[00:00:05] Speaker 03:
Good morning, counsel.

[00:00:16] Speaker 03:
Mr. Morrissey, please proceed when you're ready.

[00:00:28] Speaker 05:
Good morning, and may it please the court, Brian Morrissey for Petitioner Citadel FNGE.

[00:00:33] Speaker 05:
The commission in this case made a highly irregular and arbitrary change to a market rule, revoking it at just one location on the electric grid, Northern Neck, while keeping it in place everywhere else in PJM's 13th state territory.

[00:00:48] Speaker 05:
PJM claimed, and the commission appears to agree, that this extraordinary change was necessary to spare consumers from paying unjust and unreasonably high electric rates.

[00:00:58] Speaker 05:
But none of PJM's evidence established that consumers were impacted at all.

[00:01:03] Speaker 05:
And it certainly did not attempt to establish how much actual rates increased.

[00:01:08] Speaker 05:
More fundamentally, the little evidence that the commission did consider was severely out of date.

[00:01:13] Speaker 05:
This rule applies only when transmission lines are congested.

[00:01:17] Speaker 05:
But all of the evidence the commission considered occurred before an important upgrade to a transmission line at Northern Neck that significantly diminished congestion there.

[00:01:27] Speaker 05:
The Commission acknowledged this, yet remarkably refused to consider any new evidence of the rates actually paid after that upgrade.

[00:01:36] Speaker 05:
In sum, this is not a case about consumers or any actual congestion that was occurring at the time the Commission ruled.

[00:01:44] Speaker 05:
Instead, the only clear result of the commission's decision is to pick winners and losers among the more sophisticated participants in PJM's market for financial transmission rights, a form of insurance for congestion that spares PJM's members from paying the costs of a default if PJM is met.

[00:02:03] Speaker 04:
I think FERC uses the term ratepayers when it's talking about costs, and that certainly could include individual consumers in their houses who flip the light switch on and on.

[00:02:14] Speaker 04:
Do you think that term could also include other entities, could be broader than just individual consumers?

[00:02:21] Speaker 05:
Well, I think, Your Honor, the commission made a finding that scarcity pricing at this location increased rates.

[00:02:27] Speaker 05:
And it was talking about both the wholesale rate and the retail rate.

[00:02:31] Speaker 05:
And so in the initial order, it talks about rate payers.

[00:02:34] Speaker 05:
But in the hearing order, it explicitly talks about consumers on page 362, where it holds that scarcity pricing is increasing the zonal rate.

[00:02:44] Speaker 05:
And that reference is a reference to the retail rate, because the zonal price is the price that consumers in the Dominion Zone pay.

[00:02:51] Speaker 04:
So, and I found pretty persuasive that if something's going to be divided by 1,400, it's going to start to get pretty small and maybe de minimis.

[00:03:05] Speaker 04:
But if that's the case, then how could a scarcity rate ever affect demand?

[00:03:12] Speaker 04:
Because the point I think of a scarcity rate is to increase supply, provide an incentive for more supply because the supplier will make more money.

[00:03:22] Speaker 04:
And then also decrease demand by, I guess, raising rates on people who pay for electricity.

[00:03:31] Speaker 04:
But if whatever it is is going to be divided by 1400 and that becomes de minimis, then it seems like it's never going to have an effect on the demand side.

[00:03:41] Speaker 05:
All right.

[00:03:41] Speaker 05:
Well, your honor, I think it's important to think about that the foundation on which this case arises, that the commission has already held that that premium, that increase in prices that you just talked about is just unreasonable throughout PJR.

[00:03:54] Speaker 05:
And so the question is whether or not the commission could make an exception only at Northern Net.

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

[00:04:00] Speaker 04:
I get the issue in this case.

[00:04:01] Speaker 04:
I'm just trying to take a step back and figure out how could the scarcity rate ever affect the demand side if

[00:04:10] Speaker 04:
its effect for individual consumers is going to be de minimis.

[00:04:16] Speaker 05:
Well, I think even in this case, the commission hasn't even established an impact on consumers as a class.

[00:04:22] Speaker 05:
There's no evidence in this record about whether or not scarcity pricing

[00:04:27] Speaker 05:
impacted the wholesale rate or the retail rate at all.

[00:04:31] Speaker 05:
And the finding that the commission made, the reason it said that this market rule was unjust and unreasonable, it said that it's increasing rates.

[00:04:39] Speaker 05:
And that's not established.

[00:04:40] Speaker 04:
We would- Sorry.

[00:04:43] Speaker 04:
You kind of had me at hello on that part.

[00:04:46] Speaker 04:
And I'll try one more time, though.

[00:04:48] Speaker 04:
I'm just trying to figure out, maybe even before the year 2022, back in 2018 or 2019,

[00:04:55] Speaker 04:
If the cost increase for individuals is always going to be so dispersed that it looks pretty de minimis.

[00:05:05] Speaker 04:
And you say here, well, FERC didn't show an increase.

[00:05:07] Speaker 04:
Got it.

[00:05:08] Speaker 04:
And you say, and it probably is really, really small because it's being divided by 1400.

[00:05:12] Speaker 04:
I got that too.

[00:05:13] Speaker 04:
Then it seems like it's never going to have an effect on the demand side.

[00:05:17] Speaker 04:
The scarcity rate is never going to have an effect on the demand side.

[00:05:19] Speaker 05:
Your honor, I certainly think there's no evidence in this record suggesting that it could, for two reasons.

[00:05:23] Speaker 05:
You mentioned the dilution by 1400, and then separately when PJM came to the commission and asked for the scarcity rate tariff six years ago, it submitted a price study that said the overall impact of these increases in times of congestion would be negligible on the market.

[00:05:40] Speaker 05:
So yes, we don't believe there's anything in this record.

[00:05:42] Speaker 04:
And so then I guess, what's the point?

[00:05:47] Speaker 04:
If it's not going to have an effect on the demand side, what's the point?

[00:05:50] Speaker 05:
Well, the point is that it does still stimulate potential increases in supply among the suppliers and utilities that provide service to rate payers.

[00:06:02] Speaker 05:
And I think there's two reasons why the consumers are insulated by that.

[00:06:06] Speaker 05:
So there's still a price effect on utilities.

[00:06:09] Speaker 05:
There's still a price effect on the firms that purchase financial transmission rights, which are a form of insurance against the congestion.

[00:06:16] Speaker 05:
But the consumers are insulated first by the zonal rate, which you referred to, and second by the fact that their utility can purchase a financial transmission rate that hedges those costs rather than passing them on to the consumers.

[00:06:28] Speaker 05:
So when there's congestion, someone pays.

[00:06:30] Speaker 05:
In this case, Hill Energy, the firm that was invested at Northern Neck, suffered losses.

[00:06:34] Speaker 05:
But there's no evidence in this record that that moves downstream to the consumer.

[00:06:39] Speaker 03:
Do you think as a matter of law that it's never possible

[00:06:46] Speaker 03:
to make a determination like FERC did based not on the ultimate effect on an individual consumer, but on something that's a level up.

[00:06:58] Speaker 03:
Or do you think the problem here is the way that they explain, the particular way that they explained it pointed to consumer rates in your view.

[00:07:05] Speaker 03:
And then that particular aspect of it wasn't backed up.

[00:07:09] Speaker 05:
So your honor, I think we're not suggesting that in every just and reasonable case, the commission needs to quantify the particular impact on an individual consumer.

[00:07:18] Speaker 05:
But the evidence in this case doesn't establish even impact on consumers as a class.

[00:07:24] Speaker 05:
But do you think that's necessary every time?

[00:07:27] Speaker 03:
in fact, consumers as a class yet isn't it just rates.

[00:07:31] Speaker 03:
Don't we always just kind of assume that rates filter down in some measure.

[00:07:35] Speaker 03:
They do.

[00:07:37] Speaker 05:
You're absolutely I think for purposes of 206 and 205 the commission's obligation to is to assess the rate.

[00:07:43] Speaker 05:
But the commission did make a specific finding here in the initial order and rehearing that

[00:07:48] Speaker 05:
this pricing was affecting consumers.

[00:07:50] Speaker 05:
And we think that finding is not supported by substantial evidence in the record, but we're not suggesting that the court needs to create a rule that in every case a particular amount of consumer evidence is necessary.

[00:08:01] Speaker 03:
So if the, even, I'll just assume for purposes of argument that the way you've characterized it is right, then can the commission just do the exact same thing but then pin it on wholesale rates and then everybody's fine?

[00:08:18] Speaker 03:
And I'm sorry, when you say pin it on wholesale rates.

[00:08:20] Speaker 03:
Just say that the effect is that there is an effect on rates one level up without a commensurate benefit.

[00:08:29] Speaker 03:
And that's the rationale for not applying the scarcity rate.

[00:08:33] Speaker 05:
Well, Your Honor, this record doesn't substantiate that because the evidence that the commission had was out of date even for wholesale rates.

[00:08:40] Speaker 05:
But we had that intervening line upgrade.

[00:08:43] Speaker 05:
And so the only evidence before the commission at the time of the hearing order was

[00:08:47] Speaker 05:
There had been no congestion at all.

[00:08:49] Speaker 05:
So no impact even on wholesale rates at all for 10 weeks.

[00:08:53] Speaker 05:
But no guarantee that congestion might not reoccur on a high peak day.

[00:08:59] Speaker 05:
And our position is that that statement characterizes virtually every.

[00:09:02] Speaker 05:
location on the grid.

[00:09:03] Speaker 05:
There's never any guarantee and that's never been the standard that the commission has expected from scarcity pricing anywhere else in PJM's market.

[00:09:12] Speaker 05:
The purpose of scarcity pricing is to identify and help to mitigate congestion, but the standard has never been under the orders approving scarcity pricing to begin with that the commission needs a guarantee that there'll be no congestion at that location.

[00:09:28] Speaker 03:
That's your second rationale, right?

[00:09:29] Speaker 03:
I mean you started out by saying that you have two explanations and that

[00:09:33] Speaker 03:
That's on the second one.

[00:09:36] Speaker 03:
Is that right?

[00:09:37] Speaker 03:
You're talking about the improvements that were made?

[00:09:40] Speaker 03:
Correct.

[00:09:41] Speaker 05:
Yes, right.

[00:09:42] Speaker 05:
The rate evidence was out of date because of the improvements and then even before the improvements it's incomplete because it doesn't show the wholesale rate or the retail rate that was paid.

[00:09:53] Speaker 05:
So we don't think this record even shows how much the wholesale rate went up based on scarcity pricing.

[00:10:00] Speaker 03:
And to have done that, Your Honor, I think... But it just has to, doesn't it?

[00:10:04] Speaker 03:
I mean, the whole point of a scarcity price is to affect the

[00:10:10] Speaker 03:
It is to stimulate this kind of change, isn't it?

[00:10:14] Speaker 05:
Well, I think directionally, the commission inferred that fluctuations in one element necessarily would increase the wholesale rate, but the commission didn't quantify how much.

[00:10:23] Speaker 05:
And that matters because the commission has said that in its brief to the court on footnote nine that a small increase is not, per se, unjust and unreasonable.

[00:10:31] Speaker 05:
So for the commission to say there's an increase here and it's increasing to an unjust and unreasonable level, whether that's a wholesale rate or retail rate,

[00:10:39] Speaker 05:
we submit that the commission would have had to calculate how much and it hasn't here either before the line upgrade and certainly after where there's no evidence of what the conditions were at northern neck after the upgrade.

[00:10:51] Speaker 00:
Can I just clarify, do you dispute that in fact there would have been an impact on wholesale rates that they would have increased

[00:11:04] Speaker 00:
But your concern is that they didn't quantify.

[00:11:07] Speaker 00:
Or do you actually dispute that by this commission treated as dramatic effect on a factor that makes up one third of the wholesale rate?

[00:11:19] Speaker 00:
Do you dispute that there was any effect on wholesale rates?

[00:11:23] Speaker 05:
So I think it's it's fair for the commission to infer as a theoretical matter that an increase in one element necessarily is going to increase the wholesale rate.

[00:11:31] Speaker 05:
But the commission hasn't explained at all how much and we have about the quantification of it.

[00:11:36] Speaker 00:
We don't dispute that.

[00:11:37] Speaker 00:
In fact, this would have had an impact on the wholesale rate.

[00:11:40] Speaker 05:
It would have before the upgrade, right, so the commission had the two charts, but after the upgrade, we submit there's no evidence of even impacts on wholesale.

[00:11:46] Speaker 00:
But before the upgrade, you're not disputing that.

[00:11:48] Speaker 05:
We're not disputing that theoretically, you can infer it.

[00:11:52] Speaker 00:
Well, beyond theoretically, I mean, there's three components, right?

[00:11:56] Speaker 00:
There's the scarcity factor, transmission losses, and the cost of generating electricity.

[00:12:01] Speaker 00:
Does the record reveal, or did you submit as part of your showing any evidence that the transmission loss factor

[00:12:09] Speaker 00:
or the cost of generating electricity had gone down such that there would have been an offset of the increase by the scarcity factor component.

[00:12:22] Speaker 05:
There is none of that evidence in the record.

[00:12:24] Speaker 05:
PJM carries the burden since this is a 206 proceeding and PJM possesses that data.

[00:12:31] Speaker 05:
Identified that gap in the record to the Commission both at the initial order in the hearing order stage and there's none of that evidence in the record So we know fluctuations in one element, but we don't know what the bottom line wholesale rate Make sure my colleagues have additional questions to you.

[00:12:48] Speaker 03:
We'll give you a little time for rebuttal We'll hear from the Commission now Mr. Lover

[00:13:08] Speaker 06:
Good morning.

[00:13:09] Speaker 06:
May it please the court.

[00:13:10] Speaker 06:
I'm Matthew Glover and I represent the Commission.

[00:13:12] Speaker 06:
I think Judge Mott, I'll start with what you were just asking my friend about.

[00:13:16] Speaker 06:
So there are three components to the rate.

[00:13:18] Speaker 06:
And what we know and what the record shows is that the congestion when the four combustion turbines, I believe they're natural gas turbines,

[00:13:25] Speaker 06:
on Northern Neck were being used was about $300 an hour.

[00:13:27] Speaker 06:
So you're adding that to the market rate, and then there's transmission losses.

[00:13:32] Speaker 06:
When the penalty factor hits, that congestion price goes from $300 to $2,000.

[00:13:38] Speaker 06:
So it goes up by $1,700.

[00:13:40] Speaker 06:
But you're still adding that to what the market rate would be.

[00:13:43] Speaker 06:
And so if the next minute or next five minute increment, there's no congestion at all, you go back to the market rate plus or minus

[00:13:50] Speaker 06:
losses and I guess the losses go by zone I don't want to get too technical but so we know that what this one component is going up and it's going up from zero to 300 and then to 2000 when when that hits and that's what that graph is kind of showing you know generally in a market where there's no congestion right the market clearing price is the the last unit that is called upon and if there was no congestion because they're controlling the constraint but they are calling upon that

[00:14:16] Speaker 06:
those four combustion turbines, then the market rate is $300.

[00:14:20] Speaker 06:
But the market rate is never above $300 if you're calling on those in a manner of congestion, if they're producing the congestion price.

[00:14:27] Speaker 06:
So we know that this one component is significantly going up.

[00:14:29] Speaker 06:
Judge Srinivasan, I think in your call with my friend, you pointed out that we can assume that the wholesale rate is going up because this one component is going up.

[00:14:37] Speaker 06:
It's going up in a fairly large manner.

[00:14:40] Speaker 00:
But I think stepping back- Well, do there need to be evidence that the other factors weren't for some reason?

[00:14:45] Speaker 00:
the transmission costs and the generation costs were stable or going down?

[00:14:52] Speaker 00:
Because I know it's a big step up to 2,000.

[00:14:58] Speaker 00:
But in theory, if you have three components, one goes up but another one goes way down, you can't just assume, can you, that there's gonna be an effect on the wholesale rate?

[00:15:10] Speaker 06:
No, but the fact that there's congestion here is being added to what the market rate is.

[00:15:15] Speaker 06:
And so the fact that they're turning those combustion turbines on when those combustion turbines are being called upon and it's congestion.

[00:15:22] Speaker 06:
They might be on when what's called the constraints controlled or I'll say sort of the congestion is controlled.

[00:15:27] Speaker 06:
They're being called upon, but maybe they're setting the market price at that point.

[00:15:30] Speaker 06:
You add the congestion factor to that market price.

[00:15:33] Speaker 06:
So if the congestion

[00:15:36] Speaker 06:
price is going up by 1700, that's on top of the market price.

[00:15:41] Speaker 06:
And the market price can't be higher than whatever the last resource that's already being called upon.

[00:15:48] Speaker 06:
And so if the last resource being called upon throughout the region is $2,000 a megawatt hour, well, first of all,

[00:15:54] Speaker 06:
Again, not to get too technical, but part of what the penalty constraint does is it stops the PJM algorithm from looking for solutions above 2000.

[00:16:01] Speaker 06:
But so, you know, if the last resource being called upon is above 2000, then you're likely not having congestion if you are having prices at 2000 unless there's truly a transmission constraint.

[00:16:12] Speaker 06:
But so it would be very irregular, I guess, and you wouldn't be able to ever have those combustion turbines set the congestion price if the market price is always above their $300.

[00:16:22] Speaker 06:
It's in the $300 to $350 range, I think.

[00:16:24] Speaker 06:
Does that make sense or am I getting too technical and obscuring?

[00:16:30] Speaker 00:
I was told there'd be no math in this.

[00:16:33] Speaker 00:
And so what I'm trying is the market, are you saying that the market price is already, the market price is already reflecting the transmission losses and the cost of generation.

[00:16:42] Speaker 00:
And so if we know we're piling on top of that with the penalty factor, then we know it's having an effect.

[00:16:48] Speaker 06:
If I can step back, because again, this is my own position in trying to kind of use non-technical words.

[00:16:53] Speaker 06:
The market price being sort of at the locational marginal, the locational marginal price, the node price, the price at northern neck is the market price in PJM, or at least in the dominion zone, plus cost of congestion, plus or minus the transmission losses, right?

[00:17:09] Speaker 06:
And so you know that you're adding congestion to whatever that market price is.

[00:17:13] Speaker 06:
So, if the market price is going down, you're still adding congestion on top of that market price, it's still being reflected in.

[00:17:19] Speaker 06:
There wouldn't be a reason, if these four combustion turbines come online, and there's still congestion, and so you're still, and then they're $300, you're still hitting the penalty factor at $2,000, right?

[00:17:31] Speaker 06:
You wouldn't see that the market price was like 2000 and the combustion turbines were coming online as congestion results.

[00:17:41] Speaker 06:
They would just be online because they're market participants that are under a market price of 2000, right?

[00:17:46] Speaker 06:
And then when the penalty factor hits, you'd be adding it on top of whatever the market price is.

[00:17:51] Speaker 06:
So I don't mean to get hyper technical.

[00:17:55] Speaker 00:
You are doing your job and offering explanation.

[00:17:58] Speaker 00:
I appreciate it.

[00:17:59] Speaker 00:
I appreciate it.

[00:17:59] Speaker 06:
Think sort of stepping back that there's a secondary point and it's maybe clearest in the hearing order.

[00:18:07] Speaker 06:
Page, or paragraph 15 at JA 359, we talked about that the application of the penalty factor, quote, was not accomplishing its intended purpose because it was creating anomalous price signals that are not warranted or actionable and therefore not

[00:18:23] Speaker 06:
accomplishing the purpose and intent of the factor.

[00:18:26] Speaker 06:
It is quoting the initial order, paragraph 60, which is JA 310.

[00:18:29] Speaker 06:
It's cited in our brief at page 22 and at page 41.

[00:18:33] Speaker 06:
We didn't say that as sort of a platonic matter of rates, this penalty factor is unjustly high or something.

[00:18:40] Speaker 06:
What we said is it's not serving its purpose.

[00:18:42] Speaker 06:
And as a result, it's raising rates without doing what it's intending to do and providing a commensurate benefit.

[00:18:48] Speaker 04:
And so the way you just phrased that, I think,

[00:18:52] Speaker 04:
To me is going to maybe just decide the case in my mind.

[00:18:59] Speaker 04:
The benefit.

[00:19:01] Speaker 04:
Is it a reduction in congestion?

[00:19:04] Speaker 04:
Is that the intended benefit?

[00:19:07] Speaker 04:
Or is it a complete elimination of all congestion?

[00:19:11] Speaker 06:
I'm not in his time, right?

[00:19:14] Speaker 04:
You can answer the question.

[00:19:17] Speaker 04:
I have a lot more if the chief will let me.

[00:19:19] Speaker 06:
The statement that it's providing a cost without a commensurate benefit is that it's not serving its purpose.

[00:19:26] Speaker 06:
So can I step back and kind of walk through that?

[00:19:28] Speaker 06:
Absolutely.

[00:19:29] Speaker 06:
It's just I don't want you to think I'm avoiding the word benefit.

[00:19:31] Speaker 06:
I used the word benefit 20 times in our brief.

[00:19:33] Speaker 06:
They hammered us for it in the reply brief.

[00:19:35] Speaker 06:
The orders actually only use it five times.

[00:19:37] Speaker 06:
The orders use purpose 11 times.

[00:19:39] Speaker 06:
I only use purpose 41 times in our brief.

[00:19:41] Speaker 06:
So, you know, I wish they had sort of focused on my point, and if there's error, maybe I obscured it, maybe.

[00:19:48] Speaker 06:
But the purpose of the penalty factor in the short term is to incent generation or demand response, which is a reduction in generation, right?

[00:19:56] Speaker 06:
And in the long term, it's to incentivize investment if there's a long-term problem with, you know, improving transmission or adding generation.

[00:20:04] Speaker 06:
So here, the cause of the congestion is that the long-term purpose is being served.

[00:20:10] Speaker 06:
If I can give kind of an example, if you imagine the northern next of peninsula, and there's three bridges, and we're talking about traffic, and there's not normally traffic there, but one bridge is bigger than the others, and they are going to sort of reconstruct that bridge to make it even bigger.

[00:20:23] Speaker 06:
And when they take that bridge out of service, suddenly there's traffic on the other two lanes, and so you start charging the toll, the toll keeps going up.

[00:20:29] Speaker 06:
But long term, someone isn't going to look at those high tolls and say, gee, I should build a fourth bridge because there's only traffic because the third bridge is out of service.

[00:20:39] Speaker 06:
So that's the long term purpose.

[00:20:40] Speaker 06:
We said that any price, and again, the purpose is to send price signals.

[00:20:44] Speaker 06:
Those are what the price signals are trying to get at.

[00:20:46] Speaker 06:
We said the price signal as to the long term and the short term, but we said four times to the long term, I think only twice to the short term.

[00:20:52] Speaker 06:
It's unwarranted, unnecessary.

[00:20:54] Speaker 06:
There's a few other words that we used.

[00:20:56] Speaker 06:
So we said here this is a unique scenario where it's never going to be sending a long-term price signal.

[00:21:01] Speaker 06:
The short-term price signal it sent

[00:21:04] Speaker 06:
PJM, and I think it's Dominion on Northern Neck, they fired up their four combustion turbines.

[00:21:08] Speaker 06:
They brought those online.

[00:21:09] Speaker 06:
Someone offered a tenth.

[00:21:11] Speaker 06:
I'm in the red light.

[00:21:12] Speaker 06:
I have quite a bit more to this example, so just cut me off when you want me to sit down.

[00:21:16] Speaker 06:
That one-tenth of a megawatt of offered demand response, that's part of what we're trying to incent in the short term, but the evidence showed that even with the

[00:21:25] Speaker 06:
Combustion turbines on and that short term or that demand response being offered the price the penalty factor was still applying PJM said that there's no additional demand.

[00:21:36] Speaker 06:
This is sort of a geographically I mean, it's fairly close to here.

[00:21:40] Speaker 06:
So it's not

[00:21:41] Speaker 06:
isolated in the sense of like Alaska or something, but it's geographically isolated from the power lines.

[00:21:46] Speaker 06:
And there isn't generation on there.

[00:21:48] Speaker 06:
If someone, you know, there's a thing called the power ship, which could be natural gas or nuclear ship that likes power.

[00:21:53] Speaker 06:
Someone pulled the power ship up and hooked it up there.

[00:21:55] Speaker 06:
Maybe there'd be new generation.

[00:21:56] Speaker 06:
There's no evidence in the record that was available.

[00:21:58] Speaker 06:
The evidence was there's no more generation.

[00:22:01] Speaker 06:
Before the commission, Citadel had said, yes, there is.

[00:22:03] Speaker 06:
Look at all these charts.

[00:22:04] Speaker 06:
TJM responded saying those are all in the queue and are going to take years and years.

[00:22:08] Speaker 06:
So the short-term price signal generation or demand response, with that online we were still seeing the penalty factor hit frequently.

[00:22:17] Speaker 06:
We felt that it was unjust and unreasonable.

[00:22:19] Speaker 06:
It was not serving its purpose because it wasn't controlling the constraint.

[00:22:22] Speaker 06:
It couldn't incent more generation.

[00:22:24] Speaker 06:
It couldn't incent more demand response.

[00:22:26] Speaker 06:
And so, you know, we said in this unique scenario it wasn't going to apply.

[00:22:32] Speaker 06:
I think you have another question, but I was about to touch on Harmony Village, which may be your next question, but please.

[00:22:37] Speaker 04:
Well, don't forget what you were gonna say, I'd rather hear it, but this may inform what you're gonna say.

[00:22:44] Speaker 04:
I still am trying to figure out if the purpose of the rate is to completely, is to incentive, put the demand thing aside for a second, okay?

[00:22:55] Speaker 04:
Let's just look at the supply.

[00:22:56] Speaker 04:
Is the purpose of the scarcity rate to incentivize so much supply that there is no congestion?

[00:23:06] Speaker 04:
Or is the purpose a bit more modest?

[00:23:11] Speaker 04:
Is the purpose of the scarcity rate to incentivize more supply so that there is less congestion?

[00:23:19] Speaker 06:
It is to incentivize more supplies so that there's less congestion, but we knew from the record, and again, their initial filing, their protest said, no, no, more supply could come online.

[00:23:29] Speaker 06:
PJM responded that there's a couple of trucks, I can't remember where, where PJM went through each specific resource and why it couldn't come online.

[00:23:36] Speaker 06:
So we accepted PJM's record evidence and we agreed with them that there was no possible future additional supply in the two-year window, which has been slightly extended for

[00:23:45] Speaker 06:
You know, construction isn't always on time.

[00:23:47] Speaker 06:
They stop the construction.

[00:23:48] Speaker 04:
So then my follow-up question is what you anticipated, which is if the purpose of the scarcity rate is to incentivize more supply so that there is less congestion, didn't the Harmony Village upgrade do that?

[00:24:05] Speaker 06:
No, the Harmony Village upgrade, it was reconductoring, which is a reliability upgrade to the existing transmission lines.

[00:24:12] Speaker 06:
See, this is an argument that they might have made to the commission.

[00:24:14] Speaker 06:
They didn't.

[00:24:15] Speaker 06:
So obviously, they can't make it here.

[00:24:16] Speaker 06:
But they might have said, when you say that the purpose of the penalty factor is to, in the short term, I'm just talking short term because that's, is to incent generation to come online or demand response,

[00:24:29] Speaker 06:
You're missing one.

[00:24:30] Speaker 06:
The third purpose is to incentivize reliability projects that up the conductoring and allow you sort of at peak slightly better transmission lines.

[00:24:38] Speaker 04:
If the delivery of supply is more reliable, it seems to me like that's an increase in the delivery of supply.

[00:24:49] Speaker 06:
But it's not incenting generation.

[00:24:50] Speaker 06:
So we were talking about incenting generation or demand.

[00:24:53] Speaker 06:
I know you don't want to talk about demand.

[00:24:55] Speaker 06:
I'm sorry.

[00:24:55] Speaker 06:
So I'll stop going there.

[00:24:56] Speaker 06:
Incenting generation, right?

[00:24:58] Speaker 06:
That's a reliability project that they undertook.

[00:25:01] Speaker 06:
They undertook it in reaction because they recognize there's a problem going on here.

[00:25:04] Speaker 06:
Our long-term solution is causing all this congestion.

[00:25:07] Speaker 06:
Let's see what we can do in terms of improving the

[00:25:10] Speaker 04:
It's not like they're making them bigger or something, but they're allowing them to get closer to their... If I agree with you that on the supply side, all we care about is generation, why would that be?

[00:25:24] Speaker 04:
Why would we just care about generation as opposed to the efficient delivery of what's generated?

[00:25:30] Speaker 06:
So I think, I'm not sure that the efficient delivery is kind of doing away with the problem that you're still having the penalty factor hit, the problem that it still can't send a signal.

[00:25:42] Speaker 06:
There's not going to be any more generation or more demand response.

[00:25:45] Speaker 06:
And here it's sort of unique because again, the only way to do the reconducting was to stop doing what was causing the congestion.

[00:25:51] Speaker 06:
They had to put the Lenexa line back into service.

[00:25:54] Speaker 06:
So if I can go back to my bridge example.

[00:26:04] Speaker 06:
We know we don't need a fourth bridge.

[00:26:06] Speaker 06:
In the short term, let's put the larger bridge back in service.

[00:26:08] Speaker 06:
Let's stop doing our construction upgrades to it.

[00:26:11] Speaker 06:
And let's reseal the asphalt on the other bridges so that we can raise the speed limit a little bit.

[00:26:16] Speaker 06:
A higher speed limit is going to reduce traffic a little bit, right?

[00:26:19] Speaker 06:
The pricing signal isn't designed for you to stop a transmission project and go look at other reliability things you might infect here and there, right?

[00:26:27] Speaker 06:
We didn't talk about transmission upgrades when we were talking about the purpose of the scarcity rate.

[00:26:30] Speaker 06:
In the short term, we want those combustion turbines that aren't running normally to be fired up and put online.

[00:26:37] Speaker 06:
And so that's what we're looking to do here.

[00:26:39] Speaker 06:
As to Harmony Village, again, it goes back to in the rehearing order we said,

[00:26:45] Speaker 06:
I think it's paragraph, is it 15?

[00:26:48] Speaker 06:
It's either 15 or 20, because those are where we did a lot of the work in the hearing order.

[00:26:51] Speaker 06:
But we said that even after the reconducting, after the sort of improvement to the reliability ratings of the other two lines,

[00:27:00] Speaker 06:
There was no indication that when the price signal is being sent, it's still not being sent in an unwarranted manner.

[00:27:06] Speaker 06:
Again, in the long term, it's unwarranted because the Lenexa line is what's sending the price signal by having the penalty constraint apply.

[00:27:12] Speaker 06:
And in the short term, it's unreasonable because we know that there is, or not serving its purpose, sorry, because we know that there is no additional generation and no one had offered demand response.

[00:27:25] Speaker 03:
I was going to change topics, so if you have a follow-up.

[00:27:27] Speaker 03:
I have one follow-up.

[00:27:29] Speaker 03:
I'll follow up after you follow up.

[00:27:33] Speaker 03:
Let's anticipate that.

[00:27:35] Speaker 03:
So on Harmony Village, I'm just trying to understand it at a high level of generality.

[00:27:42] Speaker 03:
Harmony Village, something changed that I think you wouldn't dispute that whatever changed at Harmony Village is an improvement of some sort.

[00:27:52] Speaker 03:
And so then the question in my mind is,

[00:27:55] Speaker 03:
Does that improvement alleviate the problem that led to the granting of PJM's petition to get rid of the scarcity rate?

[00:28:06] Speaker 03:
Or is it just irrelevant to that?

[00:28:09] Speaker 06:
It doesn't resolve the problem.

[00:28:11] Speaker 06:
And the problem being you're sending a price signal without serving its purpose.

[00:28:15] Speaker 03:
So just, I don't want to quibble, but I'm not asking whether it resolved it.

[00:28:20] Speaker 03:
In other words, whether it completely resolved it.

[00:28:23] Speaker 03:
I'm just asking whether it

[00:28:25] Speaker 03:
it alleviated in any measure or is it just, is it orthogonal, is it just something that's in your mind and in the commission's mind something different?

[00:28:35] Speaker 06:
To answer to that, the first is, as to what the price signal is doing, it is something different in short term, but as to the physics of alleviating, and again, I'll try to keep it at a really high level, and just stop me if I'm being too technical, what it was doing, the reconductoring, so you have a reliability violation before you get to sort of the maximum power that you can have on there, and there's certain levels of reliability violations, and when you get to a higher level, they have to do what's called load shedding, start stopping power, cutting off power,

[00:29:04] Speaker 06:
So the reconducting was meant to have the sort of reliability rating where you start tripping on those, and that's what determines congestion, to have that go up at peak hours so that as summer was coming you were going to have some peak hours.

[00:29:19] Speaker 06:
The record has evidence that summer is less of a concern here because of the solar that's on northern neck.

[00:29:24] Speaker 06:
But anyways, so the idea was, yes, that by re-conductoring the reliability violation is going to be a little bit higher in terms of the amount of power on those lines before we start triggering a reliability concern.

[00:29:36] Speaker 06:
So it's going to help, but it is not the solution that the price signal is meant to send, and our predictive judgment in the rehearing order on

[00:29:47] Speaker 06:
May 18th was their informational filing.

[00:29:50] Speaker 06:
May something.

[00:29:51] Speaker 06:
In May 2022, we said that you've reconducted these lines.

[00:29:55] Speaker 06:
Our predictive judgment was that, well, that would help.

[00:29:57] Speaker 06:
It meant that where you're going to have the congestion hitting is going to be slightly higher because those lines can now take more before they have their first reliability violation.

[00:30:05] Speaker 06:
Even in spite of that, the price signal, if it's sent, is still going to be unjust and unreasonable because it still is not serving those two purposes.

[00:30:15] Speaker 06:
And we think that it will continue to be sent.

[00:30:18] Speaker 06:
There have been informational filings since then.

[00:30:20] Speaker 06:
This was sort of our predictive judgment, something that we do when we make predictive judgments.

[00:30:24] Speaker 06:
We often ask, as we did here for PJM, to keep filing these informational filings.

[00:30:28] Speaker 06:
The record you're looking at is our predictive judgment on May whatever.

[00:30:32] Speaker 06:
But they kept making those filings.

[00:30:33] Speaker 06:
They've shown, I think, again, the most recent one is available on our web page, but it was filed only a few weeks ago.

[00:30:38] Speaker 06:
So I think it showed about 473 intervals that hit during

[00:30:42] Speaker 06:
the three months preceding February, March.

[00:30:46] Speaker 06:
But so, you know, our predictive judgment is actually supported.

[00:30:48] Speaker 00:
Sorry, when you say they hit them and triggered the penalty factor.

[00:30:51] Speaker 06:
Yes, sorry, the penalty factor was triggered.

[00:30:53] Speaker 06:
I apologize.

[00:30:54] Speaker 06:
The penalty factor was triggered.

[00:30:55] Speaker 06:
That's the appropriate way.

[00:30:58] Speaker 06:
So our predictive judgment has been backed up.

[00:31:00] Speaker 06:
But part of the importance of the informational filings is if Citadel looked at those and said, gee,

[00:31:05] Speaker 06:
There's no more congestion here.

[00:31:07] Speaker 06:
There's no more problem here.

[00:31:08] Speaker 06:
They could file a new complaint saying you made a predictive judgment.

[00:31:11] Speaker 06:
Your predictive judgment hasn't panned out.

[00:31:13] Speaker 03:
This is no longer this unique scenario.

[00:31:23] Speaker 03:
The improvements at Harmony Village on that line do help alleviate congestion.

[00:31:29] Speaker 03:
But your point is that the scarcity price is still going to be triggered, and it's still going to beget the same two problems, notwithstanding the congestion alleviation from the improvements on Harmony Village.

[00:31:43] Speaker 03:
And the two problems, how do you describe those two again?

[00:31:49] Speaker 06:
The problem is that it's not serving its purpose, and the purposes are short-term and long-term.

[00:31:53] Speaker 03:
Okay, so you're talking about short-term and long-term, inducing the kinds of investments that are

[00:32:01] Speaker 03:
the scarcity of price is intended to do in the first place.

[00:32:05] Speaker 06:
So long-term is inducing the investments and we said, I think pretty clearly, although people often say because the commission tends to talk in technical terms that things aren't always clear, we did say that the long-term signal would be unwarranted.

[00:32:17] Speaker 06:
I took that to mean unnecessary.

[00:32:19] Speaker 06:
I don't think we use duplicative.

[00:32:20] Speaker 03:
I think long-term, I'm not even sure that Citadel disagrees on long-term because that just seems almost like an identity because the whole reason we got into the situation in the first place is because of a long-term

[00:32:30] Speaker 03:
change.

[00:32:31] Speaker 03:
So on the short term, the Harmony Village in your view isn't even a short term result of scarcity pricing.

[00:32:40] Speaker 06:
I mean, it's a result of PGM doing everything they could in Dominion to their credit as well to try to work with the problem here.

[00:32:48] Speaker 06:
But they couldn't have done that solution without bringing Lenexa back online.

[00:32:52] Speaker 06:
So if you had two different entities, one owned Harmony Village and one owned Lenexa, and the one that owned Lenexa said, I'm not going to stop my construction project so that you can improve this other line.

[00:33:01] Speaker 06:
I'm going to keep doing my construction project.

[00:33:03] Speaker 06:
I mean, then taking Harmony Village, you know, it was 26 days or something, but offline would be a huge problem.

[00:33:09] Speaker 06:
So it's not the sort of solution that we're looking to incent.

[00:33:12] Speaker 06:
We talked about, again, the purpose in the short term being generation demand response.

[00:33:17] Speaker 06:
They didn't say there's a third purpose, reliability projects that are short term for, you know, transmission lines, and you've missed that third purpose.

[00:33:24] Speaker 06:
So we're not kind of debating what those two purposes are.

[00:33:27] Speaker 06:
And again, even with the improvements, the re-conductoring, raising kind of the point at which the congestion, allowing more power to run on that at extreme times, even with that, we thought any price signal that's going to be sent by the penalty factor applying here is still going to be sending the wrong message because you can't add, PGM's proven, there's no additional generation, no one is offering demand response or there's no more offers or high offers, significant offers of demand response.

[00:33:57] Speaker 06:
on the short term, and I don't need to, I think, address the long term.

[00:34:01] Speaker 06:
But that's where I think, you know, it is, I believe it's paragraph 20, or 15 in the reply brief, and then paragraph 20 is where we talk about substantial evidence.

[00:34:11] Speaker 06:
I realize I haven't even addressed substantial evidence.

[00:34:14] Speaker 06:
I'm well into my time.

[00:34:15] Speaker 00:
I did want to, oh, actually, I wanted to get back to where Judge Walker was starting with you, and that is, is the point of the

[00:34:27] Speaker 00:
the messages that the penalty factor is sending to eliminate congestion completely or just to ticket down some.

[00:34:36] Speaker 00:
And you said, well, you know, reducing is good, that's forward progress.

[00:34:44] Speaker 00:
But it must be, so the commission's decision here, it's gotta be sort of a material, the penalty factor is designed to accomplish at least a material

[00:34:57] Speaker 00:
reduction in how often the penalty factor is being triggered or how often congestion happens.

[00:35:04] Speaker 00:
I would have thought his goal would be to not have the penalty factor triggering other than

[00:35:13] Speaker 00:
I don't know if there's a normal of once a year or something, but really to get out of this sort of crisis stage they were in and have in the norm across the year or the seasons that we're gonna have enough supply that we don't have to hit that extreme level.

[00:35:30] Speaker 00:
And so I was just trying to get more clarification on your response because if your response is all the penalty factor wants to do is if we get increased generation

[00:35:42] Speaker 00:
For one day, that's one day better where the penalty factor wasn't triggering.

[00:35:48] Speaker 00:
But I would have thought the point of the penalty factor is to have something more materially changed that's going to endure.

[00:35:55] Speaker 00:
And if it's just a quick fix today and maybe three months from now we'll come up with another quick fix for a couple days or a week.

[00:36:03] Speaker 00:
That's not what its goal is.

[00:36:05] Speaker 06:
Judge, the last part I think is what you didn't .

[00:36:08] Speaker 06:
.

[00:36:08] Speaker 06:
.

[00:36:08] Speaker 06:
your prior understanding, so not the last part of what you were saying, is correct, and it's my apology if I confused you.

[00:36:13] Speaker 06:
The penalty factor, again, it actually does two things.

[00:36:17] Speaker 06:
One, and this goes to the order 888 changes and whatnot, but the penalty factor is actually an effect in their algorithm where you could keep looking for solutions, and maybe there's a solution that's going to cost $100,000 a megawatt hour that will actually

[00:36:29] Speaker 06:
provide the right power here or something.

[00:36:31] Speaker 06:
I could offer, if I lived on Northern Acre, I could offer Masset and I was an ameliorous filter there or something that took up most of the power.

[00:36:37] Speaker 06:
I could offer demand response at $100,000 a megawatt hour.

[00:36:40] Speaker 06:
PGM is not going to consider that.

[00:36:41] Speaker 06:
So in their algorithm, the penalty factor is when you stop looking for a solution to the congestion.

[00:36:46] Speaker 06:
And when it used to do that and it didn't set the price, the price would be set at what the replacement rate here sets the price at, which is we stopped looking at $2,000 an hour.

[00:36:55] Speaker 06:
What was the most expensive?

[00:36:56] Speaker 06:
And there's still congestion.

[00:36:57] Speaker 06:
What's the most expensive unit online?

[00:36:59] Speaker 06:
It's $300.

[00:36:59] Speaker 06:
Okay, the congestion cost is $300 in Northern Neck.

[00:37:03] Speaker 06:
When they amended the tariff and part of the amendments in OREA, we wanted you to put the penalty factor in your tariff so everyone could see it.

[00:37:10] Speaker 06:
We wanted you to explain when it would set the price, but it doesn't actually have to set the price.

[00:37:13] Speaker 06:
You can have a penalty factor that doesn't set the price, but they chose to make it set the price.

[00:37:18] Speaker 06:
It sets the price.

[00:37:19] Speaker 06:
The goal in that price is, I think, exactly what you said, so that you're going to alleviate congestion.

[00:37:23] Speaker 06:
If it's long-term and you need long-term investment, there may be a long time to fix that.

[00:37:26] Speaker 06:
In the short term,

[00:37:27] Speaker 06:
Hopefully people are getting generation online or offering demand response so that it's not going to be hitting over and over and over.

[00:37:33] Speaker 06:
That is the goal and that is the purpose of the penalty factor.

[00:37:37] Speaker 00:
And so if you have the only response, so the penalty factor is getting triggered again and again.

[00:37:47] Speaker 00:
And in response, someone says, oh, well, you know, I don't know.

[00:37:58] Speaker 00:
I don't know.

[00:38:02] Speaker 00:
I can unplug this big industrial thing over here.

[00:38:04] Speaker 00:
We're not using it this year.

[00:38:07] Speaker 00:
And so you have a sudden demand decrease that makes enough of a difference that the penalty factor is only getting, is getting triggered.

[00:38:20] Speaker 00:
say 20% less often, but it's still pretty frequent.

[00:38:25] Speaker 00:
So you've had a little adjustment here, and so you've gone down 20% less hours, the penalty factor's getting triggered, but it's still abnormally high.

[00:38:36] Speaker 00:
Would that be a successful signal by the penalty, the way the commission talked about it, would the penalty factor have accomplished its goal by having that small marginal

[00:38:49] Speaker 00:
change in demand that made, it didn't make an incremental increase on the number of times the penalty factor is triggering, but didn't, it's still happening at an abnormal frequency, and the other signal, like here, the normal signals aren't gonna work, it's another construction project or something.

[00:39:14] Speaker 00:
Am I making any sense?

[00:39:17] Speaker 06:
Yeah.

[00:39:17] Speaker 06:
I think my answer sort of changed by the last sentence you said there, which is it's the scenario we have here where the transmission line upgrade is what's causing it, right?

[00:39:27] Speaker 06:
If I can take your hypothetical but cut off the last sentence, aluminum smelters take an incredible amount of power.

[00:39:33] Speaker 06:
That's why Europe is shutting them down.

[00:39:35] Speaker 06:
It's why Boeing was based in the Northwest.

[00:39:37] Speaker 06:
Cheap hydroelectricity.

[00:39:38] Speaker 06:
We built planes.

[00:39:38] Speaker 06:
We won World War II.

[00:39:39] Speaker 06:
So if you put an aluminum smelter on northern neck in the last two years and you turn it on and it massively increases demand there and all of a sudden northern neck is congested.

[00:39:47] Speaker 06:
All three lines are in service.

[00:39:48] Speaker 06:
They're perfectly in service.

[00:39:50] Speaker 06:
That's a sign that we need generation on northern NEC or we need a new transmission line.

[00:39:55] Speaker 06:
And that would be the penalty factor sending this long-term signal that you need to make a long-term upgrade, right?

[00:40:00] Speaker 06:
And so the commission hasn't said, you know, oh, if it hits a bunch of times in that scenario, we would lift it.

[00:40:06] Speaker 06:
You couldn't even, I don't think, point to our orders here and say we would lift it in that scenario because our orders here are narrow.

[00:40:12] Speaker 06:
We say in these specific circumstances, in the circumstances presented here.

[00:40:15] Speaker 06:
And we did emphasize that there's no long-term.

[00:40:17] Speaker 06:
It's an unwarranted long-term price signal.

[00:40:20] Speaker 06:
to build more transmission because the building of the transmission is what's causing.

[00:40:23] Speaker 00:
Is it also an unwarranted short-term signal?

[00:40:27] Speaker 06:
As to a short-term signal, if there was additional generation on northern neck, right, it would be doing a good job.

[00:40:33] Speaker 00:
In this case, on this record, was it also an unwarranted short-term signal?

[00:40:37] Speaker 00:
Not withstanding the response at Harmony Village.

[00:40:39] Speaker 00:
I guess that's what I'm trying to get at.

[00:40:41] Speaker 06:
So the short-term signal was answered, if I can kind of use, by the demand response and the increase in generation.

[00:40:49] Speaker 06:
Continuing to use that short-term signal when there's, PJM has shown there's no additional generation that could come online and, you know, I don't know how often people offer demand, but no one else had offered demand response.

[00:41:01] Speaker 06:
So it's not that it's a short-term signal.

[00:41:03] Speaker 06:
It was unwarranted initially when it got those two responses.

[00:41:07] Speaker 06:
No, but keeping it.

[00:41:08] Speaker 06:
Keeping it is unwarranted because there's nothing else that can be.

[00:41:11] Speaker 00:
That's what I was trying to get to is find that helped Harmony Village, although we don't know how much because Lenexa was back online, but that helped a bit.

[00:41:24] Speaker 00:
But we're still going to have an abnormal level

[00:41:29] Speaker 00:
of penalty factor triggering, and there's no more short-term, and there's no more long-term, and there's no more demand.

[00:41:36] Speaker 00:
Is that how to understand what the commission was saying here?

[00:41:39] Speaker 06:
Yes, absolutely, and I apologize if I- No, I'm sure it's my misarticulation.

[00:41:44] Speaker 06:
And I think- Sorry.

[00:41:45] Speaker 00:
So they're not looking for just any change in any response to the penalty factor.

[00:41:52] Speaker 00:
They're not looking for anything, even if it's

[00:41:55] Speaker 00:
small and brief, they're looking for something that is going, I assume the goal is equilibrium where you're not triggering the penalty factor with any frequency at all.

[00:42:06] Speaker 00:
Or if you do, it's temporary, it doesn't happen again and again and again and again.

[00:42:10] Speaker 00:
So it's more of a, they want the penalty factor to be making a material difference in generation or demand, short term or long term.

[00:42:22] Speaker 06:
Yes, to be sending a price signal that incentivizes these types.

[00:42:26] Speaker 00:
Can I follow up on that?

[00:42:27] Speaker 00:
I think I'm making things worse.

[00:42:29] Speaker 03:
No, no.

[00:42:30] Speaker 03:
So if continuing with a penalty factor after Harmony Village would, in a hypothetical universe, beget additional Harmony Villages.

[00:42:44] Speaker 03:
So there's still gains to be had.

[00:42:49] Speaker 03:
They're not going to eliminate

[00:42:51] Speaker 03:
the congestion problem entirely, but there are improvements.

[00:42:54] Speaker 03:
And there are still going to be improvements that don't completely solve the situation, but there are continuing improvements.

[00:43:02] Speaker 03:
Then would maintenance of the penalty factor be warranted?

[00:43:08] Speaker 06:
I think so the commission again it's finding here was that there was nothing else this sort of goes back to and I don't mean to quibble with the hypothetical but our statement of what the short-term goals were were not reliability sort of addition so if this short-term improvement was again not just kind of be funnier but one of these

[00:43:25] Speaker 06:
Russian built nuclear power ships.

[00:43:27] Speaker 06:
They offered to bring it over and hook it up, but they're gonna charge 1900 a megawatt hour or something.

[00:43:31] Speaker 06:
The penalty factor, you know, keeps hitting after Harmony Village, but they hook that up and they've contracted PJM, PJM files, and informational filing saying this this power ship is gonna come and it will be here in six days, whatever.

[00:43:44] Speaker 06:
We might on the 12th day or after some period of time seeing that that has done this, not say gee,

[00:43:48] Speaker 06:
The penalty factor is serving its purpose.

[00:43:51] Speaker 06:
It's no longer a situation where we should exempt the penalty factor.

[00:43:54] Speaker 06:
And if the power ship is not enough occasionally, OK, but there was more generation to come online.

[00:44:00] Speaker 06:
The evidence in this record was there's no additional generation.

[00:44:03] Speaker 06:
There's no additional demand response.

[00:44:05] Speaker 00:
And when you say no additional generation, you mean long-term or short-term?

[00:44:11] Speaker 06:
Short-term because I know we don't long-term long-term.

[00:44:15] Speaker 06:
We don't need anything once we open the Lenexa line or add the second Set of lines there.

[00:44:20] Speaker 03:
It will solve a long-term problem.

[00:44:23] Speaker 03:
So But then but you're you're you're fastening onto the the the concept of generation and and the way you're conceiving of it Harmony Village is not generation its reliability

[00:44:35] Speaker 03:
So I guess what I'm asking is, am I capturing it at least?

[00:44:38] Speaker 03:
That's true.

[00:44:39] Speaker 03:
It's a reliability improvement, yes.

[00:44:41] Speaker 03:
So if you have additional reliability improvements in the offing and they're tied to the scarcity rate,

[00:44:51] Speaker 03:
then is that a justification for not alleviating the scarcity rate, for keeping it in place?

[00:44:57] Speaker 06:
I think the evidence in that record, we'd have to look at that record differently, right?

[00:45:01] Speaker 06:
If between the initial order and the hearing order, again, it gets to a particular judge, someone had said, gee, we can actually, you know,

[00:45:08] Speaker 06:
keep the Lenexa line on, but we'll keep it on at 50% while we do our upgrade.

[00:45:13] Speaker 06:
And that's going to open up part of that.

[00:45:15] Speaker 06:
And so we think that will resolve it.

[00:45:17] Speaker 06:
That may have been another solution.

[00:45:19] Speaker 06:
But when you're setting that scarcity of price, you're trying to incentivize behavior, the behavior that we weren't sort of looking at incentivizing wasn't, gee, do reliability upgrades.

[00:45:28] Speaker 06:
It was get some in the short term, get some generation online, or find some demand response.

[00:45:33] Speaker 03:
And the reason you're not looking at reliability as opposed to generation is because of the way the...

[00:45:43] Speaker 06:
Reliability upgrades are designed to sort of help the system provide for the system.

[00:45:49] Speaker 06:
The reliability upgrades are going to be done on transmission.

[00:45:51] Speaker 06:
Transmission gets a cost of service rate.

[00:45:53] Speaker 06:
So if we take the Harmony Village reconductoring, the cost of that, like the penalty factor doesn't incentivize.

[00:45:59] Speaker 06:
If you had a merchant transmission, if I own Harmony Village and it's the only thing I own, it's my only asset, it's the Glover line, you know,

[00:46:07] Speaker 06:
If there's congestion going on in Northern NET, it sends this $2,000 megawatt hour price signal.

[00:46:12] Speaker 06:
But if I own that line, I'm getting a cost of service rate.

[00:46:15] Speaker 06:
So that price signal doesn't do anything to me.

[00:46:17] Speaker 06:
It might tell Dominion to call me and say, hey, why don't you fix up your line or do something?

[00:46:22] Speaker 06:
But I'm going to recover the cost of that line improvement in my cost of service rate.

[00:46:27] Speaker 06:
And so I'm not paying or receiving the price of power, I'm getting transmission fees.

[00:46:34] Speaker 06:
So you're adding a price signal to the price of power to try to incentivize activity in that market, if that makes sense.

[00:46:43] Speaker 03:
And reliability is, so just one basic question then that I might be confused on, and I'm sure it's my own confusion.

[00:46:50] Speaker 03:
Does the scarcity rate

[00:46:53] Speaker 03:
Does it map onto a reliability improvement at all, or is your point that conceptually that doesn't make sense?

[00:46:59] Speaker 06:
In the long term, reliability improvements are the sort of thing that you would want to incentivize.

[00:47:03] Speaker 06:
When we talk about additional transmission or take the Lenexa line, it's technically a reliability project.

[00:47:09] Speaker 06:
PJM discovered that they wanted to increase that line because they were having some reliability issues out at Northern Neck.

[00:47:14] Speaker 06:
But if the penalty factor had been getting triggered, if we had all of this same evidence, but the Lenexa line was online the whole time,

[00:47:21] Speaker 06:
And PJM said, gee, the penalty factor is hitting a lot in northern neck.

[00:47:26] Speaker 06:
We would like you to suspend it, because the reason it's hitting is we don't have enough transmission.

[00:47:30] Speaker 06:
And we can't get more transmission in the next two years.

[00:47:34] Speaker 06:
We wouldn't say, oh, tough.

[00:47:37] Speaker 06:
We would say, gee, more transmission is the long-term pricing that it's trying to send.

[00:47:41] Speaker 06:
Now, someone might come and say, gee, this is unjust, unreasonable, because it's going to apply every day for 23 hours or two hours every day.

[00:47:48] Speaker 06:
for 12 months and then we might be doing additional laying.

[00:47:51] Speaker 06:
But we looked at this record where we said the long-term signal was unwarranted and said on that record,

[00:47:57] Speaker 06:
We don't think applying the penalty factors appropriate.

[00:48:01] Speaker 06:
It's sort of a scenario as if they had come to us before they took Lenexa offline and said, gee, once we take Lenexa offline, the penalty factor is going to be hitting frequently, consistently, and there's no long-term price signal.

[00:48:12] Speaker 06:
So will you waive this in conjunction with our reliability project?

[00:48:18] Speaker 06:
Something like that.

[00:48:19] Speaker 06:
That's a different kind of forward-looking estimate we need to make.

[00:48:23] Speaker ?:
OK.

[00:48:23] Speaker 06:
I did want to make one point, oh sorry.

[00:48:26] Speaker 00:
Sorry, I know you want to get to another topic, can I ask one more?

[00:48:29] Speaker 00:
Please, please, please.

[00:48:30] Speaker 00:
You can change topics.

[00:48:33] Speaker 00:
When you're talking about existing generation, which Harmony Village was.

[00:48:39] Speaker 06:
Harmony Village's existing transmission.

[00:48:41] Speaker 00:
Existing transmission, excuse me, sorry, existing transmission.

[00:48:46] Speaker 00:
Do you need a penalty factor to incentivize sort of

[00:48:52] Speaker 00:
maintenance and repairs like this and upgrades or does it, because you're already existing within PJM, do you have distinct obligations to do the upgrades and maintenance and improvements so the penalty factor just isn't trying to incentivize?

[00:49:10] Speaker 00:
And Harmony Village was gonna do this anyhow, it's just a question of when.

[00:49:15] Speaker 00:
So that's why the penalty factor isn't speaking at least to existing transmission.

[00:49:19] Speaker 00:
about upgrades, is that right?

[00:49:20] Speaker 06:
Is that how the system works?

[00:49:21] Speaker 06:
It's speaking to, is there a need for more transmission?

[00:49:23] Speaker 06:
When you're talking about like a reliability upgrade, et cetera, yes, the penalty factor is not trying to send the message.

[00:49:29] Speaker 06:
And there's a, I can give a site in the record, this is something as I was reading the JA last night, if you look at JA 259, PJM explains that their transmission analysis, when they're trying to determine when we need to have reliability improvements on transmission, this is a continuing thing they did, they identified the Lanexa line upgrade as something that was sort of continually they were gonna look for.

[00:49:48] Speaker 06:
They talk about that their transmission analysis is limited to reliability studies and does not consider possible congestion that may result from the line outage.

[00:49:55] Speaker 06:
They were responding to arguments by Citadel in the record saying, you should have known that when you took, you planned the Lennexa thing years in advance, you should have known when you took that out of line there would be congestion, and you should have planned ahead for this.

[00:50:06] Speaker 06:
And their response was, when we're doing these reliability studies, and there's acronyms for them, et cetera,

[00:50:10] Speaker 06:
When we're kind of improving and figuring out the transmission and the reliability, all we're looking at is reliability failures, not congestion.

[00:50:18] Speaker 06:
So that's not something we were evaluating.

[00:50:19] Speaker 06:
So, Judge Mollett, to your point, the price signal, the penalty factor is not G.

[00:50:25] Speaker 06:
change where you're doing your regular reliability and transmission upgrades, it may send a signal that, gee, you don't have, again, in my aluminum smelter example, or a bunch of people moved to northern neck during the pandemic, and people weren't using power, but now they are, and we've quadrupled the demand out there, you need a new transmission line.

[00:50:41] Speaker 06:
It might send that signal.

[00:50:42] Speaker 06:
Or in lieu of a new transmission line, why not improve Lenexa and build out all of these lines and kind of make them sufficiently stronger or less likely to hit a penalty factor?

[00:50:54] Speaker 04:
So I know we're quite over time.

[00:51:01] Speaker 04:
So I'm going to ask three questions at one time, maybe take a note if that's helpful, and then answer them as concisely as possible.

[00:51:12] Speaker 04:
And I'll try to show some restraint and not ask follow-up questions.

[00:51:16] Speaker 04:
No, that's fine.

[00:51:18] Speaker 01:
No, please.

[00:51:20] Speaker 04:
You're entitled.

[00:51:21] Speaker 04:
Related to what we've been talking about, FERC's initial order said, based on the record before us, we find the continued application of the transmission constraint penalty factor thus will not result in generation, demand response, or transmission investment to resolve the current situation.

[00:51:40] Speaker 04:
So that connects to my first question, which is,

[00:51:45] Speaker 04:
You are an unfailingly prepared oral advocate, and I suspect that if you had written FERC's orders, they would be more persuasive than they are.

[00:51:56] Speaker 04:
But what would you say to someone who says, I read FERC's orders, and what you've been saying for the past 30 minutes is pretty foreign to me?

[00:52:08] Speaker 04:
So that's my first question.

[00:52:10] Speaker 04:
Then same question, very different topic.

[00:52:15] Speaker 04:
Quick response to Commissioner Danley's remark, markets cannot work when high prices that occur by design are disallowed in practice.

[00:52:27] Speaker 04:
And then last question, hypothetical, maybe not the most analogous hypothetical, but imagine someone goes to a casino and places a bet on the outcome of the game.

[00:52:44] Speaker 04:
They win to the tune of $50 million.

[00:52:48] Speaker 04:
The government swoops in and says, you're not going to get paid.

[00:52:52] Speaker 04:
Don't you think that that would disincentivize future people from placing similar bets at the casino?

[00:53:06] Speaker 06:
I'll start with the casino hypothetical.

[00:53:09] Speaker 06:
It would disincentivize it, but the price signal as an incentive, if I map that onto our situation here, is not to incentivize or not incentivize the financial transmission market, the market my friend was talking about.

[00:53:22] Speaker 06:
It's to incentivize fixing the congestion problem in the long term, alleviating it in the short term.

[00:53:30] Speaker 06:
You know, I don't think the example that the government, I made a bet on a game in the future and I assumed that in the future the rules of that game were going to be that a team can play two quarterbacks and the NFL changed and it's for next season, the FTR I think can be a year ahead, and the NFL does a rule change in the middle and they say from now on,

[00:53:49] Speaker 06:
You can only start one quarterback.

[00:53:51] Speaker 06:
That's not a very good example.

[00:53:52] Speaker 06:
Sorry.

[00:53:53] Speaker 06:
I've got to think about it.

[00:53:54] Speaker 06:
But the NBA, if I can, or college basketball, I made a bet on next year's college basketball.

[00:53:59] Speaker 06:
Because I think a team that's really good at shooting threes is going to win.

[00:54:02] Speaker 06:
And college says, actually, we're getting rid of the three-point line, and we're getting rid of the shot clock.

[00:54:06] Speaker 06:
Suddenly, UVA is going to look really good under Tony Bennett, and Duke maybe not as good.

[00:54:12] Speaker 06:
But I made a bet on next year.

[00:54:14] Speaker 06:
The NCAA, in this scenario, PJM is also monitoring the betting market, but the rule is being changed going forward.

[00:54:23] Speaker 06:
It's not being changed to you already having won that $50 million bet in your example, if that makes sense.

[00:54:29] Speaker 06:
And again, the market they're talking about is financial transmission rights markets.

[00:54:32] Speaker 06:
They made some arguments to the commission, a particularly interesting one about the CFTC regulatory exemption for the financial transmission markets.

[00:54:38] Speaker 06:
They don't make any of those here.

[00:54:40] Speaker 06:
And so we recognize that anytime you make a forward-looking change, when PJM first started having the penalty factor set the price rather than just having it stop the algorithm, that changed the market.

[00:54:51] Speaker 06:
Anyone who had a financial transition right in the future, if it was a counterflow, kind of a negative right, they might be in trouble because now, you know, the transmission or the congestion charges could go up.

[00:55:00] Speaker 06:
They made a bad bet, but that was a forward-looking fix.

[00:55:03] Speaker 06:
So I'll dispense with that.

[00:55:05] Speaker 06:
As to Commissioner Danley,

[00:55:07] Speaker 06:
He believed that his statement was that the pricing factor worked.

[00:55:12] Speaker 06:
The majority of the commissioners found that it was not working.

[00:55:15] Speaker 06:
Indeed, it could not serve its purpose.

[00:55:18] Speaker 06:
So the majority opinion and the majority re-hearing opinion both took a different view of whether or not it worked.

[00:55:26] Speaker 06:
Your first comment was about the initial order.

[00:55:29] Speaker 00:
Is that a factual finding, whether it worked, or is that a legal finding?

[00:55:38] Speaker 00:
I think there doesn't seem to be a dispute about what signal is supposed to send.

[00:55:42] Speaker 00:
Everyone seems to agree on what is supposed to signal.

[00:55:45] Speaker 00:
And the commission said it's not doing that.

[00:55:49] Speaker 00:
And if the dissenting commissioner thought it was, is that sounds like a factual dispute?

[00:55:54] Speaker 06:
I think it is.

[00:55:55] Speaker 06:
It's certainly a dispute about

[00:55:59] Speaker 06:
the rate and whether the rate is achieving its signal.

[00:56:02] Speaker 06:
And so I think that's, you know, sometimes when you talk about giving us deference on complex rate-making determinations, right, the rate-making determinations are factual, but they're also judgment calls and things like that that maybe aren't pure facts.

[00:56:16] Speaker 06:
But I think that generally falls, would be falling under a factual or judgment call as to whether or not it's serving its purpose.

[00:56:23] Speaker 06:
Again, if they had made this challenge that when you listed the purposes, you listed them wrong as a legal matter, like here's what Order 844 said about the purposes and here's all of these other things, they could be challenging that, like, it was just arbitrary and capricious of us to change the purpose of this, you know, or at least we needed to explain why we were changing the purpose.

[00:56:40] Speaker 06:
And then we would look a lot more, you know, did we give an explanation for our

[00:56:44] Speaker 06:
our analysis of what is or isn't unjust and unreasonable.

[00:56:48] Speaker 06:
If I can make two just tiny points.

[00:56:51] Speaker 06:
One is the idea that we need to quantify.

[00:56:54] Speaker 06:
We said in our brief that their argument, it said once this is understood, their argument about the failure to quantify the price is irrelevant.

[00:57:01] Speaker 06:
We didn't say that the transmission penalty price was irrelevant.

[00:57:06] Speaker 06:
So I think they misrepresented that in the reply brief.

[00:57:08] Speaker 06:
But the reason that it's irrelevant is it's not serving its purpose.

[00:57:10] Speaker 06:
The reason their argument is irrelevant, the preceding two pages of our brief I think explains that.

[00:57:14] Speaker 06:
When you look at cost of service rates, that's where this actually could be really helpful.

[00:57:18] Speaker 06:
Cost of service rates, this court in a case called Newman versus Ferck in 2022, banned us from, or told us we were wrong to allow entities to include lobbying costs, if I can simplify it, in their cost of service rate.

[00:57:30] Speaker 06:
There would be no excuse if Dominion added, you know, $500 of lobbying costs in the account, which they're not supposed to do.

[00:57:37] Speaker 06:
Someone found it, came to Ferck and said,

[00:57:39] Speaker 06:
Dominion added $500 of lobbying costs, and we said, hey, there's 1,400 nodes.

[00:57:43] Speaker 06:
Dominion, Virginia, has 2.3 million customers.

[00:57:47] Speaker 06:
That's fractions of a penny.

[00:57:48] Speaker 06:
Yes, they violated the court's directive to us on what is or isn't allowed, but it was not unjust and unreasonable to violate that law.

[00:57:57] Speaker 06:
So in a cost of service rate, this idea that we need to quantify, that's where you kind of blatantly see it's wrong.

[00:58:02] Speaker 06:
And I'll conclude with just a tiny point.

[00:58:04] Speaker 06:
Again, not to pick on my friend, but in the reply brief they say that we concede or we seemingly agree with them that remand should be with vacator.

[00:58:11] Speaker 06:
The commission's general practice is not to address whether or not to remand without vacator because the first step of the allied signal test is, could we fix the error?

[00:58:19] Speaker 06:
How significant was the error?

[00:58:20] Speaker 06:
We don't think we've errored.

[00:58:22] Speaker 06:
You'll tell us if we do.

[00:58:23] Speaker 06:
The second step, what are the actual market impacts?

[00:58:26] Speaker 06:
goes to, you know, what PJM knows because they're the one that's going to have to kind of unwind this.

[00:58:30] Speaker 06:
So our practice and this court in a number of recent cases, Judge Mott, your opinion, which I like to cite for the jurisdiction point, but Schaefer and Freeman-Links, I have a citation for other recent opinions where you have remanded without vacating American Clean Power Association in 2022, Judge Walker.

[00:58:47] Speaker 06:
Judge Srinivasan, you were on Vecino.

[00:58:48] Speaker 06:
She didn't write it.

[00:58:49] Speaker 06:
I didn't quickly find one you wrote, but you've remanded without vacating, you know, five times in the last three years where we didn't address it in our briefs, but the interveners did address it.

[00:58:58] Speaker 06:
You've never understood us to be conceding or agreeing that you would need to vacate, and I hope that you won't do that here.

[00:59:03] Speaker 06:
We will change our practice if that is what you instruct us to do, but our general practice is not to address that.

[00:59:07] Speaker 04:
Some people say we vacate five times before breakfast.

[00:59:11] Speaker 06:
That could be true.

[00:59:12] Speaker 06:
I think I wouldn't be making this point if I was arguing to a panel of Judge Santel, Judge Randolph, and Judge Beaton sitting by designation because I'd be in trouble.

[00:59:21] Speaker 06:
But you know .

[00:59:22] Speaker 04:
.

[00:59:22] Speaker 04:
.

[00:59:23] Speaker 04:
Can I get you to hit the first question that I asked?

[00:59:25] Speaker 04:
Remember there were three?

[00:59:27] Speaker 04:
The first one was what would you say to someone who says most of what you've said today sounds pretty foreign to someone who has just read the orders?

[00:59:37] Speaker 06:
I think I would say that if you look at a couple of passages in the orders that talk about, you know, initial order of paragraph 59, J8309, PJM has not shown under the constraint

[00:59:52] Speaker 06:
that under the specific circumstances in the record, the transmission constraint penalty factor is not achieving its intended purpose in the Northern Neck Peninsula and is resulting in an inappropriate price and an inappropriate price signal that establishes higher prices without a commensurate benefit.

[01:00:08] Speaker 06:
We therefore agree that it's not reasonable.

[01:00:11] Speaker 06:
Again, we were saying that it's sending a price signal that's inappropriate and it's unjust and unreasonable because it's not serving its purpose.

[01:00:19] Speaker 06:
It can't serve its purpose.

[01:00:23] Speaker 06:
I have some other paragraphs.

[01:00:24] Speaker 06:
I think it's 15 in the reply brief or the rehearing order, sorry, and 20 in the rehearing order where we address the penalty factor is not serving its purpose.

[01:00:34] Speaker 06:
That was our determination.

[01:00:36] Speaker 06:
Again, the dissenting commission to sort of combine your first and second questions.

[01:00:40] Speaker 06:
You think that my discussion of kind of the transmission upgrade sounds foreign.

[01:00:42] Speaker 06:
Okay, fair enough.

[01:00:43] Speaker 06:
The dissenting commissioner thought that the price sent its purpose and we got this transmission upgrade.

[01:00:49] Speaker 06:
As I hopefully explained in my call with Judge Millett, you know,

[01:00:54] Speaker 06:
That upgrade isn't resolving this.

[01:00:57] Speaker 06:
We're making a predictive judgment that we're going to keep having this constraint being binding.

[01:01:01] Speaker 06:
And so, you know, we made a predictive judgment, but in the majority's view, it was not serving its purpose in the sense that it was.

[01:01:09] Speaker 06:
Sorry, I know I've gone way over.

[01:01:10] Speaker 06:
I'm going to be in trouble.

[01:01:12] Speaker 03:
We will continue to ask you questions.

[01:01:14] Speaker 03:
Thank you, Mr. Glover.

[01:01:15] Speaker 03:
Let me make sure I don't have additional ones.

[01:01:16] Speaker 03:
Thank you, Mr. Glover.

[01:01:17] Speaker 03:
Thank you.

[01:01:18] Speaker 03:
We'll hear from intervenors council now, Mr. Flynn.

[01:01:26] Speaker 02:
Good morning, Paul Flynn for PJN.

[01:01:28] Speaker 02:
So, let me see if I can answer a few questions that were hanging.

[01:01:32] Speaker 02:
Maybe that would be helpful.

[01:01:33] Speaker 02:
First, the base energy price and the congestion.

[01:01:38] Speaker 02:
Let me give you a simple definition.

[01:01:41] Speaker 02:
Base is the closest generation, which is inexpensive, okay?

[01:01:50] Speaker 02:
And can I access through my transmission line some inexpensive generation?

[01:01:54] Speaker 02:
If I can't, that's what sets the base.

[01:01:58] Speaker 02:
But if I have to pay a higher price because the transmission line is congested in order to get a closer generator, that's what congestion price is.

[01:02:13] Speaker 02:
That's why it is always on top of and well above what the base energy price is, because the base is consistent with the stuff that you can readily get to using your transmission.

[01:02:24] Speaker 02:
So that helps you give you a context of the $2,000.

[01:02:27] Speaker 02:
It's quite large.

[01:02:31] Speaker 04:
My impression of the order, and I'm not looking right at the order, so forgive me if this is a misquote, is that it says the purpose of the high price is, quote, to provide market signals that incentivize supply and or load response to help mitigate the constraint in the short term.

[01:02:52] Speaker 04:
How is Harmony Village not that?

[01:02:54] Speaker 02:
Okay, let's talk a little bit about the question that's been kicking around of how much is enough?

[01:03:00] Speaker 02:
Is it all or is it some?

[01:03:02] Speaker 02:
Right?

[01:03:03] Speaker 02:
So I'd say it depends upon the factual context.

[01:03:06] Speaker 02:
And here we have a peninsula with three lines serving.

[01:03:11] Speaker 02:
And one of them, one of the biggest ones is out of the picture.

[01:03:14] Speaker 02:
Okay, that's our base set of facts.

[01:03:16] Speaker 02:
Our other base set of facts is we know there's only two small combustion turbines in there that can help.

[01:03:22] Speaker 02:
And we know there's essentially no demand response that can help.

[01:03:25] Speaker 02:
So the question becomes, let's suppose that, and which is true, this is what the record says, that harmony does increase, that reconducting increased the line reading on that line and allows you to bring in more power.

[01:03:40] Speaker 02:
That's good.

[01:03:42] Speaker 02:
And it does ameliorate.

[01:03:43] Speaker 02:
It does ameliorate the congestion situation to some extent.

[01:03:49] Speaker 02:
The record is,

[01:03:50] Speaker 02:
that PJM in their May 2022 report said, yes, it is providing some moderation.

[01:03:56] Speaker 02:
It's now in effect, that's good, but we are still concerned looking out at this coming summer and next winter that there are going to be high load periods where this will still be a problem.

[01:04:09] Speaker 02:
And that's why PJM, any two of these reports, which are ordered by the FERC to say, okay, report to 73 months on how this is doing, PJM said, any of those reports, and we think we need to still keep it in place.

[01:04:20] Speaker 02:
Okay, because of that, because Judge Millett sort of got at it with her take on it, which is, is it essentially tapped out, given this set of facts, that you only have the two lines, you don't have much generation, you don't have much demand response, there isn't, you're not gonna have a transmission project that's just gonna appear out of nowhere all of a sudden.

[01:04:43] Speaker 02:
I mean, you know if that's coming or not within the time frame of two years, and there isn't any.

[01:04:48] Speaker 02:
And so the question becomes,

[01:04:50] Speaker 02:
Is it just unreasonable to continue to allow that $2,000 charge to be triggered if you know you're tapped out at this point and there's nothing else out there?

[01:05:05] Speaker 02:
That's essentially the record that was before the convention.

[01:05:09] Speaker 02:
And that's what PJM said in their May report, and that's what FERC picked up on in their re-hearing order at paragraph 15, notes 1442, JA 359, where they did in fact cite to that report that we gave them shortly before they issued the re-hearing order.

[01:05:26] Speaker 02:
So that's my answer to the question of how much is enough on that.

[01:05:31] Speaker 02:
I think in general, the idea of setting that administrative charge at $2,000

[01:05:38] Speaker 02:
is to try and resolve the problem.

[01:05:40] Speaker 02:
And that's why you're setting it so high.

[01:05:43] Speaker 02:
And the problem here is because of Peninsula.

[01:05:48] Speaker 02:
We've lost the main line, and there's not much there.

[01:05:50] Speaker 02:
So we're not getting it.

[01:05:52] Speaker 02:
Even at the $2,000, we're not getting a resolution.

[01:05:57] Speaker 02:
And so that's why it becomes unjust and unreasonable to any extent to continue demanding that people pay that $2,000

[01:06:08] Speaker 02:
if you know to a pretty good certainty that there's nothing else out there to bring in within the time frame that this line is going to be at.

[01:06:18] Speaker 02:
That's the essence of what PJM was telling Ferck, and that's the essence of what Ferck found on the record.

[01:06:23] Speaker 03:
So can I ask this question?

[01:06:24] Speaker 03:
Sure.

[01:06:25] Speaker 03:
If the way you've described it, it sounds like you're saying the Harmony Village improvement, it was an improvement, the Harmony Village improvement might have resulted from

[01:06:38] Speaker 03:
the scarcity pricing.

[01:06:40] Speaker 03:
But there's no more Harmony Villages to be had.

[01:06:43] Speaker 03:
That's one way to look at it.

[01:06:44] Speaker 03:
Another way to look at it is Harmony Villages doesn't have anything to do with scarcity pricing.

[01:06:49] Speaker 03:
It would have happened anyway.

[01:06:50] Speaker 03:
So it's just not even something that ought to be taken into account.

[01:06:56] Speaker 03:
And it sounds to me like you're more on the first axis than the first possibility than the second one.

[01:07:02] Speaker 03:
And the evidence is that, and what the commission, in your view, correctly assumed is,

[01:07:08] Speaker 03:
that there aren't other short-term improvements.

[01:07:11] Speaker 03:
There aren't short-term improvements that are in the offing by result of continuing to allow the scarcity price to be imposed.

[01:07:19] Speaker 02:
Thank you for clarifying and framing the question that way.

[01:07:22] Speaker 02:
I do not disagree with Mr. Glover.

[01:07:25] Speaker 03:
You do not disagree with him?

[01:07:26] Speaker 02:
I do not disagree with Mr. Glover on this point.

[01:07:30] Speaker 02:
The rate-based project that Dominion brought in, which was at the directive of the PJM board,

[01:07:38] Speaker 02:
in the regional transmission expansion planning process is not the type of project that is going to be directly influenced by the fact that at this node, suppliers are receiving that $2,000 payment.

[01:07:52] Speaker 02:
Okay, that's not how you do transmission planning for a investor-owned utility rate-based project.

[01:08:01] Speaker 02:
Maybe if there was a merchant transmission project out there, I could see that group.

[01:08:06] Speaker 02:
But it is not a good fit for that type of consideration.

[01:08:10] Speaker 02:
And it's also the case that there's a distinction in transmission planning between reliability and economic.

[01:08:18] Speaker 02:
And when they're talking economic, when they're talking reliability is that you're gonna violate

[01:08:22] Speaker 02:
some reliability standard, and so don't do that.

[01:08:25] Speaker 02:
When you're talking about economic, you're saying short of violating reliability standard, there's more congestion, there's more cost.

[01:08:31] Speaker 00:
Well, you said in your brief, or you said in when you're filing, I'm sorry, not your filings, that the Harmony Village project was accelerated because of the scarcity factor.

[01:08:45] Speaker 00:
penalty factor.

[01:08:47] Speaker 02:
We said it was accelerated.

[01:08:49] Speaker 02:
I don't know that we said it was accelerated because of that.

[01:08:52] Speaker 00:
So it was going to happen at some point, but it happened sooner.

[01:08:56] Speaker 00:
The penalty factor prompted it to happen at a time that was needed urgently.

[01:09:03] Speaker 00:
So why isn't that a response?

[01:09:06] Speaker 00:
It's not just that this was some upgrade that was going to happen anyhow.

[01:09:09] Speaker 00:
The timing was changed to alleviate a congestion problem.

[01:09:14] Speaker 04:
And FERC says as much, right?

[01:09:17] Speaker 00:
I didn't see that in the first quarter.

[01:09:19] Speaker 00:
Well, you said JA-253.

[01:09:20] Speaker 00:
So PBJM said it was accelerated because of the congestion problem.

[01:09:29] Speaker 02:
By two months.

[01:09:32] Speaker 02:
But we also said that we had concerns that Harmony Village was not going to solve the problem during high load periods in the upcoming summer.

[01:09:46] Speaker 02:
That was our fundamental observation about Harmony Village.

[01:09:50] Speaker 02:
We did say it would alleviate, but it did alleviate congestion.

[01:09:55] Speaker 02:
But then the question becomes, now what?

[01:09:57] Speaker 02:
We've got two more years of this, or a year and a half of this, as it turns out it's gonna be through July 2024, so two years now.

[01:10:06] Speaker 02:
Does it make sense to continue charging that $2,000 charge if it's not clear that there's anything else out there to respond to that?

[01:10:17] Speaker 02:
Whether it's a new transmission project or whether it's a new generation that's gotta come in through the queue, we address that on the record.

[01:10:24] Speaker 00:
Why isn't the appropriate response to wait and see if this problem comes back again?

[01:10:28] Speaker 00:
Say that again.

[01:10:29] Speaker 00:
Why wasn't the appropriate response to wait and see if the problem comes back again?

[01:10:34] Speaker 00:
Like okay, thank you very much Harmony Village, but we fear the problem's going to recur.

[01:10:41] Speaker 00:
It wasn't recurring at the time those filings were made, so why,

[01:10:47] Speaker 00:
Why wouldn't you wait to see if it does happen and then stop the penalty factor?

[01:10:52] Speaker 02:
I will give you my take on that.

[01:10:53] Speaker 02:
I think it's supported by the record.

[01:10:55] Speaker 02:
PJM looked at when congestion was occurring.

[01:11:01] Speaker 02:
It was occurring during high load periods on winter days when you couldn't bring the solar resources to there because in the winter it's a shorter day and they weren't available

[01:11:15] Speaker 02:
in the earlier hours and the late hours, and that is the time period when you were seeing the prices jump up.

[01:11:21] Speaker 02:
So PJM and its experts are looking at and saying that is the state of affairs, okay?

[01:11:27] Speaker 02:
And we know, the experts are looking at it, and we know that you are bringing X amount, you can or capable of bringing an X amount of additional power sort of on a consistent basis with Harmony.

[01:11:41] Speaker 02:
And my take is that putting those two things together

[01:11:45] Speaker 02:
They're saying it still looks to us like that issue that we saw rather substantially this past winter.

[01:11:52] Speaker 02:
There's a good chance that that still will be a problem this coming summer and next winter, which is what we said in our report and what for a quote.

[01:12:03] Speaker 03:
Let me make sure my colleagues don't have additional questions.

[01:12:06] Speaker 03:
If you have a quick point, feel free to.

[01:12:09] Speaker 02:
retail and wholesale.

[01:12:12] Speaker 02:
I mean, what's odd about that is that in their recurring request, Citadel said nothing in the record shows any causal link from the wholesale rate to an adverse impact on retail rates, i.e.

[01:12:27] Speaker 02:
the average total price paid by consumers.

[01:12:30] Speaker 02:
That is material enough to warrant the extraordinary relief grant that that's JA325, also at JA330 and 333.

[01:12:37] Speaker 02:
And FERC responded.

[01:12:39] Speaker 02:
I mean, that is a head scratcher to me, because FERC doesn't do retail rates.

[01:12:44] Speaker 02:
And that's exactly what they said on re-hearing.

[01:12:47] Speaker 02:
Our jurisdiction only extends the wholesale rates.

[01:12:49] Speaker 02:
That's what they said, the re-hearing order, paragraph 20, J362.

[01:12:53] Speaker 02:
So I'm not sure what to make of their reference to consumers, but they pretty clearly said, in response to the re-hearing request, we only do wholesale rates, which makes perfect sense.

[01:13:06] Speaker 03:
Thank you.

[01:13:07] Speaker 03:
I appreciate your argument.

[01:13:09] Speaker 03:
Mr. Morrissey, we'll give you some rebuttal time.

[01:13:13] Speaker 03:
Normally, in a 10-minute argument, it'd be two minutes of rebuttal.

[01:13:15] Speaker 03:
We'll double it to four and see where we go, given the amount of time we've taken up so far.

[01:13:21] Speaker 05:
Thank you, Your Honor.

[01:13:22] Speaker 05:
I'll be brief.

[01:13:24] Speaker 05:
Just a few points.

[01:13:25] Speaker 05:
Council discussed the purpose of the scarcity rate.

[01:13:29] Speaker 05:
The purpose of that rate is to increase supply either through generation or through increases in transmission capacity.

[01:13:36] Speaker 05:
The Commission has not previously made this distinction about only seeking generation, and we would point the Court to the Commission's order approving the scarcity rate to begin with.

[01:13:45] Speaker 05:
the commission's two orders in this case, and PJM's affidavit in support of its request for this relief.

[01:13:52] Speaker 05:
We submit that we got that kind of benefit here.

[01:13:54] Speaker 05:
As Judge Millett was discussing with counsel, PJM said they accelerated this Harmony Village line upgrade in response to the scarcity pricing.

[01:14:02] Speaker 05:
But at the very minimum, the Harmony Village upgrade shows that whatever conditions existed before, whatever conditions existed in the two charts,

[01:14:11] Speaker 05:
that PJM submitted were over by March.

[01:14:15] Speaker 05:
The commission mentions that it was concerned that the rate might still apply with abnormal frequency.

[01:14:22] Speaker 05:
We would ask based on what?

[01:14:23] Speaker 05:
Because all the evidence of the frequency of the rate applying was from January and February.

[01:14:29] Speaker 05:
And the record establishes that by April, the Harmony Village upgrade was complete.

[01:14:36] Speaker 05:
And there had been no congestion.

[01:14:37] Speaker 05:
What the commission said about that is that even though that so we have no guarantees that congestion might not reoccur on high peak days and we would submit that's not an adequate basis to treat this location different than all the rest.

[01:14:52] Speaker 05:
where the scarcity rate does apply on high peak days.

[01:14:56] Speaker 05:
And so that's not a basis for treating northern neck differently.

[01:14:59] Speaker 05:
If the commission was concerned about potential high frequency of the rate applying after Harmony Village, we would submit that it was obligated to collect and consider evidence after the upgrade, which it did not do.

[01:15:10] Speaker 05:
And we would ask the court to vacate the committee.

[01:15:12] Speaker 04:
FERC's strongest argument seems to be that, OK, sure.

[01:15:17] Speaker 04:
The rate incentivized harmony village, but now everything is tapped out.

[01:15:23] Speaker 04:
Nothing else can be done.

[01:15:25] Speaker 04:
And so the scarcity rate will not lead to any increases in supply, no increases in transmission, nothing tapped out.

[01:15:32] Speaker 04:
What's your response?

[01:15:33] Speaker 05:
Our response is that there's not an inventory basis to make that conclusion because there's no evidence that the grid footprint changes.

[01:15:40] Speaker 05:
after the upgrade and the commission acknowledges that the upgrade occur but the commission doesn't get into the details of how much has transmission capacity changed.

[01:15:50] Speaker 05:
Why do we think that no more supply can get in or that demand responses might not be possible after that upgrade?

[01:15:57] Speaker 05:
The only evidence the commission had

[01:15:59] Speaker 05:
was two charts, one from a single day in January, and one from two weeks in February.

[01:16:04] Speaker 05:
So there's no evidence in front of the commission about what the supply and demand conditions were at Northern Neck after that upgrade.

[01:16:12] Speaker 00:
Well they had a lot of information, right?

[01:16:16] Speaker 00:
Beyond those charts, and that is, this is a, at least for purposes of the power grid isolated area, and it only has sort of three sources.

[01:16:28] Speaker 00:
And the main one was going to be offline.

[01:16:32] Speaker 00:
There was not going to be, and I didn't see you arguing otherwise, any chance of long-term investment coming in to address congestion.

[01:16:38] Speaker 00:
And I didn't hear you guys identify or anybody else figure out what other short-term solution there could have been.

[01:16:47] Speaker 00:
And no one's arguing that there could have been demand, sufficient, relevant amount of demand

[01:16:54] Speaker 00:
decrease, so it's the combination of those charts showing abnormal frequency of triggering of the penalty factor in response to taking Lenox offline.

[01:17:08] Speaker 00:
And the nature of its location, you're not gonna be able to just sort of turn things off and send some power in from another area, it's just the lines aren't there.

[01:17:18] Speaker 00:
And so there's no movement, there's no solution

[01:17:22] Speaker 00:
So why isn't that enough for them to have made the tapped out judgment that Judge Walker was referencing?

[01:17:30] Speaker 05:
Your Honor, we would submit that after the Harmony Line Village upgrade was complete, the Commission didn't even have evidence of a continuing problem.

[01:17:38] Speaker 05:
All the evidence of the frequency of the rate applying comes before that upgrade.

[01:17:42] Speaker 05:
So while the geographics haven't changed, there's only three lines, the fact that you have high frequency of the rate applying all takes place before that increase in transmission capacity.

[01:17:53] Speaker 05:
And so what the Commission didn't have

[01:17:55] Speaker 05:
was any evidence saying how much the scarcity rate is being triggered after that increase in transmission capacity from Harmony Village.

[01:18:03] Speaker 05:
The only thing it had was its concern

[01:18:06] Speaker 05:
potentially in the future that there might be congestion on high-peak days, which is a statement that we submit applies everywhere in Northern Neck, where this congestion pricing continues to be the default rule.

[01:18:17] Speaker 00:
Well, they had, I guess, these three lines.

[01:18:20] Speaker 00:
And was the other one at Fredericksburg or something like that?

[01:18:22] Speaker 00:
Yes.

[01:18:23] Speaker 00:
So I thought it was pretty much recognized that the Lenexa line was, even prior to this construction that's going on, was sort of the main, the big line.

[01:18:32] Speaker 00:
Yes.

[01:18:36] Speaker 00:
Was Harmony Village the smallest of the three?

[01:18:40] Speaker 05:
It's smaller than Lenexa.

[01:18:41] Speaker 00:
Is it smaller than Fredericksburg?

[01:18:42] Speaker 05:
I'm not positive about that.

[01:18:43] Speaker 00:
Do we have a sense of what, so here I'm gonna get in my trouble with math again, but if we assume on the three lines that just assume that Lenexa traditionally carried 60% of the power load in, transmitted that in, and Fredericksburg did 30 and Harmony Village did 10.

[01:19:07] Speaker 00:
And if the Harmony Village improvements, they're not going to get it up to 60.

[01:19:12] Speaker 00:
Maybe they got it up to 15 or something.

[01:19:16] Speaker 00:
Then they don't need to wait.

[01:19:18] Speaker 00:
Do they need to wait for the house to start burning down again, or can they go, thank you very much for the extra 5%?

[01:19:24] Speaker 00:
But the problem here is that we've lost the 60%.

[01:19:27] Speaker 00:
And that 5% is not going to make a material difference.

[01:19:32] Speaker 00:
Didn't people just know that Harmony Village was just sort of a smaller contributor, even upgraded?

[01:19:37] Speaker 05:
So your honor, I would submit that that's exactly the type of analysis the commission should have gone through here.

[01:19:41] Speaker 05:
But did you know that Harmony Village is smaller than Lenexa?

[01:19:44] Speaker 05:
But what the commission did not discuss or analyze in this order is precisely this question.

[01:19:49] Speaker 05:
How much more capacity are we getting from Harmony Village than we had before?

[01:19:53] Speaker 00:
Yeah, what I'm asking is given sort of the structure of the northern neck, was there any, was it remotely feasible?

[01:20:01] Speaker 05:
Yes.

[01:20:02] Speaker 00:
that the Harmony Village, which is just an upgrade and improvement here, was going to come even close to making up for the continued absence for two more years of La Nexa Line.

[01:20:15] Speaker 00:
Was it an increment worth the candle or was it sort of built into the structure?

[01:20:20] Speaker 05:
I think it was absolutely feasible and the best sort of.

[01:20:23] Speaker 00:
Is it worth the candle?

[01:20:24] Speaker 00:
Is that feasible?

[01:20:25] Speaker 00:
Of course you can measure it.

[01:20:26] Speaker 00:
The question is.

[01:20:26] Speaker 00:
No, I think it is worth the candle.

[01:20:28] Speaker 00:
Everyone knows the answer is going to be.

[01:20:29] Speaker 00:
You just tell me, I'm right.

[01:20:30] Speaker 00:
Everyone knows the answer is going to be, come on, that there's no way Harmony Village could pick up.

[01:20:35] Speaker 00:
and carry the load for Lenexa for the next two years.

[01:20:40] Speaker 05:
I think it is absolutely worth the candle and the best source I would point your honor to is page 348 of the joint appendix which is the May 18th filing that council mentioned where PJM said the upgrade has occurred, it's finished, it's finished as of April and there's been no congestion at Northern Neck for 10 weeks starting on March 15th all the way up to the rehearing order on May 31st and what PJM said is the only thing we're worried about is that we might

[01:21:04] Speaker 05:
get congestion on high-peak days.

[01:21:07] Speaker 05:
Well, every grid location can get congestion.

[01:21:08] Speaker 00:
Can you clarify one thing with me?

[01:21:09] Speaker 00:
So when you said, sorry, what date was the upgrade on Harmony Village completed?

[01:21:15] Speaker 05:
So the date that it was completed was April 26th.

[01:21:18] Speaker 05:
Okay.

[01:21:19] Speaker 00:
So not having congestion from, you mentioned a March date until April.

[01:21:23] Speaker 00:
was because Lenox was back online.

[01:21:25] Speaker 00:
It's got nothing to do with the upgrade.

[01:21:28] Speaker 05:
Correct.

[01:21:28] Speaker 05:
Lenox was put back online to fix.

[01:21:30] Speaker 00:
Right.

[01:21:31] Speaker 00:
So that was the whole problem at the start of the situation.

[01:21:33] Speaker 00:
So saying that there was no problem from March until

[01:21:37] Speaker 00:
April.

[01:21:38] Speaker 00:
It's is addressing the fact that Harmony Village is now going to carry the water.

[01:21:45] Speaker 00:
The power for Lenexa.

[01:21:46] Speaker 00:
Right.

[01:21:48] Speaker 00:
And so I'm not sure that that statement is helping me understand this.

[01:21:52] Speaker 05:
So you have you have Harmony Village is done

[01:21:55] Speaker 05:
And now it's carrying the water starting on April 26th.

[01:21:58] Speaker 05:
And May 18th, PJM files its informational upgrade and there's still been no congestion.

[01:22:03] Speaker 00:
Sure, but now we've got solar working probably a lot more often because it's spring.

[01:22:06] Speaker 05:
Well, correct, right, but we've now changed, now we're in a very different position, right, than when PJM came to the commission in January saying,

[01:22:14] Speaker 05:
This rate is applying very frequently.

[01:22:16] Speaker 05:
By May 18th, PJM says Harmony Village has done enough that now all we're worried about is the hottest days of summer and the coldest days of winter.

[01:22:25] Speaker 05:
And that's it.

[01:22:26] Speaker 05:
They don't quantify how many times do they expect the scarcity rate to apply on those hot and cold days.

[01:22:31] Speaker 00:
And so they're going to have to wait for the problem to recur.

[01:22:35] Speaker 00:
Because the winter problem is going to be back.

[01:22:38] Speaker 00:
Unless anyone thought for a minute that Harmony Village could carry all the water,

[01:22:42] Speaker 00:
You're not going to have the solar in the winter, which was the problem in the January, February charts.

[01:22:48] Speaker 00:
You're going to have that for two more full winters.

[01:22:54] Speaker 05:
They certainly could have waited, but they also could have done the analysis that your questions earlier were suggesting, right?

[01:22:59] Speaker 05:
Taking, okay, from May, let's look at how much transmission capacity the Harmony Village Line upgrade is adding.

[01:23:06] Speaker 05:
Let's look at supply and demand conditions before, and let's make an estimate, not just a generalized fear of how many

[01:23:14] Speaker 05:
how many times we think the scarcity rate is going to apply.

[01:23:17] Speaker 05:
There's not even an estimate in the record about how much PJM or the Commission thinks this is going to be triggered after the Harmony Village line upgrade.

[01:23:25] Speaker 05:
And so we would submit that that finding is not supported by substantial evidence.

[01:23:32] Speaker 00:
Thank you, Council.

[01:23:33] Speaker 05:
Thank you to all Council.

[01:23:34] Speaker 03:
We'll take this case under submission.