[00:00:01] Speaker 00:
Base number 19-1236 et al, Kentucky Municipal Energy Agency et al petitioners versus Federal Energy Regulatory Commission.

[00:00:10] Speaker 00:
Mr. Nurani for the municipal petitioners.

[00:00:13] Speaker 00:
Mr. Clement for the Louisville Gas and Electric Company and Kentucky Utilities Company petitioners.

[00:00:18] Speaker 00:
Mr. Edgar for the respondents.

[00:00:21] Speaker 02:
All right, Mr. Nurani, good morning.

[00:00:24] Speaker 04:
Good morning, may it please the court.

[00:00:26] Speaker 04:
Latif Nurani for the municipal petitioners.

[00:00:27] Speaker 04:
I've requested two minutes of time for rebuttal.

[00:00:32] Speaker 04:
As a result of FERC's orders on review, rates to the city of Frankfort, Kentucky have gone up by millions of dollars.

[00:00:38] Speaker 04:
The people of Berea, Kentucky have limited competitive options to choose from when replacing their soon expiring power supply arrangement.

[00:00:47] Speaker 04:
These harms to rates and to competition are precisely the harms that FERC was required to consider when making a public interest determination pursuant to rate schedule 402.

[00:00:58] Speaker 04:
if FERC refused to consider the rate impact and it lacked sufficient evidence to assess the competitive impact.

[00:01:05] Speaker 04:
Let's look at the competitive impacts first.

[00:01:08] Speaker 04:
Usually FERC evaluates competitive harm following the DOJ guidelines by testing for market concentration.

[00:01:16] Speaker 04:
And here we know the market is already highly concentrated and re-pancaking rates will increase concentration beyond FERC's own thresholds.

[00:01:24] Speaker 04:
As the dissenting commissioner pointed out, the market concentration test suggested the municipal will have limited access to competitive supply during critical periods.

[00:01:34] Speaker 04:
FERC adopted a new test here.

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Will there be a sufficient number of competitive suppliers after rates are repancaked?

[00:01:42] Speaker 04:
Now FERC said it's considered three factors taken together to make this sufficient number of finding.

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Now under this court's precedent, if it finds any one of those factors deficient, it must remit.

[00:01:54] Speaker 04:
What are the factors?

[00:01:55] Speaker 04:
First, there was a few dozen suppliers that responded to energy agency solicitation when rates were still de-pancaked.

[00:02:03] Speaker 04:
As the dissenting commissioner pointed out, that just shows that de-pancaking achieved its purpose of promoting competition.

[00:02:10] Speaker 04:
The question that Burke asked is how many of these suppliers would have been competitive without de-pancaking, and on that, the record is silent.

[00:02:20] Speaker 01:
Sorry, can I just clarify?

[00:02:22] Speaker 01:
I thought it wasn't silent because in fact you had a number of power sources outside MISO that are obviously not affected by the deep-hand caking rule.

[00:02:33] Speaker 04:
Right.

[00:02:33] Speaker 04:
So FERC noted this 65% of energy agencies' powers coming from resources inside MISO.

[00:02:39] Speaker 04:
There's exactly three resources.

[00:02:41] Speaker 04:
It's not a large number.

[00:02:43] Speaker 04:
It's three resources.

[00:02:44] Speaker 04:
One is owned by Paducah.

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One is owned by the city of Paris.

[00:02:47] Speaker 04:
The other is a old unit, the Joppa unit, which is great.

[00:02:53] Speaker 04:
It was a fire sale deal because it was already set to expire this year.

[00:02:56] Speaker 04:
So when they purchased the output from that plant, they knew this was like a short-term gig that they could get.

[00:03:03] Speaker 04:
And that plant was going to go out of service very soon.

[00:03:06] Speaker 04:
So they took that fire sale deal.

[00:03:08] Speaker 04:
But that plan's going out of service imminently.

[00:03:10] Speaker 04:
So really, there was only three suppliers, two of which were their own, and one was this mothball plant.

[00:03:18] Speaker 04:
So that's all evidence there is of these three suppliers.

[00:03:21] Speaker 04:
And more importantly, even though 65% of energy agency power was coming from inside resources,

[00:03:31] Speaker 04:
Princeton and Paducah have 100% of their resources coming from ISO.

[00:03:35] Speaker 04:
Owensboro has 100% of its resources coming from ISO.

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And Berea and Benham, our former requirements customer, also have 100% of their power coming from ISO.

[00:03:46] Speaker 04:
So three is not sufficient.

[00:03:51] Speaker 01:
Did you argue that, all of those details, Tifer?

[00:03:55] Speaker 01:
In your original argument and at re-hearing?

[00:04:00] Speaker 04:
I believe so.

[00:04:01] Speaker 04:
I mean, I think, yeah, I can find those conditions for you, but on re-hearing, you pointed out why the 65% number wasn't relevant.

[00:04:11] Speaker 01:
I meant the one about the fireshell one that's going out of operation.

[00:04:16] Speaker 04:
Yeah, I think I recall a footnote, I'll find it for you on rebuttal, but I recall a footnote in our re-hearing brief that listed out the citations to the record of where those plans are.

[00:04:29] Speaker 03:
Can I take you back to what you said at the beginning with respect to section 203 and the public interest regulations?

[00:04:39] Speaker 03:
Commission interprets them to require them to consider only the public interest factor underlying the mitigation measure.

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In this case, horizontal competition.

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So that's the commission's interpretation of the statute to which we owe a deference and its own regulation to which we owe it even more deference.

[00:05:03] Speaker 03:
So what's your best argument for us disagreeing with the commission about that?

[00:05:11] Speaker 04:
So I think the plain text of the statute, the plain text of the regulation that articulates these factors disagrees with Burke's interpretation.

[00:05:19] Speaker 04:
But more importantly, Frouk's own precedent disagrees with that.

[00:05:23] Speaker 03:
Explain that, would you please?

[00:05:25] Speaker 04:
Sure.

[00:05:26] Speaker 04:
So if you look at the text of the regulation, this is 2.27.

[00:05:32] Speaker 03:
It says the commission will generally consider the following factors, right?

[00:05:38] Speaker 04:
In addition to others.

[00:05:40] Speaker 03:
It says general.

[00:05:41] Speaker 03:
It doesn't say it has to.

[00:05:44] Speaker 03:
It says it will generally consider these.

[00:05:46] Speaker 03:
If I say I will generally consider three things, it means I'll generally consider them, but I might not.

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The commission has said in circumstances like this, we're only going to consider the condition that led to the mitigating factor in the first place.

[00:06:00] Speaker 03:
I just don't, you know, we, you know, we, we, we give heavy deference to the commission in terms of interpreting its own regulations.

[00:06:11] Speaker 03:
So I haven't seen in your brief or heard from you yet what basis we have for second guessing that.

[00:06:20] Speaker 04:
So I would say first that this is in the contract the party is expected at the time they entered into the agreement the party is expected that FERC would follow what it always had followed that it considers these the relevant factors in the public interest.

[00:06:39] Speaker 04:
Now, this is the first time FERC has ever had a factor before it and not considered it.

[00:06:47] Speaker 04:
So all the cases FERC sites for its history of only considering the original mitigation factor were cases that didn't have protests or cases where the protests were addressing different issues.

[00:07:03] Speaker 04:
And in all of those cases, FERC addressed the issues that were raised before it.

[00:07:07] Speaker 04:
So I think FERC's refusal to address an issue that was raised before it is a real problem.

[00:07:15] Speaker 01:
Or it said it's a general, they've said we'll generally consider it and it was raised.

[00:07:20] Speaker 01:
We don't have to decide one or the other.

[00:07:21] Speaker 01:
It's you have those two combinations together.

[00:07:23] Speaker 01:
Should they have either addressed it or explained why not?

[00:07:28] Speaker 01:
Is that your position?

[00:07:29] Speaker 01:
You're saying that you argued it and that's the real problem.

[00:07:33] Speaker 01:
But you were saying before, and the regulation says we'll do it.

[00:07:36] Speaker 01:
I'm just asking why it's not the two of those things together.

[00:07:39] Speaker 01:
You don't have to take those apart.

[00:07:41] Speaker 04:
Yeah, I don't think you have to take them apart.

[00:07:42] Speaker 04:
I think it is both.

[00:07:48] Speaker 01:
Can I ask about your non-MISO purchase power agreements and that you wanted to have Japan caking for sort of the backup

[00:07:56] Speaker 01:
or economy, energy from within me.

[00:07:59] Speaker 01:
So how is that workable?

[00:08:03] Speaker 01:
How will they even know if you're

[00:08:07] Speaker 01:
obtaining energy from within MISO that it is backup or economy energy as opposed to simply extra contracts within MISO.

[00:08:15] Speaker 01:
I don't even understand how that's, how that's supposed, how that's administerable, your proposed position.

[00:08:20] Speaker 04:
That is, it could be difficult to administer, absent the fact that we've already reserved 100 megawatts of transmission.

[00:08:29] Speaker 04:
So

[00:08:30] Speaker 04:
The Energy Agency reserved that transmission.

[00:08:33] Speaker 01:
I'm talking about the backup power purchase.

[00:08:36] Speaker 04:
That's right.

[00:08:37] Speaker 01:
The transmission reservations are different than purchase power agreements, correct?

[00:08:41] Speaker 04:
Correct.

[00:08:41] Speaker 03:
And so... Can I just ask, are the backups, are they subject to existing contracts?

[00:08:49] Speaker 03:
You have those contracts, right?

[00:08:51] Speaker 04:
There are some contracts now.

[00:08:53] Speaker 04:
Some of it is market energy.

[00:08:56] Speaker 04:
Some of it is pursuant to option agreements.

[00:09:01] Speaker 04:
But the backup and economy energy agreements were not entered into before March 2019.

[00:09:07] Speaker 04:
So those backup agreements are not part of the transition mechanism.

[00:09:12] Speaker 04:
The question Judge Millett asked is how would you know if a particular transaction, a particular power purchased is for backup or economy energy?

[00:09:21] Speaker 04:
And I would say if it comes over this reservation that was made for that purpose, any power that comes over that transmission reservation we can presume is for backup and economy energy because that's why we purchased the reservation.

[00:09:36] Speaker 01:
So the reservation isn't going to be used for other power?

[00:09:39] Speaker 04:
So right now it's used.

[00:09:42] Speaker 01:
The transmission reservation now is only used for that?

[00:09:45] Speaker 01:
That doesn't seem like, that seems an odd of all this transmission.

[00:09:49] Speaker 01:
You have a lot of transmission power in reserve, transmission reservations there, and you're telling me the only things they would ever be used for is for backup or economy energy?

[00:10:04] Speaker 04:
Yes, I am saying that because there's another 100 megawatt reservation that is tied directly to a contract from Big Rivers.

[00:10:12] Speaker 04:
And similarly for Princeton and Paducah, they reserve these transmission, when they make a power purchase agreement, they reserve specific transmission for it.

[00:10:21] Speaker 04:
And when there's

[00:10:22] Speaker 04:
when they have economy energy, which is most of it on this particular 100 megawatt transmission, that's the reason it was entered into was for economy and purchases.

[00:10:35] Speaker 04:
And it's not that much.

[00:10:35] Speaker 01:
It still doesn't tell.

[00:10:36] Speaker 01:
I mean, how do they know?

[00:10:38] Speaker 01:
I mean, I get that that contract for economy energy, for example, is going to go over that transmission reservation, but it still doesn't

[00:10:49] Speaker 01:
And you're going to use that transmission authority to ability to get that energy to you, but that still doesn't police whether in fact that really was an economy energy that was a backup for your alternative energy as opposed to, Hey, we just want to get this energy into our system.

[00:11:05] Speaker 01:
That is, it's that policing.

[00:11:06] Speaker 01:
I'm still, I'm still not getting how it gets policed, right?

[00:11:10] Speaker 04:
Right.

[00:11:10] Speaker 04:
So the policing part of it, um,

[00:11:15] Speaker 04:
is, so if I were establishing the standard, I would say that it is presumed that anything coming over this particular pipe, there's other pipes too, new ones that are not part of the transition mechanism, that anything coming over this particular pipe is presumed to be for backup and economy energy for these resources.

[00:11:35] Speaker 01:
Does someone rebut that presumption?

[00:11:37] Speaker 01:
How would Louisville rebut that presumption?

[00:11:41] Speaker 04:
So when we Yeah, Louisville gas.

[00:11:44] Speaker 04:
Yeah, Louisville gas fine Louisville gas.

[00:11:49] Speaker 04:
There's, we're known as the tags, right, which record the sink and the source the origin origin and the destination of every power purchase.

[00:12:00] Speaker 04:
So every time power is brought over.

[00:12:02] Speaker 01:
I get that it's coming to you.

[00:12:03] Speaker 01:
That's all that seems.

[00:12:07] Speaker 01:
I'm sorry.

[00:12:08] Speaker 01:
I know this is my ignorance of the process, but okay.

[00:12:10] Speaker 01:
Yeah, you're getting it.

[00:12:11] Speaker 01:
You're getting over your transmission reservation.

[00:12:13] Speaker 01:
You're using your backup or economy energy contract for it.

[00:12:17] Speaker 01:
But it may be that you're outside MISO sources doing just great.

[00:12:22] Speaker 01:
You just wanted some extra energy because there's a heat wave.

[00:12:26] Speaker 01:
or for some other reason.

[00:12:29] Speaker 01:
I don't know how they can police that it's really being used as you just need more energy as opposed to it's your economy energy.

[00:12:35] Speaker 04:
Right.

[00:12:36] Speaker 04:
And so the tag that comes along with the import, it says what the source of the power is.

[00:12:44] Speaker 04:
So I think Lulugas could use that tag to police and rebut the presumption that power brought over this pipe is not for economy energy, or as Your Honour mentioned, they could look at the load, they could see that, you know, you're bringing power in, you're

[00:13:04] Speaker 04:
your diesel units are running and your Paducah unit is running and the sun is shining and you're still importing power, they might be able to rebut the presumption.

[00:13:15] Speaker 04:
So there's lots of ways they could rebut that presumption, I would say, if they were trying to police it.

[00:13:20] Speaker 04:
But there's also no reason to think that the energy agency would abuse this.

[00:13:25] Speaker 01:
And then the hydropower agreement that you have,

[00:13:32] Speaker 01:
Some parts of the record describe it as ownership.

[00:13:35] Speaker 01:
Others treat it as just a power purchase agreement.

[00:13:38] Speaker 01:
Is there an ownership interest in there?

[00:13:40] Speaker 01:
Investment or ownership interest of some sort for 50 years is an awfully long time.

[00:13:45] Speaker 04:
Yeah, it's the hydro contracts are

[00:13:52] Speaker 04:
My understanding is it's an ownership interest of a sort, but the plants are actually owned by American municipal power and Princeton and Paducah are participants in the project.

[00:14:05] Speaker 04:
And so the exact financing and like legal ownership, I'm not sure how that works exactly.

[00:14:11] Speaker 04:
And then the Princeton and Paducah are participants in this project, which is owned by American municipal power.

[00:14:16] Speaker 01:
Why was it reasonable for FERC to treat, it's effectively, and I'm just going to use a shorthand, I understand your qualifications, but effectively an ownership interest, getting power through an ownership interest, which involves so much more money and so much more potential use and control over process, the same as a plain old arm's length power purchase agreement.

[00:14:42] Speaker 01:
Can you tell me why it was reasonable and where in the record they explained why that would be reasonable?

[00:14:48] Speaker 04:
So it's reasonable because the ownership interest is actually is more of a reliance interest than a mere power purchase agreement.

[00:14:59] Speaker 04:
So if you're considering reliance interests.

[00:15:03] Speaker 04:
right, then the reliance interest in buying something and issuing bonds backed by your citizens is actually a really big interest.

[00:15:13] Speaker 04:
So that is, I think, the logic for why that should be the case.

[00:15:16] Speaker 04:
And I will say that if you look... The initial order, in the rehearing order, the 2020

[00:15:32] Speaker 04:
2019 Rehearsal or September 2019, FERC clarified that it wasn't that all long-term binding financial commitments do count.

[00:15:44] Speaker 04:
So FERC, the test that FERC established both in March 2019 and then in clarification in September was this principle of binding financial commitments that are long-term and ownership interest is exactly that.

[00:16:00] Speaker 04:
So that's the principle for established.

[00:16:02] Speaker 04:
Nobody contested that principle.

[00:16:04] Speaker 04:
The question is only the application of the principle.

[00:16:08] Speaker 01:
I just have, if you would bear with me, I have one last question.

[00:16:13] Speaker 01:
So it's applied to Prairie State, which is your own sort of generating, it's a source for generation of power.

[00:16:21] Speaker 01:
It's owned by you.

[00:16:26] Speaker 01:
What,

[00:16:27] Speaker 01:
Can the deep pancaking provision there be used not just to provide power to Princeton and Paducah, but if you also wanted to send that money through the same transmission system and then off to other Prairie State customers, the deep pancaking would apply just the same, I take it.

[00:16:49] Speaker 01:
The deep pancaking isn't limited to providing power to Princeton and Paducah.

[00:16:53] Speaker 01:
It would apply to the extent you're also using this to send power elsewhere.

[00:16:58] Speaker 04:
under the transition mechanism, that wouldn't be permitted, right?

[00:17:01] Speaker 04:
So the transition mechanism is clear that you are only allowed to use it to deliver power to the cities.

[00:17:08] Speaker 01:
For the city's use?

[00:17:10] Speaker 04:
Yes, for the city's use.

[00:17:11] Speaker 04:
And I think the bond provisions, because they're municipal bonds, I don't even think they're allowed to sell it to... I think under municipal bonds, you have to be using them for public purpose.

[00:17:21] Speaker 04:
But there's... Princeton and Paducah use this power, right?

[00:17:24] Speaker 04:
They match their load to the imports all the time.

[00:17:27] Speaker 04:
So it's not hard to.

[00:17:30] Speaker 01:
Do they use more Prairie State power than, I mean, does the investment interest in there allow you to obtain more power from Prairie than Princeton and Paducah need when it goes elsewhere?

[00:17:43] Speaker 01:
Or is that all the interests, all the ownership interest is limited to?

[00:17:48] Speaker 01:
Because it seems like it's producing a lot more power than these two little towns could ever use.

[00:17:53] Speaker 04:
Sure, but these two little towns are only a small portion of the ownership of the full unit, right?

[00:18:00] Speaker 04:
But the only power that's being imported into Kentucky from Prairie State is for Princeton and Paducah.

[00:18:06] Speaker 04:
None of the other cities in Kentucky have rights to it, and Princeton and Paducah wouldn't sell.

[00:18:11] Speaker 04:
There's no contract for Princeton and Paducah to sell that to any other Kentucky entity.

[00:18:15] Speaker 02:
Thank you.

[00:18:19] Speaker 02:
All right, Mr. Clement, we'll hear from you if you'd unmute yourself.

[00:18:24] Speaker 06:
Good morning, your honors, and may it please the court, Paul Clement for LG&E, and I also would endeavor to save two minutes for rebuttal.

[00:18:31] Speaker 06:
This case has its origins in a 1998 merger where FERC identified competitive concerns in one and only one market, the market for KU requirement customers.

[00:18:43] Speaker 06:
Princeton and Paducah were never in that market.

[00:18:46] Speaker 06:
They were TBA requirements customers in 1998.

[00:18:50] Speaker 06:
And as of early 2005, they informed TBA that they were withdrawing in favor of their investment in Prairie States.

[00:18:58] Speaker 06:
And that would thereafter serve their needs.

[00:19:00] Speaker 06:
By that point, LG&E had announced already its intent to withdraw from MISA.

[00:19:05] Speaker 06:
As part of that process in 2006, LGE agreed with both customers in the requirements markets and others potentially affected by LG&E's MISO withdrawal to a FERC approved schedule, schedule 402, that de-pancaked certain transmission charges.

[00:19:24] Speaker 06:
Nothing in that schedule promised that it would last in perpetuity or that contracts entered in reliance on it would be grandfathered.

[00:19:32] Speaker 06:
To the contrary, the schedule itself made clear that it could be revisited as market conditions changed, and change they did.

[00:19:42] Speaker 06:
Indeed, so much has changed in the ensuing 24 years that the concerns that motivated FERC in 1998 that a requirements market limited to a handful of players would lose one of those players are unrecognizable today.

[00:19:58] Speaker 06:
Today, FERC estimates that roughly 100 suppliers could compete in that same market.

[00:20:05] Speaker 06:
For that reason, FERC sensibly concluded that de-pancaking is no longer needed to mitigate market power concerns in the only market in which FERC ever identified any such concerns.

[00:20:18] Speaker 06:
Thus it bears emphasis that FERC concluded that no de-pancaking measures remain necessary for competitive concerns today, none.

[00:20:27] Speaker 06:
FERC did not find that such measures would be unnecessary in five years or unnecessary in 10 years or unnecessary in 35 years.

[00:20:35] Speaker 06:
They found they were unnecessary today.

[00:20:38] Speaker 06:
And so that leaves only the question of accounting for the reasonable reliance interests of those who have relied on the notion that the deep pancaking measures would continue in place.

[00:20:48] Speaker 06:
Given the massive changes in the market and the express provisions for modifying schedule 402, any reliance interests are somewhat questionable.

[00:20:58] Speaker 06:
But with respect to the just negotiated power purchase agreements with relatively short tails of two to seven years by those participating directly in the market, that was the focus of FERC's concerns, LG&E does not take issue with the modest grandfathering associated with those agreements.

[00:21:17] Speaker 06:
But extending the grandfathering to investment decisions made years earlier and lasting decades longer by parties who have never been in the requirements market is a fundamentally different matter.

[00:21:31] Speaker 06:
Princeton and Paducah have never participated in the market that was the sole concern for Burke's competitive concern.

[00:21:39] Speaker 01:
the facts, the fact of their reliance that FERC found or are you accepting that FERC found as a matter of fact they had relied and reasonably in its view and you're arguing some legal prohibitions that it was arbitrary and capricious for FERC to have made the call that it did.

[00:21:59] Speaker 06:
All of the above, Your Honor.

[00:22:02] Speaker 06:
I mean, we really had three sets of arguments when it came to Princeton and Paducah.

[00:22:08] Speaker 06:
One is that there was no reliance in fact.

[00:22:11] Speaker 06:
Two, that any reliance would have been unreasonable as a matter of law.

[00:22:15] Speaker 06:
And then third, that even if you accept those, that the grandfathering went on too long.

[00:22:22] Speaker 01:
Right.

[00:22:22] Speaker 01:
So as to your middle, I mean, facts are very hard to say there's not substantial evidence for on this record given

[00:22:29] Speaker 01:
I mean, I wanted to recite to you what FERC already said about that with respect to the Duke and Princeton and Prairie State.

[00:22:37] Speaker 01:
But as to, I'm talking about it.

[00:22:41] Speaker 06:
Because I do think that if you look carefully at what FERC did, we're not actually suggesting that they sort of got the facts wrong.

[00:22:51] Speaker 06:
What they said, we said they didn't rely on facts.

[00:22:53] Speaker 06:
And in response, we did that in our rehearing petition.

[00:22:56] Speaker 06:
And what FERC said in response was,

[00:22:59] Speaker 06:
they reasonably relied, you know, based on the 2000, in 2019, based on the schedule being in place.

[00:23:07] Speaker 06:
So we were making a factual argument.

[00:23:09] Speaker 06:
They didn't rely on fact.

[00:23:11] Speaker 06:
And the response we got was, well, it would have been reasonable.

[00:23:14] Speaker 01:
So- So they went on, they've said, they have said in their, in their decision that, look, after they, after deep hand-taking came in, that's when they sort of jumped in with both feet to this investment, just as a matter of fact.

[00:23:27] Speaker 01:
That's when they really jumped in.

[00:23:30] Speaker 01:
And so that showed factual reliance.

[00:23:35] Speaker 06:
With respect, Your Honor, I think that's what my friends, the municipal interveners have argued.

[00:23:40] Speaker 06:
I don't actually read FERC as finding that.

[00:23:43] Speaker 06:
And in all events, I think as a matter of fact, the facts are pretty clear that even before the deep pancaking schedule was issued,

[00:23:53] Speaker 06:
the folks at Princeton and Paducah had already committed irrevocably $800,000 as their initial investment and millions in dollars in additional ongoing payments.

[00:24:06] Speaker 01:
But they gave up after they did pancaking, they gave up an ability to sort of get out of the contract, right?

[00:24:12] Speaker 06:
They finalized it.

[00:24:13] Speaker 06:
They finalized after that.

[00:24:15] Speaker 01:
They gave up a right to get out of it, right?

[00:24:18] Speaker 06:
They did, Your Honor, but here's what's missing.

[00:24:21] Speaker 06:
There's no internal document at Princeton and Paducah that says in making this investment decision, we are relying on the fact that these deep pancakes will be in place and will last forever.

[00:24:35] Speaker 06:
And that's what's so unrealistic.

[00:24:37] Speaker 06:
And Your Honor's own questions sort of drew this distinction between the investment decisions and the ordinary purchase power purchase agreements.

[00:24:46] Speaker 06:
And I think part of the reason that those should be treated differently gets back to the questions of reliance, in fact, and reasonable reliance.

[00:24:56] Speaker 06:
Because with respect to the power purchase agreements, these are recently entered agreements, and they're going to be in place for two to seven years longer.

[00:25:05] Speaker 06:
The last one of those expires in 2029.

[00:25:08] Speaker 06:
So in the context of that agreement to say you're going to rely on the current regulatory environment, that seems reasonable.

[00:25:14] Speaker 06:
But when you're making an investment decision that's going to have a tail that lasts to 2057 in the case of the hydro plants or potentially even longer with respect to fairy states.

[00:25:26] Speaker 06:
The idea that you reasonably relied on the current regulatory climate remaining in place and that if FERC ever changed it, they would grandfather you.

[00:25:36] Speaker 06:
That's not a reasonable reliance.

[00:25:39] Speaker 01:
I mean, there's no reason the schedule- You seem to accept that it's a reasonable reliance for a certain period of time because you're not contesting grandfathering for, what is it?

[00:25:50] Speaker 01:
I think it up to 10 years, some of them on yours, or is it 10 or 20?

[00:25:54] Speaker 01:
I forget what the other ones are, but the power purchase agreements, you're not contesting that.

[00:25:58] Speaker 01:
as being reasonable.

[00:25:59] Speaker 06:
We're not contesting that, but there's two differences there.

[00:26:03] Speaker 06:
The longest one, the longest tail, is seven years, so 2029.

[00:26:07] Speaker 01:
I know, but you seem to be making a general argument that you can't reasonably rely on this regulatory scheme staying in place, and of course they can.

[00:26:17] Speaker 01:
Your argument is a time that it's not reasonable after a certain amount of time.

[00:26:22] Speaker 06:
Well, I guess what I'm saying is I think

[00:26:26] Speaker 06:
There is another difference between Princeton and Paducah and the other municipals for which they entered the power purchase agreements that we don't contest.

[00:26:37] Speaker 06:
And that is the other purchases were people who were always in the requirements market.

[00:26:43] Speaker 06:
And for those people, they may have had a different sort of reliance interest because it's relatively unusual for a merger mitigation agreement to be changed.

[00:26:54] Speaker 06:
It's possible.

[00:26:56] Speaker 06:
but that's more than an ordinary sort of rate.

[00:26:59] Speaker 06:
With respect to Princeton and Paducah, they were included in schedule 402, not because they were in the requirements market, but simply because they might've had a regulatory ability to protest the decision of LG&E to withdraw from the MISO in 2006.

[00:27:20] Speaker 06:
And that's different in character because there are plenty of FERC cases, including the Columbia gas case and the Northern pipeline case that we cite in our papers, where when you're talking about normal rates subject to revision under 205, that there are no reliance interests whatsoever.

[00:27:41] Speaker 06:
And that's different from

[00:27:43] Speaker 06:
the entities that were in the requirements market who were really the core people who would be subject to the 203 review.

[00:27:53] Speaker 06:
And so we draw at the outset, we have an argument that basically says for Princeton and Paducah, they had no reasonable reliance interests.

[00:28:02] Speaker 06:
And then we have our second argument, which is in all events, even if they had some reasonable reliance interests, because those were investment decisions with very long tails, the idea that they would have a reasonable reliance interest in the entirety of the tail is categorically different from the people who were in the requirements market and had much shorter tails.

[00:28:26] Speaker 06:
And so you create the situation where you have something of like a double irony here.

[00:28:31] Speaker 06:
the people who were furthest removed from the core concerns of the merger mitigation condition are the ones that are benefiting for the longest period of grandfather.

[00:28:44] Speaker 06:
And just to put this in clear terms, I will have my 91st birthday

[00:28:52] Speaker 06:
and Princeton and Paducah will still be enjoying grandfathering under the hydro plants.

[00:28:58] Speaker 06:
That's what it means to extend it all the way to 2057.

[00:29:00] Speaker 06:
So the idea that you're taking a rational condition on a 1998 merger and in 2019 FERC has determined that it no longer is necessary for market conditions at all today, no longer.

[00:29:17] Speaker 06:
And then you're gonna extend it to 2057

[00:29:20] Speaker 06:
That is not a rational balancing of kind of reliance concerns on the one hand and getting us back to a regulatory regime that makes sense on the other.

[00:29:30] Speaker 06:
That skews the balance entirely in favor of reliance interests.

[00:29:35] Speaker 06:
And of course, FERC itself recognized that in the context of Murray State.

[00:29:40] Speaker 01:
It didn't schedule 402.

[00:29:42] Speaker 01:
And I'm sorry, I can't find the spot right now.

[00:29:44] Speaker 01:
It didn't schedule 402, which was approved by FERC.

[00:29:49] Speaker 01:
Talk about, maybe it was the approval order.

[00:29:52] Speaker 01:
One of them talked about not just pre-existing requirements, but also protecting future, use the word future requirements customers.

[00:30:04] Speaker 06:
I don't know about that particular language where it is, Your Honor, but I mean, you gotta look at, you know, obviously the schedule as a whole.

[00:30:11] Speaker 06:
And one of the things that the schedule specifically does is it provides a mechanism for it being revised.

[00:30:20] Speaker 06:
And I suppose the parties could have built right in there the idea that, and when we revise it, all existing contracts will be grandfathered, but it doesn't say that either.

[00:30:30] Speaker 06:
So the idea that you're going to rely reasonably for 50 years in making an investment decision.

[00:30:37] Speaker 01:
I mean, about 50 years for some time period, right?

[00:30:40] Speaker 01:
We have to look at that, right?

[00:30:42] Speaker 01:
I mean, for Princeton and Paducah, you're saying no reliance at all, zero time period.

[00:30:50] Speaker 01:
Isn't that your position?

[00:30:51] Speaker 06:
I am.

[00:30:52] Speaker 06:
And the reason I'm saying that is because with respect to them,

[00:30:56] Speaker 06:
They're not in the market that FERC is concerned about.

[00:31:00] Speaker 06:
So they are in schedule 402.

[00:31:02] Speaker 06:
I don't wanna be misunderstood.

[00:31:03] Speaker 06:
They're in there, but they got in there for a different reason.

[00:31:07] Speaker 06:
They got in there because they had potential regulatory objections, not competitive objections to LGE withdrawing from the MISO in 2006.

[00:31:17] Speaker 06:
I mean, one way you can just sort of feel the difference is in 1998, Princeton and Paducah did not object to the merger.

[00:31:25] Speaker 06:
They had no business objecting to it because they weren't in the requirements market.

[00:31:29] Speaker 06:
In 2006, they have a regulatory objection to Princeton and rather LG&E withdrawing from the Mises.

[00:31:38] Speaker 06:
And that is part of what's resolved in schedule 402.

[00:31:43] Speaker 06:
But with respect to them, it's not any different.

[00:31:46] Speaker 01:
It's done against a statement that is essentially recognizing that FERC wants deep-hand caking now.

[00:31:55] Speaker 01:
It might change in the future at some point.

[00:32:00] Speaker 01:
You knew this was what you're going to have to do to get out of MISO.

[00:32:05] Speaker 01:
Sure.

[00:32:06] Speaker 01:
For some time period.

[00:32:07] Speaker 01:
I'm not saying that, but for some time period.

[00:32:10] Speaker 06:
It's already been way over a decade, which is the normal length of a lot of other merger mitigation conditions.

[00:32:15] Speaker 06:
And we're not asking to retroactively get our payments back.

[00:32:18] Speaker 01:
No, no, no.

[00:32:19] Speaker 01:
All right.

[00:32:20] Speaker 01:
I mean, they were in and covering them was something that your clients thought they were going to have to do to get FERC.

[00:32:27] Speaker 01:
The first request got rejected.

[00:32:29] Speaker 01:
You're going to have to do this to get approved to get this withdrawal from MISO.

[00:32:34] Speaker 01:
so many layers to this case, approved, was have this rate 405, 405.2, have this rate schedule, sorry, the schedule there, and it was including, it was gonna have to include these folks.

[00:32:50] Speaker 01:
Right.

[00:32:52] Speaker 01:
All right.

[00:32:52] Speaker 01:
And then so now the question is, when Congress, sorry, where my language is today, when the Commission said, when the Commission said, all right, now we're going to undo that, even the deep deep hand caking that we had in schedule 402, protecting the reliance interests of folks in schedule 402.

[00:33:14] Speaker 01:
I think that seems to be the easiest thing.

[00:33:16] Speaker 01:
Miso to 402 and 402 to deep pancake was protecting the interests of even those entities that were in schedule 402 that might not have been original merger.

[00:33:27] Speaker 01:
the original merger requirements folks that were being, sorry, not merger requirements, the original requirements customers that were being protected from the original merger.

[00:33:38] Speaker 01:
It went beyond that by schedule 402.

[00:33:41] Speaker 01:
And then the deep pancaking is protecting the same folks and the same interests that were protected by schedule 402.

[00:33:50] Speaker 01:
And so that leap from they weren't there at the time of the merger, they're not an original requirements customer, that's all FERC can look at, seems to ignore this evolution, which in the course of it, recognize a protection both for existing and future requirements customers.

[00:34:04] Speaker 06:
But let me try one more time, Your Honor, because what I'm saying is, yes, they were in 402.

[00:34:09] Speaker 06:
But the way to think about this, I think, is that with respect to the original requirements customers, they were in 402 because of concerns that trace back to the 1998 merger.

[00:34:21] Speaker 06:
On the other hand, Princeton and Paducah are in 402 because of concerns that are really limited to regulatory concerns about LG&E's withdrawal from Lisa.

[00:34:33] Speaker 06:
And the reason that that distinction is important is because there's plenty of precedent that says when it's an ordinary contractual tariff,

[00:34:45] Speaker 06:
you may have made as a party who's benefiting from that tariff, you may have made investment decisions, you've made purchase agreements, you may have made decisions based on that tariff being in place, and generally speaking, FERC doesn't care.

[00:34:58] Speaker 01:
Generally speaking- Right, but schedule 402 was not an ordinary contract, right?

[00:35:03] Speaker 01:
You can say it's not the same as the original contracts requirement, original requirements customers, and maybe they're somewhere in between, but they're not, this was not the same,

[00:35:15] Speaker 01:
as a plain old contract.

[00:35:18] Speaker 01:
And in fact, there's the line in there about we essentially, we think we got to do this because otherwise FERC isn't going to sign up because it's in a heavy deep hand taking mode right now.

[00:35:28] Speaker 01:
Obviously that's a paraphrase, but that language is in there.

[00:35:32] Speaker 01:
And so we have to wrestle with that.

[00:35:34] Speaker 06:
So with respect, your honor, I think that with respect to the Princeton and Paducah and the other transmission customers who were never in the requirements market, it is an ordinary contract.

[00:35:48] Speaker 06:
It's a contract that was entered in part because they had the ability to raise regulatory objections to our withdrawal.

[00:35:56] Speaker 06:
We had answers.

[00:35:57] Speaker 06:
Nobody knew how, you know, if we would win or they would win in a regulatory fight over that.

[00:36:02] Speaker 06:
So we agreed.

[00:36:03] Speaker 06:
between ourselves that we're gonna have a settlement here and we're gonna have this contract that we're gonna enter with FERC and FERC is gonna approve that actually the original version of it was just with these entities outside the requirements contract, didn't say anything about 203.

[00:36:22] Speaker 06:
And that was added only when these two things got sort of mushed together.

[00:36:27] Speaker 06:
I mean, one way of thinking about this, your honor, is schedule 402 really has sort of two groups in it.

[00:36:34] Speaker 06:
And with respect to the groups that are in it because of competitive concerns that date back to the 1998 merger, it's a pretty unusual animal and therefore we're more willing to accept

[00:36:48] Speaker 06:
a modest degree of grandfathering associated with these power purchase agreements with relatively short tails.

[00:36:55] Speaker 01:
Well, that's one way of looking at it.

[00:36:57] Speaker 01:
But another way is that, yes, they talked at the original time of merger agreement.

[00:37:02] Speaker 01:
They said, we are very concerned about existing requirements customers.

[00:37:08] Speaker 01:
But when FERC is worried about competition, it's not exclusively existing.

[00:37:15] Speaker 01:
competition.

[00:37:15] Speaker 01:
There's also forward-looking concerns about competition.

[00:37:19] Speaker 01:
It's just not in that moment.

[00:37:20] Speaker 01:
It's also forward-looking.

[00:37:21] Speaker 01:
And what Schedule 402 did, and when FERC signed off on it, and it's, I think, yeah, JA, sorry, 267 is where they use that word, future.

[00:37:32] Speaker 01:
They include within the people that are going to be subject to deep hand caking their future requirements customers.

[00:37:37] Speaker 01:
And so they made more explicit there what would have been

[00:37:41] Speaker 01:
I think had to have been part of their concern with the original merger agreement is not just protecting these exist list of existing requirements customers, but competition itself and its forward looking aspects.

[00:37:54] Speaker 01:
So future requirements customers.

[00:37:56] Speaker 01:
And that's what carried forward in Schedule 402.

[00:37:58] Speaker 01:
So that's just why, to me, it feels like Schedule 402 doesn't fall within your ordinary contract.

[00:38:03] Speaker 01:
There's a separate argument you have about how long.

[00:38:06] Speaker 01:
I get that, but I'm just trying to look narrowly at this.

[00:38:09] Speaker 01:
Do we treat them?

[00:38:10] Speaker 01:
How are they to be considered?

[00:38:12] Speaker 06:
But here's the thing, Your Honor.

[00:38:14] Speaker 06:
I mean, I may not be persuading you, but I want to take one last try at it, which is Princeton and Paducah were never in that requirements market.

[00:38:21] Speaker 06:
They are transmission customers.

[00:38:24] Speaker 06:
of ours.

[00:38:24] Speaker 06:
That's a different market.

[00:38:26] Speaker 06:
Burke looked at that market back in 1998, looked at all the different markets.

[00:38:30] Speaker 06:
He didn't have any concerns with that market back there.

[00:38:33] Speaker 06:
It's concern was the requirements market.

[00:38:37] Speaker 06:
And Prince Nifeduka had never been in that market.

[00:38:40] Speaker 06:
They were TVA customers at the time.

[00:38:42] Speaker 06:
So they were wholly removed from it.

[00:38:44] Speaker 06:
And then they made a decision in early 2005 to basically supply themselves with Prairie States.

[00:38:51] Speaker 06:
So their benefit from schedule 402 really is essentially collateral.

[00:39:00] Speaker 06:
This would be an easier case for me, I suppose.

[00:39:03] Speaker 06:
If what my clients did back in the day was have schedule 402, that was just for the requirements customer and schedule 403 or 402 prime, that was for these individuals.

[00:39:12] Speaker 06:
But there is a difference.

[00:39:14] Speaker 06:
They were in there for a different reason.

[00:39:16] Speaker 06:
And I think that informs their reliance interest.

[00:39:19] Speaker 06:
But if I can move to the second piece just very briefly, I'm over my time, obviously.

[00:39:23] Speaker 06:
But if you think you're right, I do have an argument about the length of the reliance.

[00:39:27] Speaker 06:
And I think even if somebody who was in the core requirements market was saying that they're entitled to a grandfather that extends to 2057 because it was an investment decision, I would be saying that's unreasonable.

[00:39:43] Speaker 06:
I mean, there aren't any of those.

[00:39:44] Speaker 01:
The people who were in the- If it weren't an investment decision, if it had actually, if it were just for some reason, a plain contract that went for 50 something years,

[00:39:57] Speaker 01:
Would your position be different?

[00:40:00] Speaker 06:
My bottom line position would be the same.

[00:40:01] Speaker 06:
My argument, I think, would be this much weaker.

[00:40:04] Speaker 06:
But I mean, I just think.

[00:40:05] Speaker 01:
Tell me how investment happens.

[00:40:07] Speaker 01:
When they say, look, whatever it is, we're only using it as to Princeton and Paducah, we're only using it for power, just like a plain old power purchase agreement.

[00:40:16] Speaker 01:
Why should we think about investments differently?

[00:40:19] Speaker 01:
Or where did FERC go wrong in treating investments the same as regular arm's length power purchase agreements?

[00:40:29] Speaker 06:
Well, I think ultimately the key is that, and this is why I'd be making roughly the same argument, even if it were a anomalous power purchase agreement with a 35 year tail.

[00:40:40] Speaker 06:
But I think investment decisions tend to have long tails.

[00:40:45] Speaker 06:
Purchase power agreements tend to have relatively shorter tails.

[00:40:49] Speaker 06:
So that's in the nature of them.

[00:40:50] Speaker 06:
And if you're an agency trying to figure out how do I manage reliance concerns?

[00:40:55] Speaker 06:
And should I give a grandfather?

[00:40:58] Speaker 06:
Should I give a partial grandfather?

[00:41:00] Speaker 06:
Should I give no grandfather?

[00:41:01] Speaker 06:
Even apart from their investment versus non-investment nature, to treat an agreement with a 50-year tail the same way as an agreement with a two-year tail.

[00:41:13] Speaker 06:
is inherently arbitrary and capricious on both of the factors they purport to be considered.

[00:41:18] Speaker 06:
They purport to be balancing reliance interests versus kind of getting us to the current market environment where we don't need these.

[00:41:27] Speaker 06:
And I think on the first prong, it's just not rational when you're making a 50 year time horizon investment to make the investment on the assumption that the regulatory climate isn't gonna change for 50 years.

[00:41:43] Speaker 06:
These are people in this industry.

[00:41:46] Speaker 06:
Anyone in this industry who's been alive for the last 22 years knows that things can change radically over a decade or two.

[00:41:54] Speaker 01:
Is there anything in the place in the record?

[00:41:56] Speaker 06:
Oh, go ahead.

[00:41:57] Speaker 06:
No, no.

[00:41:57] Speaker 06:
See, you can't just simply say.

[00:41:59] Speaker 01:
Is there a place in the record that says what the average length of a power purchase agreement is?

[00:42:04] Speaker 01:
Because I couldn't find it.

[00:42:06] Speaker 06:
I don't think that's in the record, Your Honor.

[00:42:07] Speaker 01:
It seems kind of relevant to this argument.

[00:42:10] Speaker 06:
I actually don't think it is because, I mean, you know, FERC's dealing with the situation it has in front of it.

[00:42:17] Speaker 06:
And it has, so even if there's a theoretical possibility for a power purchase agreement to last

[00:42:23] Speaker 06:
sort of 20 years or 25 years.

[00:42:25] Speaker 06:
If there were one of those here, we might've objected to grandfathering that one and not all the two to seven year ones.

[00:42:31] Speaker 06:
But that's not the record we have here.

[00:42:33] Speaker 06:
We have a record that has a bunch of short tailed power purchase agreements and some long or almost infinity tailed investment decisions.

[00:42:43] Speaker 06:
Nobody has suggested that that's a typical of power purchase agreements on the one hand or investment agreements.

[00:42:51] Speaker 01:
I think there is a 20 year

[00:42:53] Speaker 01:
contract in the record that was grandfathered.

[00:42:58] Speaker 01:
I thought I saw one, a reference to 20.

[00:43:00] Speaker 01:
I think that's the highest number I saw other than the hydro power plant.

[00:43:04] Speaker 06:
My understanding of the record, Your Honor, the longest one that is grandfathered putting aside the Princeton and Paducahs are to 2029.

[00:43:11] Speaker 06:
So that's only seven more years.

[00:43:15] Speaker 06:
So there's a huge difference between that

[00:43:17] Speaker 06:
I mean, there's not a huge difference between that and 10 years, which is kind of the compromise on prairie states, but then there is a huge difference between that and the hydro contract.

[00:43:30] Speaker 06:
If I could say one last thing about the 10 years on prairie states.

[00:43:33] Speaker 02:
If you'd wind it up, please.

[00:43:34] Speaker 06:
Sure.

[00:43:35] Speaker 06:
I would just say that to apply simply the 10 year standard that's used as an initial merger condition,

[00:43:41] Speaker 06:
to that investment contract without making an adjustment for the fact that this is not an initial merger mitigation condition, and FERC has already agreed that there's no need for these conditions, I think, as a market condition, is, I think, arbitrary and capricious.

[00:44:00] Speaker 06:
That's all I'll say on that.

[00:44:01] Speaker 06:
I appreciate the court's intelligence.

[00:44:04] Speaker 02:
All right, thank you.

[00:44:05] Speaker 02:
Mr. Ediger.

[00:44:08] Speaker 05:
Thank you and may please court thank you may please court I'm Scott Edgar for the Federal Energy Regulatory Commission and thank you for hearing the case today.

[00:44:16] Speaker 05:
Judge I want to go to some of your questions you mentioned the race schedule 402 and.

[00:44:23] Speaker 05:
It's in the record at J557.

[00:44:27] Speaker 05:
And I think you were alluding to this, and I just wanna highlight this fact that there is a provision, Ramanet 5, which talks about changes to the mitigation.

[00:44:41] Speaker 05:
And if you look at the definitions, two pages before that, the MMD parties are defined to include

[00:44:50] Speaker 05:
the TVA distributor group, which includes Paducah and Princeton.

[00:44:55] Speaker 05:
And several lines above that, this contract explains that the mitigation in this contract is intended to shield the requirements customers from any re-pancaking of rates

[00:45:14] Speaker 05:
but it also extends to the MMD parties, which as I just said, includes Princeton and Paducah.

[00:45:22] Speaker 05:
So reading- And any future- And any future requirements customers, but these three together, if we then turn to JA559, which talks about changes, that really reads the mitigation described in this section for Princeton and Paducah is intended to implement the section 203

[00:45:44] Speaker 01:
I'm sorry.

[00:45:45] Speaker 01:
I'm sorry.

[00:45:47] Speaker 01:
Can you make your point?

[00:45:54] Speaker 01:
I'm looking at the bottom of that page.

[00:46:02] Speaker 05:
Roman at five.

[00:46:08] Speaker 01:
Right.

[00:46:09] Speaker 01:
And it's intended to implement the merger agreement itself.

[00:46:11] Speaker 05:
Right.

[00:46:12] Speaker 05:
And that includes Princeton and Paducah explicitly through the definition of MMD party on JA557.

[00:46:23] Speaker 01:
So the Commission original merger decision

[00:46:31] Speaker 01:
at least confirming there, maybe what was it made so explicit in 98 that they were looking not just at the existing requirements customers, but also potential future customers?

[00:46:41] Speaker 05:
Right, I'd point your honor to the 2020 rehearing order, paragraph four, excuse me, paragraph 35.

[00:46:49] Speaker 05:
This is at JA 358, and the commission finds that it was

[00:46:53] Speaker 01:
Sorry, can you give me your site one more time?

[00:46:55] Speaker 01:
Yeah.

[00:46:56] Speaker 01:
You're very, you're very good at moving through these.

[00:47:00] Speaker 01:
No, you're, you're better than me.

[00:47:02] Speaker 01:
So I'm slow.

[00:47:02] Speaker 01:
What page again?

[00:47:04] Speaker 05:
Uh, 358.

[00:47:06] Speaker 05:
That's, um, did you say the 2020?

[00:47:11] Speaker 01:
Okay.

[00:47:12] Speaker 01:
I'm on the wrong 2020 order.

[00:47:14] Speaker 05:
The 2020 rehearing order.

[00:47:16] Speaker 01:
Got it.

[00:47:17] Speaker ?:
Okay.

[00:47:18] Speaker 05:
And this is where the commission explains that utilities have a fundamental understanding of what the transmission mechanism is intended to do.

[00:47:26] Speaker 05:
It's not whether they were in the market at the time of the merger, but whether they were in the market at the time of the March 2019 mitigation order and had relied.

[00:47:40] Speaker 05:
And I guess the point I'd like to make here, Your Honor, and this is going back to your question is,

[00:47:46] Speaker 05:
When the, when the commission conditioned the merger on membership and, and my so it wasn't just myself for the record, anyone who would have connected to the system would be able to enjoy whatever benefits flow from membership and myself.

[00:48:03] Speaker 05:
even if it wasn't exactly stated at that time, those benefits would have been available to anyone.

[00:48:10] Speaker 05:
And the utilities argument here seems to be, well, the commission could make a merger condition, but no one can rely on it.

[00:48:18] Speaker 05:
And I would just submit that that doesn't seem to be much of a mitigation at all.

[00:48:23] Speaker 01:
I take that point, but I also, to be fair to their point, at least one of their points, they have a lot of points, is

[00:48:32] Speaker 01:
We can't rely on it for five decades.

[00:48:36] Speaker 01:
And that does seem, and I get you say, well, we just looked at the contract and that's the term that it had, but it's because it had that long term.

[00:48:43] Speaker 01:
I'm assuming you're more expert than me explained how I'm wrong.

[00:48:47] Speaker 01:
I'm assuming it had that really long-term because it was an investment contract and not just a pure power purchase agreement.

[00:48:54] Speaker 01:
Is that right?

[00:48:55] Speaker 05:
I think that's right.

[00:48:57] Speaker 05:
And I think it's also, I don't think it's entirely fair to say it is such a long-term.

[00:49:02] Speaker 05:
The commission did impose a limitation here, a 10-year limitation on the Prairie State.

[00:49:09] Speaker 01:
I'm talking about the hydropower one that's 50, 57.

[00:49:12] Speaker 01:
I can't keep all these numbers.

[00:49:13] Speaker 05:
Yeah, it does go.

[00:49:15] Speaker 01:
And I'm assuming that's abnormally long for an arm's length power purchase agreement.

[00:49:20] Speaker 01:
And so that must've been,

[00:49:22] Speaker 01:
It was so long in part because they were investing as an ownership interest and that tends to run longer.

[00:49:27] Speaker 01:
It can run forever as long as the entity exists sometimes.

[00:49:33] Speaker 05:
What the commission was doing here, priority number one was to protect the reliance interest, whether it was done by through a contract, power purchase agreement, or if it was done through some sort of investment.

[00:49:44] Speaker 05:
an investment in a coal.

[00:49:46] Speaker 01:
Did FERC articulate somewhere, and I may have just missed it, exactly how they defined reliance interests, any type of economic reliance interests, or were these reliance interests tied to

[00:50:00] Speaker 01:
Merger concerns power purchase transmission accessing access to their transmission system or access to their power, do they define more carefully what the reliance interest is because that seems to be some of the issue here.

[00:50:13] Speaker 05:
I think it's the latter it was

[00:50:17] Speaker 05:
The commission said it called it reasonable reliance and rejected the argument.

[00:50:22] Speaker 01:
That doesn't tell me the scope of reliance, right?

[00:50:25] Speaker 01:
Because I wouldn't have gotten married if I know all these economic things were going to happen.

[00:50:30] Speaker 01:
And I wouldn't have the funds now that I thought I would have, because I have to spend it on pancaking fees instead of buying, you know, taking care of my new family.

[00:50:37] Speaker 01:
And surely FERC's not talking about that type of reliance interest.

[00:50:40] Speaker 01:
There has to be some boundaries to it.

[00:50:42] Speaker 05:
Well, I suppose that

[00:50:46] Speaker 05:
I think we can derive what the commission did.

[00:50:49] Speaker 05:
We can derive the answer from what the commission did.

[00:50:51] Speaker 05:
The commission looked at the timeline of what had gone on here.

[00:50:56] Speaker 05:
And in addition to that, looked at the filings by Princeton and Paducah in this case that stated that they had relied on both starting number one,

[00:51:08] Speaker 05:
with the mitigation contained in the merger order, membership and MISO.

[00:51:13] Speaker 05:
And number two, and it's where we started with this, with the rate schedule 402 itself, which utilities submitted to the commission with purpose of complying with the merger order.

[00:51:31] Speaker 05:
So in those dates, a couple of those dates I want to highlight, for your honor, is that, of course, the merger was in 1998.

[00:51:43] Speaker 05:
And the first agreement that Princeton and Paducah have is until 2005.

[00:51:51] Speaker 05:
I just want to emphasize that that was not necessarily a binding contract for their interest in prairie state and it's not until after rate schedule 402 became actually on file accepted by the commission in June.

[00:52:07] Speaker 05:
of 2007 when they filed a firm contract.

[00:52:11] Speaker 05:
And I think the commission was on firm ground in looking at that timeline and saying by June of 2007 that that was a reasonable reliance on the contract.

[00:52:22] Speaker 01:
Can I ask you about, I'm sorry, did you want to finish?

[00:52:25] Speaker 05:
No, thank you.

[00:52:27] Speaker 01:
The consideration of rates.

[00:52:29] Speaker 01:
Yes.

[00:52:30] Speaker 01:
So you have the commission actually in the original merger agreement in

[00:52:37] Speaker 01:
The 1998 decision has a whole section of the effect of the merger on rates.

[00:52:49] Speaker 01:
Now, there have been protections put in place already as part of the agreement.

[00:52:54] Speaker 01:
But FERC was looking at the effect on rates and concerned about that in particular as one of the things in particular at the time of the merger.

[00:53:08] Speaker 01:
It seems to me, and we know that effect on rates is, so it was looked at in 1998 as a concern with this merger, consistent with the regulation.

[00:53:21] Speaker 01:
I couldn't find a case where FERC is applying the public interest standard in this merger context.

[00:53:28] Speaker 01:
and its regulation applies.

[00:53:31] Speaker 01:
And where someone raised material evidence about a significant impact on rates and FERC refused to consider it.

[00:53:44] Speaker 01:
Can you tell me such a case?

[00:53:46] Speaker 05:
can't.

[00:53:48] Speaker 05:
But the commission stated here, there have been cases where rates have been discussed and those weren't an issue.

[00:53:59] Speaker 05:
And the commission clarified that in an order supplemental under subsection B of the statute, that you always look back to the reason the measure was there in the first instance.

[00:54:13] Speaker 05:
And it's a myth that that's a

[00:54:15] Speaker 05:
reasonable interpretation of the edit.

[00:54:17] Speaker 01:
So that was a change because prior to that, including in a prior case involving Louisville, in my shorthand Louisville, for all those Louisville and Kentucky utilities, they had just done it there.

[00:54:30] Speaker 01:
They did it in 2018 in Westar, and they did it in Memoramain looking at rates.

[00:54:37] Speaker 01:
The regulation said to do it.

[00:54:40] Speaker 01:
You had significant evidence here.

[00:54:42] Speaker 01:
Now FERC can have its analysis of it, but there's significant evidence propounded and a real concern about rates.

[00:54:48] Speaker 01:
I'm talking about longer term rates here.

[00:54:51] Speaker 01:
And FERC said, we're not going to look.

[00:54:54] Speaker 01:
Did it acknowledge that it was changing its position and address the reasonableness of that change other than saying we're just changing what we look at?

[00:55:04] Speaker 05:
Well, the commission explained its position to be sure.

[00:55:08] Speaker 05:
And I guess, number one, I would push back that this is a change.

[00:55:14] Speaker 05:
The commission didn't exactly agree with that.

[00:55:17] Speaker 05:
And while rates have been mentioned in some orders, I guess I would argue that was dicta.

[00:55:24] Speaker 05:
Those cases did not stand for the proposition that you had

[00:55:28] Speaker 01:
agencies and their analyses have to go like courts do and that is and they were they were raised they were they were addressing they thought it was a factor to it and they can say we would look at rates and here no one disputes there's a problem about rates but that says that rates are something we look at and here we agree with the parties it's not an issue that's still making rates relevant

[00:55:50] Speaker 01:
Right.

[00:55:52] Speaker 05:
I'm not sure that's right, Your Honor, I the commission didn't accept.

[00:55:57] Speaker 01:
We also don't know of a case that that says the converse that but you've got a regulation that says here's what public interest means in the merger context specifically.

[00:56:08] Speaker 01:
in 203 context, right?

[00:56:10] Speaker 01:
Here's what public interest means.

[00:56:12] Speaker 01:
And we're generally going to consider it.

[00:56:14] Speaker 01:
So you've got a regulation that says, this is what we expect we'll be doing.

[00:56:18] Speaker 01:
Maybe something will come up sometime and we won't, but this is our general rule.

[00:56:23] Speaker 01:
And then you have someone come in with very substantial evidence and they say, we're not going to do what our regulation says is our general rule.

[00:56:33] Speaker 01:
We're not, we're not going to do what we've done in other cases, which is address the prong.

[00:56:37] Speaker 01:
Maybe it's a quick check the box because it's not in dispute.

[00:56:40] Speaker 01:
We're just not even going to, we're cutting that prong out of the analysis.

[00:56:45] Speaker 01:
That's what they said here.

[00:56:46] Speaker 01:
We're cutting it out.

[00:56:48] Speaker 01:
And they're doing that in a case where they said, we're going to look what bothered us with the original merger.

[00:56:53] Speaker 01:
And one of the things that they addressed at the time of the original merger was rates.

[00:56:58] Speaker 01:
So those three things together leave me very confused as to why they weren't spending more time, why they sort of closed their eyes and said, we refuse to consider rates in this context.

[00:57:09] Speaker 05:
So as you say, Your Honor, the rates were discussed in the merger order.

[00:57:15] Speaker 05:
But there's no suggestion whatsoever that the issue here today has anything to do with that discussion.

[00:57:22] Speaker 05:
That discussion is in the record.

[00:57:29] Speaker 05:
But it has nothing to do with the negation here.

[00:57:34] Speaker 03:
Would you just mention the Louisville gas case and I didn't don't think I heard your response to her question about that case.

[00:57:43] Speaker 05:
The commission explained that to the extent that was inconsequential.

[00:57:49] Speaker 05:
It explained why the analysis here should harken back to the analytical framework set up by the merger order.

[00:57:58] Speaker 05:
And the commission explained that because the mitigation here only has to do with competitiveness prong.

[00:58:09] Speaker 05:
That's should be the sole consideration.

[00:58:12] Speaker 05:
The commission ended its discussion.

[00:58:14] Speaker 05:
I'm trying to find.

[00:58:18] Speaker 05:
This is it.

[00:58:19] Speaker 03:
You're talking about Louisville gas.

[00:58:23] Speaker 03:
Is that what you're.

[00:58:23] Speaker 05:
It ended its discussion by saying the Louisville case, and this is the 2011 case.

[00:58:31] Speaker 03:
Yes, 2011.

[00:58:33] Speaker 05:
To the extent that was inconsistent, then it clarified here that the right way to approach an order supplemental is to look back at the original order and to consider why the mitigation is there in the first place.

[00:58:46] Speaker 05:
and consider it that way.

[00:58:50] Speaker 05:
The discussion about rates in the merger order, there's no relationship between that discussion, those matters, and the mitigation.

[00:59:00] Speaker 01:
Well, it's because mitigation things were already in place for rates, right?

[00:59:04] Speaker 01:
It wasn't though that they said that doesn't matter.

[00:59:07] Speaker 01:
We only care about competition as an end in itself.

[00:59:11] Speaker 01:
Redress was already in place.

[00:59:16] Speaker 05:
That's right.

[00:59:17] Speaker 01:
So it considered it a relevant factor.

[00:59:20] Speaker 05:
Which is its general policy.

[00:59:22] Speaker 01:
At the original time of the merger.

[00:59:24] Speaker 05:
At the time of the merger.

[00:59:25] Speaker 05:
But this is a different animal.

[00:59:27] Speaker 05:
This is a different case that we're considering here.

[00:59:30] Speaker 01:
Where has FERC before said that competition is an end in itself?

[00:59:38] Speaker 01:
all by itself, as opposed to where I look elsewhere, when permission to me has said what public interest means.

[00:59:45] Speaker 01:
They want competition, but for a reason, to have plentiful supplies of electricity at reasonable prices.

[00:59:52] Speaker 01:
They've said time and again, it's the supply at reasonable prices.

[00:59:56] Speaker 01:
That's ultimately what the public interest

[00:59:59] Speaker 01:
is here and it sounds to me like what the commission did here was say you know we don't care about reasonable prices as long as there is competition as an end in itself and we aren't going to look at the long term it didn't we're not going to look at the long term and that seems to me just quite a sharp departure both from the regulatory tax and precedent and an unusual

[01:00:29] Speaker 01:
of what their job in the public interest at stake here is?

[01:00:35] Speaker 05:
Again, I think the answer to that is to look back at the framework that was set up by the merger order and that it set up the reason that the mitigation is here.

[01:00:50] Speaker 05:
reading these orders, there's no way to link the mitigation to other factors like the regulation and rates or any of the other matters under the statute.

[01:01:04] Speaker 01:
The other thing that kind of whipsawed me about the decision was you say we're only going to look at the original, what it defined then as the original merger concerns is this competition concern.

[01:01:20] Speaker 01:
But then it went on and put this whole transition mechanism that has nothing to do with that competition concern.

[01:01:30] Speaker 01:
Now, I assume the whole point of the transition mechanism was to serve the public interest, right?

[01:01:37] Speaker 01:
They deemed that to be in the public interest?

[01:01:40] Speaker 05:
Correct.

[01:01:40] Speaker 01:
So that seems to contradict the first half of their decision where it says the only public interests we're looking at at this stage

[01:01:49] Speaker 01:
was the merger, why we had the merger conditions that we had, the very original concern about requirements, customers.

[01:01:56] Speaker 01:
That's the only public interest.

[01:01:58] Speaker 01:
And then you turn the page and they've got

[01:02:02] Speaker 01:
It's not even listed in their regulation.

[01:02:04] Speaker 01:
They've got this whole conception of reliance interests as public interests that they're serving.

[01:02:11] Speaker 01:
And I understand why reliance interests could be part of the public interests that FERC gets to enforce.

[01:02:17] Speaker 01:
I don't think anyone has challenged that here at that level.

[01:02:21] Speaker 01:
But it seems that FERC has a very sharp break in its conception of the public interest in the middle of its decision.

[01:02:32] Speaker 01:
If it really only concerns competition, there'd be no protection for reliance interest.

[01:02:37] Speaker 01:
So it recognizes that it's protecting a bigger public interest, just not rates.

[01:02:41] Speaker 01:
How can that make sense?

[01:02:43] Speaker 05:
The commission of course does acknowledge that the change in what's happening here with the end of the de-pancaking that will go up that they will have to, they being the customers, will have to pay for MISO transmission, whereas they didn't before.

[01:03:02] Speaker 05:
And I don't think there's anything unusual in the commission looking at reliance in choosing a proper method to implement it.

[01:03:14] Speaker 05:
There wasn't a timeframe that was set before on the mitigation.

[01:03:17] Speaker 05:
And I think the commission here reasonably determined as part of its public interest analysis that an abrupt change customers would not be fair.

[01:03:28] Speaker 01:
I understand that I'm not disputing that at all.

[01:03:30] Speaker 01:
What I'm saying is that means that in the first part of the opinion for straight jacket in itself, the only public interest that's relevant

[01:03:41] Speaker 01:
at this Section 203 modification stage, not the original merger stage, but modification of order stage.

[01:03:48] Speaker 01:
The only public interest that's relevant is the one that animated FERC's imposition, not self-imposed, but FERC's imposition of merger

[01:03:59] Speaker 01:
conditions.

[01:04:00] Speaker 01:
That's all we look at.

[01:04:02] Speaker 01:
That's what I'm pointing out to you, that difference.

[01:04:05] Speaker 01:
When the next page, they said, actually, there's more public interest we're going to advance here.

[01:04:10] Speaker 01:
That's where, where do they say, we think it's fine to look at a general public interest, and explain that transition from where straight jacketed, there's only one public interest to, actually, we're going to look at a very broad public interest.

[01:04:28] Speaker 05:
I would just say, Your Honor, to that there are two separate questions.

[01:04:32] Speaker 01:
The first question is... What public interest they enforce for Section 203 modification requirements would seem to be one question.

[01:04:41] Speaker 01:
Define the public interest that you enforce.

[01:04:43] Speaker 01:
That's what they seem to be answering in the first one.

[01:04:45] Speaker 01:
Quite clearly and expressly, it is only the original merger conditions

[01:04:50] Speaker 01:
And since anything was inconsistent, we're clarifying.

[01:04:54] Speaker 01:
We are clarifying that this is all we look at.

[01:04:57] Speaker 01:
And turn the page and look at something totally different.

[01:05:01] Speaker 05:
Again, I think the way to read these orders is that the mitigation is not needed.

[01:05:07] Speaker 05:
to serve the original purpose to address the commission's original concerns about competition in the 1998 merger full stop.

[01:05:19] Speaker 05:
And then we get to the secondary question of how do we implement that?

[01:05:23] Speaker 05:
And in this case, the commission was confronted with an issue of reliance that folks had relied on these measures

[01:05:32] Speaker 05:
forward and implemented a and therefore based on that the commission recently implemented the transition mechanism.

[01:05:48] Speaker 03:
I see.

[01:05:50] Speaker 03:
Are you done with that line of questions?

[01:05:51] Speaker 03:
I am done.

[01:05:52] Speaker 03:
I'm done.

[01:05:52] Speaker 03:
I just have one question for you, Mr. Anger, regarding the transition agreement, the transition mechanism with respect to power agreements that use MISO for backup supply.

[01:06:08] Speaker 03:
At page 76 of your brief, you say

[01:06:12] Speaker 03:
quote, municipals do not explain how they could have relied on de-packing mitigation when they entered into contract for power, not originating in MISA.

[01:06:24] Speaker 03:
That's what you say, page 76.

[01:06:27] Speaker 03:
But the petitioners give an example of just that in their blue brief, the Ashwood Solar Facility.

[01:06:38] Speaker 03:
They give that as an example of exactly where that happened.

[01:06:41] Speaker 03:
What's your response to that?

[01:06:44] Speaker 05:
Well, Ashwood is not in MISO.

[01:06:50] Speaker 05:
It is not in MISO, and it does not rely on MISO facilities.

[01:06:59] Speaker 05:
and where the commission had to make judgment calls in this case.

[01:07:05] Speaker 03:
And one of them was that- I thought they said that it does rely on backup supply from NYSERC, no?

[01:07:11] Speaker 05:
Well, that's the question, Your Honor.

[01:07:14] Speaker 05:
And to my knowledge, there isn't a power purchase contract that we could tie to the Ashwood in the utilities.

[01:07:26] Speaker 05:
If there were, that would be something that could be, if it had been in a place on the date of the March 2019 order, it could be covered.

[01:07:37] Speaker 05:
But my understanding is there is not an actual power purchase agreement for backup power.

[01:07:49] Speaker 01:
And as for- Do they have a transmission reservation for that?

[01:07:53] Speaker 01:
They might, Ashwin?

[01:07:57] Speaker 01:
Why wouldn't that be reasonable reliance as well?

[01:07:59] Speaker 01:
It's just, it's another aspect of this contract, of this power purchase arrangement.

[01:08:09] Speaker 05:
But it's not.

[01:08:10] Speaker 05:
They could have a contract that the commission would have some more certainty in defining the transition mechanism.

[01:08:21] Speaker 05:
But to my knowledge, there isn't a contract.

[01:08:25] Speaker 05:
That would be reliance if the municipals had a contract that they could point to that they actually signed

[01:08:35] Speaker 05:
and it might be better evidence of reliance in this case.

[01:08:40] Speaker 01:
I thought for transmission service reservations that there were contracts and FERC refused to consider those and treat them the same as car purchase agreements even though they are sort of they're part of the package that someone used it sets up

[01:08:57] Speaker 01:
Yes, it's too complicated a world just to have a contract with one person to give me your stuff.

[01:09:02] Speaker 01:
They purchase these as part of that very arrangement and yet for refuse to consider them.

[01:09:10] Speaker 05:
The commission did include transmission service.

[01:09:15] Speaker 05:
reservations, but only to the extent of the underlying contract.

[01:09:20] Speaker 01:
Right, but there is a real contract there that was made in reliance on this deep-handcaked system, and it's a mechanism for them getting power, and Congress sort of, what I could say in this commission, makes it very powerful, you know, cut them off sort of midstream or partway through.

[01:09:37] Speaker 01:
You only get half the contract, even though it was a contract, they say, made in reliance under the very conception of reliance for complying here.

[01:09:45] Speaker 05:
But they are covered to the extent that there's an actual power purchase agreement.

[01:09:50] Speaker 01:
I understand that, but the contract isn't covered in full.

[01:09:54] Speaker 05:
The reservation isn't.

[01:09:57] Speaker 05:
Sorry?

[01:09:58] Speaker 05:
The reservation isn't covered in full.

[01:10:00] Speaker 01:
Yes.

[01:10:01] Speaker 01:
That is true.

[01:10:03] Speaker 01:
Sorry, just to be crystal clear, there's a power arrangement and there's a transmission service reservation, which I should think is its own contract.

[01:10:11] Speaker 01:
Is that not right?

[01:10:13] Speaker 05:
I think that's right, yes.

[01:10:14] Speaker 01:
It's own contract with its own term.

[01:10:16] Speaker 05:
Right.

[01:10:18] Speaker 01:
So what I'm trying to get, and I'm sorry if I'm not being clear, and I get you're saying we'll give you 50, 60%, whatever part overlaps with this separate power purchase agreement.

[01:10:27] Speaker 01:
But that, so I'm trying to, why does it get treated as sort of a hybrid like that instead of just recognized as a full-fledged contract entered into reliance, and it's part of how they're gonna get power,

[01:10:40] Speaker 01:
at this time of this deep hand-picking system.

[01:10:44] Speaker 01:
Why is it not reliance for the full, I'm sorry, just to be clear, because I know you're confused and we've kept you up for a while.

[01:10:50] Speaker 01:
Why is that not reliance, the same type of reliance at Congress for the full term of the transmission reservation contract?

[01:10:59] Speaker 01:
Why is that not protected reliance?

[01:11:07] Speaker 05:
Because what the commission is trying to do here is

[01:11:10] Speaker 05:
is to be sensitive to the actual power purchase agreements and arrangements that the customers have done here.

[01:11:20] Speaker 05:
And I guess my answer to your honor's question is that just doesn't fall into that category.

[01:11:25] Speaker 05:
It's not.

[01:11:27] Speaker 05:
Because if the customers really needed that reservation, there would be evidence of that, there would be an underlying agreement.

[01:11:36] Speaker 05:
There would be some sort of power purchase agreement underlying it.

[01:11:40] Speaker 05:
and hear.

[01:11:42] Speaker 01:
Well, it's not like they're going to stop getting power.

[01:11:44] Speaker 01:
I don't know what, I don't know what, because I'm confused about first rationale or its definition.

[01:11:49] Speaker 01:
I've remained confused throughout this as to how they're defining what reliance counts and what doesn't.

[01:11:57] Speaker 01:
And they thought these weren't entered in good faith.

[01:12:01] Speaker 05:
I don't want to say that.

[01:12:02] Speaker 05:
I would just refer your honor to the

[01:12:07] Speaker 05:
Sure I refer your honor to the to the commission on this and they address this in the 2019 rejection order and they said that the the transmission service reservations are are not as by themselves should be protected.

[01:12:24] Speaker 05:
And they could be used for future power purchase arrangements, which would just even further perpetuate the mitigation that the commission had determined in the first place.

[01:12:37] Speaker 01:
So the concern was, so we got, I've got my contract say for 10 years, five of us going to overlap with an existing power purchase agreement that I can point to.

[01:12:48] Speaker 01:
And so the concern was,

[01:12:51] Speaker 01:
whatever the other five years of the transmission contract I have are going to be used for some future contract that's not supposed to be protected by this sort of final

[01:13:07] Speaker 01:
deep hand-taking protections, reliance protections, because of the timing, right?

[01:13:12] Speaker 01:
Because there wasn't a contract at the time of the first decision.

[01:13:15] Speaker 05:
I think that's right, Your Honor.

[01:13:16] Speaker 05:
I think that's right, Your Honor.

[01:13:17] Speaker 05:
And the commission's theory here is to return to a market that's no longer being skewed by the deep-taking arrangement.

[01:13:27] Speaker 02:
Thank you.

[01:13:28] Speaker 02:
That's all.

[01:13:28] Speaker 02:
Thank you.

[01:13:30] Speaker 02:
All right.

[01:13:30] Speaker 02:
Mr. Nuwani, you can take two minutes.

[01:13:32] Speaker 02:
And I wish you would, in future,

[01:13:34] Speaker 02:
not shake or nod your head.

[01:13:36] Speaker 02:
It is distracting and it's also improper.

[01:13:41] Speaker 04:
Sorry, Your Honor.

[01:13:44] Speaker 04:
I'd like to address a few things.

[01:13:48] Speaker 04:
Just turning first to Mr. Editor.

[01:13:52] Speaker 04:
I'm to be honest confused about whether FERC is now saying they made a change to its policy on ignoring late impacts, or whether this is just consistent with previous policy.

[01:14:03] Speaker 04:
Because if it is a change, which it sounds like it is now, then FERC needs to explain that change, FERC hasn't.

[01:14:12] Speaker 04:
So I think if you look at FERC's past practice, there's always considered all developing public perspectives.

[01:14:23] Speaker 04:
saying they're not going to do that anymore.

[01:14:26] Speaker 04:
That is a change to pass back to some forecast to explain it for chasm.

[01:14:30] Speaker 04:
Mr. Clement talked about, he said if his clients had established rate schedule 403, then if this case would be different, they in fact did establish rate schedule 403 and rate schedule 404 for the Illinois and the Indiana municipalities, right?

[01:14:50] Speaker 04:
they gave deep hand caking to lots of entities.

[01:14:54] Speaker 04:
In fact, they, so as, as the even ratio 402 points out, it applies to future requirements customers too.

[01:15:05] Speaker 04:
So the fact that the Louisville Gas combined the requirements customers plus Owensboro plus the Princeton and Paducah

[01:15:18] Speaker 04:
into the same agreement and left Illinois and Indiana to other agreements, actually just confirms that Louisville Gas understood they had to provide deep pancaking to everybody, both existing and future customers to protect against deep pancaking.

[01:15:37] Speaker 04:
And finally, I want to clarify two things.

[01:15:40] Speaker 04:
Your honor, I said we did, Judge Millett, I said we did

[01:15:46] Speaker 04:
the details of the Joppa plant.

[01:15:50] Speaker 04:
That's at JA 1026, 1026 is where we explain that to FERC in our.

[01:15:57] Speaker 01:
Is that your re-hearing request?

[01:16:00] Speaker 04:
That is the re-hearing request.

[01:16:03] Speaker 04:
Let's put note 47 on that page.

[01:16:10] Speaker 04:
And I just want to clarify, when I talked about this, the 100 megawatt reservation, which is in fact a commitment, 38 megawatts of that is reserved for Benham and Berea until their existing power supply contracts end in 24.

[01:16:25] Speaker 04:
It's the remaining 62 that is not protected under the transition agreement that is used currently for backup and economy energy.

[01:16:35] Speaker 04:
And to respond to Mr. Edgar's point about whether that's

[01:16:39] Speaker 04:
there's evidence that we are using it.

[01:16:41] Speaker 04:
A contract was entered after March, 2019 for economy energy that uses that pipe.

[01:16:49] Speaker 04:
But the important thing is that second purchase was only possible because we had the transmission reservation already.

[01:16:56] Speaker 04:
It's the transmission reservation itself that is proof we were relying on.

[01:17:00] Speaker 01:
You agree that new contract wouldn't be covered, right?

[01:17:03] Speaker 01:
Don't you agree that new contract wouldn't be one that would be subject to

[01:17:10] Speaker 01:
The the prior is the the schedule for to other prior systems, it was post.

[01:17:15] Speaker 01:
So then why should the transmission part of that arrangement be covered.

[01:17:21] Speaker 04:
Because the transmission arrangement was made before March 2019.

[01:17:23] Speaker 01:
I know, but it wasn't paired up with any actual power agreement.

[01:17:27] Speaker 01:
So who knows.

[01:17:28] Speaker 01:
I mean, they're the whole rationale is we got to come back somewhere and

[01:17:32] Speaker 01:
transmission by itself without power, a power agreement tied to power purchase tied to it is sort of just inchoate ability to get power.

[01:17:43] Speaker 01:
I know why they do it.

[01:17:44] Speaker 01:
It makes perfect business sense, I'm sure, but it's not what they're protecting.

[01:17:48] Speaker 01:
You have to have, I guess they want to say you have to have both halves to be protected.

[01:17:52] Speaker 01:
What's unreal, I get, I get they're made with some reliance here.

[01:17:55] Speaker 01:
What's unreasonable about them drawing the reliance line at that point?

[01:18:00] Speaker 04:
Because it doesn't achieve the goal that they articulated, which is to protect the financial commitments we made in advance.

[01:18:07] Speaker 01:
I guess they can never define reliance very well.

[01:18:11] Speaker 04:
And quickly, one last point.

[01:18:13] Speaker 04:
On the length of power purchase agreements, the Ashwood Solar power purchase agreement is for 20 years.

[01:18:19] Speaker 04:
And I did pull up the contract, it's not on the record, but the contract with the hydro units is actually called a power sales contract between American municipal power and Princeton and Paducah.

[01:18:31] Speaker 04:
It is, I think the reason we call it, it's sort of referred to as an ownership interest is because there was an upfront payment, but it has a fixed term.

[01:18:38] Speaker 04:
So if the project lasts beyond 36 years, Princeton and Paducah have no rights to it.

[01:18:43] Speaker 04:
So it is a power purchase agreement for 36 years, but it's a big upfront payment.

[01:18:48] Speaker 04:
and it's called the powder sales contract.

[01:18:51] Speaker 02:
All right, Mr. Clement, why don't you take two minutes?

[01:18:55] Speaker 06:
Thank you, your honor.

[01:18:56] Speaker 06:
Just a few points in rebuttal.

[01:18:57] Speaker 06:
Just to clarify, it may be that Ashford had a 20 year term, but of course that's not a grandfather contract because that doesn't get benefit from de-pancaking ever.

[01:19:06] Speaker 06:
So of the power purchase agreements that are issued here, the longest one does run till 2029.

[01:19:12] Speaker 06:
It's obviously just a horse of a completely different color to extend this thing to 2057 as to the hydros.

[01:19:19] Speaker 06:
And maybe this was just loose language, but my friend from FERC,

[01:19:22] Speaker 06:
talked about, used the phrase, protecting reliance is priority number one.

[01:19:28] Speaker 06:
With all due respect, that's not even what they said.

[01:19:30] Speaker 06:
They said they were balancing the interest in protecting reliance interests with moving on to the current market that no longer needs the pancaking.

[01:19:41] Speaker 06:
And so I think maybe it was priority number one in extending this to 2057, but that's not making a reasonable balance of competing interests.

[01:19:49] Speaker 06:
That's sort of extending sort of reliance to the utmost.

[01:19:53] Speaker 06:
And I don't think they did that in other places.

[01:19:56] Speaker 06:
I think this transmission reservation that was discussed is a good example of that.

[01:20:00] Speaker 06:
With respect to the transmission capacity reservation that's not associated with particular contracts, FERC reasonably said that could be used with new contracts.

[01:20:10] Speaker 06:
And we want to get out of the de-pancaking business in this market.

[01:20:14] Speaker 06:
And so we're going to reasonably cut it off there.

[01:20:16] Speaker 06:
I think they needed to make a similar judgment with respect to these hydro projects.

[01:20:21] Speaker 01:
with respect to prairie states they specifically said I wasn't a reasonable just to say we're going to look at the term of the contract, there was an internet entered into at the time of deep pancake, and the term of the hydropower one was there was a 57 or 60 or something like that.

[01:20:39] Speaker 01:
That's the term and we're not going to put these things apart and analyze whether there was some quasi investment angle to it or not.

[01:20:49] Speaker 01:
That would be a hard thing for them to dive into as well, wouldn't it?

[01:20:52] Speaker 06:
I don't think so, Your Honor, and I guess what I would say is it's not really balancing reliance interest against moving forward to just identify the outer perimeter of a reliance interest.

[01:21:04] Speaker 06:
I mean, to say you entered in the contract and it lasted 2057, that doesn't actually identify reasonable reliance.

[01:21:10] Speaker 06:
It identifies the outer universe of reliance.

[01:21:13] Speaker 06:
And I think part of the reason that's not reasonable when it goes that far is because nobody reasonably thinks the regulatory environment's not gonna change for 50 years, for five years, for seven years.

[01:21:24] Speaker 01:
I think that's- I think you said your client, it's not in the records, but I take it your client did not put in information before FERC about what the average length of arms length power purchase agreements are.

[01:21:36] Speaker 01:
So how do I know?

[01:21:40] Speaker 01:
I mean, I just, I hear you.

[01:21:42] Speaker 01:
To me, it sounds like a long period of time, but how do I know that that's not sort of a reasonable length for a power purchase agreement?

[01:21:50] Speaker 01:
And that's what they said they were going to protect.

[01:21:51] Speaker 01:
And they get a lot of difference.

[01:21:53] Speaker 06:
Well, I think as evidenced by the way they treated the hydro plants, they actually ended up saying, we're gonna protect any agreement, whether it's power purchase or investment, no matter how long it lasts.

[01:22:04] Speaker 06:
And we didn't put in evidence as to the average length of either set because- They didn't say any agreements.

[01:22:10] Speaker 01:
We know that with the transmission service reservations, they didn't do any agreement that was entered before the date of the agreement in 2019.

[01:22:20] Speaker 01:
They just wanted, if it's a power,

[01:22:23] Speaker 01:
Hard, not hard written down.

[01:22:26] Speaker 01:
We can read it.

[01:22:27] Speaker 01:
Power purchase agreement.

[01:22:28] Speaker 01:
I don't know that that's not average.

[01:22:30] Speaker 01:
I understand your arguments and it certainly feels like a long time, but I don't have any evidence that tells me that's not average.

[01:22:37] Speaker 06:
Well, it's not normal.

[01:22:39] Speaker 06:
Two points around it with I don't mean to quibble, but with respect even to the transmission reservation, they protected the contract for the life of the contract.

[01:22:46] Speaker 06:
They just cut it essentially in half, but they did recognize the basic principle that if you entered a contract, we're going to honor it.

[01:22:53] Speaker 06:
Our point, which doesn't depend on average lengths is that there is a radical difference between saying you reasonably relied that the regulatory climate wouldn't change for 50 years versus five or seven and that happens to correspond.

[01:23:08] Speaker 06:
to the length of investments versus the length of power purchase agreements.

[01:23:11] Speaker 06:
It corresponds perfectly on this record.

[01:23:13] Speaker 06:
And if there were a unusual power purchase agreement that lasted until 2057, I would still be telling you it's not reasonable to treat that the same as a contract with a two or a seven-year tail.

[01:23:25] Speaker 06:
The last point, if I just could, is on this idea that I think FERC explained exactly what they were doing here with respect to this merger condition and what they did is entirely reasonable.

[01:23:36] Speaker 06:
If you have a merger mitigation condition that is designed to address one of the three factors they considered in 1998 and then you are deciding whether it's.

[01:23:46] Speaker 06:
necessary or still appropriate, of course you consider the original merger condition that it was designed to address, and you don't reopen the whole kettle of fish.

[01:23:58] Speaker 06:
So yes, back in 1998, they were concerned about rates.

[01:24:01] Speaker 06:
They put in conditions like LG&E shouldn't raise its transmission rates for five years, which would have expired in 2003,

[01:24:10] Speaker 06:
You can't use just reopening the one thing that goes to competition to reopen the whole kettle of fish and go back and reimpose rate restrictions or the rest.

[01:24:19] Speaker 06:
And it's particularly true here because in order to address a market related concern, we agreed to something that artificially lowered rates.

[01:24:28] Speaker 06:
So removing that, of course, is going to increase rates by that amount.

[01:24:32] Speaker 06:
And that's irrelevant to what this was in there for in the first instance.

[01:24:36] Speaker 06:
So with all due respect, I think Burke handled this exactly right.

[01:24:39] Speaker 06:
Thank you, Your Honors.

[01:24:41] Speaker 02:
All right.

[01:24:42] Speaker 02:
Thank you, gentlemen.

[01:24:43] Speaker 02:
Madam Clerk, if you would please close court.