[00:00:04] Speaker 02:
And we will hear argument next in energy thermal LLC against Watson.

[00:00:30] Speaker 01:
Good morning, and may it please the court.

[00:00:32] Speaker 01:
Michael Mestitz for Appellants Invenergy and Grays Harbor Energy.

[00:00:35] Speaker 01:
I'd like to reserve five minutes of my time for rebuttal, and I'll keep my eye on the clock.

[00:00:41] Speaker 01:
Before we discuss the issue of discrimination under the Dormant Commerce Clause, I want to address the two clearest bases for reversal here.

[00:00:48] Speaker 01:
First is the district court's Sue Espante dismissal with prejudice for lack of jurisdiction.

[00:00:52] Speaker 01:
Ecology does not defend that on appeal, and the court should vacate that portion of the opinion below.

[00:00:58] Speaker 01:
Second is the district court's single sentence dismissal with prejudice of the Pike claim.

[00:01:03] Speaker 01:
As ecology concedes on page 41 of its brief, pork producers allows even non-discriminatory burdens to go forward.

[00:01:10] Speaker 01:
Ecology only argues here that we inadequately alleged any burden.

[00:01:15] Speaker 01:
We disagree, but at best, dismissal should have been without prejudice to allow us to replede.

[00:01:20] Speaker 01:
Now, third and finally, the district court also erred in holding that there was no discrimination

[00:01:25] Speaker 01:
under the Dormant Commerce Clause or the Equal Protection Clause because it did not believe that we were similarly situated to utilities.

[00:01:33] Speaker 01:
But in the competitive market for power generation, Invenergy is similarly situated to the utilities because they both own generating facilities, and Grey's Harbor is similarly situated to the utilities plants because they generate electricity to sell either to utilities or on the wholesale market.

[00:01:51] Speaker 01:
And ecology concedes at page 30.

[00:01:53] Speaker 01:
that Grey's Harbor competes with the utility-owned plants in this respect, which establishes that they are similarly situated under the law.

[00:02:01] Speaker 01:
But Invenergy and Grey's Harbor are treated differently from utilities and utility-owned plants, because utilities get no-cost allowances to reduce their plants' compliance burden under the CCA.

[00:02:12] Speaker 01:
Invenergy does not.

[00:02:13] Speaker 01:
And utilities receive these no-cost allowances

[00:02:17] Speaker 01:
based on their status as utilities or their special connection to the Washington market.

[00:02:22] Speaker 01:
Next era dealt with a very, very similar circumstance.

[00:02:26] Speaker 01:
and remanded both Pike and discrimination claims after the district court dismissed.

[00:02:31] Speaker 01:
So we submit the same outcome is appropriate here.

[00:02:33] Speaker 02:
So if the state had a scheme where every power, every gas or oil power plant in the state has to buy credits or pay a tax, I mean they're economically equivalent.

[00:02:49] Speaker 02:
whether it's utility owned or owned by an independent party, I take it you would not be here.

[00:02:57] Speaker 02:
You wouldn't have any claim challenging.

[00:03:00] Speaker 02:
And that's all the statute is.

[00:03:01] Speaker 02:
It just applies to every emitter in the state that has to get a permit.

[00:03:05] Speaker 01:
Yeah, so I think that's a really key distinction.

[00:03:08] Speaker 01:
And I think that's what we see in the case law that talks about sort of across the market cost increases, but where there's no sort of disparate effect on different market actors.

[00:03:18] Speaker 01:
And you're right here.

[00:03:20] Speaker 02:
The core of the issue is that similarly situated entities are being treated differently.

[00:03:31] Speaker 02:
Suppose the different state program, they decide we want to make it cheaper for Washingtonians to buy electricity.

[00:03:41] Speaker 02:
So we're just going to write a check to every utility, so many cents a kilowatt hour based on what your customers are using.

[00:03:51] Speaker 02:
We're just subsidizing utilities.

[00:03:52] Speaker 02:
I take it you don't have any objection to that.

[00:03:54] Speaker 02:
They're allowed to do that?

[00:03:56] Speaker 01:
So I think that is closer to the line, and this is the Tracy line.

[00:03:59] Speaker 01:
which is you have to understand and this is what Tracy and next era does you have to understand whether the lies primarily regulating the captured utility market or whether it is regulating this adjacent competitive market now under your hypothetical I don't think we have a circumstance where the adjacent competitive market

[00:04:17] Speaker 01:
is being distorted.

[00:04:18] Speaker 01:
And you see this, I think, in some of the party's discussions about CETA versus the Act, right?

[00:04:23] Speaker 01:
So CETA is a law that governs how utilities are going to have to buy power between now and 2045, right?

[00:04:31] Speaker 01:
That regulates the utility market.

[00:04:33] Speaker 01:
And so it falls directly on them.

[00:04:36] Speaker 01:
And if it affects the generation market, it's just affecting the utilities as buyers from the generation market.

[00:04:42] Speaker 01:
But it's not distorting the generation market.

[00:04:44] Speaker 01:
It's not treating different actors in the generation market differently.

[00:04:48] Speaker 01:
Now, the act is really importantly different.

[00:04:50] Speaker 01:
Because what the act does is it requires entities that generate CO2 to purchase allowances.

[00:04:56] Speaker 01:
Utilities in their capacities, utilities don't really generate CO2.

[00:05:00] Speaker 01:
That's what happens in the power generation market.

[00:05:02] Speaker 01:
And so although utilities are assigned to these allowances, the compliance burden of the act is felt in the generation market.

[00:05:10] Speaker 01:
You know, the the entities that are generating.

[00:05:13] Speaker 01:
have to buy allowances unless they are able to get them from someplace.

[00:05:17] Speaker 01:
And here, the utilities can just downstream the allowances to their own power plants.

[00:05:24] Speaker 01:
So that's why you have a real distinction in the way that similarly situated power generators are being treated.

[00:05:30] Speaker 02:
Well, so then, I guess my next question is then, isn't the actual scheme that Washington has economically equivalent to my first two hypotheticals combined?

[00:05:41] Speaker 01:
So I don't think so.

[00:05:44] Speaker 01:
Why not?

[00:05:46] Speaker 01:
And this is because, again, the purpose of these allowances is to be sent into the power generation market.

[00:05:52] Speaker 01:
And so you have certain power plants that we allege.

[00:05:56] Speaker 01:
And again, remember, this is an effects-based claim.

[00:05:58] Speaker 01:
It's not a facial claim.

[00:06:00] Speaker 01:
So you have to look at the effects this is actually having.

[00:06:03] Speaker 01:
What we've alleged in our complaint is that, as a practical matter, the utilities are going to send these to their own plants.

[00:06:09] Speaker 01:
instead of the sole independent power producer in Washington, which is in Venergy Grays Harbor.

[00:06:15] Speaker 01:
And so those utility-owned plants, by virtue of their affiliation with the utilities, get an enormous benefit in this competitive power generation market.

[00:06:23] Speaker 01:
it's particularly strongly felt here because a megawatt is a megawatt, right?

[00:06:28] Speaker 01:
This electricity is completely fungible.

[00:06:31] Speaker 01:
An electron is an electron.

[00:06:32] Speaker 01:
And so what distinguishes between products on the generation market is the cost of generation, right?

[00:06:39] Speaker 01:
And so utilities have gotten this benefit.

[00:06:42] Speaker 01:
They can pass on to their plants and make it very, very difficult for Grey's Harbor or for anyone else who wants to enter the market to practically compete against them.

[00:06:51] Speaker 01:
In order to do that, you have to be a Washington utility.

[00:06:54] Speaker 01:
This is exactly what NextEra looked at, right?

[00:06:57] Speaker 01:
NextEra, a law in Texas, said, well, we think only utilities can build power transmission lines.

[00:07:04] Speaker 01:
And the court there did a very thorough analysis of Tracy and the relevant dormant commerce clause.

[00:07:09] Speaker 01:
And it said, look, we recognize that there is this special utility market.

[00:07:13] Speaker 01:
It's a captured market.

[00:07:14] Speaker 01:
But the Supreme Court in Tracy made very clear there's no dormant commerce clause exception for utilities.

[00:07:19] Speaker 01:
What the court did is what we have to do is we have to look at where is the burden of this law being felt.

[00:07:25] Speaker 01:
Is it being felt in the utility market or is it being felt in a separate competitive market?

[00:07:29] Speaker 01:
And they said there, look, the market for building power lines is a separate competitive market.

[00:07:35] Speaker 01:
And that's what we have here as well.

[00:07:37] Speaker 02:
Now, if your plant were located in Idaho, you would not be subject to this scheme, right?

[00:07:45] Speaker 02:
That's correct.

[00:07:46] Speaker 02:
I think there would still be a burden on interstate commerce, but we wouldn't.

[00:07:51] Speaker 02:
And if you were located in Idaho, you could emit to your heart's content without regulation by Washington.

[00:07:58] Speaker 02:
And you could sell power into Washington, couldn't you?

[00:08:02] Speaker 02:
On the interstate grid, yes.

[00:08:03] Speaker 02:
So I mean, it's a curious sort of

[00:08:08] Speaker 02:
Dormant Commerce Clause discrimination claim that says, well, we're being disadvantaged because we're located in the state that's imposing the regulation, whereas if we did exactly the same thing out of state, it seems like they're discriminating against the local interest rather than in favor of it.

[00:08:27] Speaker 01:
So I don't think so, and I guess I have two reactions.

[00:08:30] Speaker 01:
The first is that, of course, again, Pike exists regardless of discrimination.

[00:08:34] Speaker 01:
But I do want to get to the in-state, out-of-state distinction, because I think that's something that has taken up a lot of air and ink in this case.

[00:08:41] Speaker 01:
And again, NextEra, I think, makes clear

[00:08:44] Speaker 01:
that what you're looking at is not a talismanic in-state, out-of-state line based off organization, but you're asking whether or not there's a set of market incumbents that are getting a special benefit based off their connection to the local economy.

[00:08:58] Speaker 01:
And here, as in next era, it was the utilities, right?

[00:09:02] Speaker 01:
And I can give you some cases that prove this.

[00:09:04] Speaker 01:
This court's Yakima case makes the point that at page 933,

[00:09:09] Speaker 01:
The Commerce Clause protects the vitality of the national market for goods and services, not the locations of a particular participant.

[00:09:15] Speaker 01:
I already mentioned next era.

[00:09:17] Speaker 01:
Florida Transportation Services case out of the 11th Circuit at page 1259 says, look, the place of incorporation is not determinative.

[00:09:28] Speaker 01:
If that were the case, and this is a quote, then a state or municipality's dormant Commerce Clause liability would turn on the empty formality

[00:09:35] Speaker 01:
of where a company's articles of incorporation were filed, rather than where the company's business takes place or where its political influence lies.

[00:09:43] Speaker 01:
And so I acknowledge that, you know, while we talk about sort of in-state, out-of-state, I do think it's a subtler distinction.

[00:09:49] Speaker 01:
And the purpose is to look at, well, look, is there a set of entities that are being distinctly advantaged based off some sort of connection to the forum?

[00:09:59] Speaker 01:
Here, that's the utilities, just as it was in next era.

[00:10:02] Speaker 01:
And then are there other entities in state, out of state?

[00:10:05] Speaker 01:
I mean, in this case, you're making it practically impossible for anyone to start a new generating facility in Washington, which is an out-of-state effect, right?

[00:10:13] Speaker 01:
That's the protectionist discrimination.

[00:10:15] Speaker 01:
But is there a particular class of incumbents that are being strongly advantaged in this purely competitive market?

[00:10:22] Speaker 01:
That's the generation market here.

[00:10:24] Speaker 01:
I mean, obviously the district court, I think, was very concerned with sort of the Pacific Corps question.

[00:10:29] Speaker 01:
It was concerned with these

[00:10:31] Speaker 01:
Washington university entities that are pleaded nowhere in the complaint and so are just entirely inappropriate to take into account at the pleading stage.

[00:10:42] Speaker 01:
If you look at the First Circuit Walgreens case, it sort of makes the point that we're conducting an effects-based test here.

[00:10:50] Speaker 01:
And so we need to look at the reality of what is happening in the market.

[00:10:54] Speaker 01:
And it may be that the line is not perfectly sort of in-state, out-of-state.

[00:10:59] Speaker 01:
There might be some in-state actors that are burdened

[00:11:01] Speaker 01:
there might be some out-of-state actors that are incidentally benefited.

[00:11:05] Speaker 01:
But do you have this core protectionist concern?

[00:11:08] Speaker 02:
So can I just, you said the scheme makes it hard or impossible for somebody to come in, an independent person to come in and build a power plant in Washington.

[00:11:19] Speaker 02:
When we consider both statutes together,

[00:11:23] Speaker 02:
It's also hard if Puget Sound Energy wants to build a new natural gas plant.

[00:11:29] Speaker 02:
They're going to be burdened by the scheme too, aren't they?

[00:11:32] Speaker 01:
Well, so again, I think you have this question about are they being disparately affected, right?

[00:11:38] Speaker 01:
So I understand it may not be, you know, for reasons of CETA or wherever else, something that you're going to have a bunch of people starting to build natural gas power plants.

[00:11:48] Speaker 01:
But there is going to remain ongoing demand.

[00:11:49] Speaker 01:
I mean, Invenergy is a green energy company, and one of the things that's very important to Invenergy

[00:11:55] Speaker 01:
is operating an efficient and clean plant in this bridge period where we move to more renewable sources.

[00:12:01] Speaker 01:
So there is a need there.

[00:12:02] Speaker 01:
I mean, I think the issue and why there's this protectionist effect is that any plant affiliated with the utilities is going to be able to allay its compliance burden with the CCA, whereas Invenergy or anyone else who wants a plant but is not affiliated with these incumbent utilities is going to have to pay significantly more.

[00:12:21] Speaker 01:
And because you have this highly competitive price-sensitive market for power generation, it just makes it impossible.

[00:12:28] Speaker 01:
And so again, in the dormant commerce clause, whether it's Pike claims or whether it's a discrimination claim, you see this both.

[00:12:35] Speaker 01:
One of these prototypical burdens on interstate commerce is this type of protectionist effect.

[00:12:42] Speaker 01:
We allege it here at ER 60 through 64, where you're seeing, again, it is a licensing regime.

[00:12:48] Speaker 01:
or it is a tariff or a cost increase of some sort or, you know, a certificate of need requirement, something that makes it harder for the free flow of interstate commerce to reach into a state and for any commerce to compete on even ground with the incumbents.

[00:13:05] Speaker 01:
And respectfully, we suggest that's what we've got here.

[00:13:08] Speaker 02:
And you mentioned Tracy a couple of times, but just take me through again how you distinguish Tracy.

[00:13:13] Speaker 01:
Sure.

[00:13:14] Speaker 01:
So Tracy, I think, sets out the rule again that when you have a utility, there's not sort of per se dormant commerce clause carte blanche that the government gets.

[00:13:23] Speaker 01:
But you have to actually look at what's the core market that's being regulated.

[00:13:27] Speaker 01:
Now in Tracy, the court looked at that, and it was a bundled gas product.

[00:13:31] Speaker 01:
And it said, you know, in essence, it reached the opposite conclusion, but it looked at these two markets and it's like, well, okay, this is really covering the captured utility market because it is dealing with the end delivery of that natural gas to consumers.

[00:13:48] Speaker 01:
And so they said, look, this is dealing with the captured market.

[00:13:51] Speaker 01:
There's a competitive market.

[00:13:52] Speaker 01:
but the act there deals with the captured market.

[00:13:55] Speaker 01:
Next era, I think, is the opposite circumstance, right?

[00:13:58] Speaker 01:
It sits down and it says, look, Texas has said only utilities can build power lines.

[00:14:03] Speaker 01:
We are going to look at this and we're going to say, does this primarily regulate the captured market or does this primarily regulate a competitive market, the market for building power lines?

[00:14:11] Speaker 01:
And there the court said, look, you've got this separate market for building power lines.

[00:14:16] Speaker 01:
The plaintiff there was a power line company, but not a utility.

[00:14:20] Speaker 01:
And it was seriously disadvantaged because the utilities got this benefit.

[00:14:25] Speaker 01:
All of a sudden, only they could build it.

[00:14:27] Speaker 01:
Now, it's certainly the case that power lines have something to do with the end distribution of electricity to rate payers.

[00:14:35] Speaker 01:
They're part of the power grid.

[00:14:37] Speaker 01:
That's also why you have an interstate effect.

[00:14:39] Speaker 01:
Arkansas Electric makes clear that the international, that the interstate power grid is an interstate commerce instrumentality.

[00:14:45] Speaker 01:
But the court there said, look, I mean, I know we're dealing with power, but we've got to look really carefully at these two markets.

[00:14:52] Speaker 01:
And what Texas has done is it has advantaged

[00:14:56] Speaker 01:
utilities in this competitive market, and therefore given them an unfair advantage.

[00:15:01] Speaker 01:
And the court made the point, if that were the rule, you could give utilities all sorts of special treatment, including giving them, the court says, exclusive right to sell ice cream in the state of Texas.

[00:15:13] Speaker 02:
But here the thing that the utility is getting, the special benefit that it gets that you don't,

[00:15:19] Speaker 02:
is, as I understand it, an allowance that's tied to its customer base.

[00:15:26] Speaker 02:
It's not

[00:15:29] Speaker 02:
You have a prerogative to do something in some other market that no one else can.

[00:15:33] Speaker 02:
It's like, we're giving you a benefit for the local customers that you serve, based on the number of local customers that you're serving.

[00:15:40] Speaker 02:
So that seems much more tied to regulation of the local utility market, which the state can do, right?

[00:15:47] Speaker 01:
Well, so the number of allowances is assigned based off the rate payer base.

[00:15:52] Speaker 01:
But that is basically the end of the utility market's involvement in these no-cost allowances.

[00:15:58] Speaker 01:
Because again, they get applied.

[00:16:00] Speaker 01:
into the competitive market.

[00:16:01] Speaker 01:
So I don't see it as substantially different from saying, well, look, utilities know what they're doing with power lines.

[00:16:08] Speaker 01:
Therefore, we should assign power line rights based off utility status.

[00:16:12] Speaker 01:
I mean, I understand where you're coming from, Your Honor.

[00:16:15] Speaker 01:
I just think it's different, which is to say, yes, there is this fig leaf connection.

[00:16:19] Speaker 01:
But if you look at where the compliance burden of the act falls, it falls on the generation market.

[00:16:24] Speaker 01:
It falls on people generating CO2.

[00:16:26] Speaker 01:
And so practically speaking,

[00:16:28] Speaker 01:
What's going to happen is that these get downstream to the plants.

[00:16:31] Speaker 01:
Now we haven't talked a lot about the dismissal with prejudice.

[00:16:36] Speaker 01:
Obviously something that comes up a lot in our briefs is how we might amend.

[00:16:40] Speaker 01:
to add allegations as to any of these issues you still have concerns about.

[00:16:44] Speaker 01:
I will say we filed our complaint prior to the enactment of the act.

[00:16:49] Speaker 01:
The act took effect January 1st, 2023.

[00:16:52] Speaker 01:
And so we now have two years of experience living under this law and we've seen what it's done.

[00:16:57] Speaker 01:
We've seen how these things actually have or rather have not been transferred.

[00:17:02] Speaker 01:
We see the effect it's had on the market.

[00:17:05] Speaker 01:
We even see additional interstate effects like the fact that the act

[00:17:08] Speaker 01:
has increased the cost of electricity for people outside of the state of Washington.

[00:17:14] Speaker 01:
And so again, to the extent you have concerns either about the burden, the Pike balancing test, or whether or not we're similarly situated, all of those are things we could allege.

[00:17:24] Speaker 01:
And many of those are things that might raise questions of fact, that then you would do discovery on the market, on direct competition, and then would be resolved.

[00:17:33] Speaker 01:
I see I'm now at three minutes.

[00:17:34] Speaker 01:
I'll reserve the balance of my time.

[00:17:36] Speaker 01:
Thank you.

[00:17:45] Speaker 00:
Good morning, and may it please the Court.

[00:17:46] Speaker 00:
Kelly Wood on behalf of the State of Washington.

[00:17:48] Speaker 00:
As I think the Court is keyed in on, Washington has taken a two-prong approach to decarbonizing its energy sector.

[00:17:56] Speaker 00:
The Clean Energy Transformation Act, or CETA, requires Washington utilities to decarbonize their portfolios, and the Climate Commitment Act requires anyone generating wholesale power to account for their greenhouse gas emissions.

[00:18:08] Speaker 00:
Within this system, if Invenergy exceeds in invalidating no-cost allowances, they'll be the only power plant in Washington not accountable for its greenhouse gases.

[00:18:19] Speaker 00:
This Court should reject that.

[00:18:20] Speaker 00:
The Supreme Court has warned on multiple occasions that to protect federalism, courts should exercise extreme caution before invoking the Dormant Commerce Clause to invalidate state laws.

[00:18:31] Speaker 00:
And the infractions must be clear.

[00:18:33] Speaker 00:
There are no clear infractions here.

[00:18:36] Speaker 00:
Their discrimination claims all fall apart under scrutiny.

[00:18:40] Speaker 00:
And their invocation of Pike here seeks to vastly expand the scope of that doctrine right after both this Court and the Supreme Court have confirmed its limited scope.

[00:18:49] Speaker 00:
I'd like to start with how CEDA and the Climate Commitment Act function, because I think a lot of Invenergy's arguments here rely on an inaccurate picture of how the statutes work.

[00:19:01] Speaker 00:
Now, CEDA was adopted in 2019.

[00:19:02] Speaker 00:
It applies only to utilities.

[00:19:05] Speaker 00:
And it requires that the power that they provide to Washington consumers, what we refer to as retail power or the retail load, be carbon free by 2045.

[00:19:15] Speaker 00:
What that means is that utilities are going to have to spend a lot of resources to bring those renewable sources online because they simply don't exist now.

[00:19:23] Speaker 00:
And we do anticipate that that will result in an increase to consumer energy costs.

[00:19:28] Speaker 00:
The Climate Commitment Act was adopted a couple of years later.

[00:19:31] Speaker 00:
It's broader.

[00:19:31] Speaker 00:
It applies to any significant source of greenhouse emissions in the state, and it requires them to purchase allowances to account for those emissions.

[00:19:40] Speaker 00:
And we expect that that will increase the cost for any carbon-intensive activity in Washington.

[00:19:46] Speaker 00:
But critical here

[00:19:48] Speaker 00:
Without no cost allowances, these statutes are duplicative on the utilities, because either statute on its own would decarbonize retail power, CETA by decreasing the percentage of carbon sources that utilities are allowed to have in their portfolios to serve Washington consumers, and the Climate Commitment Act by slowly decreasing the amount of allowances that are available to cover those emissions.

[00:20:14] Speaker 00:
So the Climate Commitment Act gives allowances to the utilities to exempt what CETA already covers, providing retail to Washington consumers.

[00:20:23] Speaker 00:
And Invenergy's argument that those can be used to cover all of their power generation is just incorrect.

[00:20:29] Speaker 00:
Just like Invenergy, when the utilities are operating on the wholesale markets, when they're selling their excess power,

[00:20:36] Speaker 00:
on the wholesale market in competition with entities like Invenergy, they do not receive no cost allowances for that.

[00:20:43] Speaker 00:
That is on the face of the statute at RCW 70A 65120.

[00:20:47] Speaker 00:
So to make a simple analogy here, a simple explanation, if utility generates 50 allowances worth of power and provides that to the retail customers, and they generate 100 allowances worth and sell that on the wholesale market,

[00:21:01] Speaker 00:
they still only get 50 allowances.

[00:21:03] Speaker 00:
They have to go out and purchase, just like Invenergy, the rest of those allowances on the open market.

[00:21:09] Speaker 00:
And for the 50 that they do get, they can't be used to either increase utility profits or undercut wholesale sellers like Invenergy because by statute they must be used to the benefit of the rate payers.

[00:21:23] Speaker 00:
They've got to be used to reduce energy costs.

[00:21:26] Speaker 00:
This approach fully complies with both the dormant clause and equal protection, and we provide a host of reasons why.

[00:21:33] Speaker 00:
But I'd like to start with the threshold question of similarly situated, because that is a brick wall that all of Invenergy's claims slam into, and your honor is keyed in on the General Motors versus Tracy case.

[00:21:46] Speaker 00:
That is binding precedent on this court that compels a finding that Invenergy is not similarly situated to the utilities in this case.

[00:21:56] Speaker 00:
And the facts in Tracy are strikingly similar to what we have here.

[00:22:01] Speaker 00:
It involved an Ohio tax break to in-state utilities, natural gas utilities, that was not provided to the wholesale sellers that served large volumes of natural gas to large clients like General Motors.

[00:22:19] Speaker 00:
And the court upheld that because it found that the utilities and the wholesalers were not similarly situated because they provided different products in separate markets.

[00:22:28] Speaker 00:
The utilities provided a bundled product in the non-competitive captive consumer retail market for natural gas, while the wholesalers sold an unbundled product in the wholesale market to large entities like General Motors.

[00:22:44] Speaker 00:
Just like the natural gas utilities in Tracy, Washington's utilities provide a bundled non-competitive market, non-competitive product on the retail market, and just like the wholesalers in Tracy, Invenergy provides an unbundled competitive product on the wholesale market.

[00:23:05] Speaker 00:
Because you have separate markets and separate products,

[00:23:09] Speaker 00:
Invenergy is not similarly situated to the utilities here.

[00:23:13] Speaker 00:
And this sort of trying to draw a distinction based on the fact that both utilities and Invenergy are dealing in electrons, that didn't make a difference in Tracy.

[00:23:25] Speaker 00:
Both the retail groups or retail utilities in Tracy and the wholesalers were dealing in the molecules

[00:23:34] Speaker 00:
of natural gas, but the product again is this unbundled versus bundled product.

[00:23:41] Speaker 00:
And there are compelling reasons to treat those separately.

[00:23:44] Speaker 00:
And Tracy talked about this.

[00:23:46] Speaker 00:
It's a health and safety issue where state power is typically at its highest ebb, because when it comes to that captive monopoly market,

[00:23:55] Speaker 00:
that the utilities operate in, consumers have very little power in that market.

[00:23:59] Speaker 00:
You and I have no choice as to where we purchase our power.

[00:24:03] Speaker 00:
We purchase in such small quantities that we don't have any bargaining power with regard to the price.

[00:24:07] Speaker 00:
It's why it's so highly regulated.

[00:24:09] Speaker 00:
It's why the utilities don't get to set their own rates.

[00:24:12] Speaker 00:
They have to get that through organizations like the UTC, Washington's UTC.

[00:24:18] Speaker 02:
But I think part of their argument, at least, is that

[00:24:21] Speaker 02:
You have the incumbent utility, right?

[00:24:24] Speaker 02:
And it's got 5,000 megawatts worth of customers and then 5,000 megawatts worth of generation and it sells to its customers.

[00:24:33] Speaker 02:
And the state gives it allowances.

[00:24:36] Speaker 02:
for those customers that cover its generation.

[00:24:39] Speaker 02:
And somebody else wants to come along and compete in what is a competitive wholesale market by building a new power plant.

[00:24:47] Speaker 02:
And the effect of your scheme, as they describe it, is to disadvantage them because the power plant already, or the utility, excuse me, already has allowances that cover the generation it has.

[00:25:00] Speaker 02:
And somebody else who wants to maybe have cheaper generation

[00:25:06] Speaker 02:
to undercut them is disadvantaged because they don't get the allowances.

[00:25:10] Speaker 02:
So isn't that a sort of discrimination against new entrants in the wholesale market?

[00:25:16] Speaker 00:
No, Your Honor, it's not.

[00:25:17] Speaker 00:
And for a couple of reasons.

[00:25:19] Speaker 00:
I mean, I think, first of all, let's take it true that this proposition, we're on a motion to dismiss.

[00:25:25] Speaker 00:
So let's take it as true that allowances encourage utilities to use their own power plants and not buy from people like Intervenergy.

[00:25:34] Speaker 00:
Because they're not substantially situated,

[00:25:37] Speaker 00:
The Commerce Clause allows that.

[00:25:40] Speaker 00:
The Commerce Clause allows states to draw distinctions between parties that are not similarly situated, so absolutely the state could do that.

[00:25:48] Speaker 00:
It could do it in an even stronger way than it's done so here.

[00:25:51] Speaker 00:
And secondly, this is the Exxon case.

[00:25:58] Speaker 00:
where the state of Maryland was disincentivizing vertically integrated refineries in favor of non-vertically integrated situations.

[00:26:08] Speaker 00:
The Commerce Clause does not protect any particular means or mechanism of commerce.

[00:26:15] Speaker 00:
It doesn't protect any particular actors.

[00:26:17] Speaker 00:
It protects the market itself, and so the state can

[00:26:24] Speaker 00:
sort of put weight on the scale of any particular mode or mechanism of conducting business.

[00:26:29] Speaker 00:
So I think that's the way to differentiate that situation.

[00:26:33] Speaker 00:
And really, there is no way to get around Tracy here.

[00:26:37] Speaker 00:
It really is stunningly on all four with this case.

[00:26:40] Speaker 00:
And in fact, we'd argue it's even stronger.

[00:26:42] Speaker 00:
And Tracy, the court had to weigh, and my colleague talked about this, which market to give significance to.

[00:26:50] Speaker 00:
Well, Tracy addressed that.

[00:26:52] Speaker 00:
In Tracy the utilities got the tax cut Both when they were operating on the retail markets selling to their consumers, but they also got it when they were in direct competition with The wholesale suppliers and so the court was sort of weighing which one do we give more more weight to here?

[00:27:10] Speaker 00:
We don't have that when utilities

[00:27:14] Speaker 00:
are selling on the wholesale market, they don't get no cost allowances, so they're treated exactly like Invenergy.

[00:27:19] Speaker 00:
They have to go out and buy those.

[00:27:21] Speaker 00:
And so here, where you have, where Invenergy concedes the wholesale market's the only place that they're in competition with utilities, where those utilities are treated exactly the same, that just destroys any argument that the utilities are somehow advantaged here.

[00:27:39] Speaker 02:
And what about next era?

[00:27:40] Speaker 00:
Next Era was an in-state presence case, and I think it's distinguishable on multiple grounds.

[00:27:45] Speaker 00:
But what the Fifth Circuit was most concerned about in Next Era was the fact that it provided an absolute barrier to anyone to enter what is a competitive market, building transmission lines that didn't have a physical presence in the case.

[00:27:59] Speaker 00:
And there's sort of a long line of physical presence cases where the courts have sort of shut that down.

[00:28:05] Speaker 00:
We don't have that situation here.

[00:28:07] Speaker 00:
There's no dispute that

[00:28:10] Speaker 00:
The Climate Commitment Act doesn't prevent any barrier from in-state participation in the market.

[00:28:16] Speaker 00:
As we point out, it wouldn't prevent a Texas company from coming in and purchasing Puget Sound Energy next week.

[00:28:23] Speaker 00:
It wouldn't protect Invenergy from petitioning the UTC to create its own utility.

[00:28:28] Speaker 00:
Now what they come back and say is, is it be difficult to do that?

[00:28:31] Speaker 00:
And we don't disagree that it's difficult to create a utility in Washington or to purchase a utility.

[00:28:38] Speaker 00:
But the key aspect here in terms of differentiating next era is that it would be just as difficult for an in-state interest to do that as an out-of-state one, and none of that difficulty would be because of the Climate Commitment Act.

[00:28:50] Speaker 00:
Now, we have a lot of other reasons why the court can find there's no discrimination here.

[00:28:58] Speaker 00:
We talk about different ways that they're not similarly situated, including the regulatory systems they operate in, the fact that CETA applies to utilities.

[00:29:06] Speaker 00:
We talk about the fact that there's no evidence of economic protectionism.

[00:29:10] Speaker 00:
Unless the court has specific questions on that, those pieces I'd like to turn to their Pike claim, because I think

[00:29:17] Speaker 00:
The lack of discrimination here also illustrates why their Pike claim fails.

[00:29:22] Speaker 00:
And there are two takeaways from both this Court's and the Supreme Court's decisions in national pork that really inform the deficiencies in their Pike claim.

[00:29:32] Speaker 00:
And that starts with the Supreme Court's decision, recognizing that it was fractured on many fronts.

[00:29:38] Speaker 00:
But there were some important things that a majority of the Court did agree on.

[00:29:41] Speaker 00:
And that was that Pike has a very narrow focus, as Justice Gorsuch explained in his opinion, that discrimination remains at Pike's heartland.

[00:29:51] Speaker 00:
At its core, it functions really just to root out hidden discrimination.

[00:29:57] Speaker 02:
That may be the core, but that's not all it is, right?

[00:30:07] Speaker 00:
You're certainly right.

[00:30:08] Speaker 00:
That's not all it is.

[00:30:10] Speaker 00:
And Justice Corse's opinion, which did draw a majority on this front, answered the rest of that question, which is, what else does Pike do?

[00:30:18] Speaker 00:
And it looked to these line of cases that predated Pike to the large extent that talked about arteries and instrumentalities of commerce, things that require uniform regulation throughout the country.

[00:30:32] Speaker 00:
Like one of the examples was the truck mudflaps case where, you know,

[00:30:37] Speaker 00:
if all 50 states had a different requirement for mud flaps and trucks had to stop at the borders and swap out mud flaps, you know, those types of regulations.

[00:30:47] Speaker 00:
So here, where you don't have discrimination because you don't have similarly situated parties, and we're not talking about the articles and instrumentalities of commerce here, we're not talking about things that impede the flow of goods between the states,

[00:31:01] Speaker 00:
this court's decision in national pork and the Supreme Court's decision answer this question.

[00:31:05] Speaker 00:
There's nothing left for Pike to do.

[00:31:09] Speaker 00:
So the second key takeaway from that.

[00:31:12] Speaker 02:
So your view is that after pork producers, all that is left of Pike is discrimination or arteries and channels of commerce, interference with the arteries and channels of commerce, and that's it.

[00:31:28] Speaker 00:
That's, as far as we can tell, those are the only cases that, as Justice Gorsuch's opinion explained in going into these line of cases, aside from rooting out hidden discrimination, that really is the only other context in which Pike has been applied.

[00:31:45] Speaker 00:
And so maybe there's a narrow sliver out there that exists somewhere, but we just haven't found it.

[00:31:52] Speaker 02:
But I mean, because several of the justices, and I think here several is more than five, in Pike stated the more general proposition that when you have a burden that is out of proportion to the benefits of the law, that there can still be a Pike claim, didn't they?

[00:32:17] Speaker 00:
Yes, a majority of the court held that Pike still exists, certainly.

[00:32:21] Speaker 02:
And they didn't say, you know, but only if it's about arteries and instrumentalities of commerce.

[00:32:27] Speaker 00:
I do think a majority of the court held firm to the concept that Pike really is focused on discrimination.

[00:32:34] Speaker 00:
And once you get outside of that heartland,

[00:32:37] Speaker 00:
that you're really in a very extremely narrow lane where, as far as the court could tell, the only time that that constitutes a claim is when you're dealing with these arteries for instrumentalities.

[00:32:51] Speaker 02:
So we have a very, very truncated discussion of Pike from the district court here.

[00:32:57] Speaker 02:
They've made the point that in the time that the law has been in effect, learn more about exactly how it works and what the burdens are.

[00:33:07] Speaker 02:
Why shouldn't they get leave to amend to make whatever case they have under Pike now?

[00:33:15] Speaker 00:
For a few reasons, Your Honor.

[00:33:17] Speaker 00:
I think one that starts with there are no set of facts that they can allege here that differentiate this case from General Motors versus Tracy that shows that they're not similarly situated.

[00:33:29] Speaker 00:
So, you know, there's nothing that they can put in the record that says we're in Pike's Heartland talking about discrimination because discrimination just doesn't exist here.

[00:33:39] Speaker 00:
Another reason, I think, it goes to the other side of the Pike equation.

[00:33:47] Speaker 00:
Obviously, they have to show substantial burden on commerce.

[00:33:51] Speaker 00:
We argue here that the other important part about national pork is it comes from this court's decision that that bar is incredibly high.

[00:34:00] Speaker 00:
Facts taken as true in national pork at the Ninth Circuit were that California's proposition on animal welfare was going to completely upend the nationwide market for pork and cause extreme market distortion.

[00:34:13] Speaker 00:
So we just don't have that sort of substantial burden.

[00:34:17] Speaker 00:
But even if there was, for the sake of argument, if they could show substantial burden, they still run headlong into the other side of Pike, which is to show that there's no rational basis for the state's

[00:34:30] Speaker 00:
to do what it's done here.

[00:34:31] Speaker 00:
And what this court has said in this context is that is they have to show that the reasoning is illusory, that the facts underlying the statute can't reasonably be conceived to be true.

[00:34:48] Speaker 00:
And so that's a standard that they also can't meet, even if they show a substantial burden here.

[00:34:56] Speaker 00:
So what they argue on that side is that no cost allowances are illusory because they increase emissions and increase energy costs.

[00:35:04] Speaker 00:
Let's take those one at a time.

[00:35:06] Speaker 00:
On emissions, no cost allowances are not intended to decrease emissions.

[00:35:12] Speaker 00:
And in fact, they exist solely to exempt those emissions from the act completely.

[00:35:17] Speaker 00:
And so even if it's true and they could go back and

[00:35:20] Speaker 00:
have all sorts of facts about how no-cost allowances increase emissions.

[00:35:24] Speaker 00:
It's immaterial to this case because that's not what no-cost allowances are trying to accomplish.

[00:35:33] Speaker 00:
On energy costs, as we point out, the key word from the statute is mitigate.

[00:35:37] Speaker 00:
It does not say prevent a rise in consumer energy costs.

[00:35:42] Speaker 00:
So what that means in this context

[00:35:44] Speaker 00:
is that Invenergy has to find facts that show that a direct subsidy in as close to the amount as a state can get as possible to account for the cost that utilities have under the Climate Commitment Act will absolutely fail to move the needle.

[00:36:00] Speaker 00:
at all on consumer energy costs, that's the illusory standard.

[00:36:05] Speaker 00:
And it is implausible speculation that this court does not need to accept as true, that they can go find facts that basically prove that negative, or as we put it in our briefing, that prove that two plus two equals five.

[00:36:20] Speaker 00:
Now, they allege here and they allege in their reply brief that there have been cost increases in Washington for consumer energy.

[00:36:28] Speaker 00:
They don't provide any basis to support that.

[00:36:31] Speaker 00:
And to the state's knowledge, there haven't been significant increases in consumer energy costs.

[00:36:37] Speaker 00:
But even if there were, they would need to show that those increases in costs are exactly the same with or without no cost allowances.

[00:36:46] Speaker 00:
That's the burden that they can't overcome here.

[00:36:49] Speaker 00:
There are multiple reasons why remanding to the court here would just simply be a waste of judicial resources, because as this court knows, it's not required when it would be pointless to have that remand.

[00:37:05] Speaker 00:
Unless there are any other questions, we ask that the court affirm dismissal.

[00:37:09] Speaker 01:
Thank you.

[00:37:10] Speaker 00:
Thank you.

[00:37:17] Speaker 01:
With my brief rebuttal time, I'd like to try and make five points in response to the argument of my friend on the other side.

[00:37:24] Speaker 01:
The first and maybe the most important point is that this is a pleading stage case.

[00:37:28] Speaker 01:
And I think what we heard is a lot of discussion about how the law is or is not working in practice or how these no-cost allowances move through the market.

[00:37:38] Speaker 01:
Here on the pleadings, we have alleged how they are going to.

[00:37:42] Speaker 01:
We could certainly allege how they have, if given opportunity to amend.

[00:37:46] Speaker 01:
all of that needs to be taken as true.

[00:37:48] Speaker 01:
And I think to the extent there are questions about whether there is actual competition or even whether there's similar situation or how these things move, that is a fact question.

[00:37:58] Speaker 01:
And in National Association of Optometrists, that arose after summary judgment.

[00:38:04] Speaker 01:
This court actually had to get discovery to figure out whether optometrists and ophthalmologists were similarly situated.

[00:38:11] Speaker 01:
And it used expert evidence.

[00:38:12] Speaker 01:
And ultimately then,

[00:38:13] Speaker 01:
At summary judgment, it decided the discrimination issue.

[00:38:17] Speaker 01:
My second point is pork producers, just briefly.

[00:38:20] Speaker 01:
I don't think that the majority, which again is only section 4A there, limited it to articles and instrumentalities of interstate commerce.

[00:38:30] Speaker 01:
I think if you look at Chief Justice Roberts's opinion, which is joined by four justices, he discusses this issue.

[00:38:37] Speaker 01:
I will say, I don't see why the interstate power grid is not an artery or instrumentality of interstate commerce.

[00:38:42] Speaker 01:
And indeed, the Supreme Court has held it is in the Arkansas electric case.

[00:38:47] Speaker 01:
Third is just being clear about what the markets that we're talking about here is, because at one point my friend said, we've conceded that only the wholesale market is at issue here.

[00:38:57] Speaker 01:
He also discussed this is the same as sort of the bundled product in Tracy.

[00:39:02] Speaker 01:
And that's not true, because again, you've got power generation on one hand, which is the market we care about.

[00:39:09] Speaker 01:
That's the market we act in and are similarly situated to the other plants in.

[00:39:14] Speaker 01:
and then you've got the market for distribution if you think about buying something online you've got a market for the widget and people compete to manufacture the widget at the best possible price and then you've got uh... market for mailing it and we're talking about this now there is nothing that requires utilities to buy

[00:39:33] Speaker 01:
power from their own plants, right?

[00:39:35] Speaker 01:
That's why this is a competitive market, because absent the distortion by the act, they might buy the power that we dispatch for their plants to dispatch to rate payers.

[00:39:45] Speaker 01:
They might buy their own.

[00:39:46] Speaker 01:
It's gonna depend on what's cheapest on any given day.

[00:39:49] Speaker 01:
And here, there is a huge, huge thumb on the scale that has distorted this market and that is allowing their plants to generate power significantly cheaper than us because they're affiliated with the utilities.

[00:40:03] Speaker 01:
My fourth point is just about NextEra and Exxon case.

[00:40:09] Speaker 01:
Exxon was a case, if you look at page 125, 126, there was no allegation of disparate treatment.

[00:40:15] Speaker 01:
Again, Exxon was an across-the-board price increase.

[00:40:18] Speaker 01:
And so that's fundamentally different from what we have here, where some people are advantaged, some people are disadvantaged.

[00:40:26] Speaker 01:
As to NextEra, he says this is a physical presence case or an absolute barrier case.

[00:40:32] Speaker 01:
The court viewed it as a physical presence case because of the utilities.

[00:40:36] Speaker 01:
If you look in there, that's what the court called the physical presence.

[00:40:40] Speaker 01:
And there's no rule that only an absolute barrier is subject to the Dormant Commerce Clause.

[00:40:44] Speaker 01:
On the contrary, West Lake Creamery, West Lynn Creamery, and Pike itself were both increasing costs of doing business.

[00:40:51] Speaker 01:
I see I've gone over my time.

[00:40:53] Speaker 02:
If you want one last point, if you could very briefly.

[00:40:55] Speaker 01:
My last point is to the balancing of whether or not these benefits are illusory.

[00:41:01] Speaker 01:
He said rational relation.

[00:41:02] Speaker 01:
Pike is actually a little bit stricter than that on the government law.

[00:41:07] Speaker 01:
But these are prototypical balancing issues that have to be done based on facts.

[00:41:10] Speaker 01:
What we're challenging here is not the allocation of no-cost allowances.

[00:41:14] Speaker 01:
It is the disparate allocation.

[00:41:16] Speaker 01:
And we've alleged, and we can prove, that if we got no-cost allowances just like the utility-owned plants, emissions would be lower and prices would be lower.

[00:41:26] Speaker 01:
Thank you very much.

[00:41:27] Speaker 01:
With that, we urge the court to vacate and remand.

[00:41:29] Speaker 02:
Thank both counsel for their arguments, and the case is submitted.

[00:41:32] Speaker 02:
And we are adjourned.