[00:00:00] Speaker 00: case number 24-13-15. [00:00:04] Speaker 00: Maryland Office of People's Council head out petitioners versus Federal Energy Regulatory Commission. [00:00:10] Speaker 00: Mr. Schwartz for the petitioners, Mr. Perkins for the respondents, Mr. Hughes for the interveners. [00:00:17] Speaker 00: Mr. Schwartz, good morning. [00:00:19] Speaker 05: Good morning and may it please the court. [00:00:22] Speaker 05: Jeffrey Schwartz for the customers. [00:00:24] Speaker 05: The Federal Power Act requires that all wholesale electricity rates be just and reasonable, and makes no exception for auction set rates. [00:00:35] Speaker 05: And under Section 206, if FERC finds an existing rate to be unjust and unreasonable, it must set a new just and reasonable rate to be observed thereafter. [00:00:47] Speaker 05: FERC here concedes that it may exercise this authority over auction set rates in other cases. [00:00:55] Speaker 05: And it concedes that a mistaken parameter in this auction caused exorbitant prices that its brief calls wasteful and its commissioners called patently inequitable and blatantly unjust and unreasonable. [00:01:10] Speaker 05: Those rates charge Delmarva customers an extra $180 million for no economic or reliability purpose. [00:01:20] Speaker 05: Although it recognized the injustice, FERC denied the customer complaint because it wrongly believed a Third Circuit decision foreclosed relief. [00:01:30] Speaker 05: Here's why that's wrong. [00:01:32] Speaker 05: Power providers rejected a change to the auction's rate setting process. [00:01:37] Speaker 05: To implement the decision, FERC reversed the change and PGM re-ran the auction with the original parameter. [00:01:46] Speaker 05: That fulfilled the court's mandate, ended the dispute about how the auction should run, and created new forward sales commitments at the higher prices. [00:01:58] Speaker 05: The complaint here posed a new question, which the Third Circuit did not decide, whether the resulting capacity prices were just and reasonable, as required by section 206 and this court's precedent in public citizen and New England power generators on review of FERC's decision in Devon Power. [00:02:19] Speaker 05: The parallels between this case and public citizen are striking. [00:02:23] Speaker 05: In both cases, an auction was held under FERC-approved rules [00:02:28] Speaker 05: The auction produced anomalous prices, which complainants challenged before capacity delivery began. [00:02:34] Speaker 05: FERC acknowledged the misfire and changed the tariff going forward, but it refused to evaluate whether the completed auctions results were just and reasonable. [00:02:46] Speaker 04: So you agree that your proposed fix [00:02:49] Speaker 04: would have the exact same economic effect as the fix that the Third Circuit declined to impose, right? [00:02:57] Speaker 04: Or in fact, held was contrary to the final trade doctrine. [00:03:01] Speaker 05: Well, the the Third Circuit was not ruling on an economic outcome. [00:03:05] Speaker 05: It was ruling to ruling on a change to the auction's rate setting process and found that it was too late to change the auction rate setting process and found that [00:03:16] Speaker 05: the potential inequities of setting such a such a rate could not save an impermissibly retroactive change. [00:03:28] Speaker 05: What we are challenging in this case is I think what FERC is going to say and what they did say is [00:03:36] Speaker 04: If we now grant your 206 challenge to the price and institute the price using the wrong auction rules, we would essentially be defying the third circuit. [00:03:46] Speaker 04: So why is it unreasonable for FERC not to want to be seen to be defying the third circuits? [00:03:54] Speaker 04: bottom line conclusion. [00:03:55] Speaker 05: So, two two points, your honor. [00:03:57] Speaker 05: First, if the rates produced by the existing auction into the old rules are unjust and unreasonable, then it becomes FERC's obligation to set a just and reasonable replacement rate. [00:04:13] Speaker 05: We've requested a replacement rate [00:04:16] Speaker 05: that tracked the results of the February 2023 auction because those auction results are market based. [00:04:25] Speaker 05: They reflect the accurate, reliability and supply and demand conditions in the market. [00:04:30] Speaker 05: So we thought that was a just and reasonable replacement rate. [00:04:33] Speaker 05: If FERC believes that for some reason that replacement rate is unavailable, then it's FERC's obligation to develop a different just and reasonable replacement rate. [00:04:45] Speaker 05: And I would add that the Third Circuit disclaimed consideration of the equities. [00:04:50] Speaker 05: It never held that the February 2023 prices were unjust and reasonable, or that the May 2024 prices would be just and reasonable. [00:05:01] Speaker 05: That was sideways to the question before the court in that case, whether that change was retroactive. [00:05:08] Speaker 05: contrary to Ferck's view. [00:05:11] Speaker 04: I think the other flavor of this, to give you a chance to respond, is that Ferck saw itself as bound by the Third Circuit's conception of retroactivity. [00:05:21] Speaker 04: So if you attach a new legal consequence to past actions, that is essentially what the Third Circuit said was impermissible. [00:05:29] Speaker 04: And they would say, you are [00:05:32] Speaker 04: in effect, nullifying the outcome of the auction. [00:05:37] Speaker 04: So why can you do that consistently? [00:05:39] Speaker 05: I would disagree, Your Honor. [00:05:40] Speaker 05: So in the power provider's case, what was sought was a rule change that would have produced the prices that came out of the February 2023 auction, the low prices that we think are just and reasonable. [00:05:53] Speaker 05: It would have been then the generator's obligation to challenge those rates and prove that they are unjust and reasonable. [00:06:01] Speaker 05: Instead, on remand, FERC reversed the change to the rate setting process. [00:06:09] Speaker 05: We ran the auction with the original parameter and produced the higher rates that we now contend are unjust and unreasonable. [00:06:17] Speaker 05: So the outcome of the rate setting process flipped the burden to challenge the resulting rates and we accept that burden. [00:06:27] Speaker 05: In effect, what the Third Circuit held was that the attempt to change the rate setting process in the middle of the auction was invalid and ineffective. [00:06:38] Speaker 05: The result was that the auction was completed in compliance with the rules that were in place when the auction started, just as was the case in public citizen. [00:06:48] Speaker 05: And just as was the case in public citizen, FERC acknowledged that there was a problem with those rules, which it changed going forward. [00:06:58] Speaker 05: And FERC has an obligation to consider whether the results of the completed auction were just and reasonable. [00:07:06] Speaker 01: I have a practical question. [00:07:09] Speaker 01: When PJM filed its Section 206 complaint back in December of 2022, it requested a refund date effective December 23, 2022. [00:07:27] Speaker 01: And how could that have worked in practical terms if the commission had granted the 206 complaint rather than PJM Section 205 filing? [00:07:39] Speaker 01: How could refunds have been paid for a rate that wouldn't come due until 2024? [00:07:46] Speaker 05: I don't think that in the earlier Section 206 case, the refund effective date [00:07:56] Speaker 05: literally would mean refunds. [00:08:01] Speaker 05: I think it's something that is requested as a conceptual refund ex ante. [00:08:06] Speaker 05: Yeah, I mean, had FERC acted pursuant to section 206 before the auction was completed, the auction would not have produced any unjust and reasonable rates to refund. [00:08:21] Speaker 01: I mean, I think the 206 complaint was sort of a nullity at that point or didn't come into play. [00:08:27] Speaker 01: It's a preservation. [00:08:29] Speaker 05: Well, PJM filed under both 205 and 206, I think, out of an abundance of caution and to give FERC additional flexibility. [00:08:40] Speaker 05: If it didn't like the specific change that PJM was proffering under 205, having filed under 206 would let FERC craft a different solution if it believed that was just unreasonable. [00:09:00] Speaker 04: The intervenors seem to essentially argue that FERC is always powerless to set aside even on a prospective basis auction set prices for an upcoming year. [00:09:13] Speaker 04: And you argue that that would mean FERC is essentially powerless to set aside any price [00:09:20] Speaker 04: because every price is generated for some future period. [00:09:24] Speaker 04: And there's a rule involved that states that's the price that will be charged for the coming year. [00:09:32] Speaker 04: And can you just sort of [00:09:36] Speaker 04: explain to the extent you're familiar how this works outside the auction process and how whether that would be distinct in any way that would bear on this argument. [00:09:45] Speaker 04: So how do formula rates work? [00:09:49] Speaker 05: Well, I was going to go to a different example, Your Honor. [00:09:52] Speaker 04: Yes, please. [00:09:53] Speaker 05: Instead of conducting an auction to determine with whom PJM would [00:09:58] Speaker 05: contract and at what price and for how much capacity. [00:10:02] Speaker 05: In theory, PGM could negotiate individual contracts with individual sellers for capacity. [00:10:09] Speaker 05: Those who be familiar market-based rate contracts entered into under the seller's market-based rate authority. [00:10:17] Speaker 05: And there's no question that FERC has authority to review the justness and reasonableness of those transactions under section 206. [00:10:25] Speaker 05: The standard may differ based on whether Mobile Sierra applies. [00:10:30] Speaker 05: But there's no question that FERC has Section 206 power over those rates. [00:10:40] Speaker 01: So the intervenors argue that power providers aside, the file rate doctrine itself protects this auction set rate and the particular parameters chosen back in February [00:10:55] Speaker 01: 2022 from change before the delivery year. [00:10:59] Speaker 01: And they point to, in the briefing, some provisions of the tariff that they say compel that conclusion. [00:11:06] Speaker 01: And I know your argument is that FERC didn't deny the complaint on this basis, so we can't affirm on that basis. [00:11:13] Speaker 01: But can you address that argument just on its merits? [00:11:17] Speaker 01: How do you read those provisions? [00:11:20] Speaker 05: I would say two things, Ronna. [00:11:21] Speaker 05: First, targeting back to the [00:11:25] Speaker 05: The analogy I used with Judge Garcia, if instead these were market-based rate contracts individually negotiated, those contracts, and let's say they were reduced to writing, those contracts would say, here's the price, and PJM must pay this price during the delivery year. [00:11:43] Speaker 05: Every executive contract [00:11:48] Speaker 05: It requires payment of the filed rate, even if there's a tariff rate that doesn't explicitly require it. [00:11:54] Speaker 05: That's the import of the filed rate doctrine, is that the rate must be paid until it is changed prospectively by FERC under 206. [00:12:02] Speaker 01: And the fact that the litigation was filed and the 206 complaint was filed makes it prospective, even though now it would be in the past. [00:12:13] Speaker 05: Correct. [00:12:14] Speaker 05: The complaint was filed before any capacity was delivered or any payments were made. [00:12:20] Speaker 01: Does you rely some on Citadel? [00:12:22] Speaker 01: Does it make a difference that we're dealing with forward capacity auction here and there? [00:12:27] Speaker 01: We dealt with the change to a tariff that was governing the real time energy market. [00:12:37] Speaker 05: Well, we rely on Citadel primarily for the notion that imposing a dramatic price increase for no reason, for no benefit, and in this case, for no economic reliability purpose, is itself unjust and reasonable. [00:12:52] Speaker 05: It helps to define what is unjust and unreasonable. [00:12:56] Speaker 05: I recognize your honor that in this case we're talking about forward capacity auctions and in that case we're talking about energy transactions but in both cases the changes that were sought would operate prospectively as to future energy sales or future deliveries and payments for capacity. [00:13:20] Speaker 01: And then the notion of a refund before the price has been paid during the delivery year is just [00:13:27] Speaker 01: as you say, it's an offsetting if it hasn't been paid and it's eventually. [00:13:31] Speaker 05: And in this case, we filed the complaint. [00:13:34] Speaker 05: In this case, because of the third circuit litigation, the timing was compressed. [00:13:42] Speaker 05: So KGM reran its auction just days before the new delivery year. [00:13:48] Speaker 05: We filed our complaint while the case was pending on remand. [00:13:53] Speaker 05: And as a result, [00:13:57] Speaker 05: PGM went ahead and re-ran the auction and produced the higher prices that were being collected during the delivery year. [00:14:07] Speaker 05: They should be subject to refund. [00:14:10] Speaker 05: The entire delivery year is within the Section 206 15-month refund period. [00:14:18] Speaker 01: In terms of what the filed rate is, the filed rate is the formula, [00:14:23] Speaker 01: But the filed rate is also the parameters chosen at the requisite dates to plug into the formula. [00:14:32] Speaker 01: Is the filed rate also the price that the auction produces? [00:14:37] Speaker 01: When we talk about the filed rate, in the old days, the rate was price paid to the load. [00:14:47] Speaker 05: It becomes confusing, Your Honor. [00:14:49] Speaker 05: I think the confusion is this. [00:14:52] Speaker 05: There's a buyer and there's a seller. [00:14:55] Speaker 05: And in the ordinary case, and the ones we're all familiar with from decades of the Federal Power Act, the seller files a rate. [00:15:04] Speaker 05: And that's it. [00:15:04] Speaker 05: There's one rate. [00:15:06] Speaker 05: Here, what you have is market-based sales of capacity by the seller's two-page AM. [00:15:13] Speaker 05: But PGM's side of it is being dictated by the terms of its tariff. [00:15:20] Speaker 05: So the tariff is determining in the first instance how much capacity PGM is going to buy from who and what price. [00:15:29] Speaker 05: And it's resulting in new subsequent filed rates for the sale of capacity pursuant to the market-based rate seller's market-based rate authorizations. [00:15:43] Speaker 01: So they are both rates. [00:15:46] Speaker 01: The formulas, the rate, the chosen parameters going into the formula part of the rate. [00:15:59] Speaker 05: So the part of the rate that dictates the rate setting procedures and requires the posting of the liability requirement would be part of PGM's filed rate. [00:16:12] Speaker 05: The specific liability requirement itself, the number, isn't specified in the tariff. [00:16:20] Speaker 05: That's something that PGM develops. [00:16:21] Speaker 01: But a process for selecting it is specified in the tariff and it had to be in February 2022, it had to be specified and made public by then, right? [00:16:34] Speaker 01: Correct. [00:16:35] Speaker 01: So the number is not part of the rate? [00:16:41] Speaker 05: I think you could consider it part of PJM's filed rate. [00:16:49] Speaker 05: Again, that's distinct from the auction results, which are themselves market-based rates subject to FERC's authority. [00:16:58] Speaker 05: And I would add, Your Honor, that you can find that inherent in public citizen, which rejected public citizens' claim that auction set capacity prices had to be filed with FERC under Section 205 before they could take effect. [00:17:15] Speaker 05: And the response was, no, that's not true, because that's not how market-based rate sales work. [00:17:21] Speaker 05: Market-based rate sales, the initial authorization is the finding that sellers lack market power. [00:17:28] Speaker 05: Right? [00:17:30] Speaker 05: Then transactions are entered into, but FERC has authority to review the justness and reasonableness of the market-based rate tariffs, even though they are not filed with FERC. [00:17:40] Speaker 05: If somebody files a complaint, FERC can review it. [00:17:43] Speaker 05: The only question is, what standard? [00:17:45] Speaker 05: And you can find that in the Supreme Court's Morgan Stanley decision. [00:17:49] Speaker 05: It's inherent in this court's New England Power Generators decision on review of Devon Power and in Public Citizen. [00:17:57] Speaker 01: It's just this different from public citizen in the sense that it's the sellers who kind of undercut. [00:18:05] Speaker 01: The seller's exercise of market power undercuts the initial authorization that they don't have market power. [00:18:12] Speaker 01: Here, it's FERC that undercuts the determination. [00:18:19] Speaker 01: Does that make a difference? [00:18:22] Speaker 05: No, Your Honor. [00:18:23] Speaker 05: And first, I would say that in public citizen, there were multiple things going on. [00:18:28] Speaker 05: There were, in fact, allegations of market manipulation or exercises of market power. [00:18:34] Speaker 05: But what enabled that to have an impact on the prices were flawed market rules, including a flawed local sourcing requirement, which is the analog to the liability requirement here. [00:18:52] Speaker 05: And in this case, the outcome is exactly the same. [00:18:57] Speaker 05: I mean, in this case, what happened was instead of a withholding of supply, there was an overestimating of demand. [00:19:06] Speaker 05: And the overestimate was not only more than was needed, but also more than was even available [00:19:12] Speaker 05: in the zone. [00:19:13] Speaker 05: As a result, there was an artificial shortage, which means that all sellers in that zone had market power and prices rose to an arbitrary cap. [00:19:28] Speaker 05: Okay, we'll give you a couple minutes and reply. [00:19:30] Speaker 05: Thank you, your honor. [00:19:32] Speaker 00: Thank you. [00:19:32] Speaker 00: Mr. Perkins. [00:19:49] Speaker 03: Please support Jason Perkins for the commission. [00:19:53] Speaker 03: The Third Circuit did not leave room for the commission to solve this problem yet a second time. [00:19:58] Speaker 03: From the way the case was decided, presented to FERC in the beginning, from how it was decided by FERC and then presented to the Third Circuit, the whole setup of the case was that there had been a problem already and could FERC fix it. [00:20:11] Speaker 03: The determination of the Third Circuit was it was too late. [00:20:14] Speaker 03: And in this follow-on proceeding, we were asked to take another look at the same rate to address the same situation. [00:20:24] Speaker 03: And the question was whether or not it was too late. [00:20:26] Speaker 03: And we decided, of course, to follow the mandate of the Third Circuit that was clear and unambiguous straight out of the interpretation of DPJM tariff, which is the readout file here. [00:20:37] Speaker 03: So to address some of the court's issues or questions, top side. [00:20:42] Speaker 03: Yes, we are dealing with the same economic effect here. [00:20:46] Speaker 03: Essentially, the parties have only identified two different points on the supply-demand charge. [00:20:51] Speaker 04: It is the same economic, their fix is the same economic effect, but the route to get there is very different. [00:20:57] Speaker 04: And the legal question in this case is whether this resulting price is unjust and unreasonable under Section 206. [00:21:08] Speaker 04: And I don't think the Third Circuit was presented with that question, were they? [00:21:11] Speaker 03: Not precisely the same question. [00:21:13] Speaker 03: The question they were presented with was the calculated and posted LDA reliability requirements, they called it. [00:21:22] Speaker 03: What effect does that have in the process? [00:21:24] Speaker 03: And they determined that it must be used in the auction. [00:21:27] Speaker 03: And they derived that determination straight out of the language of the PJM tariff. [00:21:31] Speaker 03: Of course, we argued for a different result in that case. [00:21:34] Speaker 03: And our theory was that until the process ran its course into having capacity commitments that are secured, it's not retroactive. [00:21:42] Speaker 03: The commission can still make changes, squarely and soundly rejected in that case. [00:21:47] Speaker 03: And so we can't square the result here, the suggested result here, with that reason. [00:21:51] Speaker 01: Rejected as to the tariff amendment, but not addressed with respect to whether the tariff rate was unjust and unreasonable. [00:22:01] Speaker 01: under 206. [00:22:02] Speaker 03: It was not reviewing a determination of whether or not it was unjust and unreasonable, but to Your Honor's earlier discussion about the original presentation of the case, the 205 filing and the 206 filing, essentially the 206, the original complaint filing from PJM. [00:22:18] Speaker 03: was an invitation for FERC to decide whether or not anything wrong had happened in the early parts of the process and there's a certain path dependency to how the commission decided it. [00:22:29] Speaker 03: It decided because the tariff fix was not retroactive it could go ahead and take that route and it didn't really develop the record any further as to whether or not there was something wrong that happened that would enable a substitution of a new rate entirely and as we pointed out in our brief there was some suggestion carried through the case from the [00:22:48] Speaker 03: original intervener petitioners that perhaps a full reset of the entire auction might have been a path not taken and that sort of logic is also not consistent with how the third circuit decided the case. [00:23:04] Speaker 01: But it's [00:23:06] Speaker 01: It seems to oddly obviate a very central responsibility of FERC under the statute, which is that FERC has to determine under 206 whether a rate is just and reasonable. [00:23:17] Speaker 01: And it didn't do that here. [00:23:20] Speaker 01: It sort of put the car before the horse by saying, well, we don't need to do that because however it comes out, the relief is unavailable. [00:23:31] Speaker 01: So if [00:23:35] Speaker 01: FERC believes for completely different reasons from justness and reasonableness, or unjustness and reasonableness, that a potential rate is unavailable. [00:23:45] Speaker 01: It can just skip the unjust and unreasonable inquiry. [00:23:49] Speaker 01: I see so many of our cases saying that it's FERC's job, not the complainant's job, to confirm that a rate is just and reasonable. [00:24:06] Speaker 03: Generally speaking, that's right. [00:24:07] Speaker 03: I think that the second part of the inquiry has been identified as being the commission's job to set the, as we would call it, the just and reasonable replacement rate. [00:24:17] Speaker 03: But when there is essentially no flexibility left as to setting a new just and reasonable replacement rate, because the file rate doctrine is attached, that's a different situation. [00:24:26] Speaker 01: But I mean, Public Citizen was a rate that was [00:24:31] Speaker 01: that was, you know, under the Filed Rape Doctrine. [00:24:33] Speaker 01: But Unjustice and Unreasonableness is an inquiry that the Commission applies to filed rights. [00:24:44] Speaker 03: The specifically in public citizen, it was an auction result. [00:24:48] Speaker 03: We agree with that. [00:24:49] Speaker 03: But there was no discussion of any particular provisions of the mid-continent tariff that would have necessarily put that result beyond FERC's reach. [00:24:57] Speaker 03: That was the question that was set up in our provider's case. [00:25:01] Speaker 01: So why wouldn't, if that's right, why wouldn't, I mean, would FERC approve a tariff? [00:25:08] Speaker 01: that included a term saying, and by the way, this tariff waives any right to assess the rates it produces for justness and reasonableness. [00:25:22] Speaker 01: Is that something that FERC has ever approved? [00:25:24] Speaker 01: And if it came before the commission, is there a reason why any authority to approve such a tariff rate? [00:25:32] Speaker 03: I'm not aware of a specific example of that. [00:25:34] Speaker 03: This tariff does include language about when the result becomes finite. [00:25:39] Speaker 01: But it's subject under myriad determinations, FERC and of this court, to review for whether it's just and reasonable. [00:25:50] Speaker 03: Under certain circumstances, it could be, but the issue of the filed rate doctrine basically takes us into a different realm in the sense that if you look at this court's decision in Oklahoma Gas, for instance, where Southwest Power Pool was trying to figure out how to come up with a formula to charge or reimburse for certain charges for use of certain facilities, it was a complicated process. [00:26:11] Speaker 03: It took Southwest Power Pool something like eight years to figure out the right way to do it. [00:26:16] Speaker 03: And they claimed that everyone was on notice. [00:26:18] Speaker 03: They were trying to fix the problem. [00:26:20] Speaker 03: And so when they wanted to back bill for all of that time, they said, everybody knew we were going to do this. [00:26:26] Speaker 03: But the tariff itself had a limitation of only one year looking back to bills. [00:26:32] Speaker 03: And we gave effect to that as court affirmed it. [00:26:36] Speaker 03: That is the sort of situation we're dealing with here. [00:26:38] Speaker 03: It wasn't the result that we advocated for in power providers, but the way that the third circuit decided it, so that attached earlier in the process. [00:26:46] Speaker 04: If the power provider's case had never been brought, and all we had was the auction runs, there's a price, and they argue it's unjust and unreasonable, [00:26:58] Speaker 04: Are you, has FERC taken a position on whether changing that price prospectively is, there's no dispute that this is literally prospective as to the price. [00:27:08] Speaker 04: Have you taken a position as to whether that would violate the filed rate doctrine? [00:27:14] Speaker 03: Not specifically here. [00:27:15] Speaker 03: And so I think it is hard to say for certain. [00:27:17] Speaker 04: Have you and has FERC in another case taken? [00:27:20] Speaker 04: I presume someone would have told us. [00:27:23] Speaker 04: This issue just hasn't come up. [00:27:25] Speaker 03: Not in this particular type of context, not that I'm aware of. [00:27:31] Speaker 04: And so why would it be any different than what Petitioner's Council says, which is [00:27:38] Speaker 04: This time the price was set by an auction, but you might set it by a formula or a market negotiation. [00:27:44] Speaker 04: And every time they're going to agree, you know, thou shalt charge this price for the upcoming year. [00:27:50] Speaker 04: And we all know you can set aside that price, not if it's already started being charged, but for the remainder of the period, if it's unjust and unreasonable. [00:27:59] Speaker 04: And it's hard to see [00:28:01] Speaker 04: Third Circuit as being presented with that question. [00:28:04] Speaker 04: And frankly, I'm a little skeptical that there is some kind of vested right from an auction. [00:28:15] Speaker 04: So I'm sorry, I guess my question is, it does seem like the intervener's position would immunize not just auction rates, but every rate from being set aside is unjust and unreasonable. [00:28:26] Speaker 03: It would be much harder to set aside a rate. [00:28:29] Speaker 03: That's right. [00:28:29] Speaker 03: And we would have to do an analysis of each individual tariff provision and how they actually interact with the rate and whether or not the rate has been settled. [00:28:38] Speaker 03: This is one of the reasons why the commission did not adopt the Third Circuit's perspective from the beginning, is that it does seem to bake in many more steps to the process than the actual end result, which is the clearing price and the capacity commitments. [00:28:51] Speaker 01: But it seems like you're then giving up something that the Third Circuit didn't even claim. [00:28:56] Speaker 01: It didn't do a Section 206 analysis. [00:29:00] Speaker 01: It's really looking at whether the tariff could be amended to resolve the problem apart from any review for justice and reasonableness. [00:29:11] Speaker 01: And it just seems unprecedented to then say, well, because this different path [00:29:19] Speaker 01: to the same or similar outcome comes to the same or similar outcome, that that, too, is disabled. [00:29:26] Speaker 01: I mean, even where mobile CRR applies, and there's an auction set rate, the 206 inquiry is assumed to apply. [00:29:40] Speaker 01: Mobile CRR is just a presumption. [00:29:42] Speaker 01: And what rebuts it, but a showing that the rate is unjust and unreasonable. [00:29:50] Speaker 01: The plaintiff's counsel explained or petitioner's counsel explained that there is a difference here where the burden is shifted. [00:30:01] Speaker 01: So it's not the inquiry that the Third Circuit ruled on. [00:30:06] Speaker 01: It's a different question. [00:30:08] Speaker 03: Well, to explain why the commission reached the result that it did, if you look at pages 401 to 402, really sort of the end of the third circuit opinion, it cites this court's cases on the filed rate doctrine. [00:30:21] Speaker 03: It explains predictability as important. [00:30:23] Speaker 03: The doctrine forbids post hoc tinkering. [00:30:26] Speaker 03: It cites the [00:30:27] Speaker 03: dissent from Mr. Damley that did not think that the change was possible here. [00:30:31] Speaker 03: So, all the signs that we were getting from the third circuit opinion was this rate result is already attached. [00:30:37] Speaker 03: It is beyond FERC's reach. [00:30:38] Speaker 03: It is like, you know, Oklahoma Gas, the periods before where Southwest Power Pool had told people they were going to make a change, but they hadn't actually done it. [00:30:46] Speaker 03: So, it might be totally reasonable that FERC [00:30:50] Speaker 04: you know, humbly interpreted this decision that way. [00:30:54] Speaker 04: But I think you've agreed that the third circuit just simply was not presented. [00:30:59] Speaker 04: And Ferck might be right that you still can't change the price. [00:31:01] Speaker 04: It was not presented with the question. [00:31:04] Speaker 04: Does it violate the file rate doctrine to set aside this price? [00:31:09] Speaker 04: And that seems like something Ferck needs to address. [00:31:14] Speaker 03: Well, respectfully, we did in the [00:31:18] Speaker 03: Paragraph 10 of the rehearing order, there is a very important distinction that we're making here and I hope it helps answer some of the court's questions from this discussion. [00:31:27] Speaker 03: It's on J 293, it's rehearing order paragraph 10, and it says that PJM's tariff specifies the rules for calculating the rate, i.e. [00:31:36] Speaker 03: the auction clearing price. [00:31:38] Speaker 03: And the Third Circuit found that under those rules, in applying the filed rate doctrine, PJM must use the originally posted eligibility requirement to produce the rate. [00:31:46] Speaker 03: And so we're talking about a change to the formula after it's already been run. [00:31:51] Speaker 03: And that is the problem, essentially. [00:31:53] Speaker 01: So that's the change to the formula, which you can do a rebate analysis without any change to the formula. [00:32:00] Speaker 01: The formula's been honored. [00:32:03] Speaker 01: The auction's been run. [00:32:04] Speaker 01: Prices have been produced. [00:32:08] Speaker 03: Well, we have made distinctions between the pure tariff rate, like the utility says, the price is X. And counsel for the customers talked about the bilateral contract rate, where the rate is A will sell to B at the price of X. [00:32:28] Speaker 03: This process is the rate, essentially, because it's the entire process PJM used, multi-step process, to figure out what the market outcome might look like if all those buyers and sellers got together. [00:32:42] Speaker 03: But PJM is taking that on and taking the steps and doing all the work to figure out what the right clearing price is in each one of the zones that it has to consider separately. [00:32:51] Speaker 03: And so if we are to come back and [00:32:54] Speaker 03: readjust the process later, it is going to affect what the outcome would have been the whole time. [00:32:59] Speaker 03: And that's sort of why we see the Third Circuit as having controlled this, even though, again, we did not adopt that particular view of how the file rate doctrine works. [00:33:08] Speaker 03: We will give it effect in this case because it has already gone to judgment, and we thought it was obvious with the Third Circuit. [00:33:14] Speaker 04: Is there anything that says, so if you had a different case where an auction went awry by assumption and the price is too high, [00:33:24] Speaker 04: It's not obvious that you have to rerun the auction to set the just and reasonable replacement rate. [00:33:29] Speaker 04: Maybe you can look to the rate that was reached in another neighboring geographic area and just sort of choose that rate. [00:33:36] Speaker 04: Does that sound right? [00:33:38] Speaker 04: FERC would have sort of remedial discretion in how it arrived at the replacements. [00:33:43] Speaker 03: Right. [00:33:44] Speaker 03: The underlying problem here being, as we said in the original order, there was no economic reliability justification for the actual result reached. [00:33:51] Speaker 03: If FERC developed a record to figure out what result would have an economic or reliability justification, then yes, the commission would be able to set a new price to determine what the quantity would be. [00:34:01] Speaker 03: We're talking about prices and quantities, and FERC could come up with a different solution to that, assuming that there is a developed record to make an informed choice. [00:34:11] Speaker 03: But in terms of when the commission can reach back retroactively to disturb results that might otherwise seem final, I mean, the public citizen case, we read that as being a case about market manipulation where there was an independent violation of law. [00:34:27] Speaker 03: And so there was a problem that subverted the final grade. [00:34:30] Speaker 03: So it didn't get into discussions of the filed rate, but there was a violation of law alleged there that the commission didn't reasonably explain or respond to. [00:34:40] Speaker 03: And so that is somewhat of a different circumstance than what we have here. [00:34:43] Speaker 03: That's why it doesn't really answer the question about disturbing auction set rates. [00:34:49] Speaker 04: In this content, just to clear, I appreciate the portion of paragraph 10. [00:34:53] Speaker 04: Paragraph 17 says, the commission's authority to otherwise modify auction set rates, otherwise meaning absent this Third Circuit decision, is not at issue. [00:35:02] Speaker 04: In other words, we are not telling you whether we could set aside this auction-based rate if not for the Third Circuit. [00:35:11] Speaker 04: decision. [00:35:12] Speaker 04: So this case is just about did the Third Circuit decision foreclose you from addressing that question, right? [00:35:19] Speaker 04: Correct. [00:35:20] Speaker 04: Okay. [00:35:21] Speaker 04: Thank you. [00:35:22] Speaker 00: Okay. [00:35:23] Speaker 00: Thank you. [00:35:24] Speaker 00: Thank you. [00:35:43] Speaker 02: Good morning, may it please the court, Paul Hughes for the interveners. [00:35:48] Speaker 02: Petitioners' complaint is an effort to circumvent the Third Circuit's decision. [00:35:52] Speaker 02: In light of that holding, FERC did not act arbitrarily or capriciously for two reasons. [00:35:58] Speaker 02: The first is that the Third Circuit's P3 decision required a specific result using the LDA reliability requirements. [00:36:06] Speaker 02: Because petitioners' complaint seeks to undo that result, FERC was not arbitrary and capricious in rejecting the challenge. [00:36:14] Speaker 02: Second, apart from the Third Circuit decision, the filed rate doctrine does bar the Section 206 complaint that petitioners have brought. [00:36:23] Speaker 02: We'd be happy to start anywhere that the court may wish. [00:36:28] Speaker 04: To start, though, with this. [00:36:29] Speaker 04: The first question that jumps to mind is that I think FERC just said they didn't take the second position. [00:36:34] Speaker 04: So even if you're right, [00:36:36] Speaker 04: One view would be that's not a basis for affirmance. [00:36:39] Speaker 04: Do you have a response to that? [00:36:41] Speaker 02: Your Honor, at the rehearing decision at paragraphs 13 and 14, I know it's characterizing the Third Circuit, but what FERC said was the Third Circuit found that this result was required irrespective of the possibility of any first result in this case. [00:36:55] Speaker 02: as an application of the filed rate doctrine, which flows from the text of the Federal Power Act. [00:37:00] Speaker 02: And then in paragraph 14, it goes on to distinguish case law because it wasn't addressing the filed rate doctrine. [00:37:07] Speaker 02: So I do think what FERC is recognizing is that the filed rate doctrine is doing the work here. [00:37:13] Speaker 02: But what I think FERC is recognizing correctly is that [00:37:17] Speaker 02: P3 has essentially resolved this question because in P3, for example, the court recognized that one of the arguments that the commission had made in first accepting PGM Section 205 filing in the action before it was, quote, [00:37:33] Speaker 02: the panel and this was FERC concluded that the tariff amendment was not retroactive because the auction had not yet obligated any suppliers to provide capacity or determine clearing prices. [00:37:44] Speaker 02: So the kind of argument that because this was prospective on later prices or delivery was before P3, that was an argument that [00:37:55] Speaker 02: FERC had rested on in finding and approving PGM's proposed 205 filing for the tariff amendment. [00:38:02] Speaker 02: And P3 had no problem rejecting FERC's entire position there. [00:38:07] Speaker 04: I think petitioners would say that that's all well and good. [00:38:11] Speaker 04: But the actual issue in front of the Third Circuit was whether you could change the rules of the auction. [00:38:16] Speaker 04: And it is a legally and logically distinct question whether you can set aside the resulting price that comes out of that auction. [00:38:24] Speaker 04: And that that latter question simply wasn't presented in the Third Circuit. [00:38:28] Speaker 02: Well, your honor, I don't think the Third Circuit viewed those as two distinct issues. [00:38:32] Speaker 02: And that's because in its own opinion, it recognized the separate part of the case, which was what had relied on before was the perspective. [00:38:40] Speaker 02: effect on rates. [00:38:42] Speaker 02: And that didn't have any bearing on what the court ultimately held. [00:38:46] Speaker 02: And I don't think there was any suggestion that if the 206, the PJM 206 filing had been present in the Third Circuit, which the Third Circuit acknowledged the existence of, that there somehow would have been a different result. [00:38:57] Speaker 01: And I do think- It just didn't reach that. [00:38:59] Speaker 01: I mean, in going back to the rehearing order, paragraph 10, the final [00:39:06] Speaker 01: Sentence, which I think your friend from the commission points to, it rejects petitioners' argument because they ask that the commission set aside recalculated auction rates by ignoring the Third Circuit's determination that PJM must use the originally posted LDA reliability requirement [00:39:29] Speaker 01: in the 2024-2025 auction, in the auction, and they did that. [00:39:35] Speaker 01: They used that in the auction rerun. [00:39:38] Speaker 01: It doesn't answer the question whether they must charge that rate ultimately to load. [00:39:45] Speaker 02: Well, I think it's quite revealing that petitioners' argument here is that the February 23 auction results that did not use the LDA reliability requirement is their chosen remedy. [00:40:00] Speaker 02: That's where I think FERC was quite right in saying, this is what petitioners have asked for in this case, is a return to the February 23 auction results. [00:40:10] Speaker 02: And that is what the Third Circuit explicitly rejected. [00:40:13] Speaker 01: So if that [00:40:15] Speaker 01: auction had never been run and so that rate, the hypothetical and rejected lower rate never been generated by auction, then you wouldn't have this sort of [00:40:30] Speaker 01: marrying of the auction generated rate to a just and reasonable remedial rate. [00:40:40] Speaker 01: And if we're in that world and petitioners just said, look, this rate, unjust, unreasonable, [00:40:48] Speaker 01: Perk should use this remedial authority to model a rate that without this erroneous parameter, would you have the same objection there? [00:40:58] Speaker 02: Well, yeah, I think there are a bunch of different ways to approach that question. [00:41:02] Speaker 02: So the first is, [00:41:04] Speaker 02: We are in a sui generis situation where what we have here is a Third Circuit decision that I think FERC did quite well in understanding on remand what it needed to do in order to afford with the clear mandate of the Third Circuit. [00:41:18] Speaker 02: And I think the mandate of the Third Circuit couldn't have been clearer. [00:41:21] Speaker 02: The PJM did not use the calculated posted LDA reliability requirement as the tariff required. [00:41:27] Speaker 02: The tariff amendment is therefore retroactive. [00:41:29] Speaker 02: So I think there's an easy way about the tariff amendment. [00:41:32] Speaker 01: So do you have a yes or no answer? [00:41:34] Speaker 01: Just so that I'm not distracted looking for it. [00:41:37] Speaker 01: If we had had a situation like this, but there were no February twenty twenty two was twenty two or twenty three re twenty three rerun auction. [00:41:48] Speaker 01: If there was no effort to amend the tariff midstream, there was just [00:41:54] Speaker 01: the first auction, high rates, and FERC then looks at that under 206, whether that rate is unjust and reasonable, anything barring it from changing that rate. [00:42:07] Speaker 02: Yes, Your Honor. [00:42:08] Speaker 02: So I understand the hypothetical. [00:42:11] Speaker 02: There's no P3 decision. [00:42:12] Speaker 02: There's no Third Circuit review of the 205 adjustment. [00:42:16] Speaker 02: Is that right, Your Honor? [00:42:17] Speaker 01: You're just suggesting that there was a... And there's no February 23 auction. [00:42:21] Speaker 02: Right. [00:42:21] Speaker 02: So Your Honor, if we assume that the auction was just run as it was from the get-go, and so we set aside the oddity of the... Well, everything that happened around the Third Circuit and P3, which I think puts this case in a wholly different camp. [00:42:33] Speaker 02: But if we just [00:42:34] Speaker 02: to settle on that. [00:42:36] Speaker 02: That is where the filed rate doctrine absolutely does apply. [00:42:39] Speaker 02: That's the second half of our brief. [00:42:41] Speaker 02: Now, I don't think the court has to resolve any of that to deny the petition because I think just saying that FERC followed what the Third Circuit said it needed to do resolves this case. [00:42:53] Speaker 02: But again, to answer the court's question, [00:42:56] Speaker 02: the filed rate doctrine as Oklahoma Gas and the Legion of this court's case has made clear is the filed rate doctrine does apply to a market-based tariff and when it applies to a market-based tariff, then the question is, is the the nature of what is being challenged? [00:43:14] Speaker 02: Is it retroactive or is it prospective, right? [00:43:17] Speaker 02: That's that's the critical question and the Third Circuit answered this question in this particular case. [00:43:23] Speaker 02: Now, I appreciate it but it might be it is [00:43:25] Speaker 04: Your view is effectively retroactive as to the rules of the auction. [00:43:30] Speaker 04: And their view is, it is obviously not retroactive as to the price to be charged. [00:43:37] Speaker 04: And so someone would have to resolve the tension between those things. [00:43:41] Speaker 04: And the Third Circuit didn't. [00:43:42] Speaker 02: Well, I disagree with that, Your Honor. [00:43:44] Speaker 02: So first, I think the Third Circuit did resolve that specific question. [00:43:49] Speaker 02: Now, one could disagree with the Third Circuit's resolution of that. [00:43:52] Speaker 02: But that's where I think there's an inner circuit comedy issue where because petitioners have chosen to come to this court rather than the Third Circuit, they're essentially asking this court to stand in judgment of the Third Circuit's determination that what actually is going on here is retroactive and not prospective. [00:44:08] Speaker 02: But second, the Third Circuit was right because what the Third Circuit said is the later downstream prices, those come out of the auction and the requirement under the tariff rules to post the LDA reliability requirements and then use that for each of the later steps. [00:44:26] Speaker 04: What's the response to the suggestion that that argument means every price is immune from 206 Challenge? [00:44:33] Speaker 02: Well, Your Honor, I think the answer is if a tariff is run according to its tariff terms, the filed rate doctrine does apply in those circumstances. [00:44:42] Speaker 04: So if you negotiate a price and file with FERC so that the filed rate says in the upcoming year we will charge X amount and it turns out X is unjust and unreasonable, you can't set that aside? [00:44:57] Speaker 02: That is the very purpose of the fallout rate doctrine, Your Honor, is that you don't do retroactive ex-post look. [00:45:03] Speaker 02: In order to have a market-based tariff system work, you have to have confidence in those auctions. [00:45:09] Speaker 04: on a prospective basis, FERC can never set aside an unjust rate? [00:45:15] Speaker 02: Sorry, let me be clear, Your Honor. [00:45:16] Speaker 02: The question to that is, is the setting aside that you're suggesting, is it the setting aside, does it have simply prospective effect? [00:45:24] Speaker 02: And if the answer to that inquiry is yes, it is simply prospective, of course, you can set it aside under Section 206, consistent with the language in 206A. [00:45:32] Speaker 02: The filed rate doctrine. [00:45:34] Speaker 01: In terms of prospectivity and retrospectivity on your theory, when does the rate [00:45:39] Speaker 01: get locked in? [00:45:41] Speaker 01: What's the fulcrum for purposes of prospectivity or retrospectivity? [00:45:46] Speaker 01: Is it when the parameters are set? [00:45:47] Speaker 01: Is it when the formula is announced and approved by FERC? [00:45:54] Speaker 01: What's the first offer has been made? [00:45:56] Speaker 01: I take it it's not when the customers actually pay for the power. [00:46:03] Speaker 02: So let me say at the outset, your honor, as we discuss at footnote three, I'm standing up for multiple interveners, which includes PJM. [00:46:10] Speaker 02: PJM and the generator interveners may not see the answer to that question in identically the same way, but all of those interveners are here today because they think whatever the answer to that question is, that this is safely past the point where retroactivity attaches. [00:46:27] Speaker 02: So I just wanna be precise in that. [00:46:30] Speaker 02: I think it's clear that what the third circuit said here is correct, which is you had legal consequences of the posting of the LDA reliability requirement because that incensed behavior by the generators in order to secure capacity. [00:46:45] Speaker 02: That is the reliance that the whole market is designed around to have them then submit their bids into the capacity auction and then for actions to continue. [00:46:54] Speaker 02: That is where certainly there is attachment of filed rate, which is what the third circuit in P3 said. [00:47:02] Speaker 02: So again, even if one were to think that's wrong, that would be contradicting what the third circuit said in this very dispute among these same parties. [00:47:10] Speaker 04: Just one last question. [00:47:11] Speaker 04: I think you just started getting at reliance. [00:47:14] Speaker 04: Can you explain in practical terms how a bidder [00:47:19] Speaker 04: could have relied on the clearing price in making their bid? [00:47:23] Speaker 04: Or are you making a different argument about reliance? [00:47:26] Speaker 02: No, they're relying, Your Honor, on the parameters, because the parameters that get posted that then are obligated pursuant to the tariff to be used, one can understand what effects those are going to have potentially on what the market is going to shape up to look like. [00:47:41] Speaker 02: And then that incents bidder behavior. [00:47:43] Speaker 04: So your clients knew that [00:47:46] Speaker 04: the auction was going to result in a 4X price, that would be a windfall to them? [00:47:52] Speaker 02: No, I'm not suggesting they know that there was going to be one particular price or another. [00:47:57] Speaker 04: That's why I just don't know how they could rely on the outcome of an auction unless they were colluding in advance. [00:48:04] Speaker 02: There's no suggestion anywhere. [00:48:06] Speaker 04: I'm not suggesting that either. [00:48:06] Speaker 04: That's why I'm confused about how you would need to know that [00:48:13] Speaker 04: how many people were going to put in and at what price and that this weird outcome was going to result. [00:48:18] Speaker 02: Let me just give one example that's in the record and our brief talks about, your honor, is that intermittent resources like solar and wind, if they're going to bid into the capacity markets, which they had some ability to be able to do, they might because they can't necessarily guarantee that they're going to be able to run and there are significant penalties [00:48:34] Speaker 02: If there is a capacity call and they don't run, they may have to engage in underlying hedges in order to be able to balance that out in trying to have a prediction as to what this market is going to look like. [00:48:44] Speaker 02: It's going to have a real effect on whether or not certain wind and solar resources are going to bid into the capacity markets. [00:48:50] Speaker 02: And so they need to be able to have the certainty of the LDA reliability metric. [00:48:56] Speaker 02: So they say, look, OK, I can bid into here, and then I can go in and safely essentially obtain a hedge on my capacity requirement in the event that there's a capacity call. [00:49:06] Speaker 02: And for any reason, I'm not in a situation to be able to generate. [00:49:12] Speaker 04: For persons with capacity, they couldn't predict the price that's going to. [00:49:15] Speaker 02: Well, that's right. [00:49:16] Speaker 02: There's not a direct prediction, but this is where, again, this goes to the whole reason why the filed rate doctrine is so essential with market-based tariffs. [00:49:26] Speaker 02: Can the rules of the tariffs be changed prospectively for future auctions? [00:49:30] Speaker 02: Absolutely, which is what the Third Circuit in P3 said, that this tariff amendment, the Third Circuit found it only can be struck as to the already [00:49:40] Speaker 02: run auction, but not as to future auctions. [00:49:44] Speaker 02: And to the court's question, what happens if you had some extraordinarily long auction period or something like that, I'd suggest, Your Honor, that would just be a problem under Section 205 that sort of locking in some period could be determined to be unjust and unreasonable because it's true that you can't predict the future. [00:50:00] Speaker 02: But the question is, and this is where the distinction between prospective and retroactive, I think, does the work. [00:50:05] Speaker 02: In order for there to be market-based rates, there has to be market reliance on how that auction functions. [00:50:14] Speaker 02: And so you can't tinker with the rules of the auction after it's been run. [00:50:17] Speaker 02: If, though, what you're doing is making something that is purely prospective, that's not changing effectively the rules of the auction, then you're in a different situation and the file rate wouldn't apply. [00:50:28] Speaker 01: Can I ask you, Mr. Hughes, about the tariff, the attachment [00:50:31] Speaker 01: Double D, that paragraph 11E, which talks about errors, and PJM can discover an error, and as long as it promptly notifies, that can be corrected. [00:50:42] Speaker 01: And your position on that is what? [00:50:44] Speaker 02: It's what the Third Circuit said, Your Honor, which is that error provision simply doesn't do the work that's needed here, that that would be reading far too much into this, and that PJM didn't think that would do the work. [00:50:56] Speaker 02: They didn't invoke the error provision. [00:50:58] Speaker 02: Instead, they did a tariff amendment. [00:51:00] Speaker 02: And again, this kind of gets back to, one maybe could disagree with what the Third Circuit held, but we think that's why the easiest way to resolve this case is exactly what FERC said, is FERC didn't have flexibility from the mandate of the Third Circuit. [00:51:15] Speaker 02: It did exactly what the Third Circuit said it should do, and the petitioner shouldn't here essentially be able to clatterly challenge the holdings of the Third Circuit, which includes, for example, how you interpret the error provision of the tariff. [00:51:27] Speaker 01: So your view is that the rate paid for electricity to be sold in the future, in the year for which the capacity auction is providing, must be the auction price, period, end of story. [00:51:46] Speaker 02: That is typically under the fodderate doctrine, yes, Your Honor. [00:51:50] Speaker 01: If the tariff is clear about that. [00:51:52] Speaker 02: If it is pursuant to the tariff terms, if the tariff is filed, that is the filed right doctrine protects market participants so they can rely on the tariff. [00:52:02] Speaker 02: And the court has been clear that the results of that can be harsh, but this is also a two-way street. [00:52:07] Speaker 01: So in Old Dominion... We read that in the brief. [00:52:12] Speaker 01: that the rate is set when when the auction clears no it's set far be in your view it's set well before the auction clears it's set when again this is where interveners may have different different views when an auction though has been run everybody agrees that it has been set and that resolves this case but what i think the role for 206 i know i've asked you this already i'm just the role for 206 under your view in a [00:52:40] Speaker 01: where the filed rate doctor implies it obviates, largely obviates, 206 review. [00:52:46] Speaker 02: Yes, Your Honor, except for if what the 206 complaint is doing is looking prospective. [00:52:51] Speaker 02: And the example here is one can file a section 206 challenge to a PGM market-based rate tariff, just not for the tariff for the auction that's already been run. [00:53:02] Speaker 01: Right, so you have no problem with the amendment insofar as it applies [00:53:06] Speaker 01: to years past the 2024-2025. [00:53:09] Speaker 01: That's not in this case, and that amendment is going to be effective. [00:53:12] Speaker 02: Yes, Your Honor. [00:53:13] Speaker 02: So for example, if PJM had not done this amendment prospectively, if the petitioner's claim was they bring a 206 complaint and say, applying this LDA reliability requirement for a future auction is unjust and unreasonable, Section 206 absolutely would have traction there, because what you're not doing is applying something retroactively to past conduct. [00:53:35] Speaker 02: That's the critical feature where the filed rate doctrine has to preserve a conduct when there is past conduct that is not subject to subsequent challenge. [00:53:46] Speaker 00: All right, thank you. [00:53:49] Speaker 00: Mr. Horowitz, why don't you take two minutes? [00:54:02] Speaker 05: Thank you. [00:54:04] Speaker 05: The key to this case is that auctions are rate-setting procedures that set rates for future sales under the seller's market-based rate authority. [00:54:15] Speaker 05: My friend from the commission read from paragraph 10 of the rehearing order, which I think bears on this question. [00:54:23] Speaker 05: That paragraph says that PGM specifies the rule for calculating the rate, the auction clearing price. [00:54:31] Speaker 05: And it goes on to say that PGM must use the originally posted reliability requirement to produce the rate. [00:54:38] Speaker 05: That's the rate for the future sale of capacity. [00:54:41] Speaker 05: And under the Federal Power Act, setting a rate does not immunize it from change. [00:54:48] Speaker 05: This case is solely about FERC's power under Section 206 to change an auction set market-based rate, not the wisdom of doing so. [00:54:59] Speaker 05: My friend from the interveners claims that once an auction is run, that's it. [00:55:04] Speaker 05: FERC has no power to change the auction clearing price. [00:55:08] Speaker 05: I would submit that that is very difficult to reconcile that position with the language of section 206 with FERC's decision in Devon Power, which this court affirmed in New England Power Generators, where FERC [00:55:25] Speaker 05: looked at that case, looked at the question of how it would review auction set capacity prices, decided on the record in that case that it had discretion to apply a mobile Sierra presumption, which is a rebuttable presumption that auction set prices are just unreasonable. [00:55:43] Speaker 05: But that's the thing, even where a mobile Sierra presumption applies, the presumption is rebuttable, which means the complainants need a chance to rebut it. [00:55:52] Speaker 01: So you had said, I think, when you were setting up earlier that FERC would have had the authority to set its own perspective rate, even if it felt like it couldn't. [00:56:05] Speaker 01: prove the exact rate as before because of the Third Circuit's decision. [00:56:10] Speaker 01: Could you say a little bit more about what that would look like? [00:56:12] Speaker 01: What realistically FERC would have been able to do? [00:56:16] Speaker 05: So I think that Citadel actually provides a template for that potentially. [00:56:22] Speaker 05: Citadel involved the suspension of a penalty constraint factor, which is essentially a market price cap in the energy market. [00:56:33] Speaker 05: in that case that allowing prices to rise to the cap [00:56:39] Speaker 05: because of a shortage of power due to transmission line maintenance, a short-lived problem that the entire market knew was going to be fixed, similar to this short-run problem of a mistaken parameter. [00:56:52] Speaker 05: It didn't make any sense to allow prices to rise to the cap in that context, because doing so would do no good. [00:56:59] Speaker 05: It would elicit no new supply. [00:57:01] Speaker 05: It would elicit no transmission [00:57:04] Speaker 05: no new transmission construction. [00:57:09] Speaker 05: So FERC's remedy in that case was, I believe, to set the price equal to, not to the cap, but to the highest actual offer submitted by a generator to supply power in that case. [00:57:23] Speaker 05: That would be one example. [00:57:24] Speaker 05: I'm not saying that that is the relief that we're requesting, but that's an example of what FERC could do.