[00:00:01] Speaker 01:
Case number 21-1272 et al.

[00:00:04] Speaker 01:
Duke Energy Progress LLC, petitioner, versus Federal Energy Regulatory Commission.

[00:00:09] Speaker 01:
Mr. Settling for the petitioner, Ms.

[00:00:11] Speaker 01:
Bassella for the respondent, Mr. O'Connor for the intervener.

[00:00:21] Speaker 07:
Good morning.

[00:00:23] Speaker 04:
Thank you, Your Honor.

[00:00:24] Speaker 04:
I'm Mr. Settling for Duke Energy Progress.

[00:00:26] Speaker 04:
In this case, FERC rejected our affected system operating agreement because that agreement did not require us, and thus our customers, to pay for upgrades necessitated and caused entirely by the needs of customers of a different utility.

[00:00:41] Speaker 04:
This court should vacate FERC's orders on review for three independent reasons.

[00:00:46] Speaker 04:
First and most obviously, the FERC orders here flout this court's decision in Baltimore Gas.

[00:00:51] Speaker 04:
In Baltimore Gas, this court held that the principle that FERC cannot treat a utility worse than similarly situated utilities without giving you a principal justification applies even when you're dealing with FERC staff orders, even where the FERC staff orders were uncontested at the time.

[00:01:10] Speaker 04:
Here it is undisputed that FERC has approved multiple effective system operating agreements without the reimbursement requirement they faulted us for not requiring.

[00:01:22] Speaker 04:
It is uncontested that those utilities are identically situated in all relevant respects to us.

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FERC did not address at all or explain any reasoned way why it is fair to allow those utilities

[00:01:34] Speaker 04:
to not pay the reimbursement, but why we have to pay the reimbursement.

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That alone is clear error under Baltimore gas and reason enough to reverse the orders on review.

[00:01:46] Speaker 04:
Second, even if this court wants to go beyond Baltimore gas, and I think the court need not given how clear that error is, those prior orders, those were correct.

[00:01:58] Speaker 04:
The only basis that FERC gives

[00:02:03] Speaker 04:
for rejecting our effective system operating agreement is that it somehow violates order 2003.

[00:02:11] Speaker 04:
But order 2003 only opposes obligations through a provision section 11.4 of the large generator interconnection agreement.

[00:02:25] Speaker 07:
Now let me ask you about this because it seems like

[00:02:33] Speaker 07:
This argument that you're making now is in tension with a concession that you made in the FERC proceedings, which is noted at JA 268, which is the October 2020.

[00:02:54] Speaker 07:
Well, no, this isn't the October 2021 order.

[00:03:00] Speaker 07:
This is the Edgecombe order.

[00:03:02] Speaker 07:
footnote 48 but at any rate the same thing was was pointed out in the October 2021 order which was that when you filed a motion to dismiss in the agency proceedings of the edge comb the first edge comb I guess action I don't know the right terminology for all of these things infer

[00:03:32] Speaker 07:
You agreed that Order 2003 requires affected system operators to reimburse affected system customers for affected system network upgrade costs they pay up front.

[00:03:52] Speaker 07:
You agree that you said that in that proceeding, right?

[00:03:55] Speaker 04:
I believe that footnote is referring to something we said in a different proceeding.

[00:04:00] Speaker 07:
In the first Edgecombe proceeding that got dismissed as unright, you said that.

[00:04:05] Speaker 04:
We certainly never took the position that when a affected system does not sign on to an LGIA, that it is bound to pay reimbursement.

[00:04:17] Speaker 04:
We never took that position.

[00:04:18] Speaker 04:
We certainly had, there were certain agreements where we- I asked you whether you took the position that I just stated.

[00:04:24] Speaker 07:
You don't want to follow me on the hypothetical.

[00:04:26] Speaker 04:
We did not take that.

[00:04:27] Speaker 07:
And I called the motion to dismiss off of the FERC docket.

[00:04:32] Speaker 06:
You're saying you didn't say it.

[00:04:33] Speaker 06:
You did say it.

[00:04:35] Speaker 06:
We did not take the position that... No, no, no.

[00:04:37] Speaker 06:
That's not what the judge is asking you.

[00:04:39] Speaker 06:
Asking you, did you state this?

[00:04:42] Speaker 06:
That we can fight over what it means.

[00:04:44] Speaker 06:
But I think you said it.

[00:04:46] Speaker 04:
Well, I will take a look at that and I'll address on our bottle.

[00:04:50] Speaker 04:
But your answer is you don't know.

[00:04:51] Speaker 06:
I do not believe that we... So we are now resting on what Judge Wilkins is, which is you did assert.

[00:04:57] Speaker 04:
We certainly never took the position in these proceedings that 11.4 applies to a effective system that is not a party to the LGI.

[00:05:09] Speaker 04:
We do not take that position.

[00:05:10] Speaker 04:
That is what I'm saying.

[00:05:11] Speaker 04:
I will take a look at what Judge Wilkins is referring to, and I will address it further on as necessary.

[00:05:17] Speaker 07:
I'm just going to be clear here.

[00:05:18] Speaker 07:
There's no need to be coy.

[00:05:21] Speaker 07:
I've got some very tough questions for FERC here about

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what they're doing and whether it's reason decision making and whether it's consistent.

[00:05:31] Speaker 07:
And I don't think that this concession that you made is fatal to your position, but it just seems to be contrary to the point that you're arguing now, which is that, well, order 2003 didn't really mean what it said because, you know,

[00:05:52] Speaker 07:
an affected system operator in the party to the, you know, the pro forma interconnection agreement that's appended to the order.

[00:06:05] Speaker 07:
That's all I'm saying is, is that that legal argument that you're making now appears to be in tension with the concession that you made earlier.

[00:06:16] Speaker 07:
I don't think that it's a fatal concession.

[00:06:18] Speaker 07:
FERC does, I don't.

[00:06:20] Speaker 07:
but it just seems to be in tension with the position that you took previous.

[00:06:27] Speaker 04:
As I said, your honor, I believe that throughout these proceedings, we've been consistent in raising the same arguments from the beginning, that if you're an effective system, that you're not a party to the LGIA, you don't have a 11.4 in any contract that you signed with the relevant transmission provider, you're not bound, but I will take a look at that and I will,

[00:06:45] Speaker 04:
attempt to provide further for lucidation on that interval and I apologize if I'm not giving sufficient answers to that your honor, I will say that our position is not only consistent with first actions in those in those 3 orders is also consistent with paragraph 25 of Midwest ISO where they said.

[00:07:06] Speaker 04:
I mean, if you look at paragraph 25, they cite paragraph, FERC cites paragraph 121 of order 2003 and make essentially the argument that we made in the American Beach proceeding and the follow on Edgecombe proceeding.

[00:07:22] Speaker 07:
I take your point.

[00:07:23] Speaker 04:
Yes, and then.

[00:07:25] Speaker 07:
So I guess.

[00:07:29] Speaker 07:
Um.

[00:07:33] Speaker 07:
What I see here that's really troubling me, and I'm gonna get to this with FERC, is that FERC says that in American Beach that you lose because you didn't really explain why an exception to the reimbursement rule from order 2003 should apply in this case.

[00:08:01] Speaker 07:
I think in kind of layperson's terms, that's the way I read FERC's order.

[00:08:10] Speaker 07:
And they say that you didn't really provide sufficient evidence to justify an exception to the rule here.

[00:08:27] Speaker 07:
Let's suppose I'm inclined to.

[00:08:33] Speaker 07:
Well, why is that wrong?

[00:08:35] Speaker 07:
Why is that wrong?

[00:08:36] Speaker 04:
Well, as a threshold matter and all of those other.

[00:08:40] Speaker 04:
But materially indistinguishable cases, they didn't provide any more information than we did.

[00:08:45] Speaker 04:
This is an affected system.

[00:08:47] Speaker 04:
So that means that the upgrades, by definition, are being made just to accommodate the needs and are caused by some other customers, not your customers.

[00:08:56] Speaker 04:
Then we gave a dollar figure how much that is.

[00:08:59] Speaker 04:
I'm not clear what more we needed to say.

[00:09:01] Speaker 04:
I mean, this is the very definition of an affected system.

[00:09:04] Speaker 04:
You're not making the upgrades for yourself.

[00:09:06] Speaker 04:
You're making it to accommodate load that is serving somebody else.

[00:09:12] Speaker 07:
Can I just understand something about the terminology?

[00:09:17] Speaker 07:
This affected system is outside the PJM interconnection area.

[00:09:22] Speaker 07:
That's correct, Your Honor.

[00:09:26] Speaker 07:
can there be an affected system that is within the interconnection, or is the way that affected system defined, it's always outside of the interconnection area?

[00:09:40] Speaker 04:
It's always a different transmission provider.

[00:09:44] Speaker 04:
Obviously, there's different ways that various utilities and independent entities are organized.

[00:09:50] Speaker 04:
But if these folks were on our,

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transmission lines, if they were feeding energy to us, you know, then they would be, then we would not be an effective system.

[00:10:01] Speaker 04:
Then we'd be an intrusion provider.

[00:10:03] Speaker 04:
We have an 11.4 provision in our LGIA and then that would, then we would reimburse them, but we wouldn't be an effective system.

[00:10:13] Speaker 04:
Here, we are an effective system precisely because our customer's needs are not being served by these solar plants.

[00:10:21] Speaker 04:
Those are those dominion in PJM.

[00:10:24] Speaker 07:
So is there a mechanism for, the way I understand all of this is that a system upgrade that benefits, a system upgrade is called that because it benefits everyone within the system, right?

[00:10:48] Speaker 07:
That's why, that's why it,

[00:10:53] Speaker 07:
the entity that causes the need for the upgrade doesn't have to, is able to get reimbursed for it, for the cost of it, because it's benefiting everyone.

[00:11:08] Speaker 07:
It's not just benefiting the entity who is seeking the upgrade, right?

[00:11:17] Speaker 07:
And so,

[00:11:18] Speaker 07:
The concern that I have seems to be the same one that your client had, which is that, well, if the people who are benefiting from the upgrade are the people within the PJM interconnection, why then does it look like the cost of that is going to either be borne by Duke

[00:11:41] Speaker 07:
or Duke's customers in North Carolina and South Carolina who aren't a part of the PJM interconnection and by definition aren't benefiting from this system.

[00:11:56] Speaker 04:
That's exactly right your honor and FERC three months ago was telling this court

[00:12:00] Speaker 04:
the same thing that your honor saying what we're saying in Lincoln.

[00:12:04] Speaker 04:
It was saying that it violates cost causation to force the folks in Region 19 there to pay for stuff that's not serving their customers.

[00:12:16] Speaker 04:
And what Lincoln had said in that case is, well, look, the entire network is a network, and so there are benefits.

[00:12:23] Speaker 04:
And what FERC said, and I went back to listen to the oral argument from Lincoln yesterday, and what they said at timestamp 14 is they said these kind of general network as a network benefits are not sufficient when you're dealing with cost causation.

[00:12:40] Speaker 04:
And they even cited the Seventh Circuit decision, I mean, they cited that oral argument, the Seventh Circuit decision in, I'm sorry,

[00:12:54] Speaker 04:
Illinois Commerce Commission.

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And they said, that's what the Seventh Circuit said to us in Illinois Commerce Commission, that that's not sufficient.

[00:13:02] Speaker 04:
And they referenced that, an oral argument, in the Lincoln case.

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And then they come here, they come at ours, and they're saying the exact opposite.

[00:13:10] Speaker 04:
They're saying, well, a network is a network, and we're all on the Eastern Interconnect, and so you get some kind of, your customers get some collateral benefits from these upgrades, to be clear.

[00:13:21] Speaker 04:
These upgrades were never going to be, were not going to be made if it wasn't for the fact that there was all these new solar generation popping up in Northeastern North Carolina to serve the PJM system.

[00:13:33] Speaker 04:
We have a connection, an interconnection with legacy one with Dominion.

[00:13:39] Speaker 04:
And so this was overloading our system.

[00:13:41] Speaker 04:
It's not

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if we didn't do those upgrades.

[00:13:43] Speaker 04:
It wasn't serving our customers in any way.

[00:13:46] Speaker 04:
It's serving the PJM customers.

[00:13:47] Speaker 04:
So what we said is, how is that fair?

[00:13:50] Speaker 04:
And that's our third argument.

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And they basically said, you need to make some heightened showing for it to be relevant.

[00:13:57] Speaker 04:
Well, that flips the cost causation principle.

[00:13:59] Speaker 04:
And everything this court, what Frick told this court three months ago on his head, it's basically saying cost causation is presumptively irrelevant for effective systems, unless there's some heightened showing that Frick doesn't explain what that is.

[00:14:14] Speaker 04:
I don't know what more an effective system can show than we're an effective system.

[00:14:19] Speaker 04:
So these upgrades are not for us.

[00:14:20] Speaker 04:
And the cost, that's $30 million, 70% of which is going to be put down on our retail customers and 30% on our wholesale customers.

[00:14:30] Speaker 04:
That's the standard showing.

[00:14:31] Speaker 04:
That's what happened in all those other cases.

[00:14:33] Speaker 04:
And I'll also mention that FERC says that order 2003 means this.

[00:14:40] Speaker 04:
They are unable to show a single effective system operating agreement.

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that they've ever previously rejected for not having a reimbursement requirement, not a single one.

[00:14:52] Speaker 04:
If Order 2003 means what they say, they'll be able to find some examples.

[00:14:57] Speaker 04:
In fact, every single example before this court in the record is the other way, is that they've always accepted these agreements, even when they didn't have reimbursement requirements.

[00:15:09] Speaker 04:
So we'd be the only ones that are treated worse, which is a plain violation of Baltimore gas.

[00:15:17] Speaker 04:
Can you address the mootness argument?

[00:15:21] Speaker 04:
All right, so the mootness argument only applies to our American beach proceedings.

[00:15:26] Speaker 04:
We think the American beach proceedings are not moot because if we obtain relief from those orders, we would draw the edge comb affected system operating agreement that we signed.

[00:15:39] Speaker 04:
So that's injury, that's causation.

[00:15:43] Speaker 05:
That's right.

[00:15:44] Speaker 05:
And what is that practical?

[00:15:46] Speaker 04:
The practical effect is that we wouldn't need to pay the reimbursements because there would be no.

[00:15:51] Speaker 05:
But I'm talking about in terms of the project.

[00:15:53] Speaker 04:
Well, it would not go forward until we negotiate an effective system operating agreement.

[00:16:00] Speaker 04:
Now, of course, FERC since has now issued order 2023 that purports to have a pro forma affected system operating agreement for the first time.

[00:16:11] Speaker 04:
We challenge that on rehearing, raising a lot of the same arguments that we raised here, and so we'll see how that works out.

[00:16:16] Speaker 04:
But in the meanwhile, if we are permitted to withdraw the EDGECOM effective system operating agreement, we wouldn't have any reimbursement obligations.

[00:16:27] Speaker 04:
But in any event, this

[00:16:28] Speaker 04:
This whole issue, it's certainly obvious your honors need to say something about the American Beach proceedings in your opinion.

[00:16:35] Speaker 04:
But in terms of addressing the issues that we were discussing under this court's binding precedent, the fact that we raised all of the issues in the hearing petition in Edgecombe means that they're all fairly before the court.

[00:16:46] Speaker 04:
We cited four or five binding precedents from this court that say if you raise an argument that is not based on a new factual point,

[00:16:55] Speaker 04:
in a rehearing petition, that that is sufficient to preserve the issue for review from this court.

[00:17:02] Speaker 04:
I don't know if FERC will even dispute that on a rebuttal, I guess, on their response.

[00:17:06] Speaker 04:
We'll see.

[00:17:07] Speaker 04:
But it seems clear that there's clear many binding cases from this court that show that.

[00:17:12] Speaker 05:
The park has acknowledged that it has made some errors with respect to its prior decisions with respect to Baltimore gas.

[00:17:22] Speaker 05:
I mean, if they corrected those errors, are they

[00:17:26] Speaker 05:
to go to new rulemaking or do anything different.

[00:17:30] Speaker 05:
In other words, if they corrected them, then is everything even now going forward, or is there some specific process that you expect them to go through?

[00:17:41] Speaker 04:
They need to do two things to comply with Baltimore gas.

[00:17:43] Speaker 04:
First, they have to

[00:17:44] Speaker 04:
and that they're changing policy.

[00:17:47] Speaker 04:
They tried to do this hand waving saying we've been inconsistent.

[00:17:50] Speaker 04:
That's just not true.

[00:17:51] Speaker 04:
They have not been able to point to a single effective system operating agreement in the 20 years since order 2003 is issued that they've rejected for a lack of reimbursement requirement, not a single one.

[00:18:02] Speaker 04:
So they would have to admit that they are changing policy.

[00:18:05] Speaker 04:
And having admitted that they're changing policy, then they have to explain why that's consistent with reliance interests and basic principles of fairness.

[00:18:15] Speaker 04:
Both basic principles of fairness of us vis-a-vis those utilities that were affected systems that didn't have to pay the reimbursements, and also fairness with regard to our customers.

[00:18:26] Speaker 04:
Why our customers have to be the first ones

[00:18:29] Speaker 04:
since or 2003 has been around aware for rejects their utilities submission of an affected system affected system services operating agreement without a reimbursement requirement and for composes one on them and then they have to pay 30 million dollars for upgrades that they would have not needed but for the needs of PJM.

[00:18:56] Speaker 04:
So.

[00:18:58] Speaker 07:
American Beach withdrew from the executed agreement that was filed after.

[00:19:07] Speaker 07:
At what point did that happen?

[00:19:12] Speaker 04:
I believe they withdrew on the same.

[00:19:21] Speaker 04:
They refused to sign, they declined to sign the revised effective system operating agreement on the same day that FERC issued its order addressing arguments on restraint.

[00:19:35] Speaker 04:
So what happened is they had signed the prior one that didn't have the reimbursement requirement.

[00:19:39] Speaker 04:
We then worked with them to have one that did have their reimbursement requirement and they decided we're not going forward, we're not going to sign it.

[00:19:45] Speaker 04:
At which point Edgecombe said, we'll step into their shoes.

[00:19:48] Speaker 04:
And then we revised the agreement, which is just taking out, taking out American Beach's name, putting in Edgecombe's name, and then changing some of the dates.

[00:19:57] Speaker 04:
And then we submitted that unsigned, which is how you do it when you're doing something under protest, to FERC.

[00:20:02] Speaker 04:
And then we had the rest of the Edgecombe proceeding.

[00:20:04] Speaker 05:
They used the word urged, but you took that as mandatory that you had to enter into a new agreement?

[00:20:09] Speaker 04:
Yes, yes.

[00:20:10] Speaker 04:
There was language earlier in the

[00:20:14] Speaker 04:
in the initial October 1st order that says we have to do it.

[00:20:17] Speaker 04:
And they told us we got to do it post-haste because they said you've been delaying this project unfairly, but that's what they said.

[00:20:23] Speaker 04:
And so you got to do it right away.

[00:20:24] Speaker 07:
So we- Where is this language that you're talking about that required?

[00:20:32] Speaker 04:
It was JA211.

[00:20:41] Speaker 07:
Which paragraph?

[00:20:46] Speaker 07:
41.

[00:20:46] Speaker 07:
I'm being told my colleague 41.

[00:20:55] Speaker 07:
Okay.

[00:20:57] Speaker 07:
Thank you, Mark.

[00:20:58] Speaker 07:
All right, we'll give you some time on rebuttal.

[00:21:04] Speaker 07:
We'll hear from Miss Pacella.

[00:21:09] Speaker 02:
It's good morning, Your Honor.

[00:21:10] Speaker 02:
It's Beth Pacella for the Commission.

[00:21:13] Speaker 02:
I think I'll start with

[00:21:16] Speaker 02:
The mootness question, if that's okay.

[00:21:20] Speaker 02:
The American Beach petitions are moot because under this court's case law, the petition is challenging those orders addressing contract no longer exist.

[00:21:31] Speaker 02:
These were separate proceedings here as the commission found in the Edgecombe hearing order.

[00:21:36] Speaker 05:
But would you nonetheless say that the issue's been preserved because it was brought up in the American Beach proceedings and kind of followed throughout?

[00:21:44] Speaker 02:
No, your honor, they were separate proceedings and let me explain that if they were still on notice about this being an issue for them.

[00:21:53] Speaker 02:
That that's not how it works as a proceeding is an a body in and of itself and just like in this court proceeding is a proceeding.

[00:22:03] Speaker 02:
and a separate proceeding, even if it involves the same type of issue, doesn't mean it's the same proceeding.

[00:22:09] Speaker 06:
American Beach was dispositive of Edgecombe and Duke was denied its preferred method.

[00:22:13] Speaker 06:
It's the same issue.

[00:22:15] Speaker 06:
It is the same issue, Your Honor.

[00:22:16] Speaker 06:
Exactly.

[00:22:17] Speaker 06:
It's not moot.

[00:22:18] Speaker 06:
It's the same issue.

[00:22:19] Speaker 06:
No one is caught off guard.

[00:22:23] Speaker 06:
It's all in play.

[00:22:24] Speaker 06:
One case went to the next case, and the issue remained exactly the same in the same affected party who is now complaining before the court.

[00:22:33] Speaker 06:
This just does not fit the movement.

[00:22:35] Speaker 02:
I feel pretty confident about our merit, so I don't want to spend a lot of time on this.

[00:22:38] Speaker 02:
But if I could just explain just one small point contrary to that, Your Honor, is that these are separate contracts, separate parties.

[00:22:47] Speaker 02:
And that is just that contract was

[00:22:52] Speaker 02:
It just doesn't exist anymore.

[00:22:53] Speaker 07:
There is one doesn't exist anymore.

[00:22:56] Speaker 02:
It doesn't exist because the commission in American that just like I guess your point is that the commission each signed a contract that said no reimbursement requirement that got filed.

[00:23:14] Speaker 07:
The commission struck the no reimbursement requirement provision from that contract.

[00:23:23] Speaker 07:
Right?

[00:23:24] Speaker 07:
So the only reason this isn't a live controversy anymore is what?

[00:23:30] Speaker 07:
American Beach withdrew from that contract?

[00:23:36] Speaker 02:
That contract just didn't exist anymore at that point.

[00:23:39] Speaker 07:
So why isn't it the case that that proceeding is still a live proceeding because Duke disagrees with that ruling?

[00:23:52] Speaker 02:
Because you get to just like vaporize the contract and then say, well, this proceeding is moot now because your honor, a new contract, a modified contract was presented to American Beach and American Beach chose not to enter into that contract.

[00:24:08] Speaker 02:
If American Beach had entered into

[00:24:11] Speaker 06:
The contract and you asked to do that right there.

[00:24:15] Speaker 06:
No, I understand that you don't feel like they're under regulatory duress.

[00:24:18] Speaker 06:
OK, we have to do.

[00:24:19] Speaker 02:
I understand that all that.

[00:24:21] Speaker 02:
I'm not saying it then it would be live and we would be defending the American Beach orders here.

[00:24:26] Speaker 02:
If that had happened, if that contract that contract was never even presented to her, even on X legal disposition is at play now.

[00:24:35] Speaker 06:
Perks position is exactly the same.

[00:24:39] Speaker 02:
First position isn't exactly the same because in the Edgecombe proceeding, what the commission had before it was a contract between Duke and Edgecombe in which reimbursement was provided.

[00:24:49] Speaker 02:
So the context of the case was completely different.

[00:24:52] Speaker 02:
In the American Beach proceeding.

[00:24:54] Speaker 06:
It was provided under duress, not yet signed, was it?

[00:24:58] Speaker 02:
No, that's right.

[00:24:59] Speaker 02:
It wasn't signed by Duke.

[00:25:01] Speaker 06:
The objection remained.

[00:25:02] Speaker 06:
And so, OK, you're tying our hands, but we still object.

[00:25:06] Speaker 06:
We're not going to go on with this.

[00:25:08] Speaker 06:
We want to pursue the legal objection that we started out with in the first case.

[00:25:13] Speaker 02:
And under this court's case law, it's not capable of repetition, yet evading review, because as the court found in Southern Company Services and Entergy, the Edgecombe petition is law.

[00:25:27] Speaker 02:
And that's where it can be addressed.

[00:25:30] Speaker 02:
The commission's determinations regarding what Order 2003 mean.

[00:25:33] Speaker 06:
No, you're trying to suggest there was a voluntary secession.

[00:25:36] Speaker 06:
There wasn't any voluntary secession.

[00:25:38] Speaker 06:
That's what we should be looking at in the mootness, Doctor.

[00:25:41] Speaker 06:
There was no voluntary secession by the agency on the rule that they are going to apply.

[00:25:45] Speaker 06:
And that's exactly what Duke is objecting to in both.

[00:25:49] Speaker 06:
You're on the wrong side of the mootness.

[00:25:51] Speaker 02:
I'll move on, and I hear your point, Your Honor.

[00:25:56] Speaker 02:
So let me move on to next that what Order 2003 requires.

[00:26:03] Speaker 02:
Order 2003 requires both in the preamble of the rule and in Article 11.4 of the Large Generating Interconnection Agreement that which the Commission in paragraph 738 of Order 2003 made

[00:26:25] Speaker 02:
explicitly made applicable to all effective system operators, that reimbursement must be provided by effective systems.

[00:26:38] Speaker 02:
And this court's case law says that preambles have independent legal effect when the agency intends to find regulated parties.

[00:26:46] Speaker 02:
And the language of the commission's rulemaking in the preamble makes that very clear.

[00:26:53] Speaker 02:
Paragraph seven.

[00:26:53] Speaker 02:
Let's assume that's right.

[00:26:55] Speaker 06:
And I get your preamble.

[00:26:58] Speaker 06:
I do not mean to cut you off.

[00:26:59] Speaker 06:
I get your preamble argument.

[00:27:01] Speaker 06:
I get your preamble argument.

[00:27:03] Speaker 06:
The thrust of the argument here is you've never done this before.

[00:27:08] Speaker 06:
and you can't operate that way in a regulatory setting.

[00:27:12] Speaker 06:
No one else has been obliged to do what you are now asking us to do.

[00:27:16] Speaker 06:
And they're citing the prior case, I think it was on the panel, where the cost causation was the preeminent issue.

[00:27:23] Speaker 06:
And they're saying you've flipped the focus with your interpretation of order 203.

[00:27:28] Speaker 02:
Are you talking about the Lincoln case, Your Honor?

[00:27:30] Speaker 02:
Okay, let me talk to you about Lincoln, which is completely in opposite here.

[00:27:35] Speaker 02:
Lincoln was involved

[00:27:37] Speaker 02:
completely different circumstances.

[00:27:39] Speaker 02:
In Lincoln, the facilities were already existing facilities.

[00:27:43] Speaker 02:
I was on that, right?

[00:27:45] Speaker 02:
I don't know, Your Honor.

[00:27:47] Speaker 02:
So you know this.

[00:27:48] Speaker 02:
My memory only goes back two months.

[00:27:50] Speaker 02:
Yeah, so forgive me for, let me just explain it.

[00:27:53] Speaker 02:
Of course you can disagree with me if you want to.

[00:27:56] Speaker 02:
But that case involved legacy facilities and legacy facilities are already existing facilities that were built solely for the benefit of specific customers.

[00:28:05] Speaker 02:
And then what happened was the Lincoln wanted to now transfer its interest in those facilities to a regional operator

[00:28:15] Speaker 02:
I think it was Southwest Power.

[00:28:19] Speaker 02:
Under the commission's opinion 494 regarding legacy facilities and how those costs are allocated, the costs needed, it was a legacy facility, so the costs would stay with Lincoln.

[00:28:32] Speaker 02:
This is a completely different circumstance.

[00:28:35] Speaker 02:
The circumstances here are under order 2003 requirements regarding interconnection facilities and network upgrades built in order to allow the interconnection

[00:28:48] Speaker 06:
to be built, but the more brand new facilities, the more compelling point, which I want to hear your response on is they're saying, get the Lincoln case.

[00:28:56] Speaker 06:
Okay.

[00:28:56] Speaker 06:
Let's assume your explanation makes sense.

[00:28:59] Speaker 06:
I'm calling it.

[00:29:01] Speaker 06:
Um, this has never been required before.

[00:29:04] Speaker 06:
There's always is completely off the wall in so far as they're concerned.

[00:29:09] Speaker 06:
And you don't ask people to do what you're now asking us to do.

[00:29:12] Speaker 06:
And it doesn't match up well with cost causation principles.

[00:29:15] Speaker 02:
Until recently, Your Honor, no one has presented an agreement that didn't provide reimbursement.

[00:29:23] Speaker 02:
And that's because everybody understood, including Duke, for years were always providing agreements with reimbursement because they understood that that's what Order 2003 required.

[00:29:34] Speaker 02:
It's only recently that anyone has brought up the notion, 20 years after Order 2003, just the notion that reimbursement doesn't need to be required if it's not,

[00:29:45] Speaker 02:
If the effective system doesn't enter into let's suppose I agree with all of that.

[00:29:51] Speaker 07:
Just to get to the brass tacks.

[00:29:53] Speaker 07:
Here's why I think you lose.

[00:29:57] Speaker 07:
Even if I accept all of that.

[00:30:00] Speaker 07:
What you said at J a 272, I said when I say you, your client first.

[00:30:08] Speaker 07:
Paragraph 30 is that.

[00:30:14] Speaker 07:
reimbursement requirement of Order 2003 is not unwavering and sacrosanct.

[00:30:22] Speaker 07:
FERC said that you could deviate from it, but it must be supported by the facts of the case, et cetera.

[00:30:32] Speaker 02:
And that comes out of Order 2003.

[00:30:36] Speaker 07:
And you say that Duke has not provided such support here.

[00:30:42] Speaker 07:
You don't explain why.

[00:30:45] Speaker 07:
they didn't provide that support or what they said that wasn't sufficient.

[00:30:50] Speaker 07:
I looked at their rehearing petition.

[00:30:53] Speaker 07:
I looked at the motion to dismiss that they filed of the unripe edge comb action.

[00:31:04] Speaker 07:
This whole case is about, you know, these generators

[00:31:11] Speaker 07:
hoisting their costs of the affected system upgrades on people who aren't benefiting from the upgrade.

[00:31:22] Speaker 07:
That's incorrect, Your Honor.

[00:31:24] Speaker 07:
Well, that's the argument.

[00:31:27] Speaker 07:
Well, they didn't make that argument.

[00:31:29] Speaker 07:
Well, that's the gist of the argument.

[00:31:32] Speaker 07:
That's not the gist.

[00:31:33] Speaker 07:
It's the explicit argument.

[00:31:34] Speaker 07:
That's the whole point of North Carolina intervening in this.

[00:31:43] Speaker 02:
That's here on appeal.

[00:31:45] Speaker 02:
That is not what was presented to the commission.

[00:31:47] Speaker 07:
All that was presented to the commission was people outside the PJM interconnection are the ones who are going to have to pay for this.

[00:31:56] Speaker 07:
And that's not fair.

[00:31:58] Speaker 07:
Well, you would agree that that argument was wrong, right?

[00:32:01] Speaker 02:
They don't actually say, and that's not fair, but they do say, we're going to charge our existing customers for this.

[00:32:09] Speaker 02:
But that's a given.

[00:32:10] Speaker 07:
Well, they said, whether they said it's not fair, they said, that's not right.

[00:32:14] Speaker 07:
That shouldn't be done.

[00:32:15] Speaker 07:
And North Carolina, the North Carolina State Commission intervened to express its concerns.

[00:32:23] Speaker 07:
Are you trying to tell me that FERC

[00:32:26] Speaker 07:
wasn't put on notice that the whole issue here is that people outside the interconnection shouldn't have to pay for these affected system upgrades.

[00:32:34] Speaker 02:
There's nothing in this record that talks about that there are no benefits.

[00:32:38] Speaker 02:
There's nothing in either record here that talks in which any party argued that there were no benefits.

[00:32:44] Speaker 02:
To the contrary, American Beach

[00:32:47] Speaker 02:
Their comment at JA96 says that the network libraries would benefit both American Beach and Duke's customers.

[00:32:57] Speaker 07:
So it was- I know that that's American Beach's argument.

[00:33:02] Speaker 07:
But what is, you concede, don't you, that North Carolina state utility intervened and Duke made the argument that North Carolina and South Carolina rate paying customers who are outside of the PJM interconnection shouldn't have to pay for these systems.

[00:33:26] Speaker 02:
They didn't argue that they shouldn't have to pay.

[00:33:28] Speaker 02:
What they argued was that they would have to pay.

[00:33:31] Speaker 02:
And that's all they said.

[00:33:32] Speaker 02:
They didn't say, and they shouldn't have to.

[00:33:34] Speaker 02:
They just said, we pose this because we don't believe we should have to reimburse it.

[00:33:38] Speaker 02:
And all they said in the American beach proceeding, all they presented was, excuse me, all they argued.

[00:33:49] Speaker 07:
Why in the heck would they even bring it up if they didn't think that it was a problem that these other people had to pay it?

[00:33:55] Speaker 02:
Here's the point, Your Honor, and I hear what you're saying, but let me explain it this way.

[00:34:02] Speaker 02:
Order 2003 talks about, and this Court has affirmed this, that network upgrades generally benefit all users of the transmission system.

[00:34:13] Speaker 02:
So these upgrades

[00:34:14] Speaker 02:
are built onto Duke's system and they are real improvements.

[00:34:18] Speaker 02:
I mean, if you look at what these are, they're taking wooden things and they're turning them into steel and they're replacing the entire grid portions.

[00:34:29] Speaker 02:
So these are real improvements to the grid.

[00:34:32] Speaker 02:
And Order 2003 and this court's case law, it is black letter law that network upgrades generally benefit.

[00:34:40] Speaker 07:
Duke had the burden here.

[00:34:43] Speaker 07:
I can agree with that, but why couldn't it be a system then where PJMs customers pay for 50% of that upgrade and the North Carolina and South Carolina customers outside

[00:35:00] Speaker 07:
of PGM pay for 50%.

[00:35:03] Speaker 02:
I have two responses to that, Your Honor.

[00:35:05] Speaker 02:
First is that was a determination made in order 2003.

[00:35:09] Speaker 02:
And that's not before the court.

[00:35:11] Speaker 02:
I apologize.

[00:35:12] Speaker 02:
I understand that that's frustrating to Your Honor.

[00:35:15] Speaker 02:
But secondarily, as the commission explained in order 2003, if an entity believed that its customers really would be actually harmed,

[00:35:26] Speaker 02:
And that's in the context of having talked about how network upgrades are beneficial to the entire system, to all existing customers, then they need to come in and they need to explain why.

[00:35:37] Speaker 02:
So what they could have shown, I mean, or tried to show, and apparently couldn't, because they never made a no benefits argument to the commission, never, not once.

[00:35:46] Speaker 02:
Even though American Beach raised the point, as I said, that these were beneficial to the customers of Duke,

[00:35:54] Speaker 02:
They could have come back and said, no, they're not here because, again, it's only generally they're beneficial.

[00:36:00] Speaker 02:
Then they had the burden to come in and say why that's not true.

[00:36:03] Speaker 02:
And in paragraph, it doesn't be paragraph 56, the commission said it's your burden to show why these are not, you should have a variance.

[00:36:15] Speaker 02:
because there is actual harm to your customers.

[00:36:17] Speaker 02:
And all American Beach, I mean, all Duke did was come in and say, we're gonna charge these customers.

[00:36:22] Speaker 02:
And in the Edgecombe proceeding, they said, we're gonna roll in these costs so these existing customers are gonna pay.

[00:36:28] Speaker 02:
That's a given under Order 2003.

[00:36:31] Speaker 02:
That's exactly what the commission held.

[00:36:33] Speaker 02:
You have to do that.

[00:36:34] Speaker 02:
And the commission did it for good reason, because non-independent transmission providers like Duke have an incentive

[00:36:45] Speaker 02:
to discriminate against new generation.

[00:36:47] Speaker 07:
But Duke says, look, American Beach, to get these upgrades done, they went before the North Carolina State Commission and said that North Carolina ratepayers aren't going to have to foot the bill for this.

[00:37:04] Speaker 07:
And they made that promise.

[00:37:06] Speaker 07:
And then they come before FERC and they essentially renege on them.

[00:37:11] Speaker 02:
I think that that was disputed on the record here.

[00:37:13] Speaker 02:
Your honor, the commission did not accept their dispute because it just didn't matter.

[00:37:19] Speaker 02:
You know, the commission has a rulemaking.

[00:37:21] Speaker 07:
Where did the commission rule?

[00:37:24] Speaker 07:
on who was right about that factually.

[00:37:27] Speaker 02:
The commission, the commission didn't rule on that because it was irrelevant.

[00:37:31] Speaker 02:
It had no, it had no bearing.

[00:37:34] Speaker 02:
FERC has its jurisdiction and the state has its jurisdiction and the state has siting authority, jurisdiction, and they can decide whether something can be cited somewhere or not, but they can't decide whether FERC's rulemaking, which was affirmed long ago,

[00:37:51] Speaker 02:
They can't go contrary to that.

[00:37:54] Speaker 07:
Well, Duke cites agreements that the commission has approved that did not have a reimbursement required.

[00:38:07] Speaker 07:
And one way that the commission deals with those is to say, well, this argument that you're making here wasn't presented

[00:38:22] Speaker 07:
in those cases.

[00:38:25] Speaker 07:
So those prior agreements aren't really relevant precedent.

[00:38:31] Speaker 02:
The commission didn't really hold that here.

[00:38:33] Speaker 02:
It did something very different here when the commission talked about that consistent precedent.

[00:38:40] Speaker 02:
The commission

[00:38:44] Speaker 02:
It's, it satisfied what Baltimore gas requires.

[00:38:48] Speaker 02:
And, and it's very clear if you look at the energy versus first satisfied Baltimore gas by citing Baltimore gas with a but see it, it wrote in addition, that was in a footnote and an in addition point, the commission's actual holding is in the, is in the text of the, of the order and the commission point to me a page in a paragraph, please.

[00:39:13] Speaker 02:
Oh, of course, your honor.

[00:39:15] Speaker 02:
The commission factually distinguished precedent Duke cited.

[00:39:17] Speaker 02:
And there's America Beach Order 210, note 62.

[00:39:26] Speaker 02:
And it set out, it distinguished precedent that was distinguishable.

[00:39:31] Speaker 02:
It then said, it acknowledged that its precedent was not entirely consistent regarding whether effective systems needed to reimburse interconnection customers.

[00:39:40] Speaker 02:
It pointed out, and that's at American Beach order J210 paragraph 37, and the hearing order J271 to 72 paragraphs 28 to 29.

[00:39:49] Speaker 02:
It explained that some recent precedent Duke cited accepted agreements that did not provide for reimbursement.

[00:39:57] Speaker 02:
It further pointed out, but earlier commission precedent confirmed that order 2003 requires effective system operators to provide this reimbursement.

[00:40:05] Speaker 07:
So where did the commission explain why it accepted the ones that did not require reimbursement?

[00:40:12] Speaker 02:
The commission explained that it was erroneous.

[00:40:15] Speaker 02:
As the commission said, the determination here, like the commission's earlier precedent, is consistent with order 2003's reimbursement requirements.

[00:40:24] Speaker 02:
That's American Beach Rehearing Order, J-272, paragraph 29.

[00:40:28] Speaker 02:
That's the rehearing order.

[00:40:29] Speaker 02:
And the first order was J-210, paragraph 37.

[00:40:35] Speaker 02:
The commission explained that Order 2003 permits the commission to accept an effective system operator agreement that doesn't provide for reimbursement only if either a generally applicable variation has been approved, like in the Midwest case, or if the effective system operator has met its burden to show here

[00:40:59] Speaker 02:
in these specific circumstances here that that a deviation is appropriate is necessary or appropriate in this.

[00:41:06] Speaker 07:
So let me make sure I understand what you just said.

[00:41:10] Speaker 07:
To the extent that there were inconsistent agreements that had been approved, the commission said, well, those that was just wrong, those shouldn't have been approved.

[00:41:22] Speaker 02:
That's exactly right.

[00:41:23] Speaker 02:
And the commission explicitly said that in the Edgecombe order, it explicitly made that holding when it said, and that's at Edgecomber hearing order, JA 433 and 435, paragraphs 39 and 42.

[00:41:41] Speaker 02:
Orders that approved effective system operating agreements without reimbursement provisions were inconsistent with order 2003 unless that happened.

[00:41:49] Speaker 07:
So that salt satisfies Baltimore gas because you acknowledge that you had been, that the commission had been inconsistent in that it had made mistakes.

[00:42:00] Speaker 07:
And essentially the commission is saying two wrongs don't make a right.

[00:42:04] Speaker 07:
Right.

[00:42:04] Speaker 02:
The commission reasonably followed its rulemaking.

[00:42:08] Speaker 02:
I mean, the commission can't in individual adjudications change

[00:42:12] Speaker 02:
what its rulemaking provides.

[00:42:15] Speaker 02:
So the commission said, oops, we're not going to follow that inconsistent precedent.

[00:42:20] Speaker 02:
We're going to follow all the consistent precedent.

[00:42:22] Speaker 06:
Does the commission cite in the prior precedent some cases in which the showing of no benefits was made and the commission accepted it?

[00:42:32] Speaker 06:
No.

[00:42:33] Speaker 06:
I was trying to listen to your explanation of the prior cases.

[00:42:39] Speaker 06:
Were you saying some of the prior cases included situations where party came in and said no benefits here and therefore we should not be obliged to?

[00:42:49] Speaker 02:
No, I don't know of that.

[00:42:51] Speaker 02:
I'm guessing that they're not relying on that.

[00:42:54] Speaker 06:
On that there are inconsistent precedent or mistakes, right?

[00:42:58] Speaker 06:
That what you're saying?

[00:42:59] Speaker 06:
That's exactly right.

[00:43:00] Speaker 02:
Everybody else you say there's three certain is three.

[00:43:05] Speaker 02:
orders in which the commission allowed this.

[00:43:10] Speaker 02:
And there's myriad orders for decades in which reimbursing was provided.

[00:43:16] Speaker 02:
Yes, practice was consistent.

[00:43:18] Speaker 02:
And in Entry G versus FERC, 319F, third

[00:43:21] Speaker 02:
536 at 541 to 42, the circumstances are very much like here.

[00:43:26] Speaker 02:
There, the court found that the commission properly explained that a few orders had language, and there is even worse, that the orders had language contrary to the existing long-standing precedent.

[00:43:36] Speaker 02:
So the commission actually, in those orders, said something, actually said something contrary, rather just made a whole, you know, made a quick ruling, and directed language to be changed, to be consistent with the long-standing policy.

[00:43:49] Speaker 02:
The court found that this was just clarifying inadvertent language and prior orders that violated longstanding policy.

[00:43:56] Speaker 02:
Here the commission is just clarifying that those three particular orders are incorrect in light of order 2003.

[00:44:03] Speaker 02:
And the court said, even if the commission's orders constituted more than a mere clarification of policy, the commission provided a reasoned explanation for its change in policy.

[00:44:15] Speaker 02:
So first of all, the commission just clarified its Order 2003 rule, what it requires here.

[00:44:22] Speaker 02:
But even if it had changed its policy, which it really couldn't in those

[00:44:28] Speaker 02:
individual adjudications.

[00:44:29] Speaker 05:
You're discussing a lot of kind of case-specific deviation, but if you're being regulated, how do you know what circumstances the commission is looking at so that you can feel like you're actually following a precedent?

[00:44:43] Speaker 02:
So if that's a fact case, fact-specific issue, so that's just how it's going to be, right?

[00:44:50] Speaker 02:
You have to show based on the facts and circumstances in a specific case why

[00:44:56] Speaker 02:
your existing customers are actually harmed even with the presumption that they're beneficial.

[00:45:07] Speaker 05:
Where's their guidance to the regulated party?

[00:45:09] Speaker 05:
I mean, just obviously looking at your prior orders, but it's so case-specific that I don't know that they have their guidance.

[00:45:19] Speaker 02:
Well, I don't think it would be

[00:45:21] Speaker 02:
I think that's a good point.

[00:45:23] Speaker 02:
I think that's a good point.

[00:45:25] Speaker 02:
I think that's a good point.

[00:45:27] Speaker 02:
I think that's a good point.

[00:45:29] Speaker 02:
I think that's a good point.

[00:45:31] Speaker 02:
I think that's a good point.

[00:45:32] Speaker 02:
I think that's a good point.

[00:45:35] Speaker 02:
I think that's a good point.

[00:45:37] Speaker 02:
I think that's a good point.

[00:45:39] Speaker 02:
I think that's a good point.

[00:45:47] Speaker 02:
Order 2003 a progress 584 to 85 and 599 order 2003 paragraphs 2165 694 all talk about how network upgrades are beneficial to all.

[00:46:03] Speaker 02:
all customers, not just customers for whom they're being built.

[00:46:07] Speaker 02:
And that is a different thing.

[00:46:09] Speaker 02:
The commission talked about how it understood that it's controversial to charge these customers for this, but the commission is doing it because it's concerned about these non-independent transmission providers and

[00:46:28] Speaker 02:
effective systems, which are just transmission providers, just that interconnection is not to them, that they have this incentive to discriminate against new generation coming in.

[00:46:40] Speaker 02:
And also the commission talked about, which I talked about in my brief.

[00:46:45] Speaker 02:
The other reason is because the commission wants to make sure that people can get new generation added onto the bulk power system.

[00:46:55] Speaker 02:
And that's beneficial generally.

[00:46:56] Speaker 02:
so we can have more generation on a system.

[00:46:59] Speaker 07:
How is that consistent with the cost causation principle in the sense that affected system customers kind of to the extent that they, maybe they benefit from the upgrade, but if it's not really an upgrade that

[00:47:24] Speaker 07:
they desired or that they wanted or that they were the cause of, they're still having to pay for it.

[00:47:33] Speaker 02:
So even in the Lincoln case itself, the court also talks about the cost causation isn't just about who the facilities were built for, it's who the facilities were built for and who benefits from them.

[00:47:46] Speaker 02:
So that's just part of the analysis.

[00:47:48] Speaker 02:
That's always part of the cost causation analysis.

[00:47:51] Speaker 02:
But the commission also talked about, in order 2003, how this court had affirmed the commission's point in earlier precedent.

[00:48:02] Speaker 02:
And so it was talking about, in order 2003, about the broader benefits.

[00:48:10] Speaker 02:
For example, at 2003 A, paragraph 584, the commission talked about how its approach also recognizes the reliability benefits,

[00:48:21] Speaker 02:
of um and more competitive power markets that result from a policy that facilitates the interconnection of new generation facilities and that this approach was fully supported by the court in energy 3 19 f third at 5 43 to 44.

[00:48:38] Speaker 02:
So the specific not only do these

[00:48:43] Speaker 02:
network upgrades actually just benefit the system because there it creates more reliability, but it also helps create more generation getting onto the system, which is just innately beneficial.

[00:48:55] Speaker 02:
And the court has affirmed our cost causation determination to have reimbursement in these circumstances.

[00:49:03] Speaker 05:
It's amazing to just kind of rectify prior errors.

[00:49:08] Speaker 05:
Uh, you're explaining them away.

[00:49:10] Speaker 02:
You know, I don't, I don't know that the commission has done anything.

[00:49:13] Speaker 02:
I didn't check into that.

[00:49:15] Speaker 02:
I apologize.

[00:49:15] Speaker 02:
Your honor.

[00:49:16] Speaker 02:
I'm not sure what the commission could do.

[00:49:18] Speaker 02:
These are existing contracts and the commission made a mistake.

[00:49:21] Speaker 05:
I guess parties could like banking or something beyond just.

[00:49:27] Speaker 05:
um, conceding in orders and saying we're correcting that error.

[00:49:31] Speaker 02:
Commission clarified what order 2003 means.

[00:49:35] Speaker 02:
Um, and it did that in the American beach order.

[00:49:37] Speaker 02:
Um, and, and it's going to always follow that precedent going forward.

[00:49:41] Speaker 02:
Um, and so a rulemaking isn't required to reimpose the rulemaking requirements.

[00:49:49] Speaker 02:
It's just the rulemaking requirements exist.

[00:49:52] Speaker 02:
And the commission's alternative was to continue to follow

[00:49:56] Speaker 02:
what it affirmatively found is incorrect precedent.

[00:50:05] Speaker 02:
Thank you, your honor.

[00:50:07] Speaker 07:
Thank you.

[00:50:08] Speaker 07:
Here for counsel for intervener edge comb.

[00:50:12] Speaker 07:
Mr. O'Connor.

[00:51:12] Speaker 03:
Good morning, may it please the court.

[00:51:14] Speaker 03:
Tyler O'Connor on behalf of Edgecombe Solar joined by Holly Rachel Smith at council's table.

[00:51:21] Speaker 03:
I'd like to start with something that Duke's council was asked and responded to.

[00:51:25] Speaker 03:
And I'm just paraphrasing here, but Duke's council was essentially asked what happens to these projects if we were to vacate these orders.

[00:51:36] Speaker 03:
And I think Duke's Council responded something to the effect of, well, these projects won't go forward until we agree to terms that we negotiate new terms.

[00:51:47] Speaker 03:
And I think that really gets to the heart of Order 2003 and what the commission there was trying to address.

[00:51:54] Speaker 03:
And it's exactly why their interpretation of Order 2003 would erect barriers to entry for new generation that is counter to both the text and the purpose of the order.

[00:52:05] Speaker 03:
And also, I will also address to the senior questions about benefits and explain how this does or would, in fact, likely benefit Duke system.

[00:52:14] Speaker 03:
But starting with the purpose, as this court explained in ESI Energy versus FERC 892 F3 321, prior to order 2003, utilities that both generation and transmission would often favor their own generation by interfering with the interconnection of competing projects that they did not own.

[00:52:36] Speaker 03:
So order 2003 basically creates an even playing field.

[00:52:40] Speaker 03:
And it sets out a standardized process that all transmission providers and effective systems have to abide by to prevent them from imposing onerous or burdensome or expensive requirements that would either delay or deny access to their systems.

[00:52:57] Speaker 03:
And one of those requirements is this reimbursement rule here.

[00:53:00] Speaker 03:
So Duke's argument that Order 2003 is voluntary, that it can abide by it or it cannot, is inconsistent, I think, with... Let's suppose I agree with all of that.

[00:53:13] Speaker 07:
Let's get down to the brass tacks.

[00:53:16] Speaker 07:
Why does it make sense in this case for affected system customers to have to pay the reimbursement to your client or to American Beach?

[00:53:28] Speaker 03:
Yeah, I think there's two responses to that.

[00:53:31] Speaker 03:
First, as Fert Council pointed out, there are benefits we don't know because there's no record, frankly.

[00:53:39] Speaker 03:
But you can presume some benefits from the types of upgrades that are being effectuated here.

[00:53:43] Speaker 03:
For instance, replacing wooden poles with steel poles.

[00:53:46] Speaker 03:
We're all very familiar with wildfires and the extreme weather that has happened to take down transmission lines across the country.

[00:53:53] Speaker 03:
That is an upgrade that would presumably benefit Duke system.

[00:53:57] Speaker 03:
Now, Duke never contested as to whether it made that point.

[00:54:00] Speaker 03:
So my client never had the chance to respond.

[00:54:03] Speaker 03:
But another benefit from these types of projects, I think, Judge Wilkins, not to directly disagree with something I believe you said, but you said, by definition, they aren't benefiting.

[00:54:18] Speaker 03:
Duke is not benefiting by definition of being an affected system.

[00:54:21] Speaker 03:
And so not only is that not right with respect to these particular upgrades,

[00:54:25] Speaker 03:
But in fact, there are interregional power transfers all the time.

[00:54:29] Speaker 03:
And Duke is well aware of that.

[00:54:31] Speaker 03:
And I candidly don't know if it's this Duke or one of their affiliates.

[00:54:34] Speaker 03:
But during Winter Storm Elliott last year, when power was knocked out in the TVA region and in Duke's service territory, it was generators and PJM who actually shipped power across regional lines to make sure that more people didn't lose power in those regions.

[00:54:49] Speaker 03:
And there have been

[00:54:50] Speaker 03:
very extensive for cases about that.

[00:54:54] Speaker 03:
And so there are benefits, or we believe there are benefits.

[00:54:58] Speaker 03:
And I think that goes to the question you have here, what we've been talking about at length, which is, what was Duke's obligation to establish that those benefits, which the commission in paragraph 21 of order 2003 said accrue, they said, transmission system benefits network upwards is called an upgrade for a reason.

[00:55:18] Speaker 03:
It is presumed to benefit the system.

[00:55:21] Speaker 03:
What's happened here, Duke has tried to articulate this case as if we're requiring Duke to pay for something on their system.

[00:55:31] Speaker 03:
What's actually happening is my client and the other interconnecting generators are fronting the cost to improve Duke system.

[00:55:39] Speaker 03:
And then the policy permits Duke to reimburse them over time.

[00:55:43] Speaker 03:
Now, in order 2003b paragraph 56,

[00:55:48] Speaker 03:
The commission laid out a fairly extensive showing that Duke would have to make.

[00:55:54] Speaker 03:
It's a rebuttable presumption, right?

[00:55:56] Speaker 03:
Which paragraph are you talking about?

[00:55:57] Speaker 03:
I believe it's order 2003b paragraph 56.

[00:56:01] Speaker 03:
It's a rebuttable presumption.

[00:56:04] Speaker 03:
There's explicit language that says, look, you can seek an exception or a deviation from these requirements if you believe that it's not good for your native load, which is just Burke geek word for your customers.

[00:56:18] Speaker 03:
It goes on at length about how the transmission provider must explain the facts of the case, the assumptions on which its calculation is based, and provide evidentiary support.

[00:56:31] Speaker 03:
And it says it bears the, quote, full burden of showing that such proposal is just and reasonable and is appropriate under the circumstances.

[00:56:39] Speaker 03:
There's no, I mean, the bald recitation of the fact that you're an affected system that will be bearing the cost of the upgrades is itself potological.

[00:56:48] Speaker 03:
Yes, we know that you were not the but for cause of these upgrades.

[00:56:54] Speaker 03:
That's why you're an affected system.

[00:56:56] Speaker 03:
FERC knew that when it issued the order.

[00:56:57] Speaker 03:
If you want to seek a deviation for it, you're welcome to.

[00:57:01] Speaker 03:
But like everybody else, you have to plead the facts.

[00:57:04] Speaker 03:
And I would reference one of the cases cited.

[00:57:07] Speaker 03:
And I'm sorry.

[00:57:09] Speaker 03:
I'm sure I can find this exact citation.

[00:57:12] Speaker 03:
It's the Midwest ISO case.

[00:57:14] Speaker 03:
It's cited in the briefs and I can, if you'll permit me, I can find the actual.

[00:57:18] Speaker 07:
The one from 2007.

[00:57:19] Speaker 07:
Oh, of course.

[00:57:21] Speaker 03:
Yes, your honor.

[00:57:22] Speaker 03:
I believe that's right.

[00:57:23] Speaker 03:
Let me have it here.

[00:57:24] Speaker 03:
Yes.

[00:57:25] Speaker 03:
120 FERC.

[00:57:29] Speaker 03:
124-61066.

[00:57:30] Speaker 03:
And I only point to that case because the transmission system in that case sought a deviation.

[00:57:39] Speaker 03:
That case is really about which of two tariff provisions applies, an earlier time or a later in time.

[00:57:44] Speaker 03:
But an underlying fact in that case is that the transmission system had sought and obtained a deviation from the reimbursement requirement.

[00:57:52] Speaker 03:
And I think the deviation said, henceforth, 50% of the costs will be borne by these people and 50% will be borne by these people.

[00:58:02] Speaker 03:
And I think what it illustrates is that how based on the basically

[00:58:07] Speaker 03:
But I'm sorry, my time is long since expired.

[00:58:09] Speaker 03:
So please continue.

[00:58:11] Speaker 03:
Thank you.

[00:58:12] Speaker 03:
I think my point here, though, is 50-50 is a conclusion that you could only derive through the use of facts and assumptions to apportion out which benefits apply to this person and which benefits apply to this person.

[00:58:27] Speaker 03:
But Duke has made no showing as to which benefits apply to which party or accrue to which party.

[00:58:32] Speaker 03:
And they don't even attempt to do that.

[00:58:34] Speaker 03:
So, of course, my client never had the opportunity to respond and point out that, in fact, some of these benefits clearly would accrue to Duke system.

[00:58:44] Speaker 03:
Perhaps that's the reason they never made the argument.

[00:58:46] Speaker 03:
That is just conjecture.

[00:58:49] Speaker 07:
What do we do with the fact that the commission says, well, we did act inconsistently

[00:58:57] Speaker 07:
these other prior by approving these other prior agreements but you know that was then this is now those were wrong and and you know we think that those arguments those agreements shouldn't really be considered because

[00:59:21] Speaker 07:
you know, the challenge that American beach is, I'm sorry, that Duke is making now wasn't really made and litigated in those prior agreements, proceedings, but see Baltimore gas.

[00:59:37] Speaker 07:
What are we supposed to do with that?

[00:59:40] Speaker 03:
Yeah, I think I would say two things.

[00:59:45] Speaker 03:
This gives me an opportunity first to point out

[00:59:50] Speaker 03:
There's been some parties up here seem to be contesting whether this has been a longstanding policy.

[00:59:56] Speaker 03:
And Judge Wilkins, I think you pointed to an instance in which Duke itself has acknowledged this policy.

[01:00:03] Speaker 03:
I would also point you to page eight of the intervener brief in a footnote where we cite multiple instances in which Duke and Duke's affiliates, they own power companies across multiple service territories.

[01:00:15] Speaker 03:
have repeatedly filed effective system agreements with this reimbursement language.

[01:00:22] Speaker 03:
And in fact, you had referenced one of their quotes.

[01:00:27] Speaker 03:
They've got another one here, an effective system operator just like a transmission provider must provide the 20-year lump sum reimbursement to refund any remaining balance, even if no transmission service was taken.

[01:00:37] Speaker 03:
And so your question here is about what to do with these three-letter orders and how to treat them.

[01:00:45] Speaker 03:
I think council had it right, which is there's no principle of administrative law that I'm aware of that says that FERC was required to continue perpetuating its mistakes.

[01:00:56] Speaker 03:
In fact, returning like, excuse me.

[01:00:59] Speaker 03:
Rightfully returning and applying a longstanding rule is a hallmark and obligation of recent decision making.

[01:01:07] Speaker 03:
Departing from a longstanding rule because you had a case where you also departed from a longstanding rule, I think would be arbitrary and capricious under this court's precedent.

[01:01:19] Speaker 03:
And not only that, as FERC's counsel pointed out, Order 2003 was a noted and common rulemaking.

[01:01:28] Speaker 03:
Duke's contention that the substance of that rule was reversed by three letter order, uncontested letter order adjudications, sub silencio, runs afoul of like multiple different administrative law principles.

[01:01:42] Speaker 07:
Well, I don't think that that's their argument.

[01:01:44] Speaker 07:
Their argument is just simply that like cases should be treated alike.

[01:01:49] Speaker 07:
That's what Baltimore gas stands for.

[01:01:52] Speaker 07:
And, you know, their case is like those three cases in the commission

[01:01:58] Speaker 07:
doesn't explain why it's not treated the same as those three cases.

[01:02:03] Speaker 03:
And with respect to that, Your Honor, I think it does explain why.

[01:02:06] Speaker 03:
And I think it points out that those cases contravene an existing rulemaking.

[01:02:11] Speaker 03:
And because an adjudication issued without an unreasoned letter order cannot overturn a notice of common rulemaking, they're obliged by administrative law principles to apply the rule.

[01:02:24] Speaker 03:
And even if that weren't the case, I think FERC does provide a reasoned explanation for why its interpretation, even assuming arguendo that these letter orders could have overturned a notice in common rulemaking, I think it provides a reasoned explanation why it would be creating or establishing a new policy in this case, which is to say, you know what?

[01:02:45] Speaker 03:
We've read those.

[01:02:46] Speaker 03:
They're inconsistent with what order 2003 says because it found that effective systems have an incentive to frustrate effective systems like Duke.

[01:02:54] Speaker 03:
have an incentive to frustrate new generation.

[01:02:57] Speaker 03:
And we think here it makes sense to have a reimbursement requirement for that reason.

[01:03:01] Speaker 03:
And if Duke would like to plead itself out of that reimbursement requirement, it's welcome to put forward facts that would do so.

[01:03:09] Speaker 05:
Facilities were located elsewhere, but there were upgrades actually on Duke's system.

[01:03:15] Speaker 05:
And so do you believe FERC was evaluating whether the solar facilities or the upgrades on the system

[01:03:23] Speaker 05:
benefited Duke's customers?

[01:03:26] Speaker 05:
Or is there a difference?

[01:03:29] Speaker 03:
I'm sorry, I apologize.

[01:03:31] Speaker 03:
Would you mind restating the question?

[01:03:32] Speaker 05:
Yes, so you have the solar facilities, they're located elsewhere, but then the upgrades are on Duke's system.

[01:03:38] Speaker 05:
So when FERC is doing this evaluation, do you think that they're evaluating benefits in terms of the solar benefits located elsewhere or Duke's upgrades on its own system?

[01:03:49] Speaker 05:
Or is there some difference in that?

[01:03:52] Speaker 03:
You're saying if they were to request a deviation.

[01:03:55] Speaker 03:
I'm sorry.

[01:03:55] Speaker 03:
When you're saying if Duke have requested a deviation and substantiated it with evidence, how would FERC have evaluated it?

[01:04:02] Speaker 05:
Well, just when they're suggesting that there should be reimbursements, is there a consideration that some of the solar facilities are located elsewhere?

[01:04:11] Speaker 03:
Sorry.

[01:04:11] Speaker 03:
OK.

[01:04:11] Speaker 03:
Yeah.

[01:04:12] Speaker 03:
So in order 2003, the commission evinces a clear understanding that

[01:04:20] Speaker 03:
projects located elsewhere can have impacts on other systems.

[01:04:25] Speaker 03:
But there are many reasons for the commission's policy.

[01:04:27] Speaker 03:
I think, first of all, in this country, for most of this country's history until the 1970s, we had a utility model.

[01:04:38] Speaker 03:
Every utility had its own service territory.

[01:04:41] Speaker 03:
And good luck going up against your utility.

[01:04:46] Speaker 03:
What happened though was there started to become a competitive generation industry in this country.

[01:04:51] Speaker 03:
And FERC found in order 2003 and in order 888 in I believe 1996,

[01:04:57] Speaker 03:
And prior to that, competitive generation increases energy supply, it promotes reliability, and it can lower wholesale power prices.

[01:05:07] Speaker 03:
So we've found that there are really important nationwide reasons for promoting the development of this industry.

[01:05:14] Speaker 03:
But a corollary is, OK, how do we promote a competitive industry when we have incumbent utilities who basically have every incentive to frustrate the people who are trying to compete with them?

[01:05:26] Speaker 03:
And so I think to your broader point about benefits, I think they were both recognizing that there are systemic nationwide benefits undergirding its policy.

[01:05:36] Speaker 03:
But to the extent an effective system would not reap those benefits or would not

[01:05:42] Speaker 03:
or its customers would be harmed by them, it gave Duke an opportunity.

[01:05:47] Speaker 03:
It gave all effective systems an opportunity to make a showing that in this case, the harm suffered by its customers essentially would exceed the benefits that would otherwise accrue from this policy.

[01:06:00] Speaker 03:
I hope that answered your question.

[01:06:01] Speaker 03:
I'm happy to give it another shot.

[01:06:04] Speaker 07:
Thank you.

[01:06:05] Speaker 07:
We have no time.

[01:06:21] Speaker 07:
Council for petitioner will give you three minutes for rebuttal.

[01:06:27] Speaker 04:
Thank you, Your Honor.

[01:06:28] Speaker 04:
Briefly, responding to Your Honor's question at J211 paragraph 38, Frick says that the arguments in the Edgecombe complaint are outside this proceeding.

[01:06:39] Speaker 04:
I took a look again at what we filed there.

[01:06:41] Speaker 04:
I think it's fair to say that our arguments were not as fully developed as they were.

[01:06:46] Speaker 04:
I'm as we went through the the American American beach in the national proceedings.

[01:06:49] Speaker 04:
We say on one page, the language that you quote on the next page.

[01:06:52] Speaker 04:
We said nothing in order 2003 for a straight female contract.

[01:06:57] Speaker 04:
So I think it's fair to say that in that motion dismissed, we hadn't fully developed the arguments.

[01:07:01] Speaker 04:
that we had in the orders actually on review.

[01:07:05] Speaker 04:
And then that brings us to Baltimore gas, is that we and our affiliates don't have some APA obligation to make consistent arguments in every proceeding we participate in.

[01:07:15] Speaker 04:
But FERC, when it issues orders, has to treat like cases alike.

[01:07:23] Speaker 04:
They say, oh, you know, this is just three orders.

[01:07:26] Speaker 04:
Three orders of how many there were in Baltimore gas.

[01:07:29] Speaker 04:
They have not pointed to a single affected system operating agreement without this reimbursement requirement that they've ever, ever rejected.

[01:07:37] Speaker 07:
Baltimore gas was a circumstance where the orders that were cited were the only orders and they all favored the petition.

[01:07:51] Speaker 04:
And that's the case here.

[01:07:54] Speaker 07:
But here, FERC is saying, well, we have dozens and dozens of orders that had reimbursement requirements.

[01:08:03] Speaker 07:
And yes, you can cherry pick three that we approved that did not.

[01:08:10] Speaker 07:
And those were wrong.

[01:08:13] Speaker 07:
reason decision-making isn't like perpetuating an error, it's explaining that those were wrong and then doing the right thing here.

[01:08:22] Speaker 07:
So this isn't really Baltimore gas.

[01:08:25] Speaker 06:
I want to echo that too.

[01:08:26] Speaker 06:
I mean, you're trying to ride this Baltimore gas horse much too much.

[01:08:31] Speaker 06:
It doesn't get you there.

[01:08:31] Speaker 06:
It just doesn't.

[01:08:33] Speaker 06:
It's a completely different case.

[01:08:35] Speaker 06:
Here you have many, many orders, as Judge Wilkins says, that are perfectly inconsistent with your position, but more importantly,

[01:08:42] Speaker 06:
The rule that's applicable here is perfectly inconsistent with your position.

[01:08:47] Speaker 06:
You're not challenging the rule.

[01:08:49] Speaker 06:
And the rule makes it clear that you have the burden to show no benefits if that's what your argument is.

[01:08:56] Speaker 06:
And you have not met that.

[01:08:58] Speaker 06:
So I don't know how you can possibly prevail in this situation.

[01:09:01] Speaker 06:
Baltimore simply is off point.

[01:09:04] Speaker 06:
It really is.

[01:09:05] Speaker 06:
It's supposed to do it.

[01:09:07] Speaker 06:
They have hundreds of cases that follow the rule consistently and known as claiming otherwise, and three times they fouled up.

[01:09:16] Speaker 06:
Okay, they did what they did.

[01:09:18] Speaker 06:
We fouled up three times, but the rule is still a rule, and you're not challenging the rule.

[01:09:22] Speaker 04:
We certainly have a different reading of the rule, but they have, and I very strongly disagree, they have zero, zero, zero examples of them ever, ever rejecting a single affected service operating agreement for failure to have a replacement.

[01:09:36] Speaker 04:
Not dozens, literally zero.

[01:09:39] Speaker 04:
The only ones, the examples they cite are entities, including some of our affiliates, that voluntarily assume the obligation to pay reimbursements.

[01:09:46] Speaker 04:
That is entirely consistent with our position.

[01:09:48] Speaker 04:
Nobody has ever argued that you can't, that an effective system can't

[01:09:52] Speaker 06:
because it's of its own interest.

[01:09:53] Speaker 06:
The rule is clear in what it requires.

[01:09:56] Speaker 06:
The rule requires what they're saying and the preamble is absolutely clear and the preamble counts and it's inconsistent with your position and all they're saying is we're applying the rule and you're right we missed it three times but there are many times where the party's affected

[01:10:15] Speaker 06:
Whether they did it voluntarily, I don't even know what that means.

[01:10:17] Speaker 06:
If there's a rule that says you have to do X, and then you self-servingly say, well, I'll do it voluntarily.

[01:10:23] Speaker 06:
But the fact that you did it, and there was a rule that required it, that's what FERC is saying.

[01:10:28] Speaker 06:
There has been consistent practice that follows the rule.

[01:10:33] Speaker 06:
That kills your position.

[01:10:34] Speaker 04:
Well, I strongly disagree, but taking a clue from you, if I could have a minute to talk about cost causation was a completely separate argument.

[01:10:47] Speaker 04:
It doesn't rely on Baltimore gas.

[01:10:49] Speaker 04:
Everything that FERC

[01:10:51] Speaker 04:
And as I told you this morning, that's the exact position that was urged by Lincoln.

[01:10:57] Speaker 04:
That's the exact position that the Seventh Circuit rejected in Illinois Commerce Commission.

[01:11:04] Speaker 04:
And Lincoln first stood at this podium.

[01:11:08] Speaker 04:
two months ago and said, pointed to the seventh circuit, said we can't rely on these general system benefits to swamp cause causation.

[01:11:16] Speaker 04:
You know, they've got this point where once in a while there might be some problem on our system, we might draw some energy from PJM.

[01:11:24] Speaker 04:
That's exactly the argument.

[01:11:25] Speaker 06:
What Burke said in that case is I'm now remembering it.

[01:11:29] Speaker 06:
We're following the rule regarding legacies.

[01:11:31] Speaker 06:
That's what they said.

[01:11:32] Speaker 06:
We're just following the rules.

[01:11:35] Speaker 04:
Because Lincoln had argued that there's going to be system-wide benefits.

[01:11:38] Speaker 06:
Well, respectfully, what Frick's position was in that case is there's a rule regarding how we treat legacies, and this person, this group fits it, and that's that.

[01:11:48] Speaker 06:
We're going to follow that rule.

[01:11:49] Speaker 04:
What Frick said in that case is that cost causation is a requirement of the Federal Power Act.

[01:11:57] Speaker 04:
And so we have to honor that.

[01:11:59] Speaker 04:
Here, they are flipping it completely on its head.

[01:12:02] Speaker 04:
They're saying, unless you make some heightened showing that these upgrades are somehow going to hurt customers by degrading our system or something, we're going to give cost causation zero weight.

[01:12:12] Speaker 06:
In this case about challenging the efficacy of 2003, the rule applies, right?

[01:12:19] Speaker 06:
No, you're wrong.

[01:12:20] Speaker 06:
Sorry?

[01:12:21] Speaker 06:
The rule applies, right?

[01:12:22] Speaker 06:
You're not challenging the legitimacy of order 2003, are you?

[01:12:28] Speaker 04:
We have a different reading of order 2003, but we have two independent arguments, even if your honors do not agree with our order 2003 argument.

[01:12:35] Speaker 04:
I understand that your honor doesn't agree with our Baltimore gas argument.

[01:12:38] Speaker 04:
The other argument is under the Federal Power Act and standard AP decision making, they have to address reasonably a relevant aspect of the problem.

[01:12:49] Speaker 04:
They didn't address reasonably at all cost causation.

[01:12:52] Speaker 04:
They basically said cost causation is going to be completely irrelevant unless you make some unspecified heightened showing.

[01:12:59] Speaker 06:
You're trying to challenge order 2003.

[01:13:02] Speaker 06:
Is that what you're trying to do?

[01:13:03] Speaker 04:
Is that how this case is now framing up?

[01:13:05] Speaker 04:
Absolutely not, Your Honor, although I will say that the principle that you shouldn't read Order 2003 to conflict with what this Court just said a couple of days ago, what the Federal Power Act requires as a matter of void, is to certainly open to this Court.

[01:13:21] Speaker 04:
That wouldn't at all challenge Order 2003.

[01:13:23] Speaker 04:
That would just be a reading.

[01:13:25] Speaker 04:
Order 2003 not to conflict with the Federal Power Act, which it would be necessary because if you're

[01:13:32] Speaker 04:
In their reading, the vote of 2003 is correct.

[01:13:35] Speaker 04:
The causation is presumptively irrelevant, which is contrary to what this court said a couple of days ago, the Federal Power Act requires.

[01:13:44] Speaker 07:
Thank you.

[01:13:45] Speaker 07:
We'll take the case under review.