[00:00:00] Speaker 03:
Okay, summer 25 dash 10 91.

[00:00:03] Speaker 03:
Affirmed energy.

[00:00:04] Speaker 03:
L. C. conditioner versus federal energy.

[00:00:11] Speaker 03:
Mr. Shepard.

[00:00:14] Speaker 01:
Morning.

[00:00:15] Speaker 01:
Your honors may please the court.

[00:00:17] Speaker 01:
First order should be vacated first because they have impermissible retroactive effect in violation of the filed rate doctrine and second because even prospectively they violate the administrative procedure act.

[00:00:33] Speaker 01:
As to the first point,

[00:00:35] Speaker 01:
When a firm successfully bid in the capacity auctions for the 2023-24 and the 2024-25 delivery years, it acquired under the tariff a vested right to offer the cleared resources in the next three auctions.

[00:00:56] Speaker 01:
Because the amendment retroactively eliminates that right, it is contrary to law.

[00:01:01] Speaker 01:
All of the parties here agree that a retroactive change in vested rights violates the filed rate doctrine.

[00:01:10] Speaker 01:
The contention that barring affirmed from exercising its rights to bid previously cleared resources in the capacity auctions to be held in 2025 and 2026

[00:01:24] Speaker 01:
was somehow not retroactive cannot be reconciled with the Supreme Court's holding in Landgraf that, quote, a new provision that attaches new legal consequences to events completed before its enactment is by definition impermissibly retroactive.

[00:01:43] Speaker 01:
As to prospective effect, FERC's order is arbitrary and capricious for two reasons.

[00:01:50] Speaker 01:
First, the central justification for the amendment is PJM's claim that it had improved its load forecast model in 2016, such that it adequately captured

[00:02:05] Speaker 01:
energy efficient resources on the demand side.

[00:02:10] Speaker 01:
As this court has repeatedly explained, FERC was thereby required to, quote, critically review PJM's analysis on that central assertion or perform its own analysis.

[00:02:23] Speaker 01:
But FERC didn't either.

[00:02:25] Speaker 01:
It didn't review PJM's model, which it has never disclosed, or any comparative analysis of the model.

[00:02:33] Speaker 04:
So is it really necessary for them to review the model when, I guess, their position is that giving these or allowing EERs to participate just raised rates for consumers and so limiting that lowered the rates and doesn't affect grid reliability?

[00:02:52] Speaker 01:
So I think the I want to break down my answer to your honor's question in two parts.

[00:03:00] Speaker 01:
There is no question that

[00:03:03] Speaker 01:
doing something to eliminate what they called the adback, which they instituted in 2016, would certainly reduce rates.

[00:03:14] Speaker 01:
The point of the adback, they had no authority and no reason under the preexisting tariff to put the adback in.

[00:03:22] Speaker 01:
We have always opposed this adback mechanism, which did nothing other than raise costs.

[00:03:30] Speaker 01:
The second

[00:03:31] Speaker 01:
point I want to say is that their analysis that let's leave the ad back aside and just deal with the main function, the main rationale for this revised tariff, which is we don't need to have EER's bidding participating on the supply side anymore because we have a model that already now since 2016 accurately accounts for all those energy savings.

[00:04:01] Speaker 01:
Now, there's two problems with that.

[00:04:03] Speaker 01:
Number one, I mean, procedurally, FERC had to evaluate the accuracy of that assertion.

[00:04:11] Speaker 01:
And it's particularly important for FERC to actually evaluate that assertion because... Does that answer my question, though?

[00:04:18] Speaker 04:
Why did they have to evaluate the accuracy of the assertion if they're just making...

[00:04:22] Speaker 04:
just and reasonable rates.

[00:04:24] Speaker 04:
The rates are more just and reasonable if this unjustified add-on and cost is no longer being passed on to consumers.

[00:04:33] Speaker 04:
And the definition of EER says it can't be accounted for in the demand side, and now it is.

[00:04:40] Speaker 01:
So it's a very number one if all that first said is we are going to eliminate the ad back and that because the ad back number one is not only provided not only not provided for in the pre-existing tariff.

[00:04:55] Speaker 01:
But FERC's 2009 order that was the operation at the time, FERC was specifically asked for, and it's in the administrative record in this case, FERC was specifically asked, if you're going to allow EERs, we need to put an ad back in like you do in the analogous demand response circumstance.

[00:05:17] Speaker 01:
And FERC held in the order, there is no warrant for an ad back in this case.

[00:05:23] Speaker 01:
That's the ad back.

[00:05:24] Speaker 04:
The point about saying they could have been eliminate the ad back without eliminating the ability of E.R.

[00:05:30] Speaker 04:
to participate in the auction.

[00:05:31] Speaker 01:
Right.

[00:05:32] Speaker 01:
And right.

[00:05:33] Speaker 01:
But as to the latter point, which is really where the rubber meets the road here, their ability to eliminate it.

[00:05:41] Speaker 01:
depends on the accuracy or reliability of their assertion that it is already accounted for, because they have this new model in 2016.

[00:05:51] Speaker 01:
Now, nowhere does PJM or FERC explain why, since as Your Honor has pointed out, under L4 of the 2009 tariff, any EER that is

[00:06:06] Speaker 01:
already reflected in the peak load forecast prepared for the delivery year in which the EER is proposed doesn't even qualify as an EER.

[00:06:16] Speaker 01:
So if they had a new model in 2016, which they've never disclosed, or even the results of it, that basically said, we're already accounting for what you're proposing to bid, they shouldn't have accepted it.

[00:06:29] Speaker 04:
So you didn't know there was a new model until they announced the amendment, so they had been doing this all along secretly?

[00:06:34] Speaker 01:
I think at some point they said there was a new model and it's not in the record, but I think everybody will agree.

[00:06:42] Speaker 01:
We have tried over and over and over again to try and engage with PJM and say, okay, you have a better model.

[00:06:52] Speaker 01:
Let's sit down and talk about how much of what we are bidding in, your model already accounts for.

[00:06:59] Speaker 01:
have their proof in this case in support of this revised tariff consists of two things.

[00:07:06] Speaker 01:
One, an affidavit that's submitted by Mr. Gledhill, who is a PJM employee, and two, supposedly quote data from the last two years showing they say that it already accounts for it.

[00:07:21] Speaker 01:
Now, what Mr.

[00:07:22] Speaker 04:
At what level of granularity do we have to require them to disclose models, review models, et cetera?

[00:07:29] Speaker 04:
We couldn't find or I couldn't find any precedent that requires FERC to include the model and let everybody pick apart the model before that it's just and reasonable.

[00:07:40] Speaker 04:
We have a very differential standard of review that we're applying here.

[00:07:43] Speaker 04:
So at what level of granularity do we need to make this requirement?

[00:07:48] Speaker 04:
And they're not required to allow you to pick apart their model.

[00:07:51] Speaker 01:
No, we're not arguing that we are entitled to pick apart the model.

[00:07:56] Speaker 01:
What we have done is to say to them since 2016, if you think you've got a model that already accounts for some or all of what we are bidding in, in these capacity auctions,

[00:08:08] Speaker 01:
let's sit down and talk about how we can, because there is a way to determine it, how we can determine it.

[00:08:14] Speaker 01:
Now, they have no obligation to do that.

[00:08:16] Speaker 01:
They have no obligation to do it.

[00:08:18] Speaker 01:
And the fact of the matter is we made money because they didn't do it, because they put this add on on which we have opposed from the start.

[00:08:26] Speaker 01:
What Mr. Gledhill says is, and it's in paragraph 35 of his declaration is,

[00:08:32] Speaker 01:
We don't have the ability, our model doesn't have the ability to evaluate any particular EER program.

[00:08:40] Speaker 01:
In other words, we can't evaluate a firm's program.

[00:08:45] Speaker 01:
But our model reasonably captures it.

[00:08:48] Speaker 01:
Now,

[00:08:49] Speaker 01:
This court's opinions, I think both in Susquehanna and NTE, Susquehanna is a perfect example.

[00:08:55] Speaker 01:
The court basically said, well, the SEC had to critically review the analysis that the OCC, the options clearing

[00:09:06] Speaker 01:
commission came up with.

[00:09:09] Speaker 01:
And what they did is they said, we have considered it, and we find it credible.

[00:09:13] Speaker 01:
That's not enough.

[00:09:15] Speaker 01:
The OCC said, for example, that its model was the product of consultations with analysts.

[00:09:23] Speaker 01:
And this court held in its opinion, who were those analysts?

[00:09:27] Speaker 01:
What did those analysts provide?

[00:09:29] Speaker 04:
There's something a bit more here, right?

[00:09:30] Speaker 04:
They're talking about what the new, I guess,

[00:09:36] Speaker 04:
Predictions of how energy efficient products will will affect demand because now there's data from I forget the name of the government agency that actually likes this type of thing.

[00:09:48] Speaker 04:
And to me, it just seems very different when before they had a model that didn't account for this demand side, future effects of.

[00:09:56] Speaker 04:
energy efficient products at all.

[00:09:58] Speaker 04:
And now they have one that does, and they're relying on data from some government agency that tries to predict how this is all going to work.

[00:10:08] Speaker 04:
I'm sure it's all very technical, but it seems to be more than what you're talking about in Susquehanna.

[00:10:14] Speaker 04:
And I don't know that

[00:10:17] Speaker 04:
The level of detail that you think is required is actually required.

[00:10:21] Speaker 01:
Well, I'm not I'm not suggesting your honor.

[00:10:24] Speaker 01:
Don't let me be misunderstood.

[00:10:25] Speaker 01:
I'm not suggesting some granular level of detail.

[00:10:28] Speaker 01:
They say we have a model that is based in part on data that is collected by and we have supplemented it by imposing suppositions based on

[00:10:42] Speaker 01:
input from independent analysts that we have consulted.

[00:10:46] Speaker 04:
Why is that not enough?

[00:10:48] Speaker 01:
Well, as to EIA, the agency itself acknowledges, and I believe this is in the briefs or referenced in the briefs, first of all, the data that is using about energy efficient products and processes is five to 12 years old.

[00:11:05] Speaker 01:
The agency itself has recognized that it does not track

[00:11:10] Speaker 01:
entire categories of energy efficient products and it has warned in straightforward terms that its calculations, its estimates are quote not to be used as forecasts.

[00:11:25] Speaker 01:
So simply saying we have a model that's, if what they said is we're just using their numbers, I think it would be pretty easy to see why simply alleging that without

[00:11:36] Speaker 01:
in any way quantifying how close, how much of our resources and the resources of other EERs are being calculated would be insufficient.

[00:11:45] Speaker 01:
Now, they say, aha, we're consulting other analysts, et cetera, et cetera.

[00:11:52] Speaker 01:
And that is exactly

[00:11:54] Speaker 01:
The situation I take it that there's something more here because they have this declaration and they use they identified one body of data that they use.

[00:12:04] Speaker 01:
But what this court said has said repeatedly is OK you you you modeled you know in part based on this but also based on

[00:12:12] Speaker 01:
consultations with analysts and suppositions and hypotheses that you also did.

[00:12:18] Speaker 01:
Who were these analysts?

[00:12:19] Speaker 01:
What did they say?

[00:12:20] Speaker 01:
How accurate did they say your model was?

[00:12:22] Speaker 01:
That's the model of what FERC at a minimum had to do.

[00:12:26] Speaker 01:
Now, they say in this case, well,

[00:12:30] Speaker 01:
Even if you take all of that is true, we also have evidence because in 2 of the 9 years that we have been operating since 2016, the proof is in the pudding because in those 2 years.

[00:12:46] Speaker 01:
the total amount of actual peak load demand exceeded what we projected as the demand.

[00:12:54] Speaker 01:
Therefore, we must be fully incorporating and anticipating energy efficient resources.

[00:13:02] Speaker 01:
That is no more true than saying in two of the nine years since we changed something, the Dow

[00:13:13] Speaker 01:
500, the Dow index has gone up.

[00:13:17] Speaker 01:
Therefore, this particular minor stock that is in the Dow index, it's proven that that also went up.

[00:13:25] Speaker 04:
I mean, there's no question that this is not an exact science.

[00:13:31] Speaker 04:
Their methods are probably not perfect.

[00:13:35] Speaker 04:
And what they've said they've done is not going to exactly capture the demand increases based or decreases based on energy efficient products.

[00:13:45] Speaker 04:
So the question is, how precise do they need to be here?

[00:13:49] Speaker 04:
And why isn't it enough to say we had a model that

[00:13:53] Speaker 04:
accounted for this zero.

[00:13:54] Speaker 04:
Now we have a model that does account for it.

[00:13:57] Speaker 04:
We're relying on this data.

[00:13:59] Speaker 04:
They specified what it is.

[00:14:00] Speaker 04:
It's a government entity, which they acknowledge is not perfect, as you've said.

[00:14:04] Speaker 04:
And now we have some proof, not complete proof over nine years, but we have some evidence that this is working.

[00:14:13] Speaker 04:
And so we've accounted for it on the demand side.

[00:14:17] Speaker 04:
And I guess the question is, at what level of precision are they required to do this before it becomes arbitrary and capricious?

[00:14:26] Speaker 04:
And they do have some objective data and an objective methodology, which is consulting with experts, and some objective proof, although none of this is perfect, admittedly.

[00:14:38] Speaker 04:
You can poke holes in it all day long.

[00:14:40] Speaker 04:
But what level is necessary here?

[00:14:44] Speaker 01:
I mean, I'm not, again, I'm not suggesting that there is a particular quantum that they have to establish that's necessary.

[00:14:50] Speaker 01:
They have to, the FERC has to independently analyze what they profess to be true, which is that they have captured everything that EER resources, the EER supplier.

[00:15:06] Speaker 01:
That's what, well, that's what,

[00:15:09] Speaker 04:
What they have to they don't have to determine that they captured everything they don't.

[00:15:13] Speaker 01:
That is what PJM has claimed in its papers.

[00:15:17] Speaker 01:
They don't certainly don't have to prove that because as your honor has pointed out, and we don't dispute at all, it's not an exact science.

[00:15:24] Speaker 01:
But what they have to do is forecast to understand what's at issue here is not that.

[00:15:29] Speaker 01:
the level of particularity or the quantum of evidence, it's the quality of FERC's obligation to independently analyze an assertion and the asserted support for that.

[00:15:42] Speaker 01:
And FERC didn't do that.

[00:15:43] Speaker 01:
It basically took Mr. Gledhill's word for it and then said, we have these two gross numbers for what happened in two of the nine years.

[00:15:55] Speaker 01:
And therefore, we can intuit that this

[00:15:58] Speaker 01:
portion of the capacity auctions, which accounts for no more than 5% of peak load forecast, must have been fully accounted for.

[00:16:10] Speaker 01:
I don't think you will have any dispute here that they have not yet done the work to determine whether what we or a state utility board or any other EER provider or bidder on the supply side

[00:16:27] Speaker 01:
is accounted for or not.

[00:16:29] Speaker 01:
It is a fact.

[00:16:31] Speaker 04:
But I think you just can see that they don't have to do that at that level of granularity.

[00:16:35] Speaker 01:
They don't have to prove everything, but they have to convince FERC that their model, in fact, at least does a reasonable job doing it.

[00:16:46] Speaker 01:
And I haven't mentioned the other thing that is, I think, a FERC failing and is sort of incoherent from FERC's orders, which is that FERC

[00:16:57] Speaker 01:
which is FERC's sort of contradictory, confusing treatment of the incentive effects that it itself championed in 2007 and 2009 when it told PJM that it wanted them to allow EERs to participate on the demand side

[00:17:18] Speaker 01:
just like electric energy generators do participate on the demand side because

[00:17:28] Speaker 01:
allowing them to participate and paying them participate creates important incentive effects for there to be more and more energy savings in the particular year and in the future.

[00:17:40] Speaker 01:
And what FERC says in now in its 2024 order is on the one hand, it acknowledges that providing capacity payments to EERs may increase incentives to invest in

[00:17:54] Speaker 01:
energy-efficient resources, but then it turns around and it adopts PJM's contrary assertion that removing these incentives will have no effect on the adoption of energy-efficient products, and then to sort of complete the circle, FERC's order says it doesn't matter.

[00:18:13] Speaker 01:
That is not region decision-making, and it certainly does matter both for cost and the reliability of the system.

[00:18:23] Speaker 00:
For the two years in question, but the two most recent years before the order, are they not?

[00:18:29] Speaker 01:
That's correct.

[00:18:31] Speaker 01:
Now, I will just take one other point, if the court will allow me.

[00:18:36] Speaker 01:
In FERC's brief, and I believe also in PJM's brief, they say, well, your criticisms of what we did or didn't evaluate, analyze about PJM's assertions, maybe it's correct.

[00:18:49] Speaker 01:
We don't think it's correct, but even if it is correct, and even if we don't have any coherent treatment of the incentive effects

[00:18:57] Speaker 01:
that payments to these energy efficient resource providers provide to the manufacturers, distributors, and retailers of this project.

[00:19:08] Speaker 01:
It doesn't matter because the amendment is just and reasonable because it lowers costs without harming system reliability.

[00:19:17] Speaker 01:
That is neither proven nor is it in fact true in both respects.

[00:19:24] Speaker 01:
including energy-efficient resources on the supply side reduces, by definition, projected demand and thus lowers the price unless, to your point, Judge Pan, those resources are already fully accounted for in the peak load forecast.

[00:19:42] Speaker 01:
Now, the latter point has certainly not been shown for reasons I've tried to explain, and it is almost certainly wrong.

[00:19:50] Speaker 01:
If the EERs

[00:19:52] Speaker 01:
are accounted for in whole or in part, then they are already disqualified under the original 2009 tariff, which excludes any EERs that are reflected in PJM's demand forecast.

[00:20:08] Speaker 04:
Theoretically.

[00:20:09] Speaker 04:
I mean, they've been doing this since 2016.

[00:20:11] Speaker 04:
It seems to me it's been sort of a windfall for your clients that they haven't acted on changing the auction.

[00:20:18] Speaker 01:
Well, it's a windfall for our client if their assertion is correct that they are accurately predicting this.

[00:20:24] Speaker 01:
And if they are accurately, we have no problem with the fact that we are accurately.

[00:20:29] Speaker 04:
I mean, it just says, is it accounted for?

[00:20:31] Speaker 04:
Doesn't it?

[00:20:32] Speaker 01:
It says the definition under L1 of what is an energy efficient resource is, quote,

[00:20:39] Speaker 04:
reflected in the peak load forecast?

[00:20:41] Speaker 01:
Yes, if it is reflected in the peak load forecast.

[00:20:45] Speaker 01:
They now say, since 2016, we've been doing that.

[00:20:48] Speaker 01:
I will be interested to hear what counsel for PJM explains about what on earth they were doing in violation of the tariff for nine years, if they really believed that that was the case.

[00:21:01] Speaker 01:
I think one thing that's interesting, they- Although that was all to your benefit.

[00:21:05] Speaker 01:
It was all to our benefit, but the question is whether what they propose now, which is not only to eliminate the ad back, which was not only not authorized by the tariff, but was specifically rejected in the 2009 order, but also to throw us out of the market at all.

[00:21:23] Speaker 01:
And in order to do that, they have to show

[00:21:26] Speaker 01:
that their forecast is going to accurately project energy efficient resources.

[00:21:31] Speaker 01:
And there's one other point I can just make with respect to these incentive payments.

[00:21:37] Speaker 01:
Right now, under the system that has existed,

[00:21:40] Speaker 01:
even to the extent that they are somehow accurately projecting what the savings will be.

[00:21:46] Speaker 01:
Those savings reflect the incentives to sell more and more of these products and use more and more of these processes that their payments provide.

[00:21:56] Speaker 01:
Once they stop making these payments, there are no further incentives.

[00:22:00] Speaker 04:
Well, I guess they say that there are state law programs and other

[00:22:05] Speaker 04:
factors that cause consumers to buy these products.

[00:22:07] Speaker 04:
It's not just this program that's doing that.

[00:22:10] Speaker 04:
And I understand your point is like, well, where's the data on that?

[00:22:13] Speaker 04:
I don't know what it is to do that.

[00:22:15] Speaker 04:
But I guess my question is, if we think that this is illegally retroactive, which we haven't talked about, but I do want to talk to her about, what is the remedy for that?

[00:22:27] Speaker 04:
Because it seems to me that

[00:22:30] Speaker 04:
They can eliminate EERs from participating in their auctions.

[00:22:34] Speaker 04:
They just can't eliminate a right that they previously granted that once you clear, you can participate for the next three years.

[00:22:44] Speaker 04:
But I guess, what is the remedy?

[00:22:46] Speaker 04:
Would they have to change their tariff to say, starting three years from now, there will be no more EERs in the market?

[00:22:53] Speaker 01:
And how and you know, I don't I don't have this work.

[00:22:57] Speaker 01:
So as I understand it, if you accept our argument on retroactivity, but don't accept our argument on the prospective effect of the award, they don't have to change the tariff at all, except that this court should order.

[00:23:11] Speaker 01:
that with respect to the capacity auctions held in 2025 and 2026 for future years, the resources that we were allowed to bid in in the two previous years be allowed to bid.

[00:23:33] Speaker 01:
And if we clear, we will be paid for.

[00:23:38] Speaker 04:
But then you clearing at that point, does that

[00:23:41] Speaker 04:
sort of extend your eligibility and add infinite.

[00:23:45] Speaker 01:
No, no, no, no, no.

[00:23:46] Speaker 01:
It's all that's at issue here is.

[00:23:50] Speaker 01:
This is a little complicated, but the auction that was held, the demand capacity auction that was held in July of 2025 and the one that will be held in early 2026, that those resources that were previously accepted and that we convinced PJM that we had adequate measurement and verification both at the time of the bid and at the time of installation,

[00:24:19] Speaker 01:
that those particular resources and only those resources be allowed to bid in the next two auctions.

[00:24:28] Speaker 04:
That's the only thing that you're asking for in this?

[00:24:30] Speaker 01:
In our argument part one.

[00:24:33] Speaker 01:
I think that's the full extent of relief.

[00:24:35] Speaker 01:
Now, it's a little complicated.

[00:24:37] Speaker 04:
What does that mean, though, for future auctions?

[00:24:38] Speaker 04:
Are you going to be coming back with a new suit so that you can participate in next ones if you clear in the 25 and 26 auctions?

[00:24:45] Speaker 01:
No, no, no, no.

[00:24:46] Speaker 01:
I mean, we're not going to be bidding new resources into the 2526 auctions.

[00:24:53] Speaker 01:
It's just the ones that were right.

[00:24:55] Speaker 01:
These will tail off after two years.

[00:24:57] Speaker 01:
Now, when we originally filed this 205 appeal, we asked for.

[00:25:04] Speaker 01:
a stay pending appeal because we were afraid that this court wouldn't be able to decide before the auction held in July and we wouldn't be able to somehow get the benefit of a favorable ruling.

[00:25:18] Speaker 01:
FERC and PJM made clear in papers

[00:25:22] Speaker 01:
that our remedy with respect to the auction that is already held would essentially be a damages remedy, where we would have to show what our bid would have been, that it would have been above the floor but under the ceiling, and what those resources were times whatever the market clearing price is.

[00:25:39] Speaker 01:
But then for the one next year, we'll just make a bid and it'll either be accepted or not.

[00:25:45] Speaker 03:
I see.

[00:25:46] Speaker 01:
Now,

[00:25:47] Speaker 01:
On the question of will it be accepted or not, this goes a little bit to the second point.

[00:25:52] Speaker 01:
But I think, as everybody in this case understands, these EERs, as opposed to the people that run electric generation, they are price takers.

[00:26:03] Speaker 01:
They are not price makers.

[00:26:05] Speaker 01:
At no point has affirmed, or to my knowledge, any other EER bidder

[00:26:11] Speaker 01:
Bid the market clearing price.

[00:26:14] Speaker 01:
So the notion that our bid wouldn't be accepted is.

[00:26:17] Speaker 04:
I mean, it would be very, very hard to decide what your bid is since you're not.

[00:26:22] Speaker 04:
setting a price as a electricity generator would, because they're thinking about their costs, et cetera.

[00:26:28] Speaker 04:
But you have none.

[00:26:29] Speaker 04:
So are you just trying to predict what the market's going to do?

[00:26:32] Speaker 01:
No, no, no.

[00:26:33] Speaker 01:
It's a combination of things.

[00:26:34] Speaker 01:
First of all, we have the amount of money that we have paid in advance to our program partners, which for purposes of this case is $50 million.

[00:26:44] Speaker 01:
So $50 million, years before the actual delivery year, we have already paid.

[00:26:51] Speaker 01:
We have to deposit if our bid is accepted or we are accepted as a bidder, we have to deposit hundreds of millions of dollars or at least over a hundred million dollars in cold cash with PJM.

[00:27:07] Speaker 01:
We have Goldman Sachs, for example, which is why do you have to do that?

[00:27:11] Speaker 01:
Because all bidders have to post cash collateral to protect against the event that they don't meet their promise.

[00:27:20] Speaker 01:
If we don't reduce demand by the amount that we bid that we will, they take our money.

[00:27:26] Speaker 01:
Now, that's never happened.

[00:27:28] Speaker 01:
But with respect to the generators, when peak load comes and they promise they would deliver, I don't know, 60 megawatts an hour, and they only deliver 40, PJM takes the money

[00:27:41] Speaker 01:
from the cash collateral that they post.

[00:27:44] Speaker 01:
And so in answer to your question, they take the money and buy it at a higher price.

[00:27:50] Speaker 01:
And in answer to your question about how do we set our price, first of all, we do an estimate of our costs, not only what we paid in advance and what we are paying our lenders, and also what we have to pay an army of technicians to come up with a measurement and verification plan, both at the time of bid or operating costs.

[00:28:11] Speaker 01:
and then make a prediction, well, make an evaluation about whether, okay, over the three years, over the four years, what at a minimum do we need not only to return our investment, but also to continue to provide money that another $50 million the next year to all of these people to incent more.

[00:28:33] Speaker 04:
So in what way does the expectation that you'll get to participate for three more years

[00:28:39] Speaker 04:
affect your pricing and your business model?

[00:28:43] Speaker 01:
Very much so.

[00:28:44] Speaker 01:
How much is it going to cost us?

[00:28:49] Speaker 01:
How far in advance?

[00:28:51] Speaker 01:
What will we have to pay in borrowing costs, et cetera, et cetera?

[00:28:55] Speaker 04:
So are you assuming that you're going to be able to care and participate?

[00:28:59] Speaker 04:
100%.

[00:29:00] Speaker 01:
100%.

[00:29:01] Speaker 01:
And that's because we have a vested right to do so.

[00:29:05] Speaker 01:
And we are not making a price that says we have to make this all up in one year and get enough of a return that we can pay the same year money to our program partners to incent further savings.

[00:29:19] Speaker 01:
So I hope that answers your question.

[00:29:22] Speaker 04:
But when you pay your program partners, do you pay them

[00:29:26] Speaker 04:
But each year that you're paying them, is it just for the sales of that year or how does it work for the?

[00:29:32] Speaker 01:
So we we go to them and what we say is we will buy the environmental attributes.

[00:29:40] Speaker 01:
They hold the environmental attributes of the efficient products that they sell or distribute or manufacture.

[00:29:48] Speaker 01:
We will buy them for the following amount of money and we will give you this money because

[00:29:57] Speaker 01:
The law says, the tariff says, that it's very important that there be enough peak demand.

[00:30:03] Speaker 01:
And in order to do that, FERC has said and PJM has agreed, you have to figure out not only what the actual demand will be absent energy efficiency, but including it.

[00:30:15] Speaker 01:
So that's what we do.

[00:30:16] Speaker 01:
They say all we do is buy sales data and try and make money off it.

[00:30:20] Speaker 01:
What we are doing essentially as what they derisively call us as middlemen is we are taking millions of transactions, documenting them, verifying them, bidding them in a standard documented manner that's backed by real collateral that will be called if we don't deliver.

[00:30:43] Speaker 04:
But I guess in this sense,

[00:30:46] Speaker 04:
If the consumers have bought these products, the savings are going to come on the demand side, whether you bid or not, you're just quantifying what that savings will be.

[00:30:58] Speaker 04:
And that was necessary back in the day when FERC's model had no way of accounting for how future demand was going to respond to these purchases.

[00:31:09] Speaker 04:
But now the service that you provide, which is quantifying something,

[00:31:14] Speaker 04:
that previously wasn't quantified is no longer necessary.

[00:31:18] Speaker 04:
I guess that's kind of the rub of this whole case.

[00:31:22] Speaker 01:
That's the rub of this whole case, which is that PJM says we don't have any way of evaluating their program, you know, programs of energy efficiency, individual programs.

[00:31:35] Speaker 01:
But we have a model that reasonably accounts for all of it.

[00:31:39] Speaker 01:
And the question is, is FERC going to take that on their say so and with by

[00:31:45] Speaker 01:
Genuflecting in the direction of the data and there are many analysts, or is it going to do what this court and says on a set, which is you have to ask some questions here.

[00:31:56] Speaker 04:
But the ultimate question is they can do that if they want if they no longer need your services to project demand they can.

[00:32:04] Speaker 04:
And the question is this whether in the interim period you have a vested interest that should be compensated.

[00:32:10] Speaker 01:
Oh, yes, on the on the retroactivity point that it doesn't know retroactivity point doesn't depend on whether the arbitrary capricious point to I mean, they can get to where they want to go.

[00:32:22] Speaker 04:
You're just saying they can't do it right now in that manner for now.

[00:32:25] Speaker 04:
What I'm saying, ultimately, your client's business plan is in trouble.

[00:32:30] Speaker 01:
Well, no, I mean, ultimately, if they're

[00:32:33] Speaker 01:
I mean, we would be very happy to cooperate with them and help them quantify exactly how much of the resources that we bid are actually in their model.

[00:32:43] Speaker 04:
I'm sure you would, but they have no obligation to work with you on this.

[00:32:46] Speaker 01:
They can just say, you're out.

[00:32:47] Speaker 01:
They certainly don't.

[00:32:48] Speaker 01:
But if they say, we want to change in our tariffs, that this whole industry is out.

[00:32:54] Speaker 01:
And the reason it's out is because we either fully or reasonably already have a model that reasonably accounts for what you will do to lower peak demand in the out year.

[00:33:07] Speaker 01:
If that's correct, 100% they can do it and they should do it.

[00:33:10] Speaker 01:
And they should have been doing it even under the 2009 tariff.

[00:33:14] Speaker 04:
Or since 2016.

[00:33:16] Speaker 01:
Yes, exactly.

[00:33:19] Speaker 00:
I take you back quite a ways, just a very specific question.

[00:33:24] Speaker 00:
If they claim that, well, if we forecast more peak load than there was, which shows that we're already taking account of the ERs, I think you said that if that's not correct, if they're not fully taking account, that would result in rate increases.

[00:33:46] Speaker 00:
Is that correct?

[00:33:48] Speaker 00:
that there would have to be price increases as a result of their not having fully taken into account.

[00:33:56] Speaker 01:
If they haven't fully taken it into account and they exclude us, the market clearing price will be higher for two reasons.

[00:34:06] Speaker 00:
So in these two years, they didn't exclude you?

[00:34:09] Speaker 01:
They didn't exclude us.

[00:34:11] Speaker 00:
They did?

[00:34:11] Speaker 00:
Okay.

[00:34:12] Speaker 00:
No, no, they did not.

[00:34:14] Speaker 00:
They did not.

[00:34:15] Speaker 00:
All right.

[00:34:15] Speaker 00:
Then looking for whether there were, in fact, price increases in those two years will not help us.

[00:34:20] Speaker 01:
Right, because they had the ad back.

[00:34:27] Speaker 04:
And is this in your brief, like now that you're challenging their contention that this lowers prices?

[00:34:34] Speaker 01:
Yes.

[00:34:36] Speaker 01:
OK.

[00:34:36] Speaker 01:
Yes, I believe so.

[00:34:37] Speaker 04:
Maybe you can look at it and let us know on rebuttal.

[00:34:40] Speaker 04:
OK, sure.

[00:34:45] Speaker 03:
Thank you.

[00:35:00] Speaker 06:
May it please the court, Jared Fish for the Federal Energy Regulatory Commission.

[00:35:04] Speaker 06:
The commission here accepted a Federal Power Act section 205 filing from PJM that indisputably, until oral argument, lowers consumers rates and maintains grid reliability.

[00:35:15] Speaker 06:
Second, that change is not impermissibly retroactive.

[00:35:19] Speaker 06:
I'd like to start with the retroactivity point, if I may, and then shift to the Justin Reisman point.

[00:35:24] Speaker 06:
Mr. Waxman says that affirmed energy had a vested right to offer into three subsequent auctions after clearing once.

[00:35:33] Speaker 06:
Affirmed at no time had a vested right.

[00:35:35] Speaker 06:
At most, it had a contingent right to offer, and that's for several reasons.

[00:35:40] Speaker 06:
First, section L.1 of the tariff, which predated the tariff amendment.

[00:35:46] Speaker 06:
provides that an energy efficiency resource may be offered into an auction only if its energy-reducing benefits are not already accounted for in the load forecast.

[00:35:57] Speaker 06:
There is no accommodation for offering up to three additional auctions if you've already cleared once, if the energy-reducing benefit is included in the load forecast.

[00:36:09] Speaker 04:
Well, I think L4, though, says an energy efficiency resource that clears an auction for delivery year.

[00:36:15] Speaker 04:
may be offered in auctions for up to three additional consecutive delivery years.

[00:36:20] Speaker 04:
And I guess the definition of energy efficiency resource for purposes of L4 seems to indicate that if you've cleared in the first year, you're in EER for purposes of L4.

[00:36:31] Speaker 04:
I feel like you're saying that

[00:36:34] Speaker 04:
That can change.

[00:36:35] Speaker 04:
You can clear in year one, and if we change our formula, you're no longer at EER because we're accounting for this on the demand side.

[00:36:42] Speaker 04:
But I don't know that that's the best reading of this, that you can change the meaning of energy efficiency resource within L4, within one auction.

[00:36:50] Speaker 06:
cycle.

[00:36:51] Speaker 06:
I don't think that's correct, Judge Pan.

[00:36:53] Speaker 06:
The energy efficiency resource is defined by section L.1.

[00:36:56] Speaker 06:
It's not defined anywhere in L.4.

[00:36:58] Speaker 04:
But in year one, during the auction, the energy efficiency resource cleared the auction.

[00:37:03] Speaker 05:
Right.

[00:37:04] Speaker 04:
And you're saying that in years two, three, and four, it can change.

[00:37:08] Speaker 04:
It's no longer an energy efficiency resource if we then change the formula to account for the demand side.

[00:37:14] Speaker 04:
And I don't know that that's the best reading of this provision.

[00:37:19] Speaker 06:
Well, in order to be an energy efficiency resource under L4, there's nothing in the tariff that suggests that you don't have to meet the definition of an energy efficiency resource.

[00:37:29] Speaker 04:
You met it in the year one when you cleared the auction and you're saying that it can change.

[00:37:34] Speaker 06:
It can change and that makes sense of why L4 is included in the first place.

[00:37:39] Speaker 06:
As you pointed out Judge Pan, originally the three consecutive auction accommodation was there.

[00:37:44] Speaker 04:
It would be fine except for that there's a provision that says you can offer it for an additional three consecutive years.

[00:37:50] Speaker 06:
for up to three consecutive years.

[00:37:52] Speaker 06:
And if I could just break that apart.

[00:37:54] Speaker 06:
So the whole purpose behind L4 in the first place was to account for the four-year lag.

[00:38:00] Speaker 06:
Auctions are typically held three years in advance of the actual delivery year.

[00:38:06] Speaker 04:
I know you're saying now there's no more lag.

[00:38:11] Speaker 04:
But your 2009 tariff, and I'm quoting from your tariff at 62560 says,

[00:38:19] Speaker 04:
Energy efficiency resources may be offered into the auctions and, if accepted, are entitled to be offered for an additional three consecutive auctions so that the resources may receive capacity payments for up to four consecutive years.

[00:38:32] Speaker 04:
And you also said in your 2009 tariff, EE providers should have the ability to obtain the full economic benefits of their investments.

[00:38:40] Speaker 04:
So how do you square that with your position now?

[00:38:42] Speaker 06:
Well, first of all, the full economic benefits of an investment, that's not dependent on being able to offer into three years.

[00:38:52] Speaker 06:
There was an argument back in 2009 that there should be an unlimited right to offer into future auctions.

[00:38:59] Speaker 04:
But wasn't this an incentive for people to participate in your program?

[00:39:02] Speaker 04:
That they would know that they would be able to recoup whatever they invest because they would have three or four years

[00:39:10] Speaker 04:
if to participate, not necessarily clear, but to participate if they clear.

[00:39:15] Speaker 06:
Well, it's not quite, Your Honor.

[00:39:16] Speaker 06:
It's an open question whether you need three years to actually recoup an investment.

[00:39:22] Speaker 04:
Whatever.

[00:39:22] Speaker 06:
But this was an incentive.

[00:39:24] Speaker 06:
It was an incentive.

[00:39:25] Speaker 06:
But the whole reason for the three years was to account for the four-year lag.

[00:39:29] Speaker 06:
And L1 is a check on that.

[00:39:30] Speaker 06:
And it says, if we actually improve our load forecast and your energy efficiency benefits are included,

[00:39:37] Speaker 04:
And I think you can do that.

[00:39:38] Speaker 04:
The question is just what do you have to do for these these two options that are at issue?

[00:39:42] Speaker 04:
I mean, of course, you can change that for the future.

[00:39:44] Speaker 04:
There's no question.

[00:39:46] Speaker 04:
But you said that they're entitled to be offered for an additional three consecutive years in your tariff in 2009.

[00:39:52] Speaker 06:
Right.

[00:39:53] Speaker 06:
And that's that's a future legal consequence of the past action.

[00:39:55] Speaker 06:
If I could get to my other reason why it's not a vested right.

[00:39:59] Speaker 04:
It's not a future legal consequence if when they cleared in whatever the year it was, let's just say, whatever, 2000, you said at that point, you can now participate for the next three.

[00:40:14] Speaker 04:
That's a past thing that you've granted them.

[00:40:18] Speaker 06:
Well, I don't see how that can be squared with this court's decision in national cable or mobile, really.

[00:40:24] Speaker 06:
In national cable, there were contracts for a term of years, and there was a vested right in those contracts, certainly more than here, for cable providers to offer exclusive cable service to residential areas.

[00:40:38] Speaker 06:
And the Federal Communications Commission came in and said, we've decided that those contracts are anti-competitive, so we're cutting it up.

[00:40:45] Speaker 06:
Well, it said it was illegal, and so it said the future... And was the government a party to those contracts?

[00:40:52] Speaker 04:
Or, I don't know, did the government approve those contracts?

[00:40:55] Speaker 06:
Not that I'm aware of, but it was still lawful.

[00:40:58] Speaker 04:
Isn't this totally different?

[00:40:59] Speaker 06:
It's not totally different by a firm's own statement.

[00:41:01] Speaker 06:
Page 35, note three of their opening brief, they say that tariff and contract terms are equivalent for retroactivity purposes.

[00:41:09] Speaker 06:
In national cable, the contracts were not.

[00:41:10] Speaker 04:
The situation there is different though.

[00:41:12] Speaker 04:
I mean, of course, private parties who enter a contract and then the law changes, that's going to affect their contract.

[00:41:19] Speaker 04:
But here we have a tariff that was approved by FERC and we have

[00:41:24] Speaker 04:
2009 tariff, which said that they're entitled to participate for the next three years, which was approved by FERC.

[00:41:31] Speaker 04:
And now you're changing your position.

[00:41:32] Speaker 04:
I don't see how that's not retroactive.

[00:41:34] Speaker 06:
But Your Honor, I know of no case, this court doesn't have one to my knowledge, or a Supreme Court case that says there's a difference between a vested right that's set forth in a contract and a vested rights that's set forth in another document that's approved by a commission.

[00:41:50] Speaker 04:
turn on that it turns on what was actually granted invested and you have a tariff that says you're entitled to participate for the next three years going forward.

[00:41:59] Speaker 04:
Yes, they cleared and so they at that point were entitled at the time point that they cleared to participate for the next three years and now you're changing that and I don't see why that's not retroactive.

[00:42:09] Speaker 06:
It's not retroactive, Your Honor, because A, we're not changing a vested right.

[00:42:14] Speaker 06:
And so I'll put aside the L1 point for a moment.

[00:42:17] Speaker 04:
Why is it not vested if your 2009 tariff said that they're entitled to it once they clear?

[00:42:23] Speaker 06:
Because the question for retroactivity purpose.

[00:42:26] Speaker 06:
So yes, we did say you're entitled to up to three subsequent auctions.

[00:42:32] Speaker 06:
Well, we said you may offer.

[00:42:33] Speaker 06:
I'm actually saying.

[00:42:35] Speaker 06:
But that's, well, to the extent that there's a difference between what we have, how we have interpreted L1 now and how we interpreted it back in 2009, that's a question of law for this court to decide in the first instance what it means.

[00:42:49] Speaker 06:
And L1 says, you may offer into up to three consecutive auctions.

[00:42:55] Speaker 06:
And that up to language accommodates the provision L1 that provides a check in case these resources.

[00:43:02] Speaker 04:
Entitled to up to.

[00:43:05] Speaker 06:
Well, I don't think L1 doesn't actually say, or L4 doesn't actually say entitled, it says- No, no, L4 doesn't, but I think your 2009 tariff did.

[00:43:12] Speaker 06:
Well, it's the 2009 order.

[00:43:14] Speaker 06:
And the order didn't even discuss L1 or how that's a check.

[00:43:19] Speaker 06:
It was just discussing in general terms that to account for the four-year lag, these resources would be allowed to offer in.

[00:43:27] Speaker 06:
But if I could get to my other reason why it's not a vested right, under Landgraf, which is the prime case for petitioners, they say the test is

[00:43:37] Speaker 06:
for retroactivity, whether a legal change alters rights a party possessed when he acted.

[00:43:43] Speaker 06:
And it makes sense to tie the right possessed, the vested right, to the action of that party because retroactivity is concerned with reliance interests.

[00:43:51] Speaker 06:
Did you act

[00:43:52] Speaker 06:
reliance on a particular vested right?

[00:43:56] Speaker 06:
Well, at every time that a firm acted, it had only a contingent right.

[00:44:00] Speaker 04:
When it purchased $50 million worth of energy efficiency resource data, it had- Why isn't reliance when they price their bid, they're pricing in the idea or the concept that if we clear, we're going to get to participate in three more of these.

[00:44:15] Speaker 04:
So why isn't that reliance?

[00:44:18] Speaker 06:
Well, if they clear it, so that's a contingent right.

[00:44:20] Speaker 06:
That might be a secondary record.

[00:44:22] Speaker 04:
I think all businesses make plans based on contingencies, right?

[00:44:25] Speaker 04:
And so anybody who's making a bid, even the power plant companies, are making bets based on contingencies.

[00:44:35] Speaker 04:
And so they decide this is going to be our bid.

[00:44:37] Speaker 04:
And our business model, we're going to invest this much in getting lows to sell energy efficient products.

[00:44:44] Speaker 04:
And we're going to, you know,

[00:44:47] Speaker 04:
project like how much that's going to save.

[00:44:50] Speaker 04:
And if we clear, we'll get to recoup additional money because we'll get to participate and we'll try to price to clear.

[00:44:57] Speaker 04:
I mean, I just think that's something that they would include in their modeling and deciding what they're going to price.

[00:45:03] Speaker 04:
I think Mr. Waxman just confirmed that.

[00:45:05] Speaker 04:
So why isn't that reliance?

[00:45:06] Speaker 06:
Exactly.

[00:45:07] Speaker 06:
And those are the types of, no, not at all.

[00:45:11] Speaker 06:
Let me explain.

[00:45:12] Speaker 04:
You just said exactly it's reliance.

[00:45:14] Speaker 06:
there's a reliance interest in there, but it still has to be tied to a vested right to fall under primary retroactivity.

[00:45:21] Speaker 06:
Let me explain why, if I may.

[00:45:23] Speaker 04:
But if I can, just so that you can explain, I think their position is we can rely on the fact that if we clear, we're going to get to participate in the next three, and we're going to put that into our bid.

[00:45:37] Speaker 04:
We're relying on that because we're entitled to do so in the next three options.

[00:45:42] Speaker 06:
Not quite.

[00:45:44] Speaker 06:
So, yes, they had that reliance interest, which we accounted for in our orders.

[00:45:52] Speaker 06:
We weighed the benefits of excluding energy efficiency resources from the auction.

[00:45:57] Speaker 04:
We're going to the secondary argument.

[00:46:00] Speaker 06:
We're on the retroactive.

[00:46:02] Speaker 06:
Sure.

[00:46:02] Speaker 06:
Sure.

[00:46:02] Speaker 06:
But to clarify, this court is very clear in National Cable, in Mobile Relay, in Celltronix, that the question of measuring reliance interests, yes, businesses make economic decisions based on what they think the law will be.

[00:46:19] Speaker 06:
But that's a secondary retroactivity question.

[00:46:23] Speaker 04:
And once you have a contingent right- It can be a secondary one, but they also have the argument that this is a

[00:46:28] Speaker 04:
primary retroactivity problem.

[00:46:29] Speaker 06:
Right, but they need to get over the fact, in Landgraf, that for primary retroactivity, you have to show that a legal change alters the vested right the party possessed when he acted.

[00:46:40] Speaker 06:
And when they acted, they did not have a vested right, they had a contingent right.

[00:46:43] Speaker 04:
I don't think that you're answering the question because their position is that when they bid, they factored in that they were entitled

[00:46:57] Speaker 04:
entitled to participate in the next three auctions if they clear.

[00:47:02] Speaker 06:
If they cleared.

[00:47:03] Speaker 06:
Correct.

[00:47:03] Speaker 06:
That's the contingency.

[00:47:05] Speaker 06:
So yes, they had an expectation if they cleared.

[00:47:08] Speaker 06:
If another actor, if another circumstance changed the rules.

[00:47:13] Speaker 05:
Then they did clear.

[00:47:14] Speaker 06:
Right, but for purposes of primary retroactivity, that if is critical.

[00:47:19] Speaker 06:
They did not have a vested right when they offered into the auction to offer into three more.

[00:47:24] Speaker 06:
That right only vested if it vested at all.

[00:47:26] Speaker 04:
If they cleared.

[00:47:27] Speaker 06:
If PJM running the auction, if all the other participants bid something higher.

[00:47:33] Speaker 04:
So when they did clear, did they get a vested right?

[00:47:35] Speaker 04:
They did clear, and your tariff said you're entitled to participate in the next three.

[00:47:39] Speaker 04:
They clear.

[00:47:39] Speaker 04:
Is it now vested and entitled?

[00:47:42] Speaker 06:
No, I would say it's not because of the operation of L.1 because they never had an absolute right to offer into three subsequent auctions if the energy efficiency benefits.

[00:47:54] Speaker 04:
But again, it would though if you define energy efficiency resource within L4 as when you bid, you're an energy efficiency resource, you clear an auction and you can be offered for three additional consecutive delivery years.

[00:48:06] Speaker 04:
If you interpret L4 to say that the meaning of energy efficiency resource, a particular resource, doesn't change within L4, you clear the first year, you're allowed to participate in auctions for three additional consecutive delivery years, and since you're an energy efficiency resource when you cleared, that doesn't change for that particular resource.

[00:48:31] Speaker 04:
That's the way it seems to make sense to interpret L4.

[00:48:36] Speaker 06:
I understand just Pam, but that's simply not consistent with Landgraf's test that looks at what right invested, why the party acted.

[00:48:43] Speaker 04:
You're switching.

[00:48:44] Speaker 04:
I'm trying to just look at the definition of L4 and the best way to interpret it.

[00:48:48] Speaker 04:
So let's put Landgraf aside for a minute.

[00:48:50] Speaker 04:
Why isn't that the best way to interpret L4?

[00:48:53] Speaker 06:
because the best way to enter again, L4 was there to account for the four year lag.

[00:48:58] Speaker 06:
So if the four year lag doesn't exist, L4 doesn't make any sense.

[00:49:02] Speaker 04:
And that's why the future, but I think that doesn't make L4 nonsensical.

[00:49:07] Speaker 04:
If you say for, if you cleared,

[00:49:10] Speaker 04:
you can be offered for an additional three consecutive delivery years.

[00:49:14] Speaker 04:
You are still an energy efficiency resource for that period.

[00:49:17] Speaker 04:
And then you can, of course, change it.

[00:49:20] Speaker 04:
So in the future, we won't do this anymore.

[00:49:21] Speaker 04:
But for the people who cleared, why do they not have an entitlement?

[00:49:26] Speaker 06:
I don't think that that works for, well, three reasons, Your Honour.

[00:49:29] Speaker 06:
First, the phrase up to has to be doing some work in L.4.

[00:49:33] Speaker 06:
We could have just said an energy efficiency resource that clears an auction for delivery year may be offered in auctions for three consecutive... Well, it would make sense if it said they could choose not to participate.

[00:49:43] Speaker 04:
Well, but it's a passive voice.

[00:49:46] Speaker 06:
Well, I don't know.

[00:49:47] Speaker 06:
Well, first of all, I don't know why they would never participate.

[00:49:49] Speaker 06:
They've already paid for those products.

[00:49:52] Speaker 04:
But they could choose not to participate for one of the next three years.

[00:49:55] Speaker 04:
That's what up to means.

[00:49:57] Speaker 04:
It doesn't mean up to is superfluous or nonsensical.

[00:50:00] Speaker 06:
Well, I think they use the example of a bedtime where, sorry, of kids watching TV and a parent says you may watch TV for up to three hours if you finish your cleaning chores.

[00:50:13] Speaker 06:
Well, what if there's another provision that says, OK, but you can't watch any TV after dinner and dinner happens to fall with one hour?

[00:50:22] Speaker 04:
Or I can watch it three hours after dinner, but I'd rather play my video game.

[00:50:25] Speaker 04:
So I'm just going to watch two hours of TV and play my video game for an hour.

[00:50:28] Speaker 04:
I mean, it's like, OK, we can participate for the next three, but this year we choose not to for whatever reason.

[00:50:35] Speaker 04:
I don't know enough about their business.

[00:50:36] Speaker 06:
Well, they could read it that way.

[00:50:37] Speaker 06:
But at the very least, L4 is not clear.

[00:50:40] Speaker 04:
But the point is, if they can read it that way, your argument that up to makes no sense otherwise doesn't work.

[00:50:46] Speaker 06:
I think it would be harder, but could I just add the third reason why their argument doesn't work.

[00:50:53] Speaker 06:
It would totally undermine our ability to enforce the Federal Power Act.

[00:50:58] Speaker 06:
We provide an example.

[00:50:59] Speaker 06:
It's very possible that PJM had filed a section 205 tariff amendment with us back in 2009 that said, if your energy efficiency resource clears one auction, then you may offer into future auctions.

[00:51:11] Speaker 06:
And PJM thought that was perfectly rational.

[00:51:13] Speaker 04:
I don't see why that that's at all relevant here.

[00:51:15] Speaker 06:
because the principle is the same that you're articulating, Judge Paine.

[00:51:19] Speaker 04:
But it's not if you can just change your tariff beyond these three years.

[00:51:25] Speaker 04:
Your point is, oh, you can lock us into never changing our tariffs ever, but that's not true.

[00:51:30] Speaker 04:
You just have a provision that says, if you clear, you get to participate for three additional, up to three,

[00:51:38] Speaker 04:
additional consecutive delivery years.

[00:51:39] Speaker 04:
But you can, PGM clearly could change this tariff to say, after those three years, we're not doing this anymore.

[00:51:45] Speaker 04:
EERs are out.

[00:51:46] Speaker 04:
No more auctions with EERs.

[00:51:48] Speaker 04:
That's fine.

[00:51:48] Speaker 04:
It's just that this vested interest has to be honored and you can go ahead and change your tariff otherwise.

[00:51:53] Speaker 06:
right that that could be the circumstance here but if this court writes an opinion that says there it is retroactive to take away a future right that that a tariff originally says so if the tariff did say if you clear one auction you may offer into future auctions that's not totally out of out of left field well then there would be no ability there's no end date to that there would be no ability for us to come in or PJM to come in and say we find that's not just and reasonable anymore we need to change

[00:52:21] Speaker 06:
And their only response is, well, FERC wouldn't approve that tariff in the first place because it can't be just reasonable.

[00:52:28] Speaker 04:
You better be careful giving people vested rights that you don't want to follow through on.

[00:52:32] Speaker 04:
That's so crazy about that.

[00:52:33] Speaker 04:
That's not how Section 205 works.

[00:52:35] Speaker 06:
Section 205 D.

[00:52:37] Speaker 06:
But for purposes of the federal power act, no, I'm saying for purposes of federal power act, what Congress intended, that can't be right.

[00:52:44] Speaker 06:
It's not consistent with ensuring just and reasonable rates.

[00:52:47] Speaker 06:
A utility can file a new rate and that goes into automatic effect after 60 days absent our rejection of it.

[00:52:56] Speaker 06:
happens quite frequently.

[00:52:57] Speaker 06:
I just argued a case a couple years ago on a giant PJM rule setting prices for entities to offer into the auction.

[00:53:05] Speaker 06:
It was heavily litigated.

[00:53:06] Speaker 06:
That went into effect by operation of a law without any commission determination.

[00:53:11] Speaker 06:
And so if a utility could come in, file a tariff that says, if you clear once, you get to offer into future auctions.

[00:53:18] Speaker 06:
And maybe we're deadlocked two to two on it.

[00:53:22] Speaker 06:
Maybe we just don't take any action on it.

[00:53:24] Speaker 06:
That tariff goes into effect.

[00:53:25] Speaker 06:
And under a firm's theory, that could never be undone.

[00:53:28] Speaker 06:
That can't be a consistent interpretation of retroactivity law that's consistent with our obligations under the Federal Power Act.

[00:53:37] Speaker 06:
It would also prevent us from coming in under section 206.

[00:53:40] Speaker 06:
where we have an obligation and duty to remedy unjust or unreasonable rates.

[00:53:45] Speaker 06:
We couldn't come in then and say, we find this rate is still- This is all self-evident.

[00:53:49] Speaker 04:
I think it's a straw man though, because that's just not what's before us.

[00:53:53] Speaker 04:
And that's not necessarily the implication of what's before us.

[00:53:57] Speaker 04:
Because I think that's why there are careful things such as the definition of energy efficiency resource to make sure to say,

[00:54:04] Speaker 04:
that doesn't count if we're already taking it into account in the future.

[00:54:08] Speaker 04:
But regardless, I think the commission has to be careful about what it's approving to make sure it's not giving people vested rights and things that they don't want to honor in the future.

[00:54:18] Speaker 04:
That's all that is.

[00:54:20] Speaker 06:
Judge Pan, this case is a perfect example of how that doesn't always work out.

[00:54:24] Speaker 06:
Something that's just and reasonable in day one, here before energy efficiency resources were considered low forecast, might be unjust or unreasonable in year 10.

[00:54:32] Speaker 04:
In fact, I think based on your position and PGM's position, the rates have not been just and reasonable since 2016.

[00:54:38] Speaker 04:
I'm really wondering why it took them this long to figure out that this is costing consumers so much more money.

[00:54:45] Speaker 06:
Well, I think that's partly a question for PJM's council, but also answer it first.

[00:54:51] Speaker 06:
And it goes to the point that it's not like this is a small impact if a firm is allowed to offer into more auctions.

[00:54:59] Speaker 06:
Electricity rates have been surging.

[00:55:01] Speaker 06:
Capacity prices increased from approximately $2 billion to over $17 billion in, I believe, the 2024-25 auction alone, an auction in which energy efficiency resources received over $120 million in revenue.

[00:55:19] Speaker 04:
Prices are still... What happened to the firms, though?

[00:55:21] Speaker 04:
Because they're the only ones before us now.

[00:55:22] Speaker 04:
You wouldn't have to let everybody participate, only them.

[00:55:27] Speaker 04:
How much money are we talking about?

[00:55:29] Speaker 06:
Well, that's not in the record, and I think it's telling.

[00:55:32] Speaker 06:
A firm says that they project to earn $90 million to $178 million, I believe, from the 2025-26 auction alone.

[00:55:42] Speaker 04:
But that must be a fraction of the EERs, though, because they're not all the EERs, are they?

[00:55:46] Speaker 06:
Now, that's what they said they expected to receive.

[00:55:48] Speaker 04:
I know.

[00:55:48] Speaker 04:
But I'm just saying that in terms of overall utility rates, they're just one firm that's doing this.

[00:55:54] Speaker 04:
We're not talking about all of them.

[00:55:55] Speaker 04:
And we're only talking about two auctions.

[00:55:58] Speaker 04:
And it's only the ones that they previously bid.

[00:56:01] Speaker 04:
They can't bid new ones.

[00:56:02] Speaker 06:
We're talking about two auctions.

[00:56:03] Speaker 06:
We're also talking about hundreds of millions of dollars being transferred from consumers to entities like the firm.

[00:56:09] Speaker 04:
It's been happening since 2016.

[00:56:10] Speaker 06:
not to this extent.

[00:56:13] Speaker 06:
Well, yes.

[00:56:14] Speaker 06:
Well, I can't speak precisely to that, but I can say energy rises have been spiking.

[00:56:20] Speaker 06:
And that was part of the impetus for the Independent Market Monitor to file a complaint arguing that what PJM had been doing was unlawful.

[00:56:30] Speaker 06:
The Independent Market Monitor dismissed that complaint in November 2024 because PJM made this filing to say, okay,

[00:56:36] Speaker 06:
we're going to correct this now.

[00:56:39] Speaker 06:
But if I could shift to the just and reasonable point, Judge Pan, unless there are other questions or retroactivity.

[00:56:47] Speaker 06:
So I think you hit the nail on the head.

[00:56:50] Speaker 06:
There is no question here, and there's certainly no dispute until Mr. Waxman presented his argument today, that the tariff amendment saves consumers money and maintains grid reliability.

[00:57:02] Speaker 06:
And that makes perfect sense because of the way that PJAM has been operating with the ADVAC since 2016.

[00:57:10] Speaker 06:
Even if PJAM were underestimating energy efficiency resource, energy efficiency benefits in the load forecast, there still will no longer be a surplus transfer of payments from consumers to entities like a firm.

[00:57:29] Speaker 04:
I think there's no question that you can do this.

[00:57:32] Speaker 04:
This change can happen.

[00:57:34] Speaker 04:
The question is just what to do about the apparently retroactive, to me, grant of this right to participate in the next couple.

[00:57:45] Speaker 04:
It's a transitional thing.

[00:57:46] Speaker 04:
I guess it's two options that are at issue.

[00:57:49] Speaker 06:
If this court were to write an opinion that says, OK, the tariff says you cleared in year one,

[00:57:56] Speaker 04:
It's a very fact bound thing.

[00:57:57] Speaker 04:
It's this particular tariff says that if you clear in this year, you get to participate in these next three years in this particular factual circumstance.

[00:58:06] Speaker 04:
That's invested interest that this particular tariff gave to them.

[00:58:09] Speaker 04:
I don't think that that ruins your entire regulatory framework.

[00:58:13] Speaker 06:
Well, I think it very well could, because if a tariff, it's not.

[00:58:19] Speaker 06:
Respectfully, I disagree.

[00:58:21] Speaker 06:
If a utility came in and said, you may offer into future auctions a few clear ones, that's not out of left field.

[00:58:28] Speaker 04:
Then don't approve that tariff.

[00:58:30] Speaker 06:
If we're deadlocked 2-2, and we can't rule on it, it goes into effect.

[00:58:35] Speaker 04:
We're in hypothetical land now.

[00:58:40] Speaker 04:
An opinion that is very fact-bound and says that this particular tariff does this particular thing that gives them a right to participate in two auctions is not going to bring down your regulatory framework.

[00:58:51] Speaker 06:
I think it very well could.

[00:58:53] Speaker 06:
I think if it's the way Congress set up the Federal Power Act was to ensure that we have on a going forward basis, the ability to remedy unjust or unreasonable race.

[00:59:02] Speaker 06:
And if a utility makes a filing and says, in year one, maybe they haven't even really thought hard about it.

[00:59:09] Speaker 06:
We're going to give this right to a particular market participant because it seems like a really good idea now.

[00:59:15] Speaker 06:
And we're not going to put an end date on it because we can't imagine

[00:59:17] Speaker 06:
that it would ever be unjust or unreasonable, or that prices would spike, or that this would give them a windfall.

[00:59:23] Speaker 06:
And the commission doesn't rule on it, which happens, or deadlocks two to two, which happens.

[00:59:29] Speaker 06:
Under that theory of the case, we would never be able to change that.

[00:59:33] Speaker 04:
There must be lots of things going into tariffs that are wrong or bad that you're not ruling on then, not just this week.

[00:59:38] Speaker 06:
But we have the ability to come in and say, that is unjust or unreasonable.

[00:59:44] Speaker 06:
So on a going forward basis, you can no longer apply it.

[00:59:46] Speaker 06:
And under that logic, you could.

[00:59:49] Speaker 04:
You just have to litigate that.

[00:59:50] Speaker 04:
So that's not the case that's before us.

[00:59:53] Speaker 06:
Well, or a utility wouldn't be able to come in and say, we change our tariff under their theory under Section 205.

[00:59:58] Speaker 04:
Right.

[00:59:58] Speaker 04:
You just have to litigate that in the future.

[01:00:00] Speaker 04:
We're not deciding that now.

[01:00:02] Speaker 06:
Well, respectfully, I think the court will be deciding that if it rules that on a going forward basis, taking away something that was provided constitutes eliminating a vested right.

[01:00:16] Speaker 04:
And I would just end by saying that we should have a ruling that says you can take away something that was decided as a vested right, then we're not following our precedents on Landgraf.

[01:00:26] Speaker 06:
I think this court is in national cable and mobile relay.

[01:00:31] Speaker 06:
But they dealt with future, they, they distinguish future legal consequences of past actions from past legal consequences.

[01:00:39] Speaker 04:
So I keep telling you, it's a very specific.

[01:00:43] Speaker 04:
I think I understand anything else.

[01:00:45] Speaker 00:
No, no.

[01:00:47] Speaker 00:
Thank you.

[01:00:49] Speaker 05:
Thank you.

[01:00:57] Speaker 02:
Morning Judge Pan.

[01:00:57] Speaker 02:
Morning Judge Jansberg.

[01:00:59] Speaker 02:
May it please the court.

[01:00:59] Speaker 02:
My name is John Shelbert.

[01:01:00] Speaker 02:
I'm representing the system operator here at PGM Interconnection.

[01:01:04] Speaker 02:
And I think that there's been a lot of discussion about retroactivity.

[01:01:07] Speaker 02:
I'd like to retread it.

[01:01:09] Speaker 02:
And I think that you're trying to, in your last series of questions, focus on the exact language of Alphorns in a very low but bright, appropriate way, looking at the text and saying, what does this mean?

[01:01:20] Speaker 02:
And you've also asked some questions about why it was that this wasn't changed for a long period of time.

[01:01:24] Speaker 02:
So I'd like to focus on both those things, because they're closely related.

[01:01:28] Speaker 02:
When the order was written in 2009, your honor was referring to the tariff.

[01:01:32] Speaker 02:
I think your honor was referring to the order where it used the phrase entitled, which is not a great word.

[01:01:36] Speaker 02:
And sometimes we can find, if we're looking for cherry picking items like that, we can find such things in the tariff.

[01:01:43] Speaker 02:
I think much of this case is built around reaches like that.

[01:01:47] Speaker 02:
Put us back in the time frame of 2009 when energy efficiency was first coming in.

[01:01:51] Speaker 02:
The fight that we were having had nothing to do with L1.

[01:01:54] Speaker 02:
The question was,

[01:01:55] Speaker 02:
Are we ever going to have a mechanism that's going to allow these people to recover this money?

[01:01:59] Speaker 02:
And the answer was to put in L4 and say, well, you are going to be allowed to participate in these future auctions.

[01:02:05] Speaker 02:
But the background rule was always L1.

[01:02:07] Speaker 02:
If you're reflected in load forecast, you're not an energy efficiency resource.

[01:02:10] Speaker 02:
You can't participate at all.

[01:02:14] Speaker 02:
The L4 was written in the context of a time when no one was expecting there to be a load forecast that was going to capture what they were going to do, and so they needed a mechanism to be able to participate.

[01:02:22] Speaker 02:
It was a forward-looking thing at a time when no one could forecast the change was going to be.

[01:02:26] Speaker 02:
That is, I think, the appropriate way for you to read L4 only as a background rule for L1.

[01:02:31] Speaker 02:
It's interesting that they're taking such an aggressive position to me, at least especially to me, that they're taking such an aggressive position, what this means, because we just begin with the word may.

[01:02:39] Speaker 02:
May is not the language of command.

[01:02:41] Speaker 02:
It is clearly meant to be permissive and both in their request for a stay.

[01:02:47] Speaker 04:
Allowed by PGM to participate in the auction.

[01:02:49] Speaker 02:
we would except for it's immediately followed by two situations where that wouldn't be true.

[01:02:54] Speaker 02:
If you read the entire the entire revision then says, but if your equipment's worn out and it's past its life date, then you can't be here.

[01:03:00] Speaker 02:
Also, if you want to lock in your your your prices and participation, you can do that through the new entry price of judgment.

[01:03:05] Speaker 02:
The reason why I'm mentioning that is because they were so concerned about the fact that the word may is not imperative that they came up with this theory that may must mean shall because otherwise it would be superfluous for FERC to say that capacity clearance is not guaranteed.

[01:03:21] Speaker 02:
That's another big difference between now and then.

[01:03:24] Speaker 02:
Mr. Waxman spoke a great deal about the fact that they're price takers.

[01:03:27] Speaker 02:
They're just going to take whatever the market will bear.

[01:03:29] Speaker 02:
Of course they will because their investments for buying receipts from people are never going to equal the amount of investment you have to do to drop millions of dollars of iron in the ground and buy fuel in order to run thermal things.

[01:03:38] Speaker 02:
So of course they're going to be price takers.

[01:03:40] Speaker 02:
And they are in fact a very small part of the market, which is one of the reasons why modeling them is always going to present certain difficulties because you're measuring the millimeter differences in the length of hair in the back of someone's neck and wondering how that affects their body weight.

[01:03:51] Speaker 02:
That's a bit of a stretch, but I think you get the basic point.

[01:03:53] Speaker 02:
This thing is not the big part of the market.

[01:03:55] Speaker 04:
If they are such a small part of the market, what Mr. Fish was saying about these are millions of dollars that's going to affect... No, this is the problem.

[01:04:04] Speaker 02:
Problems are being paid a very great deal of money to provide a very, very small service.

[01:04:09] Speaker 02:
That is the problem.

[01:04:09] Speaker 02:
When I say that they're a small part of the market, I'm not talking about the money they're extracting from it.

[01:04:12] Speaker 02:
I'm talking about their contributions to reliability.

[01:04:14] Speaker 04:
No, I totally agree, which is why I don't know why.

[01:04:18] Speaker 04:
So the mystery is what happened.

[01:04:22] Speaker 02:
I trace this back to a particular date.

[01:04:24] Speaker 02:
FERC issued an order called Advanced Energy Economy in 2017.

[01:04:27] Speaker 02:
After the first Trump election, they were coming in.

[01:04:31] Speaker 02:
I was contemplating the time going to FERC and did later.

[01:04:34] Speaker 02:
And it was alarming to read this order because it gave a very strong signal, hey, I can give you the site if you want.

[01:04:40] Speaker 02:
It's a 2017 order.

[01:04:40] Speaker 02:
saying, no, we're not going to let states opt out of providing EE.

[01:04:44] Speaker 02:
The site is, hold on a moment.

[01:04:48] Speaker 02:
It is 161 FERC paragraph number 61245.

[01:04:52] Speaker 02:
You can look to page seven.

[01:04:55] Speaker 02:
The question in that case was, are we going to let states opt out of EE because we did let them opt out of DR, which became a whole issue.

[01:05:04] Speaker 02:
We had the FERC versus EPSA litigation here, and then it went to the Supreme Court.

[01:05:07] Speaker 02:
So that was a very powerful signal.

[01:05:10] Speaker 02:
EE is important.

[01:05:11] Speaker 02:
And then we got other orders like Order 2022.

[01:05:13] Speaker 02:
The whole regulatory impetus during that phase of FERC regulation was aimed at kind of drilling down and finding any sort of creative way they could to get prices to be lower and lower and lower.

[01:05:24] Speaker 02:
They got too low, and people left the market.

[01:05:27] Speaker 02:
As our brief traces through the history, why did the attention suddenly turn to EE?

[01:05:34] Speaker 02:
In the same way it turned to other things that had gotten a sort of free pass, there's been a lot of litigation about something called the minimum price rule.

[01:05:41] Speaker 02:
Not for you, but generally in the third circuit.

[01:05:44] Speaker 02:
But it involves how you deal with subsidies and so forth.

[01:05:47] Speaker 02:
And there was a sort of theme built in from 2014 in the NGBP order that, well, some things are just too small in a market this big to worry about.

[01:05:54] Speaker 02:
So in 2014, we've got third circuit decisions and FERC orders saying,

[01:05:58] Speaker 02:
We don't really care about renewables.

[01:05:59] Speaker 02:
They're such a small part of the passing market.

[01:06:02] Speaker 02:
They don't have to have especially restrictive rules.

[01:06:05] Speaker 02:
Same thing for DR, same thing for EE.

[01:06:07] Speaker 02:
But then EE begins to climb, climb, climb, climb, climb.

[01:06:10] Speaker 02:
What are the two things that really begin to shock the conscience?

[01:06:13] Speaker 02:
This thing called Winter Storm Elliott occurred for Christmas in 2022 that led to a year-long multi, this is hundreds of parties involved.

[01:06:21] Speaker 02:
We ultimately had a settlement of 108 parties.

[01:06:25] Speaker 02:
we realized we're suddenly paying DR and EE this huge amount of money because they don't have a performance obligation to do anything.

[01:06:32] Speaker 02:
And so there were, in fact, you were talking about that there used to be a number of, the firm is not the only EE provider, right?

[01:06:38] Speaker 02:
That's because these other guys got more money than they ever thought they were going to get and they just disappeared before we could even get to a settlement.

[01:06:43] Speaker 02:
So there was significant worry about what was going to happen with EE entities that

[01:06:50] Speaker 02:
were able to receive bonus payments when they were utterly unable to provide any actual good to the system at the time.

[01:06:56] Speaker 02:
So it began a very long stakeholder process.

[01:06:58] Speaker 02:
People were like, look, who is going to go to the emperor and tell him he's wearing no clothes?

[01:07:01] Speaker 02:
Because Fert keeps saying that EE is this awesome thing, and it's a wonderful thing for consumers.

[01:07:07] Speaker 02:
We had to bite the bullet and say, no, this is actually a terrible thing.

[01:07:11] Speaker 02:
And so we started a stakeholder process.

[01:07:14] Speaker 02:
It lasts for a year.

[01:07:15] Speaker 02:
The stakeholder process shakes loose even more fruit because what we're not talking about are some cases FERC still has before them.

[01:07:21] Speaker 02:
Three complaints by the IMM, all of which are now pushing that argument that they apparently agree with now, which is that somehow this is all illegal because it was in the add back mechanisms created in manual 18 and was not

[01:07:34] Speaker 02:
put in the tariff.

[01:07:35] Speaker 02:
And there's a whole rule of reason, line of cases about how those things work.

[01:07:38] Speaker 02:
I'm very, very surprised to hear them say that they've always been against the ad back, because they would not receive money otherwise for many, many, many years.

[01:07:44] Speaker 02:
And I'm not entirely sure it's accurate, although I'm sure Mr. Watt probably believed it.

[01:07:47] Speaker 02:
But it's not consistent with my memory or the history of my life that that's a position they've been taking.

[01:07:52] Speaker 02:
But I'd be delighted to be educated otherwise.

[01:07:54] Speaker 02:
So we have a shocks to conscience situation.

[01:07:56] Speaker 02:
And the IMM files last June.

[01:07:58] Speaker 02:
And he says, you know what?

[01:07:59] Speaker 02:
This has always been illegal.

[01:08:00] Speaker 02:
We want to take back all money all the way back to 2016.

[01:08:02] Speaker 02:
That's an example of retroactivity.

[01:08:05] Speaker 02:
He files another complaint and bifurcates the guys who work for state utilities from ones that don't.

[01:08:09] Speaker 02:
Then he files a third complaint.

[01:08:10] Speaker 02:
He filed yet another complaint.

[01:08:11] Speaker 02:
And this is when, in our brief, we pointed out that the firm had conceded in response to the most recent complaint by the IMM that this was all a forward-looking thing, not a retroactive thing, because they were trying to say, look, what he's doing now is violating what FERC said it was giving as our protection, which is that it was only going to be perspective.

[01:08:28] Speaker 02:
So we're dancing around all these terms, but it is

[01:08:31] Speaker 02:
This is just clearly not retroactive.

[01:08:36] Speaker 02:
And if in fact we were to lose this position here, this is why I say this.

[01:08:40] Speaker 02:
Because Congress, your honor, Congress knows how to tell us what does and does not constitute necessary relief.

[01:08:45] Speaker 02:
And this ties into both the retroactivity argument and also the reliance argument.

[01:08:49] Speaker 02:
What does Congress say?

[01:08:50] Speaker 02:
You have 60 days under 205, get this filed, and if Burke does nothing, it goes into effect.

[01:08:55] Speaker 02:
That case he was talking about before is actually leading against him in the Third Circuit.

[01:08:59] Speaker 02:
at the case where we're dealing with the tie-tie vote and what's going to happen with a much larger amount of money under the moper.

[01:09:08] Speaker 02:
Congress told us 60 days is enough notice.

[01:09:11] Speaker 02:
And that is all that the world needs to be provided.

[01:09:14] Speaker 02:
I think your honor was quite correct to observe that work could just yank this out at any point.

[01:09:19] Speaker 02:
But for this pesky little L4 thing, which appears to give someone, according to them, the vested right, which I've just tried to explain didn't really exist.

[01:09:26] Speaker 02:
It was conditional and you had to first meet the L1 thing.

[01:09:29] Speaker 02:
We talked about the kids having their TV analogy.

[01:09:32] Speaker 02:
You can come up with many, many others.

[01:09:33] Speaker 02:
But

[01:09:35] Speaker 04:
Because I'm worried that I think he's not so active.

[01:09:40] Speaker 02:
My best argument's not retroactive is because they got a year's worth of notice through the stakeholder process they actually participated in.

[01:09:47] Speaker 02:
This was going.

[01:09:48] Speaker 02:
They had complaints filed before the 205 was filed.

[01:09:50] Speaker 02:
The 205 is about an auction that was taking place nine months later for delivery gear that was a further bid after that.

[01:09:56] Speaker 04:
So- Doesn't your argument just say that this amendment was not retroactive, like this was- Yes.

[01:10:01] Speaker 04:
It wasn't a normal process.

[01:10:02] Speaker 04:
Yes, the change- They didn't notice that it was gonna happen.

[01:10:04] Speaker 04:
Yes.

[01:10:04] Speaker 04:
Their argument is,

[01:10:06] Speaker 04:
That they have a right that vested back when they cleared and right.

[01:10:10] Speaker 04:
Said, and I want to get the correct because it didn't say entitled as I had remembered the 2000 for order says that P. J. M. proposal would allow an E resource to bid into the auction.

[01:10:22] Speaker 04:
and if it is accepted to bid for an additional three consecutive years.

[01:10:25] Speaker 04:
As a result, the resource may receive capacity payments for up to four consecutive years.

[01:10:30] Speaker 02:
Because they were trying around 12 years that there was not going to be some mechanism for these guys to achieve their recovery.

[01:10:36] Speaker 02:
By the time they were built in in 2016, it was there.

[01:10:39] Speaker 02:
L4 is A, a relic.

[01:10:42] Speaker 02:
B, does not mean what they said it means and no one ever argued otherwise until very, very recently.

[01:10:47] Speaker 02:
Your honor, may your honor notice that they're not the only E provider.

[01:10:51] Speaker 02:
Where are the other ones?

[01:10:53] Speaker 02:
This is an overwhelmingly supported.

[01:10:57] Speaker 02:
Where's everybody else?

[01:10:58] Speaker 02:
They're not here.

[01:10:59] Speaker 02:
There are still other people who provide E at the state level.

[01:11:02] Speaker 02:
The difference is this.

[01:11:03] Speaker 02:
They're not getting paid through the market.

[01:11:05] Speaker 02:
There's much here about their business model.

[01:11:08] Speaker 04:
Can we go back to retroactivity?

[01:11:09] Speaker 04:
I want to understand your best argument for why this is not retroactive.

[01:11:13] Speaker 04:
Because it sounds to me that your arguments sound in there's an amendment process they hadn't noticed.

[01:11:18] Speaker 04:
I'll make it by way of- That doesn't go back to the point where they cleared.

[01:11:21] Speaker 02:
I'll make it by way of a summary judgment argument.

[01:11:26] Speaker 02:
Let's assume that their interpretation of L4 were accurate.

[01:11:29] Speaker 02:
We do not agree that that is true for the reasons I brought up, may, et cetera, and the fact that their whole theory of why may means shall is just utterly wrong even in the text of the order.

[01:11:37] Speaker 02:
So let's accept that for argument purposes that L4 should be read as they read it.

[01:11:44] Speaker 02:
It still could have been eliminated with forward effect.

[01:11:46] Speaker 02:
They are a very, very small portion of things that change in response to the most big recent event, which is the very, very large capacity auction prices that went up by 10 times this last year.

[01:11:57] Speaker 04:
I'm not trying.

[01:12:01] Speaker 04:
I know you're not trying to confuse me, but like, can we just stick with this and not go into other situations?

[01:12:11] Speaker 02:
This was part and parcel of several other changes that occurred.

[01:12:14] Speaker 02:
I'm trying to link this together with a lockdown argument because I think that you may believe that FERC was overselling the idea that granting this complaint would cause very serious damage for rate making.

[01:12:23] Speaker 02:
And we would like to very much get behind the argument that it would.

[01:12:28] Speaker 02:
Let's assume L4 means what they say it means.

[01:12:31] Speaker 02:
We could have still with 60 days notice removed that.

[01:12:33] Speaker 02:
no matter whether or not they were already making business decisions on that subject.

[01:12:38] Speaker 02:
This happens, unfortunately, very frequently.

[01:12:40] Speaker 02:
And the reason why I was mentioning large auction is because this is a baby change compared to the other massive changes that were made in the new auction that was just held.

[01:12:49] Speaker 02:
For example, everyone who provides DER, everyone is now subject

[01:12:53] Speaker 02:
to everyone who's previously relieved of any non foreign charges.

[01:12:57] Speaker 04:
The question is, if you tell somebody that when you clear, you can offer an options for an additional three consecutive delivery years.

[01:13:04] Speaker 04:
To me, that's a very specific term that doesn't apply to all these other things that you're talking about.

[01:13:11] Speaker 04:
Why is it that this didn't vest when they cleared?

[01:13:16] Speaker 02:
And I'm trying to say that the only thing that makes that interesting is because they mention a specific number of years.

[01:13:20] Speaker 02:
That's what makes it very specific.

[01:13:22] Speaker 02:
I'm trying to tell you that the context for that three-year forward look is because at the time that was written in 2009, there was not a clear way for them to get paid that money.

[01:13:31] Speaker 02:
They were going to allow them to get that, but that didn't change in 2016.

[01:13:34] Speaker 02:
Then you have the legitimate question, once then things changed in 2016, why did you not go reverse and take this relic out?

[01:13:40] Speaker 02:
Well, that didn't happen.

[01:13:41] Speaker 02:
It was still there.

[01:13:42] Speaker 02:
What I'm trying to say is that there are other affirmative provisions that only differ and that they don't talk about a specific number of years, but that say affirmative open-ended things like if you are a demand response resource, if you are a hybrid resource, if you are a solar or wind resource, you do not have to pay non-performance charges.

[01:13:59] Speaker 02:
There's no, there's no lemon on it.

[01:14:00] Speaker 02:
There's no specifics and that got yanked away and orders that were issued contemporaneous with these were part of the larger package.

[01:14:06] Speaker 02:
Things happen.

[01:14:07] Speaker 02:
It is absolutely unclear to me how mentioning that something can happen for three times.

[01:14:11] Speaker 04:
Not different because you don't have to pay performance charges.

[01:14:14] Speaker 04:
You can change that so that you do have to pay performance charges.

[01:14:18] Speaker 04:
But if you say you don't have to put performance charges for three years, if you clear,

[01:14:25] Speaker 04:
on this particular date.

[01:14:27] Speaker 04:
I think that's the thing, like they cleared on a particular date.

[01:14:30] Speaker 04:
So I don't know why they didn't invest for those three years as of that particular date, as opposed to a general rule change, which of course you can do.

[01:14:38] Speaker 04:
The rule used to be what you just said, and now we've changed that.

[01:14:42] Speaker 04:
You can do that, of course you can.

[01:14:44] Speaker 04:
But if there's a provision that says on a particular date, you get a right, because once you clear an auction, you can be offered for an additional three consecutive delivery years.

[01:14:53] Speaker 04:
To me, isn't that the distinguishing factor that you cleared an auction?

[01:14:58] Speaker 04:
There was a date on which you got a right to participate for three more years.

[01:15:03] Speaker 04:
That's vested.

[01:15:05] Speaker 02:
I think that an example, if you really wanted to vest the right and lock it in, you would have taken advantage of the new entry price adjustment.

[01:15:10] Speaker 02:
You would have said, I'm taking this money, I'm taking this offer, and I'm going to extend it for the next three years.

[01:15:15] Speaker 02:
That's an option right there at the bottom of L4.

[01:15:17] Speaker 02:
If you want to guarantee you're going to clear and you want to guarantee your price, it's right there.

[01:15:20] Speaker 02:
So there were ways that they could have locked it in.

[01:15:23] Speaker 02:
I'm not trying to pretend that L4 is a model of clarity.

[01:15:26] Speaker 02:
These things are drafted by stakeholder committees and they write strange things in them sometimes.

[01:15:30] Speaker 02:
But I don't think that bending L4 to achieve an outcome here, which is utterly contrary to what we're trying to accomplish.

[01:15:37] Speaker 04:
I have no incentive to bend L4.

[01:15:38] Speaker 04:
I'm just trying to read L4.

[01:15:39] Speaker 04:
And L4 seems to say that if you clear an auction,

[01:15:44] Speaker 04:
you can offer into three consecutive years.

[01:15:46] Speaker 04:
And I don't see it having that broad effect that you and Mr. Fish think, because I think it's a really specific thing that says, as of the date you clear the auction, that's when you vest.

[01:15:59] Speaker 02:
OK, I don't think that changes anything, because if there is an absolutely open-ended requirement that is not tied at a particular time, but says you may do this in perpetuity, you're a coal plant, you may offer in perpetuity, that gets stripped away.

[01:16:10] Speaker 02:
There are so many different things I could point to that

[01:16:13] Speaker 02:
The rule is you can do this, and it is taken away.

[01:16:17] Speaker 02:
It is a protection that's given, it's defended, it's litigated here, and it's nevertheless still taken away.

[01:16:22] Speaker 02:
You can have a right of first refusal that is built into your operating agreement, and then can issue it over in 2001.

[01:16:28] Speaker 02:
So those things happen.

[01:16:29] Speaker 04:
What you're saying, I'm just not seeing why this isn't different.

[01:16:32] Speaker 02:
I guess my question to you then, Your Honor, is I don't understand why.

[01:16:34] Speaker 02:
It seems to me lesser to say you have this right in perpetuity.

[01:16:38] Speaker 02:
and it's taken away versus if this thing happens you get to do this other thing but again I think it's all really explained by history.

[01:16:46] Speaker 02:
There's only one reason for L4 to exist and read the entire context of the order and what was happening at the time.

[01:16:52] Speaker 02:
They wanted to make sure that these guys had some opportunity to recover their money and they weren't really sure how one was going to measure any of these things and this was an opportunity for them to say hey you don't get your money this time

[01:17:00] Speaker 02:
You get these other bites at the apple.

[01:17:02] Speaker 02:
That also gets down to the whole business model here.

[01:17:05] Speaker 02:
Realize how unusual this is.

[01:17:07] Speaker 02:
If you're saying somebody's cleared an auction, and now they're going to get to re-clear the same materials going into a future year, you cannot do that.

[01:17:15] Speaker 04:
That's what L4 said.

[01:17:16] Speaker 02:
No, but I'm explaining why it could only make sense in the context of E, that we even contemplate somebody participating in a later auction, because they would have to show the very thing that they're arguing with us about today, which is that somehow they weren't paid enough in that earlier auction to account for what they did before.

[01:17:30] Speaker 02:
And which gets to a whole question about their business model.

[01:17:33] Speaker 02:
And of course, their business model is very much under consideration by for enforcement and a totally different proceeding from here.

[01:17:39] Speaker 02:
So I'm sure that they would like to get one last bite.

[01:17:43] Speaker 02:
There were some other strange things that were said here today that I'm still trying to figure out.

[01:17:46] Speaker 02:
I did not expect them to come up and concede outright that the only thing that they were trying to do was get money from this upcoming auction.

[01:17:56] Speaker 02:
their own reading of L4.

[01:17:57] Speaker 02:
If L4 were stored, it meant what it said.

[01:18:00] Speaker 02:
If they were allowed to clear the upcoming auction, which they've said they were certainly going to be able to do because they're going to be those price takers.

[01:18:05] Speaker 02:
I don't see what the limiting principle can be.

[01:18:07] Speaker 02:
They're just offering that up as like a self-imposed limitation because if L4 means what they say it means, then if we allow them, if you order them to be allowed to clear for this auction, I do not see how the same reading that caused you to allow them to have relief wouldn't also mean they could argue for the next three.

[01:18:21] Speaker 04:
You could change the tariff to say starting this auction.

[01:18:23] Speaker 02:
We already did.

[01:18:25] Speaker 02:
already did.

[01:18:26] Speaker 02:
So it's not clear to me how much further we would need to go in eliminating that.

[01:18:30] Speaker 02:
And I think they would have maybe possibly another year after that.

[01:18:33] Speaker 02:
But the positions they've raised today are, again, they're things I did not expect them to say particularly.

[01:18:39] Speaker 02:
They've always been in favor of eliminating the adback mechanism, which is the only way they could have been paid.

[01:18:43] Speaker 04:
But that was- Can these cases be settled?

[01:18:45] Speaker 04:
I don't know.

[01:18:46] Speaker 04:
Is this a context in which, like, I don't know, PGM and

[01:18:51] Speaker 02:
I think that's a question of conscience.

[01:18:52] Speaker 02:
PGM can, of course, try to settle with someone, but who's going to pay the bill?

[01:18:57] Speaker 02:
PGM was a significant issue.

[01:18:59] Speaker 02:
Our rates go up.

[01:18:59] Speaker 02:
Exactly.

[01:19:00] Speaker 02:
There is no way for us to settle with them without giving your money to them.

[01:19:04] Speaker 02:
And that's one of the reasons why Winter Storm Elliott focused such great attention on, oh my gosh, how much are we paying these guys?

[01:19:09] Speaker 02:
This is a lot of money.

[01:19:10] Speaker 02:
And so who's going to be the bad guy?

[01:19:12] Speaker 02:
He's going to have to go tell FERC that their lovely experiment that they started is not really working out and needs to be gotten rid of.

[01:19:17] Speaker 02:
But that's the real reason why no one sought to get rid of it earlier.

[01:19:21] Speaker 02:
But please do understand that if they're serious, the ad backing mechanism is something they've always opposed.

[01:19:26] Speaker 02:
There's still a pending complaint from the IMF at FERC right now that says, all right, this was always illegal.

[01:19:30] Speaker 02:
Nobody gets any money from 2016 forward.

[01:19:33] Speaker 02:
And that's still there.

[01:19:35] Speaker 02:
And the whole other level of retroactivity is involved there.

[01:19:40] Speaker 02:
I would very much like to talk about why this is a just and reasonable thing for it to do and also why it is that they didn't really have any reasonable reliance interests.

[01:19:50] Speaker 02:
I'm not clear if you tolerate for me to go into those spaces, but I would like to discuss them.

[01:19:55] Speaker 04:
Do you have any other questions?

[01:19:57] Speaker 04:
I think that we're clear on those points.

[01:19:58] Speaker 04:
Thank you.

[01:19:59] Speaker 02:
All right.

[01:20:00] Speaker 02:
Well, if there are no further questions, I really do appreciate your time.

[01:20:03] Speaker 02:
Thank you very much.

[01:20:11] Speaker 01:
In answer to Your Honor's question, I direct the Court's attention to page 20 of our reply brief on the contention that, in fact, except to the extent that our EERs or the EERs of any state utility or other EER provider are already included in the forecast, they both lower prices and they increase reliability.

[01:20:37] Speaker 01:
As to the points about retroactivity, which obviously consumed almost all of the bottom-side argument at the court's direction, I have five points to make, maybe four.

[01:20:48] Speaker 01:
Number one, this notion about the L4 can only be interpreted in light of L1.

[01:20:56] Speaker 01:
And therefore, yes, if you clear in the first year, you've got to write in the next three years, but only if

[01:21:04] Speaker 01:
those light bulbs and compressors and everything that you bid in, which will also be operating in the next four years, the next three years, are not already reflected in the peak load forecast.

[01:21:17] Speaker 01:
That understanding is a genuine novelty in the briefing in this case.

[01:21:23] Speaker 01:
In FERC's 2009 order,

[01:21:27] Speaker 01:
Your honor quoted the language.

[01:21:29] Speaker 01:
It clearly understood that the time you needed to convince PJM that you really were a measurable, verifiable EER was in year one.

[01:21:40] Speaker 01:
Their reading of it would make that three additional year guarantees self-defeating because if we come to them in year one,

[01:21:49] Speaker 01:
and say, we're going to bid in a savings of 100 megawatt hours at peak load based on these 100,000 light bulbs and God knows how many air conditioners, et cetera, et cetera.

[01:22:03] Speaker 01:
They know that in year two, year three, and year four, those same products are going to be reducing demand.

[01:22:10] Speaker 01:
It's self-evident that they have the ability to build that information in, whether this is before 2016 or after 2016.

[01:22:21] Speaker 01:
The time to establish eligibility

[01:22:25] Speaker 01:
was in year one, and that's the only sensible reading and the only reading that anybody had of this until the bottom side briefs were filed in this case.

[01:22:36] Speaker 01:
Number two, this reliance on national cable and mobile relay, and also I guess to some extent on your decision in Celltronix,

[01:22:45] Speaker 01:
In national, none of those, those cases were careful to explain that none of them involved a vested right.

[01:22:54] Speaker 01:
In national cable, Judge Panas, your honor, recognized what the holding was, number one, the FCC had never approved these contracts.

[01:23:03] Speaker 01:
There was no government

[01:23:05] Speaker 01:
Imprimitor placed on them that complaints came.

[01:23:08] Speaker 01:
They had an investigation about whether they were illegal and they found that the cable companies had no legal right under the contracts because they violated the antitrust law.

[01:23:19] Speaker 01:
It's like saying if somebody comes in complaints to you about.

[01:23:23] Speaker 01:
an antitrust conspiracy and shows the following agreements, you're not limited in giving relief to saying, well, we can't touch those existing agreements because they were made, et cetera, et cetera, even though they were illegal.

[01:23:37] Speaker 01:
We can only say that in the future, when you make agreements, you can't include this particular provision.

[01:23:45] Speaker 01:
In mobile relay, this court specifically held that the plaintiff had only a quote mere expectation, not a right of any sort to switch uses within the band that it licensed because the FCC

[01:24:01] Speaker 01:
always, quote, retains unilateral authority to modify a license, and therefore the court held.

[01:24:08] Speaker 01:
The plaintiff had merely the expectation that the license could be used for a number of options, including ESMR.

[01:24:16] Speaker 01:
And finally, in Celtronics, again,

[01:24:20] Speaker 01:
The this involved a new rule that attempted to extend the grace period for making certain payments.

[01:24:28] Speaker 01:
The court said that there was no vested right ever involved to do this.

[01:24:34] Speaker 01:
And that's the distinction.

[01:24:35] Speaker 04:
Next report that I mindful of the time.

[01:24:38] Speaker 01:
Yeah, yeah, OK.

[01:24:40] Speaker 01:
They say, well, we fail.

[01:24:43] Speaker 01:
Our reading fails on retroactivity.

[01:24:45] Speaker 01:
Reading fails under the Landgraf test.

[01:24:47] Speaker 01:
Landgraf, again, says that whether the new provision attaches new legal consequences to lead to events completed before its enactment.

[01:24:58] Speaker 01:
Now, in their briefing, they refer repeatedly to a formulation that Justice Scalia employed in his loan concurrence in

[01:25:10] Speaker 01:
I'm forgetting the name of the case, but it's cited repeatedly in the briefs.

[01:25:16] Speaker 01:
What Justice Scalia said was retroactive rules alter the past legal consequences of past actions.

[01:25:26] Speaker 01:
And this court has repeated that formulation together with

[01:25:30] Speaker 01:
with the land graph formulation.

[01:25:32] Speaker 01:
The past actions here are our investment bid and acceptance, and the past legal consequences were that under the existing tariff, we had the right to bid those same resources in three more years.

[01:25:49] Speaker 01:
Now, Council for the FERC says, well, the whole reason we got that in the first place was there was this three-year lag between the auction and the delivery year.

[01:26:00] Speaker 01:
That was not the principle or even the second reason that is reflected in the 2009 order.

[01:26:06] Speaker 01:
The first reason was that these devices, this equipment would have a useful life and keep reducing demand in the out years.

[01:26:20] Speaker 01:
And therefore, we should include the right to continue to account for them in at least some years.

[01:26:27] Speaker 01:
There was an argument that

[01:26:30] Speaker 01:
that three additional years wasn't enough.

[01:26:32] Speaker 01:
And what FERC ordered was that PJM investigate whether the four-year right was long enough.

[01:26:41] Speaker 01:
The second reason was, as counsel for PJM acknowledged, to give us, to give bidders the certainty and stability that they would have more than one year to recover their costs.

[01:26:53] Speaker 01:
And what the court said is, in addition, there is this three-year lag period.

[01:27:00] Speaker 01:
I guess I can do only four points.

[01:27:07] Speaker 01:
The hypothetical about in perpetuity, well, the reasoning here would necessarily say that if a tariff said you could continue to bid these cleared resources in perpetuity, you'd have to agree with that.

[01:27:22] Speaker 01:
First of all, as Your Honor pointed out, that is not this case.

[01:27:26] Speaker 01:
Second of all, because FERC has to approve rates only if they are just and reasonable.

[01:27:34] Speaker 01:
It would not be just and reasonable essentially to prevent the terror from ever being changed, no matter what the change circumstances were.

[01:27:43] Speaker 01:
And second of all, if there were such a provision,

[01:27:46] Speaker 01:
It's the argument would certainly be that's not enforceable because it is inconsistent with the statutory mandate.

[01:27:53] Speaker 01:
It can't mean forever.

[01:27:55] Speaker 01:
Here, it was expressly tied both to the estimated useful life of the demand reducing products and the reasonable return.

[01:28:07] Speaker 01:
As to Mr. Shepard's arguments, just three very quick points.

[01:28:11] Speaker 01:
Number one, the argument, and your honor mentioned it, well, you're going to be out of this market, but FERC says there are state utilities, and they'll still be able to operate.

[01:28:22] Speaker 01:
Those utilities are also bidding on the supply side, and they are also now cut off.

[01:28:30] Speaker 01:
They are not receiving.

[01:28:32] Speaker 01:
payments from PJM for the EERs that they used to bid in and now are not allowed to bid in.

[01:28:41] Speaker 01:
Number two, this argument that the independent monitor for years has been saying that this ad back is crazy and we have to get rid of it, we have to get rid of it.

[01:28:52] Speaker 01:
And they proclaim that, look, this change was the result of a vote of the stakeholders of PJM that we had to get rid of EERs and the ad back.

[01:29:03] Speaker 01:
The proposal from PJM at that stakeholder meeting was to retain them because it was important to retain EERs on the supply side.

[01:29:16] Speaker 01:
Thank you.

[01:29:18] Speaker 04:
It's submitted.

[01:29:19] Speaker 04:
Thank you very much.

[01:29:20] Speaker 04:
Thank you.