] Speaker 01: And so I acknowledge the fact that exhibit C says none means that we might not succeed on our state law claim that there was none elastic contractual agreement on a rate. [01:08:18] Speaker 01: But that isn't the reason. [01:08:20] Speaker 01: to pretend that that claim is not a state law claim. [01:08:22] Speaker 01: It isn't a reason to pretend that we aren't claiming there was non-elastic contractual agreement on a rate. [01:08:27] Speaker 01: If we succeed on that claim, that's because of the intent of these parties in 2018 under sui generis contract conditions in a way that would, where the result would be the application of a rate that applied for many years to the same contract in a way that shouldn't, or any ox of FERCs that FERCs shouldn't have any concern about, [01:08:45] Speaker 01: And if somehow that did have any concern for FERC, then FERC could do what it did in Endeavor and say, well, the initial question is one of state law. [01:08:52] Speaker 01: We don't really have an interest in that. [01:08:53] Speaker 01: We don't really have expertise in that. [01:08:55] Speaker 01: But depending on the outcome of that, there could be a generative interpretation issue that would arise. [01:08:59] Speaker 01: They'll know where to find us. [01:09:00] Speaker 01: Come find us at that point if you need to. [01:09:02] Speaker 01: There's no reason why FERC couldn't have done that here. [01:09:04] Speaker 01: And at the very least, if FERC was determined to take this case from the Texas courts, [01:09:08] Speaker 01: had to put itself in the shoes of the Texas court and give us a fair hearing. [01:09:12] Speaker 01: I had to actually adjudicate our Texas law claim, not pretend that it didn't exist. [01:09:16] Speaker 01: Thank you very much, Your Honors. [01:09:17] Speaker 01: I appreciate your indulgence with time, both of you. [01:09:20] Speaker 01: Thank you very much. [01:09:21] Speaker 04: Thank you very much. [01:09:23] Speaker 04: That will conclude this hearing, and we will take it under advisement.