[00:00:00] Speaker 01:
Chase number 23-1196 at L. Louisville Gas and Electric Company and Kentucky Utilities Company Petitioners versus Federal Energy Regulatory Commission.

[00:00:12] Speaker 01:
Mr. Jones for the petitioners, Ms.

[00:00:14] Speaker 01:
Masniat for the respondents, Mr. Bain for the interveners.

[00:00:20] Speaker 07:
Good morning, Your Honors.

[00:00:21] Speaker 07:
You may please the court.

[00:00:22] Speaker 07:
Christopher Jones for the petitioners.

[00:00:24] Speaker 07:
Two and a half years ago, this court affirmed several important aspects of the Commission's decision to sunset the de-pancaking subsidy, but vacated the orders because the Commission failed to address the effect on rates prong required under the public interest analysis under the Commission's regulations.

[00:00:40] Speaker 07:
On remand, FERC commits the exact same legal error, but in reverse, compounding it by narrowly looking only at the effect on rates.

[00:00:49] Speaker 07:
FERC's steadfast refusal, again, to balance the required public interest factors is wrong,

[00:00:54] Speaker 07:
But even if it isn't, FERC's analysis within the rates prong suffers multiple independent errors, each of which is a basis for vacatur.

[00:01:03] Speaker 07:
I'd like to spend a moment on the 203b standard of review before addressing FERC's many rates analysis errors.

[00:01:10] Speaker 07:
On the standard of review, 203b operates differently than 203a.

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is the merger review clause well 203 B is to quote this court in Kentucky municipal is where we find the power to adjust merger conditions.

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Now FERC is arguing today that it's 203 B authority empowers it to review the requested modifications entirely independent of the original merger.

[00:01:34] Speaker 07:
We think that's contrary to the statute and the case law.

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And before I proceed, I want to be very clear about something.

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This dispute is not about whether the commission should analyze all three elements of the public interest analysis.

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We agree that it should.

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The question is how.

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And that is our dispute today, not about whether all three elements should be considered.

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On that note, the statute itself contains a tie back to the original merger.

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It says, the commission may issue such orders supplement to any order.

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It clearly references back to the original order.

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And we know that as well from the case law.

[00:02:10] Speaker 04:
Not only West Star cited extensively in the papers, but any order would include textually, not just the original order, but a supplemental order, correct?

[00:02:21] Speaker 07:
Any I'm sorry.

[00:02:22] Speaker 07:
I'm sorry.

[00:02:22] Speaker 07:
I didn't follow question, Your Honor.

[00:02:24] Speaker 04:
So the relevant language is any order.

[00:02:26] Speaker 07:
Yes.

[00:02:28] Speaker 04:
Any order would include both the original merger order and also a supplemental order like the withdrawal order, correct?

[00:02:35] Speaker 07:
Yes, Your Honor.

[00:02:35] Speaker 04:
So any order means referencing back to prior orders.

[00:02:40] Speaker 07:
Yes.

[00:02:41] Speaker 04:
So any order... So here we have a supplement to a supplement... We do.

[00:02:45] Speaker 04:
...order, which Westar didn't involve.

[00:02:49] Speaker 04:
Well, not strictly... Westar did not involve because you had the original proceedings and then that case was about the follow-on proceeding.

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That was sort of like the withdrawal order stage.

[00:03:00] Speaker 04:
And so what is your textual argument

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that an order here doesn't allow them to look as a reference point to the withdrawal order.

[00:03:14] Speaker 07:
Well, I'm not sure that's what they did, your honor.

[00:03:16] Speaker 07:
What they said, what I read the orders to say is we look exclusively at what's happening specifically in this case.

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We look at before the removal of de-pancaking, after the removal of de-pancaking, and that's all we need to look at.

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That's what the new test that they claim to employ here does.

[00:03:31] Speaker 04:
The de-pancaking came in as part of the withdrawal order.

[00:03:33] Speaker 07:
It did.

[00:03:34] Speaker 04:
Okay, so the before de-pancaking would be when you're still in MISO.

[00:03:40] Speaker 07:
correct but that of course was derivative of the original merge supplemental order right prior supplemental order well right but again this is uh there's certainly at this point 27 years after the merger is part of the complication here but we don't look back necessarily if we're going to status quo ante which the commission seems to suggest we do we have to go back at least to the merger and acknowledge that before the merger there were no

[00:04:02] Speaker 07:
deep pancake rates.

[00:04:03] Speaker 07:
Customers paid pancake rates before the merger.

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They should pay after the expiration of the subsidy condition.

[00:04:10] Speaker 07:
So the fact that there was a might that we used a separate mechanism for mitigating horizontal market power through MISO membership doesn't change the fact that this has always been derivative of the original merger.

[00:04:22] Speaker 04:
And the case law said textual argument.

[00:04:24] Speaker 04:
That's sort of a challenge to the substance of their reasoning.

[00:04:28] Speaker 07:
Well, admittedly, it does flow to that, Your Honor.

[00:04:31] Speaker 04:
I mean, obviously, I understand your textual argument.

[00:04:34] Speaker 04:
I don't understand.

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You spent time in the reef insisting that the statute.

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Forbid them from looking at the

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withdrawal order comparing two conditions before and after withdrawal order or conditions would have been upon withdrawal and had to only look back at the merger order.

[00:04:53] Speaker 04:
But now the argument I hear is you may need to look at the whole thing and the effect on competition and a holistic approach.

[00:05:02] Speaker 07:
Well, so if we're going back in time, our position has been you have to go back to the merger.

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The MISO membership, the MISO withdrawal was a step along the journey, but we clearly have factored in that we've adopted a separate means of mitigation.

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And so we have to, at that point, 203B has to say, we go look at the original transaction.

[00:05:24] Speaker 04:
Textually, where do you get that?

[00:05:26] Speaker 07:
Well, textually, your honor, obviously 203 B is fairly sparse, but we think supplemental order refers back to the original order again, not divorced from the two supplement.

[00:05:38] Speaker 07:
Well, it is.

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And I don't again, we don't have a lot of case law on 203 B to begin with, agreed at the time of merger.

[00:05:44] Speaker 04:
to address the competitive concerns and other concerns by going into MISO.

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And then your client asked to leave MISO.

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And the commission said, the only way we can do that, and you haven't challenged that analysis here, is by having you do this, de-pancaking.

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And now you're trying to remove yourself from the de-pancaking.

[00:06:09] Speaker 04:
And that's what this order is addressing.

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So it seems a bit artificial

[00:06:14] Speaker 04:
to say that in analyzing what conditions, if any, should be imposed upon releasing you from the withdrawal order, that they can't look at whether this new position that you want, the new terms that you want, would impose and continue and assure the conditions and protections, both for competition and the public interest,

[00:06:43] Speaker 04:
that the withdrawal order was implementing.

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That's your position.

[00:06:47] Speaker 04:
They can't look at that.

[00:06:48] Speaker 07:
Well, it's no, it's not your honor.

[00:06:49] Speaker 07:
It's not that they can't look at it.

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It's what they have.

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What they've done here is measured by they can't look in isolation at the removal of deep pancaking is a 203 jurisdictional event.

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And that's what they've done here.

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They said we really don't care what happens before you filed this application in 2017

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We just care that rates went up as a result of you removing deep pancaking.

[00:07:13] Speaker 07:
That's all we need to care about.

[00:07:15] Speaker 07:
That's what the commission did in both orders is to say, that's how we implement the effect on rates analysis.

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And that narrow view divorced entirely from the history of the case, we think is wrong.

[00:07:27] Speaker 04:
But you're only allowed to go back and look at the merger agreement.

[00:07:32] Speaker 04:
then the only thing they would be allowed to consider would be the effect on competition.

[00:07:37] Speaker 04:
Is that right?

[00:07:37] Speaker 04:
They were to compare it with the time.

[00:07:39] Speaker 07:
Not at all, Your Honor.

[00:07:40] Speaker 07:
I think this court decided that issue and we're not contesting that at all.

[00:07:43] Speaker 04:
I'm having trouble reconciling your reading of the statute with our prior decision for precisely that reason.

[00:07:50] Speaker 07:
Well, again, so the statute itself.

[00:07:52] Speaker 04:
It didn't have sort of the public interest deep pancaking the rate effect analysis.

[00:07:57] Speaker 04:
If you were just back at the merger stage, they were focused there on the effects on competition, which obviously affects rights.

[00:08:05] Speaker 07:
Well, I think the best way to look at first orders is they've divorced themselves entirely from the history of the case.

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and that there's just no bearing.

[00:08:12] Speaker 07:
There's no basis for that.

[00:08:14] Speaker 04:
And certainly the 203 case is not portion itself entirely from the history of the case and not ignoring the starting point of all of this.

[00:08:24] Speaker 04:
Then that concern would fall away.

[00:08:26] Speaker 07:
Well, I don't think so, your honor.

[00:08:28] Speaker 07:
But again, perhaps I should move on to the actual merits of what they did here, even if the commission

[00:08:35] Speaker 07:
disagrees with me on the actual standard of review.

[00:08:37] Speaker 07:
There are a number of issues that well, first of all, let's let's before I leave the temporal issue first failure to balance the other factors is a critical element as well.

[00:08:48] Speaker 07:
This court said in its prior decision, even if an inquiry into rates would keep would favor keeping deep pan kicking into place, which is what first says here, that would not dictate the outcome of the commission's full public interest determination.

[00:09:00] Speaker 07:
But we we read the commission to have

[00:09:03] Speaker 07:
refused to consider all of the other factors.

[00:09:06] Speaker 06:
In fact, Commission said it was considering all of these factors.

[00:09:10] Speaker 06:
And I think that your briefing, you pretty much concede that they considered the public interest factors.

[00:09:15] Speaker 06:
You just say that they should have balanced them.

[00:09:19] Speaker 06:
And I'm having trouble understanding what the difference is between balancing and considering.

[00:09:26] Speaker 07:
They said they were considering them, Your Honor.

[00:09:28] Speaker 07:
If I might quote from J.A.

[00:09:29] Speaker 07:
251, this is paragraph 18 of the Remand Order,

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They said, even if they're so they're resisting, I would read them to be resisting this court saying, I don't have to consider these other factors.

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But even if we did, we're not convinced that the other elements weren't accepting the removal.

[00:09:45] Speaker 07:
That's all we get from the commission of paragraph 18.

[00:09:48] Speaker 07:
That's not balancing and saying, of course, we now must recognize the elephant in the room that the competition.

[00:09:54] Speaker 06:
What about the rehearing?

[00:09:56] Speaker 07:
The rehearing analysis, a 305.

[00:10:00] Speaker 07:
JAAE 305, yes, that's paragraph 36 and 37 of the rehearing order.

[00:10:04] Speaker 07:
But what I read the commission to be saying there is the court told us all we have to look at is rates.

[00:10:10] Speaker 07:
So and I think they say fairly explicitly in those paragraphs, I'm not looking at competition anymore.

[00:10:16] Speaker 07:
And the competition, again, this is the difference between a public interest analysis

[00:10:21] Speaker 07:
and a very narrow interest analysis about the interests of one specific group of parties.

[00:10:27] Speaker 07:
And so the commission says, I don't have to look at competition anymore.

[00:10:31] Speaker 07:
But again, specifically, when the commission says that, the effect on competition at that point has to be part of the public interest soup, if you were.

[00:10:39] Speaker 07:
And then the commission doesn't deal anywhere with those issues and recognize the history of the case.

[00:10:45] Speaker 07:
In fact, that this court affirmed that the market power origin story

[00:10:50] Speaker 07:
this condition no longer supports its continuation so the question then is only do we have an adverse effect on rates or do we not and the commission does two things and i think they're both wrong first on benefits but do you find that there is any particular way that the commission was supposed to go about its analysis though yes you're i don't i didn't see any mandatory language so

[00:11:13] Speaker 07:
Again, I don't want to delve back too far into the standard of review issue, but I think that the key element is that the commission should have at least acknowledged the history of this condition when deciding what do we do with this particular rate impact and how do we categorize it.

[00:11:28] Speaker 07:
The commission's precedent is just because rates go up, that's the first question in the analysis.

[00:11:34] Speaker 07:
It's not the end of the question.

[00:11:35] Speaker 07:
There are a number of steps the commission has to go through before it determines that it will deny an application based on the rates prong.

[00:11:42] Speaker 07:
In particular, are there offsetting benefits?

[00:11:44] Speaker 07:
Even if rates go up, we look for offsetting benefits.

[00:11:47] Speaker 07:
Even then, if you don't find offsetting benefits, you look for rate payer protection.

[00:11:51] Speaker 07:
The commission got both of those elements wrong.

[00:11:52] Speaker 03:
But under offsetting benefits, there were not enough sufficient to overcome the rate increase.

[00:11:58] Speaker 07:
Well, but again, your honor, let's talk about offsetting benefits.

[00:12:01] Speaker 07:
What the commission adopted here was what I'll call the same customer test.

[00:12:05] Speaker 07:
You have to look at the customer who's losing the subsidy and say, did they benefit from losing their subsidy?

[00:12:11] Speaker 07:
And we candidly think that's an absurd test that's almost impossible for us to ever pass.

[00:12:17] Speaker 07:
So in the ignored benefits to other customers, benefits to the market, there is evidence in this record that the existence of de-pancaking

[00:12:26] Speaker 07:
results in a distortion of the market, and that was admitted by their expert in the record.

[00:12:32] Speaker 07:
And if FERC admits that, they fail to consider that.

[00:12:35] Speaker 03:
It's not enough that there will be some decrease in rates by some customers.

[00:12:40] Speaker 03:
The offsetting has to overweigh the increase in costs.

[00:12:43] Speaker 07:
What FERC is asking you to affirm is that you have to find benefits to the specific customer who's losing the subsidy, and that's the reasoning that we don't think is right.

[00:12:54] Speaker 07:
In fact, we did make it, we hinted at this argument the first time before this court, and I read the court's decision to say, we're not dealing with, or we don't find persuasive your circularity argument now because, and the court went on to say,

[00:13:08] Speaker 07:
you have other things in the record, including the effect on other customers, retail and transmission that would have to factor in.

[00:13:17] Speaker 07:
And the commission here says, I'm not dealing with any of those.

[00:13:20] Speaker 04:
That's just not accurate.

[00:13:21] Speaker 04:
They specifically acknowledged the impact this would have on decreasing the rates of other customers and found it to be, you know, vanishingly small.

[00:13:32] Speaker 04:
That's not ignoring.

[00:13:34] Speaker 04:
That's not putting it aside.

[00:13:37] Speaker 04:
It said it's a vanishingly small impact on all of the other ratepayers and a very large impact on these ratepayers.

[00:13:47] Speaker 07:
It's the same amount of money.

[00:13:49] Speaker 07:
And this is the point we made in our brief is this sort of diffuse benefits issue where if you take $5 and take it from one party, of course, it's $5 to them.

[00:13:57] Speaker 07:
If you redistribute it, you're still redistributing $5.

[00:14:00] Speaker 07:
The fact that it's on a percentage basis, a lower impact to those customers who may get it back.

[00:14:06] Speaker 04:
But your argument is they didn't do it, and they did do that.

[00:14:09] Speaker 04:
I read it in your decision.

[00:14:11] Speaker 04:
They did do it.

[00:14:12] Speaker 04:
So then now your argument seems to be that they put too much weight on one and too little weight on the other.

[00:14:20] Speaker 04:
Is that the argument?

[00:14:21] Speaker 07:
They dismissed those claims on the basis that those benefits accrue to the wrong party.

[00:14:28] Speaker 07:
That's the basis.

[00:14:28] Speaker 07:
They didn't say we looked and we don't find them enough or we find it highly persuasive that these customers will still be able to pay their bills and these won't.

[00:14:37] Speaker 07:
There's none of that actual merits balance.

[00:14:39] Speaker 04:
That's because they said it was so very, very small benefit to the other rate payers.

[00:14:45] Speaker 04:
I mean, we don't have any idea what their position would be if for some reason, and this may depend on numbers in a case, it would be equivalent or at least a material benefit to other rate payers.

[00:14:57] Speaker 04:
But when it was only an immaterial benefit to other rate payers, what more are they supposed to do then?

[00:15:05] Speaker 04:
Well, again, your honor, I think they didn't put those two side by side and we find that these were just not moved by the fact that these customers to explain and say when we said it was small, we meant it was really, really small and not enough to warrant this effect on these rate pairs where it was going up very significantly.

[00:15:24] Speaker 07:
Well, so, your honor, let me, so the benefit to the customers who are paying this, there's, there are comments filed on the record, including by the Kentucky Public Service Commission saying, please let these customers, you know, these customers are retail customers in Kentucky or other transmission customers who are paying this bill.

[00:15:41] Speaker 07:
It results in an unjust allocation of costs.

[00:15:43] Speaker 07:
Those are the words of the Kentucky Public Service Commission.

[00:15:46] Speaker 07:
the commission doesn't deal with any of that what they say is we're not going to we're not going to pick up that issue or really delve into rates at all because those are benefits to other parties we here are narrowly looking at benefits to these customers who are losing their subsidy and we think that test cannot be possibly uh justified on the record now there is even if you don't um candidly your honor buy what we're selling on on benefits the rate payer protection piece asking questions to be

[00:16:13] Speaker 07:
of course, of course, I didn't mean to suggest otherwise, but, but, but the analytically, even if you get to the point where you find the commission did its job on benefits, the rate payer protection question is the next analytical question.

[00:16:26] Speaker 07:
And here the commission goes fairly far astray again.

[00:16:29] Speaker 07:
So when the commission, when the court remanded to the case to the commission, the commission had on its desk, so to speak, a stack of signed settlement agreements between the company and the customers providing exactly that grandfathering

[00:16:43] Speaker 07:
That was an issue in the courts spent so much time on in the last case.

[00:16:47] Speaker 07:
It's called the transition mechanism is called a transition mechanism agreement.

[00:16:50] Speaker 07:
Still, we still use that label in the settlement versions.

[00:16:53] Speaker 04:
How much longer will that go for?

[00:16:56] Speaker 07:
So it depends on the term of the specific agreement.

[00:16:59] Speaker 07:
They're all in the record starting at JA 1099.

[00:17:03] Speaker 07:
Again, so those were done before the court issued its last order.

[00:17:08] Speaker 07:
Some of them go out 10 years.

[00:17:10] Speaker 07:
Some of them in the infamous hydro facilities go out much longer than that because the parties didn't have the benefit of the courts sort of weighing and calling balls and strikes on all the various reliance interests that were at issue in that case.

[00:17:22] Speaker 04:
So 10 years from now or 10 years from when

[00:17:26] Speaker 07:
But again, so yes, they weren't they were intended to start when they were signed back several years ago.

[00:17:32] Speaker 07:
So the term of them would certainly not start now.

[00:17:37] Speaker 07:
But time having passed, of course, we have to sort of look at them at the time that they were signed.

[00:17:41] Speaker 04:
The point is there's reference to.

[00:17:45] Speaker 04:
some 402 rate payers who have had the benefit of 402 due to pancaking but are not in the transition mechanism, is that correct?

[00:18:01] Speaker 04:
So they had no reliance interests?

[00:18:03] Speaker 07:
That's right.

[00:18:03] Speaker 07:
So let's talk about the Venn diagram of this case.

[00:18:06] Speaker 07:
The protected class was the entire class of rate for of rate schedule 402 customers.

[00:18:11] Speaker 07:
There are 16 customers

[00:18:13] Speaker 07:
And there's a helpful chart at JA413 that goes customer by customer.

[00:18:18] Speaker 07:
JA413 is a chart customer by customer.

[00:18:23] Speaker 07:
And what you'll see is 16 different 402 customers.

[00:18:27] Speaker 07:
12 of them had signed settlement agreements or were covered by a signed settlement agreements.

[00:18:32] Speaker 07:
The only six that don't are customers that don't have their rates de-pancaked today for a few reasons.

[00:18:40] Speaker 07:
Several of them take their power from the Tennessee Valley Authority.

[00:18:42] Speaker 07:
So they don't take power out of MISO.

[00:18:45] Speaker 07:
The others are, one has left and joined the neighboring PJM market and the two remaining are wholesale customers of ours.

[00:18:53] Speaker 07:
They don't get their power from MISO.

[00:18:55] Speaker 07:
you cannot have an adverse impact on rates by removing something that the customers aren't using.

[00:19:02] Speaker 07:
So that's the Venn diagram.

[00:19:04] Speaker 07:
They've expanded this to cover people that aren't using it.

[00:19:08] Speaker 07:
And then in a footnote on the rehearing order, they say, we have to protect those customers.

[00:19:13] Speaker 04:
So I just want to be really clear on this.

[00:19:16] Speaker 04:
Of those six, there's only two that would still

[00:19:21] Speaker 04:
benefit from the continued deep pancaking were ordered by them because of their wholesale customers.

[00:19:26] Speaker 07:
They are our wholesale customers.

[00:19:29] Speaker 07:
They get their wholesale power from us, not MISO.

[00:19:31] Speaker 07:
So they don't have, they're not claiming a, in fact, Your Honor.

[00:19:36] Speaker 04:
Only from you, so they don't have a deep hand caking concern.

[00:19:38] Speaker 07:
Is that right?

[00:19:39] Speaker 07:
I'm sorry, Your Honor, I missed the question.

[00:19:41] Speaker 04:
If they're only getting it from you, does that mean they do not have a deep hand caking concern?

[00:19:44] Speaker 07:
Right, as a factual matter, they are not pulling power from MISO, so they don't need to be reimbursing.

[00:19:48] Speaker 04:
So is it anyone else that they would have a deep hand caking issue that Berks Remedy would address?

[00:19:53] Speaker 07:
To my knowledge, there's nobody that FERC's remedy would address that isn't covered by one of those settlement agreements that was pending before the commission.

[00:20:02] Speaker 04:
And was that information provided to the commission?

[00:20:05] Speaker 04:
Specific information about these six and who would benefit?

[00:20:09] Speaker 07:
Well, the specific customers are in the record.

[00:20:13] Speaker 07:
Remember, though, the commission didn't hold a case on remand.

[00:20:17] Speaker 07:
They didn't even ask for the issue to be briefed.

[00:20:20] Speaker 07:
So when we submit it, I mean, it's in the record what the protections are for each customer and they're under those transition agreements.

[00:20:29] Speaker 07:
And so it's absolutely before the commission to know that.

[00:20:32] Speaker 07:
In fact,

[00:20:32] Speaker 07:
The same day, and this is the analysis that candidly boggles my mind, on the same day they faulted us for not offering a rate payer protection, they dismissed those transition agreements as MOOP.

[00:20:45] Speaker 07:
Well, the two things can't be true.

[00:20:47] Speaker 07:
We offered, we proffered an agreement that held each customer harmless for their reliance interests

[00:20:55] Speaker 07:
in some cases, well into the future.

[00:20:57] Speaker 07:
And the commission says, I'm not going to acknowledge that.

[00:20:59] Speaker 07:
I'm going to fault you for not submitting a rate payer protection.

[00:21:03] Speaker 04:
One more time.

[00:21:04] Speaker 04:
Two are wholesalers.

[00:21:06] Speaker 07:
Two are wholesalers.

[00:21:06] Speaker 07:
I'll give you specifics.

[00:21:07] Speaker 04:
You said there were two that are, sorry, are they now in PJM?

[00:21:13] Speaker 07:
Is that what you said?

[00:21:14] Speaker 07:
Okay.

[00:21:14] Speaker 07:
So one has moved to the PJM market.

[00:21:18] Speaker 07:
That's the city of Falmouth.

[00:21:20] Speaker 07:
Two are continuing customers of ours.

[00:21:23] Speaker 07:
That's the city of Bardstown in Nicholasville.

[00:21:25] Speaker 07:
And the three remaining are still customers of the Tennessee Valley Authority.

[00:21:30] Speaker 07:
None of those customers have even intervened in this case from day one.

[00:21:35] Speaker 07:
They don't have an interest in it.

[00:21:37] Speaker 07:
So when FERC says we're looking for them, we're protecting them, they're not even in the case.

[00:21:42] Speaker 07:
So I'm not sure what, how, when we say,

[00:21:45] Speaker 07:
the transition mechanisms don't cover the waterfront, the commission didn't even really look at.

[00:21:50] Speaker 07:
I would have expected them to go back and say, well, here's what we see here is the problem.

[00:21:56] Speaker 07:
The only thing they give us is a footnote in the rehearing order where they say, well, there might be contracts that were entered into since then.

[00:22:05] Speaker 07:
And of course, we wholly object to the notion that we should be deep panicking going forward with new and allowing customers to establish new reliance interests after this court has affirmed that the condition giving rise to it no longer holds.

[00:22:18] Speaker 07:
So again, when you go through the analysis, if you find that there was, we think we went on benefits, but we certainly went on the fact that there was rate payer protection for each customer at issue.

[00:22:38] Speaker 04:
All right.

[00:22:38] Speaker 04:
Thank you.

[00:22:38] Speaker 04:
Thank you very much.

[00:22:39] Speaker 04:
We'll give you a few minutes.

[00:23:14] Speaker 02:
Your honors, may it please the court.

[00:23:15] Speaker 02:
My name is Kim Smazniak on behalf of the respondent, Federal Energy Regulatory Commission.

[00:23:21] Speaker 02:
I want to start with Judge Millett, your questions regarding the focus of the commission's analysis.

[00:23:26] Speaker 02:
And there we agree with the line of your questioning.

[00:23:29] Speaker 02:
We view petitioners' arguments around the restrictions of 203B and the commission's precedent as running headlong into this court's decision in Kentucky Municipal Energy Agency.

[00:23:40] Speaker 02:
In essence, what petitioners are asking the commission

[00:23:43] Speaker 02:
is to be restrained in the scope of its analysis such that it has to discount those effects on rates.

[00:23:50] Speaker 02:
And we read the Kentucky Municipal Energy Agency as requiring the commission to look at and give weight to those rates.

[00:23:58] Speaker 02:
And therefore, the scope of its analysis could not be limited to the original merger in which deep pancaking

[00:24:05] Speaker 02:
did not exist at that time.

[00:24:07] Speaker 02:
And therefore, those rate impacts would essentially be non-existent if that was the sole locus of the commission's analysis.

[00:24:14] Speaker 02:
Thus, the commission viewed that approach as being inconsistent with the remand instructions of the court.

[00:24:20] Speaker 04:
Is that what their reading would really mean in practice?

[00:24:23] Speaker 04:
If they want to go back to the time of the merger, the court could say, well, that time

[00:24:32] Speaker 04:
There was a real competition problem.

[00:24:35] Speaker 04:
And so the effect on rates would have been astronomically worse than even what we're talking about here.

[00:24:42] Speaker 04:
I'm assuming.

[00:24:44] Speaker 04:
I'm no expert in this.

[00:24:45] Speaker 04:
But it seemed like, given the original concerns at that time, the concern about competition was, in fact, an enormous concern about rates going up very high, very fast.

[00:24:58] Speaker 02:
That's correct judgment.

[00:25:00] Speaker 02:
I believe that what they're proposing is that we're looking not back to the original circumstances for the purposes solely of that rate analysis.

[00:25:08] Speaker 02:
But with respect to competition, they certainly argued we should consider the developments that have occurred subsequently.

[00:25:14] Speaker 02:
So we're going to look at today's present conditions and comparing

[00:25:17] Speaker 02:
whether or not there's a need for further mitigation on this under 203B.

[00:25:23] Speaker 02:
But they don't want to look at what are the today effects of their proposal.

[00:25:27] Speaker 02:
And so I think they're a bit picking and choosing how they want that analysis to work under their argument.

[00:25:33] Speaker 02:
In any event, the commission looked at the statute itself and read 203B as containing incredibly discretionary language that does not constrain the scope of the commission's analysis.

[00:25:45] Speaker 02:
The commission also looked

[00:25:46] Speaker 03:
But you all look at, you explained that under 203B that your analysis is permitted, but it's not necessarily required.

[00:25:55] Speaker 03:
So is there a distinction there?

[00:25:56] Speaker 03:
And then if so, have you adequately explained why you're kind of going against Westar, like your original analysis?

[00:26:08] Speaker 02:
Thank you for the question, Judge Childs.

[00:26:10] Speaker 02:
Yes, we view this as permitted, but not required by that statutory text.

[00:26:15] Speaker 02:
The language is the Commission may from time to time, for good cause shown, make such order supplemental to any order made under this section as it may find necessary or appropriate.

[00:26:26] Speaker 02:
We do not see a particular standard there as to how to do that analysis.

[00:26:30] Speaker 02:
The Commission has constrained itself through its precedent that it will do a public interest analysis in the same manner in which it considers those three prongs, those same set of prongs will be considered as part of its good cause analysis.

[00:26:42] Speaker 03:
So if I agree with you that you're permitting

[00:26:45] Speaker 03:
to do this type of analysis under 203B, have you adequately explained your departure from Westar?

[00:26:53] Speaker 02:
So the commission doesn't view Westar as controlling.

[00:26:57] Speaker 02:
We think we've been consistent with Westar.

[00:26:59] Speaker 03:
We also note that in the 2019 order, which this- What we're really at is that you're looking at pre and post merger versus pre and post this world, you know, in terms of rates under the proposal.

[00:27:11] Speaker 03:
And that's two different analyses.

[00:27:13] Speaker 03:
because petitioners argued that your starting point should have taken in consideration the history of the merger.

[00:27:18] Speaker 02:
Yeah, so a couple answers for you.

[00:27:21] Speaker 02:
One, I do want to point out that the commission acknowledged that in its 2019 order, it read the Westar precedent in the manner petitioners argued for.

[00:27:32] Speaker 02:
However, in its subsequent in these orders that are now under review, it acknowledged that it was departing from that prior reading of Westar and explained that in light of the purposes of the statute, that it viewed that this is the better reading and explained that

[00:27:45] Speaker 02:
departure.

[00:27:46] Speaker 02:
I will note that that 2019 order was vacated by this court.

[00:27:50] Speaker 02:
So whether it needed to do that, it still nonetheless explained that change from that prior explanation.

[00:27:56] Speaker 04:
Is Westar a supplement to a supplement case?

[00:27:59] Speaker 02:
Westar is not.

[00:28:00] Speaker 02:
And that was my second point, which is we didn't view it as controlling here.

[00:28:04] Speaker 02:
This is a case unlike Westar in which

[00:28:07] Speaker 02:
There have been multiple orders over time.

[00:28:10] Speaker 02:
And so to go back and skip over what has happened in terms of imposing additional conditions and look solely to that original transaction, that's not the fact pattern here and therefore it's not on one-to-one with the case that was before the commission.

[00:28:24] Speaker 03:
And is that what your explanation is when you say on the facts of this case that that's your distinction there?

[00:28:30] Speaker 02:
Correct.

[00:28:31] Speaker 02:
Okay.

[00:28:32] Speaker 02:
Moreover, even when you look at the text of what Westar did, it did look at what is the impact of terminating the relevant condition and look at that.

[00:28:41] Speaker 02:
And so if you look at Westar itself, the weight of the analysis wasn't solely looking at, it was also sort of taking as the commission did here, what is the change from the status quo?

[00:28:52] Speaker 02:
It looked back to what are the original merger conditions.

[00:28:56] Speaker 02:
It also considered what is the effect of this change that's being proposed here?

[00:29:00] Speaker 02:
And that is the same analysis the Commission is doing here.

[00:29:03] Speaker 02:
It's looking at what is the effect on this change that is proposed, the status quo prior to that imposition of that change, and then the effects afterwards.

[00:29:13] Speaker 02:
And that's a natural way in which, as you're looking 20 years down from a merger, to consider what are the impacts and what is the appropriate scope of the Commission's review.

[00:29:22] Speaker 04:
You say impacts, do you mean continuing impacts of the merger?

[00:29:25] Speaker 04:
Or the impacts of this change?

[00:29:27] Speaker 02:
Of this particular proposal, which in this case, there's no proposal to change the merger.

[00:29:32] Speaker 02:
The merger is not really up for consideration at this stage of the game.

[00:29:35] Speaker 02:
It is done, it's been accomplished, they're fully integrated.

[00:29:38] Speaker 02:
So what's really before the commission at this stage is a elimination of one of the mitigation measures that was part of the package of things together that the commission found as a whole was in the public interest.

[00:29:52] Speaker 02:
And so the question is, is it warranted?

[00:29:54] Speaker 02:
Is that change, that termination of some of those conditions, is that warranted?

[00:29:59] Speaker 02:
So that was the nature of the commission's inquiry here.

[00:30:02] Speaker 04:
How under the commission's approach here,

[00:30:08] Speaker 04:
Will the public interest analysis ever come out in favor of getting rid of prior conditions like here at the deep hand caking?

[00:30:19] Speaker 04:
Because if you're only going to compare to the people who benefit from something and you say, are you worse off if we take your benefit away, rate wise, the answer is always going to be yes.

[00:30:32] Speaker 02:
And I believe this is petitioners in perpetuity argument, and we have several responses that we offered petitioners on this point.

[00:30:39] Speaker 02:
The first is the commission's job here is to look only at what's before it, right?

[00:30:43] Speaker 02:
And so we rejected this because here what they were offering is only a termination of this particular mitigation requirement.

[00:30:50] Speaker 02:
There is a number of ways in which they could change what they're offering and the commission would then consider what is that mix.

[00:30:56] Speaker 02:
And I think when you speak to- Such as?

[00:30:58] Speaker 02:
Such as, for example, they make much of the transition mechanisms.

[00:31:03] Speaker 02:
Those were not before the commission as part of what was being

[00:31:06] Speaker 02:
part of the applicant's proposal.

[00:31:09] Speaker 02:
So it wasn't on the table.

[00:31:10] Speaker 02:
They could come back.

[00:31:11] Speaker 04:
The charge was to go back and look at rates and then factor that into a comprehensive public interest analysis because the prior public interest analysis had just turned on competition.

[00:31:22] Speaker 04:
And so FERC chose not to reopen the records, so it had the full record before it.

[00:31:27] Speaker 04:
And so it had information about the transition mechanism as part of its decision making in applying and analyzing the effect of the rates on rates.

[00:31:39] Speaker 04:
And yet, it seems not to have acknowledged that for this transition mechanism, everyone who had a reliance interest, and maybe everyone

[00:31:53] Speaker 04:
even subject to pancaking issues, has protection going forward for multiple years to sort of, on top of the protections they've had all the years since the merger, to transition out.

[00:32:06] Speaker 04:
And now they get to transition out into a much more competitive environment.

[00:32:10] Speaker 04:
Why wasn't that part of what the commission should analyze in determining the effect of rates, even on just these ratepayers?

[00:32:20] Speaker 02:
The Commission said two things.

[00:32:22] Speaker 02:
The first, it said those agreements were imposed by the Commission itself as part of accepting the termination of the mitigation.

[00:32:30] Speaker 02:
And so having now vacated that order and those transition mechanisms only being responsive to the need then to address the termination of the mitigation, those were eliminated.

[00:32:41] Speaker 02:
They are legally no longer in effect.

[00:32:43] Speaker 02:
Applicant could have withdrawn and give us a new

[00:32:46] Speaker 02:
application in which they choose to present them.

[00:32:48] Speaker 04:
So is there no transition mechanism in effect right now?

[00:32:51] Speaker 02:
No.

[00:32:52] Speaker 02:
Instead there are refund orders that return back to the original deep pancake conditions based on the vacatur of that.

[00:32:59] Speaker 02:
And so instead they're getting, rather than just a subset of customers getting the benefit of those transition agreements, all customers who are originally subject to the mitigation measure are now back under those protective measures.

[00:33:10] Speaker 02:
And so that is the current status quo and refunds have already begun, as I understand it, to be calculated.

[00:33:16] Speaker 02:
And so the second answer the Commission gave in addressing that transition mechanism is that there is this gap that was based on a 2019 determination of who had reliance interest.

[00:33:26] Speaker 02:
And there's no way for the Commission at that point to determine that there are not additional customers who might have fallen within the scope of that if they hadn't erroneously eliminated the mitigation measures.

[00:33:38] Speaker 02:
And so for that reason, the commission also found those transition mechanisms deficient.

[00:33:42] Speaker 02:
Now, going to your original question, which is what could potentially come before, it's on the applicant really to determine the mix of mitigation measures and give the commission a record upon which it could weigh those.

[00:33:53] Speaker 02:
No one is saying we need one-to-one a return for everything that's taken away from one set of customers to then be given back to them in precisely that same dollar form.

[00:34:04] Speaker 02:
In fact, the commission in the balancing often looks at, are there reliability benefits for these kinds of

[00:34:10] Speaker 02:
you know, events that might outweigh.

[00:34:12] Speaker 02:
There's a host of different types of benefits that could manifest.

[00:34:16] Speaker 02:
There's also a consideration of is this perhaps a transition mechanism could get close enough to addressing the interests of these customers if they was properly scoped.

[00:34:25] Speaker 02:
So there are a number of options.

[00:34:27] Speaker 02:
At the end of the day, the commission's job is to evaluate the mix of measures that the applicant puts before it.

[00:34:33] Speaker 02:
It knows what's in its commercial interests, and so the commission looks to that.

[00:34:38] Speaker 04:
commission on the original record these transition mechanisms.

[00:34:41] Speaker 04:
And so why couldn't, it seems odd that the commission here sort of didn't want to hear anything more about that.

[00:34:49] Speaker 04:
When at the remand stage, it sort of want to close its eyes or ears to this very obvious way of dealing with the problem that had been in place.

[00:34:58] Speaker 04:
And so why wouldn't it have then allowed the parties that interested parties to make submissions as part of this analysis?

[00:35:09] Speaker 02:
Parties are allowed to make submissions and there are comments and things submitted.

[00:35:15] Speaker 02:
They allow you to make submissions on remand?

[00:35:17] Speaker 02:
In response to the remand, we get responses from what do different parties think of what we've done.

[00:35:23] Speaker 02:
And there's an opportunity then, of course, on rehearing for the commission to revisit, fix things, and potentially change direction.

[00:35:29] Speaker 02:
And so we always have that opportunity to hear from the parties even on remand.

[00:35:32] Speaker 04:
Prior to the hearing, before they issue the first remand order, they allow party submissions.

[00:35:39] Speaker 02:
At that point, we would get rehearing on our order.

[00:35:43] Speaker 02:
As part of the next step, it's a 30-day window.

[00:35:45] Speaker 02:
So that's the next thing we hear from parties.

[00:35:50] Speaker 04:
What I'm asking is, Burke surely has the discretion, upon remand from this court, to ask the parties whose rate payer concern or his opinion acknowledges that there's going to be very high impact on the people that are protected by this.

[00:36:06] Speaker 04:
and pretty small on everyone else.

[00:36:12] Speaker 04:
But our order has been vacated in that relevant part.

[00:36:15] Speaker 04:
And so before we address this, does anyone have any more information about the effect on rates now that we have a more focused analysis?

[00:36:28] Speaker 04:
And you're saying they can't do that.

[00:36:29] Speaker 04:
They just had to decide and then have people do it on rehearing.

[00:36:33] Speaker 02:
I will say we can do it.

[00:36:35] Speaker 02:
We did not do it.

[00:36:37] Speaker 02:
Correct.

[00:36:37] Speaker 02:
In the discretion of the agency to direct its proceedings, here it did not.

[00:36:42] Speaker 04:
But it seems like you had this transition mechanism.

[00:36:46] Speaker 04:
that was an appropriate vehicle, subject to conforming to our prior decision, an appropriate vehicle for providing the very protection to the very people who had reliance interests.

[00:36:59] Speaker 04:
And I'm having trouble understanding why that shouldn't have been part of FERC's analysis.

[00:37:04] Speaker 04:
And even if you want to say they had to wait till re-hearing to raise it, why that shouldn't have been a relevant part of the analysis here, because that addresses the very harm at issue.

[00:37:15] Speaker 02:
And you may beef with whether or not the commission on its own volition might choose to impose that as a condition.

[00:37:22] Speaker 02:
But the structure in which the commission looks at it is, what is the application before it?

[00:37:27] Speaker 02:
The application before it did not include the transition mechanism that is normally for the applicant.

[00:37:32] Speaker 02:
Now, the commission could have, choose to put forward A as a condition.

[00:37:36] Speaker 02:
You must also use these transition mechanisms.

[00:37:38] Speaker 04:
tweaked in ways to address the equities.

[00:37:42] Speaker 02:
And the Commission choose not to do that.

[00:37:44] Speaker 02:
And I would say the statute doesn't require it to.

[00:37:49] Speaker 02:
In this case, it choose to look at the squarely, what is this application before it and deal with it.

[00:37:54] Speaker 02:
And then the applicant is free to come back with if that is its choice to.

[00:37:57] Speaker 02:
Now remember, these are entire, these transition mechanisms were negotiated among the customers, RS-402 customers, under the view that the commission was going to remove that mitigation entirely.

[00:38:09] Speaker 02:
And so they were coming at that negotiation from that position.

[00:38:12] Speaker 02:
There were agreements on what the scope of those should include, but was under that shadow of that particular decision of the commission, which was then vacated.

[00:38:20] Speaker 02:
And so there are good reasons to believe that that negotiation might look different.

[00:38:23] Speaker 02:
And the way in which the commission expects applicants to come to it in offering rate protections is to first to work with those who are adversely affected, come together hopefully with mutually agree upon conditions in which they can then, the commission can rule on them and understand these rate

[00:38:38] Speaker 02:
pair protections, for example, are sufficient.

[00:38:40] Speaker 02:
So that is one of the options that would be before the applicant is to proceed with that without the commission's prior or reverse decision hanging over those discussions.

[00:38:51] Speaker 02:
If I can turn to, I'm almost out of time.

[00:39:00] Speaker 02:
Very quickly, Judge Wilkins, you had a question about the balancing issue.

[00:39:04] Speaker 02:
The Commission did balance the other factors.

[00:39:06] Speaker 02:
That's clear in its rehearing order.

[00:39:09] Speaker 02:
It also specifically looked at the competition.

[00:39:11] Speaker 06:
Where is that clear in the rehearing?

[00:39:13] Speaker 02:
Let me give you the citations.

[00:39:16] Speaker 02:
In the remand rehearing order at paragraph 37, which is JA 305 to 306,

[00:39:22] Speaker 02:
Commission indicated it considered all the other factors in the public interest analysis, but did not find they outweighed the adverse impact on rates, found the absence of negative impact does not equate to a positive benefit.

[00:39:34] Speaker 02:
Specifically with respect to the competition benefits that are raised by petitioner, in the rehearing order, again at paragraphs 36 to 37, in JA 305 to 306,

[00:39:47] Speaker 02:
The commission affirmed that it didn't need to do further analysis of that competition benefits as petition argued.

[00:39:53] Speaker 02:
It had already done the competitive analysis as a part of its 2019 order and there it found that there while there were sufficient competition, there wasn't

[00:40:03] Speaker 02:
not a concern about competition, but there were no competitive benefits of the elimination of these mitigation measures.

[00:40:09] Speaker 02:
So though petitions argue that we should consider this a benefit, in fact, when you look at the record of that 2019 analysis of what was in the record, the commission concluded that actually there were going to be some loss of some competitive supply.

[00:40:23] Speaker 02:
So while it was a small enough margin that it didn't matter to the overall conclusion on that prong, it was

[00:40:30] Speaker 02:
it wasn't a benefit that would outweigh those radiant effects.

[00:40:38] Speaker 04:
Thank you.

[00:41:02] Speaker 00:
May it please the court, my name is Jeff Bain, arguing on behalf of the Kentucky Municipal Interveners, not-for-profit utilities serving residents and businesses in 13 communities across the Commonwealth.

[00:41:13] Speaker 00:
And I'd like to just pick up briefly on this transition mechanism issue.

[00:41:18] Speaker 00:
I think, as FERC explained, it correctly treated these as fruit of the poison tree of these now vacated orders.

[00:41:26] Speaker 00:
But it did address, in paragraph 31 of the rehearing order, if it were to consider them, it would find them inadequate as part of its overall balancing to offset the significant adverse rate impact.

[00:41:37] Speaker 04:
Why would they be inadequate?

[00:41:38] Speaker 04:
How is that rational?

[00:41:40] Speaker 00:
Well, I don't think you have to look further than the refund report.

[00:41:43] Speaker 00:
Just to those Kentucky municipals subject to the transition mechanisms, there were $13 million in refunds for the period that those transition mechanisms were in effect before those orders were vacated.

[00:41:57] Speaker 00:
So there's no factual question that those didn't fully offset the rate impact.

[00:42:02] Speaker 00:
So then that just becomes how does it factor into FERC's overall balancing.

[00:42:06] Speaker 00:
And FERC dismissed those, but it said if we did consider it, that wouldn't be a big enough part of our overall public interest balancing.

[00:42:16] Speaker 00:
And the question before this court, obviously, is not to come up with its own public interest balancing, but to determine whether FERC was an abuse of discretion under its broad and flexible Section 203B.

[00:42:27] Speaker 04:
The problem with just looking at people who have a benefit, if it's taken away, are they going to be worse off?

[00:42:35] Speaker 04:
means there's always gonna be an answer to that.

[00:42:38] Speaker 04:
It's always gonna mean you can't change things.

[00:42:42] Speaker 04:
And it seems to me, while that's no doubt a very relevant component of the public interest analysis, it has to be richer than that.

[00:42:51] Speaker 04:
There has to be a way to consider easing out of

[00:42:57] Speaker 04:
issues like this, like the transition mechanism going forward, or other measures.

[00:43:05] Speaker 04:
But I don't understand, Ferg, what else would be done so that the same answer wouldn't, you know, 100 years from now, would be the same answer.

[00:43:14] Speaker 04:
We can't take away the deep pancake again, because then they'll have to pay more.

[00:43:19] Speaker 00:
I think FERC did look at more than just the impact on Kentucky municipals.

[00:43:24] Speaker 00:
It did consider the company's argument that their proposal would benefit their own retail customers, but found those small dispersed benefits not adequate.

[00:43:33] Speaker 00:
FERC looked at the impact on competition here.

[00:43:35] Speaker 00:
As FERC council explained, there weren't any positive benefits to competition here.

[00:43:40] Speaker 00:
you can imagine in a different set of circumstances under a different proposal, there could actually be positive benefits on other factors, whether it's a competition, reliability, something else.

[00:43:52] Speaker 04:
What about the effect on, when there's so much competition, then the ratepayers who no longer have deep pancake can at least have a lot more options for purchasing.

[00:44:03] Speaker 04:
Shouldn't that have been factored in?

[00:44:04] Speaker 04:
So not just asking whether deep pancaking has an effect on competition, but asking, does this increased competition that's been found here, how does that factor in the impact going forward on ratepayers?

[00:44:18] Speaker 04:
Because ordinarily, increased competition helps reduce rates.

[00:44:24] Speaker 00:
Right.

[00:44:25] Speaker 00:
And I think FERC looked at the record here.

[00:44:27] Speaker 00:
And again, I don't think there's a factual dispute here that rates will be going up for Kentucky municipals if rates were re-pancaked, notwithstanding the changed competition landscape.

[00:44:39] Speaker 04:
It seemed like it was just an analysis.

[00:44:41] Speaker 04:
It'll go up in sort of whatever this pancaking cost is that we have been avoiding through the de-pancaking.

[00:44:50] Speaker 00:
But I think it's more than that, because the evidence in the record, for instance, this was cited in the court's prior opinion, the 47% rate increase to one of the Kentucky municipals, Benham, a small community of about 500 people, 47%.

[00:45:07] Speaker 00:
That 47% is against a baseline of overall costs with the increase to transmission rates from repancaking factored into it.

[00:45:18] Speaker 00:
So there was evidence in the record about,

[00:45:20] Speaker 00:
the overall effect on rates, not just the fact that yes, if you repancake rates, that's going to add transmission charges.

[00:45:28] Speaker 00:
There was analysis and a lot of this in its competition section on what the overall impact on rates would be.

[00:45:35] Speaker 00:
And that factored into FERC's public interest balancing that it did here based on the record before it.

[00:45:42] Speaker 00:
And one other point I'd like to make on the overall

[00:45:45] Speaker 00:
The companies now make a broad attack on this concept of deep pancaking as somehow improper, but I think their own actions belie that.

[00:45:53] Speaker 00:
They didn't have any problem with deep pancaking in 2006 when they sought to get out of their promise to continue participating in MISO.

[00:46:01] Speaker 00:
and they haven't sought to terminate any of the de-pancaking provisions in their rate schedules for other customers.

[00:46:08] Speaker 00:
It's only after a number of Kentucky municipals stopped buying their power from Louisville utilities and sought to develop their own power supply arrangements that they targeted the de-pancaking provisions of rate schedule 402.

[00:46:21] Speaker 00:
And I think that factors into this framing of deep pancaking as somehow anomalous.

[00:46:26] Speaker 00:
It's not.

[00:46:28] Speaker 00:
Burke determined it to be in the public interest.

[00:46:30] Speaker 00:
Burke determined that the cost allocation implications, recognizing the benefits the company's got from their desire to leave MISO, all balanced to be in the public interest.

[00:46:41] Speaker 00:
And what FERC's public interest balancing did here was maintain that.

[00:46:45] Speaker 00:
And that's consistent with its role under Section 203B with the proposed modification, again, to the 2006 micelle withdrawal order.

[00:46:56] Speaker 00:
There's not a proposal to change something from the original 1998 merger order.

[00:47:01] Speaker 00:
So FERC's looking at the impacts of the proposal before it was proper and well within its discretion.

[00:47:09] Speaker 04:
Thank you very much.

[00:47:16] Speaker 04:
We'll give you 3 minutes on rebuttal.

[00:47:22] Speaker 07:
Thank you, Your Honor.

[00:47:23] Speaker 07:
Let me pick up where Mr. Bain left off.

[00:47:25] Speaker 07:
He mentioned the city of Benham and I'm glad that he did.

[00:47:29] Speaker 07:
City of Benham is the source of the 47% number.

[00:47:32] Speaker 07:
The City of Benham has a signed transition agreement at JA 1129.

[00:47:36] Speaker 07:
Nowhere does the commission acknowledge that and say, perhaps there's a gap, there's daylight, maybe the coverage isn't enough.

[00:47:44] Speaker 07:
That 47% could be zero under that transition agreement, but we don't know, because FERC never even bothered to ask the question.

[00:47:53] Speaker 07:
They never put those agreements next to each other or next to their concern about rates going up.

[00:47:57] Speaker 04:
Why didn't you, in re-hearing,

[00:47:59] Speaker 04:
Put all of that in and say, in fact, it is zero.

[00:48:03] Speaker 04:
Well, first of all, you tell her, but are these agreements still in effect?

[00:48:07] Speaker 07:
They are not, your honor.

[00:48:08] Speaker 07:
The commission dismissed them as moot.

[00:48:10] Speaker 04:
Why on reading hearing when you have gone in and said, look, here's here's the offset.

[00:48:17] Speaker 04:
You want an offset?

[00:48:18] Speaker 04:
Here's the offset.

[00:48:19] Speaker 04:
We've got all these agreements.

[00:48:22] Speaker 04:
Sign off on them, make them part of this agreement, part of your order.

[00:48:26] Speaker 07:
And they'll all be taken care of.

[00:48:28] Speaker 07:
Well, we did, of course, at length in our rehearing say you should have focused intently on these transmission agreements or transition agreements.

[00:48:35] Speaker 07:
You should have picked them up and you should have looked at them.

[00:48:37] Speaker 07:
The record wasn't open.

[00:48:39] Speaker 04:
That's a different argument than saying these will offset or materially offset or whatever.

[00:48:44] Speaker 07:
I understand.

[00:48:45] Speaker 07:
I guess the issue is the factual record wasn't open.

[00:48:47] Speaker 07:
They never asked for briefing.

[00:48:49] Speaker 07:
They never asked for papers.

[00:48:49] Speaker 07:
They never asked for new evidence.

[00:48:51] Speaker 04:
could have pointed to these things that are in the prior record and said, you want offset?

[00:48:56] Speaker 04:
You got offset.

[00:48:57] Speaker 04:
It's right there.

[00:48:57] Speaker 07:
Well, right.

[00:48:58] Speaker 07:
So the 47% was never our number.

[00:49:00] Speaker 07:
I'm not sure I could tell.

[00:49:01] Speaker 04:
It's not as confused number it is, I think.

[00:49:03] Speaker 04:
I understand.

[00:49:04] Speaker 04:
So all of these, you would say, all of these folks, that at least you're still having the consequences of pancaking, that if you're right in describing it, I think it's your position, it sounded like earlier, that these offset

[00:49:20] Speaker 04:
These will offset.

[00:49:21] Speaker 04:
Going forward, they'll phase out over time.

[00:49:23] Speaker 04:
But going forward, they will offset the consequences of de-pancaking, of re-pancaking, I guess.

[00:49:31] Speaker 07:
Yeah.

[00:49:32] Speaker 07:
So we didn't do it to the dollar degree in our request for re-hearing.

[00:49:36] Speaker 07:
Again, our issue at that point was largely, we were operating at a higher level.

[00:49:42] Speaker 07:
The commission refused to even pick them up, much less hold an argument about what was covered and what wasn't.

[00:49:48] Speaker 07:
They also mentioned Mr. Bain.

[00:49:50] Speaker 04:
I don't understand what refuse to pick them up means.

[00:49:52] Speaker 04:
If you're at re-hearing and you can say your decision said there's nothing to offset, there's no offset of this harm to this group of rate payers.

[00:50:02] Speaker 04:
Here it is.

[00:50:03] Speaker 04:
Please consider this.

[00:50:05] Speaker 04:
That will solve the problem.

[00:50:07] Speaker 04:
If you'd said that,

[00:50:10] Speaker 04:
then you'd have that argument.

[00:50:12] Speaker 04:
The commission didn't sort of go, they didn't do it on their own.

[00:50:16] Speaker 07:
No, no, it's not that your honor.

[00:50:18] Speaker 07:
If I may, the commission didn't say we look, we find them insufficient and therefore the burden was on us to say, yes, they were.

[00:50:25] Speaker 07:
The commission just said their moot.

[00:50:27] Speaker 07:
We put them aside and we say, you never offered us any mitigation and that was it.

[00:50:33] Speaker 07:
So again, they never made a factual determination about the transition agreements for us to take issue with.

[00:50:39] Speaker 06:
So so was it error for them to say that they were moved?

[00:50:42] Speaker 06:
I'm trying to figure out what error it is that you say that the commission made the commission.

[00:50:48] Speaker 07:
The commission again today again false us for not offering affirmative rate payer protections as required by the precedent regulations.

[00:50:55] Speaker 07:
That is precisely what we had done with those agreements.

[00:50:59] Speaker 07:
We had filed them.

[00:51:00] Speaker 07:
We had signed them.

[00:51:01] Speaker 07:
And so it was error for them to ignore the fact that they mitigated or their entire purpose of mitigating was to mitigate this impact.

[00:51:09] Speaker 07:
Again, we don't know.

[00:51:10] Speaker 07:
The commission never asked the question, did the city of Benham go from 47 to zero or not?

[00:51:14] Speaker 06:
Where in your brief do you argue that it was error for the commission to have vacated or dismissed those agreements?

[00:51:22] Speaker 07:
So there's a separate, it is in the brief, your honor.

[00:51:24] Speaker 07:
There's a separate order that dismissed them on the same day that they issued the rehearing.

[00:51:30] Speaker 07:
In the first remand order, there's just a footnote that says, Oh, by the way, these are moot.

[00:51:34] Speaker 07:
And we on rehearing said, well, you can't just say that there, those are the rate payer protections.

[00:51:40] Speaker 07:
You've got to deal with them.

[00:51:42] Speaker 07:
And so they issued a separate, uh, because they had been filed in a, in a, in a rate docket, they had to issue a separate order.

[00:51:48] Speaker 07:
So they did on rehearing.

[00:51:49] Speaker 07:
There were two orders that day.

[00:51:51] Speaker 07:
One dismissing them as moot, which we appealed.

[00:51:53] Speaker 07:
Also, it's here in front of the court.

[00:51:55] Speaker 07:
And the remand rehearing order, which we talked a lot about the fact that these transmission agreements, these transition agreements should have been considered.

[00:52:04] Speaker 07:
Now, the other thing I will just quickly say, FERC mentioned all sorts of paths forward that we might employ to get over this test somehow.

[00:52:13] Speaker 07:
None of that rationale, none of what we just heard from the commission council is in any of the orders.

[00:52:17] Speaker 07:
There's no discussion at all about what

[00:52:20] Speaker 07:
flaws could be cured in the future.

[00:52:22] Speaker 07:
I mean, we are stuck with this test that we just don't think that we could get over.

[00:52:27] Speaker 07:
And then the last thing, Your Honor, is about just and reasonable rates here and sort of the rate increases.

[00:52:33] Speaker 07:
These rates are the same rates that everyone else is paying.

[00:52:37] Speaker 07:
The removal of the subsidy just puts these customers back in the same position that everyone else that uses the mice of transmission system

[00:52:44] Speaker 07:
uses our transmission, the system has to pay.

[00:52:48] Speaker 07:
It's just the restoration of what FERC is determined to be just reasonable rates.

[00:52:52] Speaker 04:
Illinois and Indiana companies that are not that you that you're keeping the pancaking in for Illinois and well, first of all, that none of those issues were at all.

[00:53:03] Speaker 07:
The commission didn't rely on any of that.

[00:53:05] Speaker 04:
That's accurate.

[00:53:06] Speaker 07:
Um, your honor, I believe I don't read in your argument.

[00:53:10] Speaker 04:
They're just paying the same thing as everyone else is just not.

[00:53:12] Speaker 04:
It's not accurate.

[00:53:13] Speaker 07:
Well, so I don't know.

[00:53:16] Speaker 07:
I don't have a good answer for you on whether those TM others the other rate schedules for deep pancaking consists continue for those customers.

[00:53:24] Speaker 07:
I will say the commission certainly didn't rely on that.

[00:53:27] Speaker 07:
Or that's an argument that the intervener has sort of inserted into this.

[00:53:30] Speaker 07:
So the commission can't certainly rely on it.

[00:53:32] Speaker 07:
And I didn't hear them to

[00:53:33] Speaker 04:
I don't know.

[00:53:34] Speaker 04:
I'm responding to an affirmative argument that you're making.

[00:53:36] Speaker 07:
Yes.

[00:53:37] Speaker 04:
And I'm asking you how the argument that you are making to us is accurate, given, unless you're telling me they're just wrong about continued deep pancaking for Illinois and Indiana customers.

[00:53:50] Speaker 07:
I'm not going to say they're wrong on that, Your Honor Salvi.

[00:53:52] Speaker 04:
How is your argument right?

[00:53:53] Speaker 07:
Well, there's a host of, again, I suspect, again, I don't know what the future of those other transmission agreements or those deep pancaking agreements are.

[00:54:03] Speaker 07:
But to the extent that we can establish that they are no longer needed and those other agreements may have other tails on them or termination provisions.

[00:54:13] Speaker 07:
And again, I don't want to, I am not well equipped to answer that specific question because it wasn't for the commission.

[00:54:18] Speaker 07:
But the point is, when we restore, this is not a situation where we are out there just trying to increase somebody's rates.

[00:54:26] Speaker 07:
We are just putting, restoring the just and reasonable rate, which FERC has set as the just and reasonable rate for using the MISO transmission system.

[00:54:34] Speaker 07:
And that's all that we're talking about here.

[00:54:36] Speaker 04:
I guess it's still, I mean, sort of

[00:54:40] Speaker 04:
One of FERC's main goals is to make sure that transmission providers can't pick and choose who gets what rate.

[00:54:49] Speaker 04:
And if there's evidence in the record that you're not disputing that Illinois and Indiana are getting effectively a different rate because they get deep hand caking, then these folks, why isn't that a pretty material thing to be concerned about?

[00:55:03] Speaker 04:
Particularly when your brief is filled with cost causation and these rates are all just fine when you're not offering them uniformly to all your customers.

[00:55:10] Speaker 07:
I think the struggle that you're hearing from me, Your Honor, on this is that the Commission never asked exactly that type of question and that, the Commission Council says we're looking to restrain them.

[00:55:19] Speaker 07:
Just the opposite.

[00:55:20] Speaker 07:
We would have hoped the Commission would have asked exactly that kind of question and say, are you treating all... You didn't have the basis for your arguments to us.

[00:55:28] Speaker 04:
I understand your point that they didn't say that.

[00:55:30] Speaker 04:
You're making arguments to us about the unreasonableness of FERC's actions.

[00:55:35] Speaker 04:
And there's an at least non-disputed fact in this case that seems to be inconsistent with the arguments that you're offering to us.

[00:55:44] Speaker 04:
And so I'm understanding, how could I write an opinion that says FERC was unreasonable because the rates are all fine, cost causation principles.

[00:55:53] Speaker 04:
We need to equalize it for everybody.

[00:55:55] Speaker 04:
When that is not, you can't assure me that that's the reality on the ground.

[00:56:01] Speaker 04:
The fact that you've picked at least two states

[00:56:04] Speaker 04:
You're happy to continue deep pancaking for it.

[00:56:07] Speaker 04:
We don't like to let transmission providers pick and choose who their favorites are.

[00:56:12] Speaker 07:
Again, Your Honor, that issue was never before the committee and had the commission.

[00:56:17] Speaker 04:
I understand you're in the basis for your arguments.

[00:56:20] Speaker 04:
If you, I mean, when you made these arguments, were you aware of this Illinois and Indiana issue?

[00:56:26] Speaker 07:
When we made the argument, the specific argument that we should be restoring them to just and reasonable rates, I don't think we found it incredibly probative at the time that there was potentially remaining deep pancaking that may have expired on its own terms that we elected not to make an issue out of at this point.

[00:56:44] Speaker 07:
I just wanted to make this simpler point, and I understand the point that your honor's making about how can we say that you haven't been somehow treating similarly customers on a different basis.

[00:56:56] Speaker 07:
The point I was trying to make was probably a simpler one and I didn't do it well, which is that I want to make sure that we just understand that these customers have been granted the ability to have their miso charges reimbursed.

[00:57:09] Speaker 07:
And we're simply talking about taking that reimbursement now that it's the law of the case that the competition analysis no longer requires it, that it's time to sunset that.

[00:57:19] Speaker 07:
And again,

[00:57:19] Speaker 07:
We're not saying that the commission should be restrained in its rate analysis.

[00:57:23] Speaker 07:
We think the commission should have looked at all of these issues on remand and permitted an extensive discussion of rates.

[00:57:31] Speaker 07:
Instead, they summarily rejected our transmission agreements as moot and said, that's it.

[00:57:36] Speaker 04:
There's some issues with those transition agreements in our prior opinion.

[00:57:40] Speaker 04:
Has there been any effort to adjust to address those?

[00:57:43] Speaker 07:
I know your honor, because the commission dismissed them as moot, they were no longer before the commission.

[00:57:48] Speaker 04:
Maybe I may understand the whole origin story here.

[00:57:51] Speaker 04:
I had thought those were agreements that the companies and utility that your client and utilities had worked out and then submitted to FERC together.

[00:57:59] Speaker 04:
Is that not accurate?

[00:58:01] Speaker 07:
Okay, so let's just quickly on that.

[00:58:02] Speaker 04:
It wasn't something FERC could impose.

[00:58:04] Speaker 07:
Well, first argument has been, well, it was their idea, not ours, and therefore it doesn't count, which I don't think is terribly persuasive.

[00:58:12] Speaker 07:
But what happened was we filed our application.

[00:58:15] Speaker 07:
We did not say we will transition them out.

[00:58:19] Speaker 07:
The commission in 2019 said,

[00:58:22] Speaker 07:
grant your application, but only if you transition them out.

[00:58:26] Speaker 07:
And we didn't seek for hearing of that.

[00:58:27] Speaker 07:
We said, okay.

[00:58:28] Speaker 07:
Now there was subsequent litigation about the scope of that, as your honor well remembers.

[00:58:32] Speaker 07:
So when the court order, when the mandate arrived at the commission, we had already negotiated based on the existing FERC record, a new set of transition agreements.

[00:58:44] Speaker 07:
We had filed them again.

[00:58:45] Speaker 07:
So

[00:58:46] Speaker 07:
procedurally.

[00:58:46] Speaker 07:
We did offer them, we had signed them, they had signed them.

[00:58:49] Speaker 07:
Now each party did preserve its rights in that agreement to make any modifications on the margin in response to the court's order.

[00:58:58] Speaker 07:
But the commission said, nope, they're all moot dismissed procedurally, so they're gone.

[00:59:03] Speaker 04:
I can just make sure I'm processing this.

[00:59:06] Speaker ?:
Yeah.

[00:59:07] Speaker 04:
had those agreements had been updated after our decision and then we're submitted the Commission said those agreements were compliant with our decision or those were the pre decisional those were pre decision so I would I would have been accurate for to say

[00:59:27] Speaker 04:
Of course, there's some problems with those.

[00:59:29] Speaker 04:
So why do you want me to look at those again, as opposed to why?

[00:59:31] Speaker 04:
Why wasn't?

[00:59:33] Speaker 04:
So I guess back to where I started, and this maybe is a process problem on my end.

[00:59:38] Speaker 04:
Why wasn't it on you at that point to update the agreements to address those concerns and and provide those different?

[00:59:48] Speaker 07:
Well, so when we when the when the mandate arrived, we had those settlement agreements.

[00:59:53] Speaker 07:
They were sitting there before the commission.

[00:59:54] Speaker 07:
We had no idea what the commission would do.

[00:59:56] Speaker 07:
whether they would hold procedure or not.

[00:59:57] Speaker 07:
And then the remand order just appeared and dismissed them.

[01:00:03] Speaker 04:
How long after our decision was the remand order?

[01:00:05] Speaker 07:
Oh, I think they sat for nine months.

[01:00:07] Speaker 04:
That was time for you guys.

[01:00:08] Speaker 04:
I mean, you knew you were going to have to do something with these agreements.

[01:00:12] Speaker 07:
Oh, I think you're right.

[01:00:13] Speaker 07:
That's why it was written into the agreements that the parties may be able to to petition for changes on the margin to

[01:00:20] Speaker 07:
to scope it pursuant to the court's order.

[01:00:22] Speaker 04:
So you had time.

[01:00:23] Speaker 04:
To the extent that this is something you all work out outside the commission context and then provide to the commission.

[01:00:30] Speaker 07:
Well, except to the extent that at that point, Your Honor, the court had vacated the commission's order entirely.

[01:00:36] Speaker 07:
So I think both sides were waiting on bated breath to figure out what the commission was going to do writ large.

[01:00:45] Speaker 07:
But we just contend that, again, with those settlements before the commission,

[01:00:49] Speaker 07:
which are you know which are exactly the rate payer protections that the commission talks about not being there except they they needed to be changed well they could have been right needed to be changed in order to comply with the court's order right in both of our favors that's right but there would have been procedure for that we built it into the agreements procedure would have been

[01:01:09] Speaker 04:
What?

[01:01:10] Speaker 04:
I'm not being clear here, obviously, I apologize.

[01:01:14] Speaker 04:
Is the procedure something that had to go through FERC or could the procedure have been you and utilities, you and the customers get together, update the agreements and then let FERC know about them so that there is in fact this form of protection in place?

[01:01:32] Speaker 07:
Oh, I think at that point, your honor, having the court having vacated the commission's order and frankly granted a win for the other side.

[01:01:38] Speaker 07:
I don't know that the other side would have signed new transition agreements complying with the court order.

[01:01:43] Speaker 07:
Now that they expected a new rates analysis and maybe they could get out of this entirely.

[01:01:49] Speaker 07:
So what I if I were to write the commission's order on remand, I would have said

[01:01:53] Speaker 07:
We have these transition agreements in front of us.

[01:01:56] Speaker 07:
We are concerned that on the margins, they may not strictly comply with the court's balls and strikes on reliance interests.

[01:02:02] Speaker 07:
But we know that there's a, you know, that the parties reserve rights to modify them in that respect.

[01:02:08] Speaker 07:
Subject to those modifications, they are adequate rate payer protection.

[01:02:11] Speaker 04:
And we could have- They couldn't say they're adequate until they saw the modification.

[01:02:14] Speaker 04:
It's like a chicken and egg problem here.

[01:02:16] Speaker 04:
I don't know how they can say they're adequate until they see the modifications.

[01:02:18] Speaker 04:
And you're saying we can't do the modifications until they say they're adequate.

[01:02:22] Speaker 07:
Well, again, I think if we once they're there and the court has issued or the commission had both of those facts in front of them, they easily could have looked at this and said we would find these agreements determinative, but for any daylight between maybe relevant.

[01:02:39] Speaker 07:
Relevant to the to the just the existence of a rate impact But we are concerned about any daylight between them and the court order and we asked the parties to address this That would have been absolutely reasonable thing for the commission to have done instead.

[01:02:53] Speaker 07:
They just again dismiss them entirely as moot and You know act again then proceeded to fault us Repeatedly in their orders and their briefs for not offering some sort of rate payer protection

[01:03:08] Speaker 07:
when that's exactly what they are.

[01:03:10] Speaker 07:
I can't, it's hard for me to conceive of better rate payer protection.

[01:03:13] Speaker 04:
So I'm wondering why you couldn't offer, here's the updated, not signed by the other side for the reason you said, here's what we're offering.

[01:03:22] Speaker 04:
Here's what we're offering.

[01:03:24] Speaker 04:
We've changed these proposals that were before you last time and vacated as part of the order.

[01:03:29] Speaker 04:
They needed to be cleaned up and fixed.

[01:03:31] Speaker 04:
Here's what we're offering and give that to the commission.

[01:03:34] Speaker 04:
The commission then could look at it and say, yeah,

[01:03:37] Speaker 04:
This will this will work or this will at least mitigate the effect on these rate payers efficient that when we do the big balance both of overall rate payer consequences or rate consequences and the public interest writ large that this will suffice, but it seems like they just didn't have that in front of them.

[01:03:57] Speaker 07:
Well, all we would have done, as you correctly point out, is file the un-executed, the other side wouldn't have signed them, presumably.

[01:04:03] Speaker 07:
So we would have just filed them.

[01:04:04] Speaker 07:
And so we would have been asking the commission to accept them over the objection of the other parties, as opposed to dealing with, right.

[01:04:12] Speaker 07:
And so, but again, had the commission.

[01:04:16] Speaker 04:
like you're all pointing at each other's.

[01:04:17] Speaker 04:
Well, he's saying you didn't give us anything to offset.

[01:04:20] Speaker 04:
And so had you done that, you would have provided them.

[01:04:22] Speaker 04:
Here's what we're willing to do.

[01:04:24] Speaker 04:
Here's a way that this can't.

[01:04:25] Speaker 04:
This is an answer to the in perpetuity problem.

[01:04:28] Speaker 04:
We're going to have it.

[01:04:29] Speaker 04:
It'll go this long.

[01:04:29] Speaker 04:
It'll phase out maybe at the end.

[01:04:31] Speaker 04:
So I don't have you write whatever you want.

[01:04:33] Speaker 07:
But, um, but that would have been us getting out ahead of the commission, even considering the court's analysis, the commission, the commission council concedes

[01:04:41] Speaker 07:
They had no process, they opened to no docket, they asked for no papers.

[01:04:45] Speaker 04:
And you could have filed this at the rehearing stage.

[01:04:47] Speaker 04:
You had plenty of time.

[01:04:49] Speaker 07:
We could have filed a new agreement.

[01:04:51] Speaker 07:
Well, a new agreement would have tendered a new rate filing.

[01:04:54] Speaker 07:
The commission would have dismissed that as procedurally improper at the rehearing phase.

[01:04:58] Speaker 07:
There was just no way for us to go in and say, I mean, we would have had to start a new rate case and say, here are new agreements, and then ask the commission to say, don't worry, these are now compliant, but there was no proceeding

[01:05:11] Speaker 07:
The commission had already dismissed them as moot.

[01:05:13] Speaker 07:
The commission opened no docket.

[01:05:15] Speaker 07:
We didn't know what the commission was going to do on remand, and they decided to just issue an order instead of hold a proceeding to talk about all of these issues should have been at play.

[01:05:25] Speaker 07:
That is our argument that the commission should have undertaken that rate analysis.

[01:05:32] Speaker 04:
Thank you.

[01:05:32] Speaker 04:
Sorry, I've taken up a lot of your rebuttal time.

[01:05:34] Speaker 07:
Do you want to wrap up?

[01:05:36] Speaker 07:
Yes, you're on one just very small point.

[01:05:37] Speaker 07:
I did mention the five and the six.

[01:05:40] Speaker 07:
clear there is one of the six customers that did intervene in this proceeding I think I said all of them had not I want to be very clear there is one that has so I apologize for that misstatement but the rest of them but again all six customers none of them have made a claim for deep pancaking that wasn't addressed in one of those filed transition agreements.

[01:06:04] Speaker 04:
Okay the case is submitted.