Legal Case Summary

Good afternoon. Let me ask at the outset if the order that we established is workable. If it isn't and you prefer to do something different, we're open to suggestions. I'm prepared to proceed on the basis in the court's order. All right, that's fine. And you can reserve her bottle of fuel. I'd like to reserve two minutes for her bottle. Thank you. May I proceed your honor? Yes. May I please the court? I am Scott Strauss and I'm counsel to the New Jersey Division of Wake Council. I'm here today on behalf of the New Jersey Petitionist Group. And I've joined that council's table by Alex Moro, who is a deputy attorney general, and is who would hear on behalf of the Petitionist New Jersey Board of Public Utilities. In the electric utility industry, making decisions about future generation resources involves more than money. As the cheapest option may not satisfy environmental goals or avoid over dependence on a fuel type or technology source or promote local economic development. Weighing these considerations is called resource planning. And in the Federal Power Act, Congress left that job to the States, which have always regulated retail electric service, including deciding. Yes, your basic argument been met in part by the DC Circuit's opinion in the Connecticut public utilities case where they said, look, FERC can regulate directly prices. So it can regulate indirectly prices. And accordingly, you don't have a complaint that they're outside their jurisdiction when they're doing the kind of thing that they're doing here. Your Honor, yes, we do. Because what's wrong with the DC Circuit's reasoning? Nothing. The DC Circuit's reasoning is fine. We don't think what FERC did in our case matches the DC Circuit's reasoning. Because they explain why. They make sure. Because in the DC Circuit case, what the court said was, the States get to decide how to meet their capacity obligations. FERC sets the number and the States have the options to decide what to do. Those are choices the States make, and they may have natural impacts on the outcome. What that means is, if the States decide not to build any additional resources, that may constrict the supply and raise the price. They flood the market with resources that may lower the price. But either way, the States get to make those choices. And FERC is saying, you still get to make the choice. You just don't get to offer your supply into the residual auction on a subsidized basis. You can build a power plant if you want, knock yourself out. You just don't get to subsidize in the auction. Well, but what FERC is doing through applying an economic test, and remember only in the context of gas resources, not as to anything else. So only in the context of new gas resources, the resources that the State of New Jersey saw as necessary to meet a problem that they identified after hearing from PGM that there would be rolling blackouts in New Jersey. Based on that, New Jersey identified gas resources as those. FERC has said, if you want to build those, you have to meet an economic criterion. If you want to build wind, solar, hydro, nuclear, whatever you want, go right ahead. We're not worried about price suppression. We're only worried about your price suppression. And that's the script. Well, that doesn't sound like an argument going to the exercise of discretion, not to the question of jurisdiction. It sounded to me like you were starting out making jurisdictional argument, and you've shifted your ground now, and you're complaining about how they exercise their jurisdiction. No. Would you acknowledge that they've got the jurisdiction to say you can make whatever plans you want, but here's the parameters in which you have to offer your supply into the auction. Our argument is that they do not have the jurisdiction to dictate to the States how they need capacity obligations. They can deal with the rate impacts of those choices. If the State of New Jersey builds gas resources, and FERC wants to do something to mitigate the price and the capacity auction, that may be an option available to them, assuming they can do so in a way consistent with the statute. Why should the States have been given this benefit in the first place? Seems to me it was something that was possibly agreed upon in 2006 as a carrot or for the settlement, but why should there be an exemption? Their exemption should be there, Your Honor, because the Federal Power Act provides that FERC does not get to regulate matters left to the States. And both FERC and the Supreme Court have said on numerous occasions we haven't noticed. Well, then you'd complain that they gave the State exemption in the first place. That seems to me to be having given something that maybe they're not entitled to do. Now they're just equalizing the playing field. No, no, the exemption that we had in the original market design met our concerns because it allowed the States in the instances in which they found a capacity deficiency to take action, to try to address that deficiency, and to be sure that they could use those resources to meet the deficient. One problem I have is I do not understand, I don't understand, I don't understand how the States have been harmed. I see no data about, we're never going to build power plants again, this is horrible. If you're going to make an argument that FERC has done something dastardly, we've got to back it up to my mind, they're requiring you to be efficient and economical in what you do. They're only requiring us to be efficient and economical if we build gas. Well, but now you're getting into the discrimination. They have their reasons as to why gas. Clearly the briefs are full of reasons as to why gas is different, whether you buy it or not. Let's just talk about the harm that has been visited upon you. Did you clear in the auction? Two of the three plants cleared, one of them did not. So 600 megawatt gas plant that New Jersey wanted to have built to meet its needs for now and into the future will not be built. When you say, is that always going to be an issue? Some clearance, some not. I mean, other entrants into the market, they'd be having the same issue. It would not be an issue for the states because the states have the authority to select in the instances of the exemption when there is a capacity deficiency, which by the way, FERC never found that New Jersey hadn't met the conditions of the exemption. FERC eliminated the exemption. Yeah, but here's the thing, and I apologize if I'm being obtuse, but I'm still not understanding your answer on this, Mr. Strauss. Am I right that FERC didn't say, and PJM didn't ask him to say, listen, don't build any gas-fired power plants. What they said was, if you're going to build gas-fired power plants and you're going to subsidize them, then you can't offer that into the market, into the auction, without facing the same mitigation that everybody else does. Am I right that that's what they said, not don't build power plants? No, what they said was, if you build a gas-power plant and you have a state-sponsored program to do that, you can offer it into the auction, but you alone of all the resource types will be required to meet a mitigation standard. All the other resource types will be permitted to bid zero and will clear the auction. Okay, so you're back. I'm just saying your complaint is with how they've exercised. Maybe I'm having a difficult time following you, but it sounds to me like what you're saying is, they have unlawfully discriminated and they're not supposed to do that. Well, not, they're not allowed to tell us the terms on which we participate in the auction. It's an excellent question. It actually addresses both

. For sure, they're not allowed to discriminate. We also take the position that we have the jurisdiction under the Federal Power Act to decide how we meet those capacity obligations. And that's what that exemption is about. It protects that right. We were invoking that right and relying on it to build the plants. And therefore, we've had an entitlement to have those plants clear in the auction at a zero price. That's another piece that's missing here is this reliance piece. That's really not, it's really not scratch. Let me ask you another question. I mean, aren't the very contracts that you entered into? Evidence that FERC had reason, if you were going to come in and artificially lower the price, and that's what the contracts provided, FERC had to react to that. The contracts did not provide for artificially lowering the prices you're on. You said in your brief that you were price takers. I mean, you acknowledged it's your price takers, which means that no matter what the price is, you were going in anyway. Yes, of course, because we felt we had a capacity deficiency and had to meet that. We needed to have the resources clear to be able to use them. In that regard, FERC had wanted to regulate the price impact, the rate impact of that decision, because they thought that that had some unfair impact on the price. They could have done that, but that's not what they did. That's what they're saying they did. Unless I completely misunderstand this case, their assertion is the assertion from the Connecticut case out of the DC Circuit. They're saying we could have told you this is the rate, but instead of doing that, we've set up this auction system, and we're telling you the basis on which you can participate in the auction. You build your plan if you want. We're not telling you not to, but if you do, and you subsidize it, you're not coming into this auction without being mitigated. Now, how is that different in a meaningful sense than a rate? It is not a rate regulation. It isn't because what they're doing is not regulating rates. They're resetting offers. And in this case, a zero offer is an offer not to buy from the auction. The auction is a residual last resort device. If you can't procure something anywhere else, you have the auction. It was never intended to be, it never intended to be the only arbiter of whether or not you got to use capacity resources. Here, FERC has completely transformed the game. You're not going to hear me necessarily disagree with that, but it doesn't sound to me like a jurisdictional argument. Mr. Stras, it sounds like you don't like the way they exercised the jurisdiction. That's right. So you say they've completely transformed the game. If they had transformed the game in a way that allowed all three of your plans to clear, I presume you'd have no problem. We might not have a problem today because the plants had cleared. But this regimen will restrict us into the future assuming it's not changed. So whatever happens, they have no right to change the rules of the game. No, of course they do your own. Certainly they do. They have a right to change them as long as their changes are consistent with their authority on the Federal Power Act. The point of our concern and the thrust of our concern is that they are involving themselves and interfering in state decisions about resource planning and how you meet capacity obligation. But here's what I don't understand. I would think that you'd have a better argument if none of the plans cleared. I don't understand the fact that two of them cleared and one of them didn't leave you in an untenable position. Well, at least it's in an untenable position because 600 megawatts that New Jersey wanted built to ensure its power supply needs to be there. No, I understand you have a bad capacity. Well, I mean get that. But sure, but you know, this song says two out of three ain't bad. None. None work here. Okay. So tell me why it doesn't work here because all of those plans should have cleared and the test that they established, a cost-based test for these resources is an inappropriate standard. It's not the way in which the market was to work. So your argument is just across the board. They have no authority to not at all your own. They have authority over the rate impacts of our decisions, but that's not what they did here. They didn't set rates. Listen, I'm really eager to have you distinguish because you've said we're different from this DC circuit case. Here's the case. Well, it says the commission made directly established prices for capacity or much the same prices for failing to acquire enough capacity, even for the express purpose of incentivizing construction new generation facilities. And you don't disagree with that. You've said they can do that, right? Then the court says that the commission may do so directly, would seem to include the power to do so indirectly by setting a target for capacity demand and using a market mechanism to locate the price appropriate to that quantity. How is that not exactly this case? How? It's not this case because what the court also said in the Connecticut case was that states can make choices about how to meet their capacity obligations without federal interference. And that those choices will have impacts on the market and that those impacts are natural. Here, remember, FERC is going the opposite direction here. In the Connecticut case, what was going on was the state of Connecticut was free to make choices about how much or any actor knew it was free to make choices about how much got built or not got built. That would have an impact on the supply, which would have an impact on the price. Here, FERC is saying, we, New Jersey, we don't want you to have that impact. So we're going to reach upstream and we're going to skew your choices. We're going to tell you if you want to build gas units, you're not going to be able to even get them into our auction unless they meet this price test. That's different. It is also discriminatory and it is not the Connecticut case. The Connecticut case actually goes our way, as we said in our case. But if you're not objecting to the price, you're not objecting to the FERC is not saying don't go in. Your argument is the price effect makes it harder or less favorable to go in. I don't think so, Your Honor. What FERC is saying is if you want to try to build these new gas plants and only new gas plants and get them into the auction, you will have to meet a cost criterion. Otherwise, we won't accept them. That's contrary to what RPM is about

. We believe that's contrary to their jurisdiction to impose that. We think the Connecticut case is consistent with that. So it's a different argument where FERC could have regulated the rate outcome here, but that's not what they did. They reached upstream and they regulated the state's choice. And that's where we think they crossed the jurisdictional trip. All right. I'm going to hear from you. Thank you. Good afternoon, then may please the court. This is Anna Chu representing the Maryland Public Service Commission. The Maryland Public Service Commission has a statutory obligation to keep the lights on throughout the state of Maryland. This is a responsibility that the public service commission takes very seriously. So when PJM came to the commission in 2007 and 2008 and said that Maryland could be looking at rolling blackouts and brownouts beginning in 2011, if capacity shortfalls were not addressed, the commission listened and took steps to address that problem. After putting in place temporary measures, Mr. Chu, can I ask you the degree or disagree with the assertion by New Jersey Council, Mr. Strauss, that that FERC was just outside its jurisdiction here? We support the position of Mr. Strauss and New Jersey, but we also believe that even if the court decides that FERC was acting within the jurisdiction, the decision still should be vacated because FERC decided arbitrarily and capriciously to eliminate the state exemption. Okay, and your assertion that it was arbitrary and capricious is based on the fact that what, they changed the rule, right? But they gave a reason for it. Well, respectfully, Your Honor, we don't agree that FERC provided an adequate reason for it. When FERC adopted the rule in 2006, FERC specifically found that the state exemption was just and reasonable because it, quote, enables states to meet their responsibilities to ensure local reliability. They, sure, and then they get five years experience with the auctions and PJM comes forward and says, we're concerned and it seems like it's, you know, it looks like the facts are, the P3 folks come in and say, hey, there are about the subsidized bunch of stuff in the auction, don't let them. And, and PJM says, yeah, to FERC, don't let them. And FERC says, well, we think that is a problem. We think that subsidies on those levels would be a problem. That it would distort the price signals and it would foul up what we're trying to do here. So I guess we won't let them. If that's the route that this took, why isn't FERC allowed to identify that there's a change, except that there's a change, give a reason for the change and implement it? Well, Your Honor, I appreciate the very good size summary of what happened. But I, I have to submit that FERC didn't provide a real reason for the change. The five years of experience in the capacity auctions, nothing changed except for the fact that Barrelin started considering doing exactly what the rule contemplated. Marlon began thinking that the rule contemplated that the states would come in at artificially low prices. No, well, that's no, no, absolutely not. But isn't that what was predicted to happen and the knowledge that PJ MP3 and FERC were operating under? No, Your Honor, there is absolutely no showing whatsoever that the Marlon Public Service Commission was coming in, was intentionally coming in and seeking to suppress prices in the capacity market. Well, what were you going to do? Were you going to come in at cost? And is so? No, there's no problem. No, the issue, Your Honor, is we think that that the other side respectfully is trying too hard to focus only on cost. No, but that's the reason that they set up. I asked Mr. Strauss, then you're saying that FERC does not have the ability to say this is going to be cost-based. We're going to require everyone to be economical. You're not just attacking your own situation, you're attacking the whole premise of their view of how the market, how to get the market to operate in a proper way. Are you not? Your Honor, actually, I apologize I'll get to that in one minute. I should have asked to reserve two minutes for a bother. I apologize. But no, I mean, would you have come in at cost? The planning exactly was to not come in at cost, right? Exactly. Well, the expectation is that the new generation resource, realistically, a new generation resource is going to be more expensive than some of the other resources in the market. It is true that a new gas-fired, cleaner gas-fired resource will be more expensive to bring online than the whole reaction is still there. There are resources to go to FERC and ask for a specific situation and appeal to them on that basis. The only thing you're not getting now is an automatic exemption. Right, a couple items there, Your Honor. This is by no means an automatic exemption. The exemption has some very important and significant safeguards built into it. The exemption itself says that it only exempts plan generation capacity resources, developed in response to a state regulatory or legislative mandate to resolve a projected capacity shortfall. As determined, pursuant to a state evidentiary proceeding that includes do notice, PGM participation and an opportunity to be heard. I don't think anybody is questioning that Maryland and New Jersey walk through this, or at least I don't recall reading it in the masses of paper that were given to us, disputing that people in Maryland and New Jersey, the regulators didn't walk through those steps. The only issue I think that we're dealing with with the states is could FERC properly change the rule, change its mind? I mean, get acknowledged that it was changing it, and it gave a reason for why it was changing it. Now, you can disagree as to whether it's as well supported as you'd like, but they seem to have said, hey, we recognize what we're doing here is different from what we said before, but we think there's a real risk to the price mechanism. And that's why we're making a change. And I guess the question I'm trying to put to you is in the broad discretion these folks have, how does that fall outside it? Right, no, I understand your honor. The issue here is that we don't believe that FERC adequately supported its decision. Its basis for changing its mind was nothing more than supposition and conjecture. And this is supposition and conjecture that was actually raised to FERC back in 2006. So, and FERC at the time said to the generators who raised these concerns, and these are to stay in generators. Sure. That are here and seeking to keep prices up in the market. Right, is it enough though for them to say, believe me, I can, I think I can appreciate to some degree the frustration that the states are expressing. And I'm just saying with having relied on this rule, having invested themselves, having encouraged other people to invest, to have FERC come in and say on the basis of the same things as you point out that we're said in 2006, oops, changed our minds. But, but is there something in the law that prevents them from changing their mind? From saying, well, that seemed like a good idea at the time, but we're concerned about what this is going to do to our base residual auction setup. If you are allowed on a large scale to be dumping capacity in that quote, un-economic, unquote. Well, so, as a couple of things there, Your Honor, I think the law that prevents FERC from doing this is Supreme Court of Third Circuit precedent that says that when an agency departs from established precedent, it has to announce a principled reason for that reversal. Otherwise, its action is arbitrary and capricious. And I think the issue here with FERC's decision, so it hasn't explained its reversal. And also it has said that there's concern about cross suppression. Right. Curvels? Well, it's unsubstantiated. It's unsubstantiated and flies in the face of the substantial evidence that the Maryland Public Service Commission entered in that we relied on this exemption. It's good faith because the market wasn't working for us. Well, isn't it just an instance where you're looking at the same data, some of which is theoretical and you're just coming to different conclusions? I think that's a fair questioner, but no, it's not just a matter of looking at data. It's also a matter of looking at the evidence, as a matter of looking at what has happened in the market. There has been no evidence of the fact that you haven't been, I mean, in a sense that it had to be theoretical because while the exemption was in place, it's only when you folks started to actually turn it into something real and the power providers complained again that things changed. And then they said, you know what? I guess you may be right. You power provider folks. If these people come in with subsidized offers, it will distort the price signals

. And that will, is problematic enough that we shouldn't have this exemption. Now, I grant you that it doesn't look and I've looked. I haven't seen that there was anything that they couldn't have anticipated in 2006 that's different in 2011 except it changes from maybe this will happen to wait. This is actually going to happen and it's going to wreck things. And maybe bigger quantity. There's some reference to thousands of megawatts. I don't know whether the impact is bigger. But the real question is, as they look at that change or see change however you want to explain it, why are they not empowered to make come to a different conclusion? Yeah, make a change. What should we say you're precluded from this because? Right. No, I understand a concern. I mean, let me just correct one. Let me just make one statement. We're not looking at Maryland is not going out there and knocking itself out building new plants just for the sake of it. There was a deliberate process where Maryland found that there was a specific reliability need. And after the record closed, Maryland determined that a new plant should come online to meet that need and it was narrow is limited to that specific need. We're talking 400 megawatts instead of thousands of megawatts. Oh, excuse me, like 600 megawatts. So in the in judge Greenway going to your question. Firk is constrained by the administrative procedure act and the federal power act. It has to decide on based on substantial evidence that there is substantial evidence is actually a very low threshold. It sounds you'd be surprised in immigration while you think substantial evidence is actually very low. But the point is they looked at what they looked at and they came to the conclusion that there are that there's a legitimate concern about suppression of prices. If there were a continuance of the blow cost capacity offers and allowing the states to continue as they were. Why can't they when looking at that data, looking at the arguments come to a different conclusion and say we need to change? Right. The issue though is that when you look at the underlining data, when you look at what the generator submitted, what PJM submitted, I think your orders, respectively, you will see that. But none of that evidence actually creates a causal connection between new entry into the PJM market and prices in the market that are not just a reasonable. There's nothing connecting these two. So Firk really, Firk relied on circular logic and just presumed that the state mandated resources are quote unquote un-economics. Well, they can presume that New Jersey admitted and I assume you would have to as well that your subs that you're going to be price takers. You're going to you're going to be price takers. You're you're you've made the arrangement and the arrangement is we're subsidizing you go in, take whatever it is. Isn't that in that kind of that's not made up that's in that's baked in in it? Right. Well, your honor, respectfully Maryland does not concede that the entry is un-economic. I mean, there are many benefits to new generation to a state to a state such as environmental benefits and. Well, I suppose we could get into the semantics of what it means to be un-economic, but in this context, the use of that term seems to be strictly talking about whether it's an actual cost justified. Or a subsidized price at which one is offering their capacity into the market. If we stick with that, Maryland, just like New Jersey was planning to build a plant. And then is it CPV? I remember the initials right. That's correct. CPV your other. CPV was going to was going to go in take whatever the price was. Didn't matter to them because they were going to get subsidized by Maryland, right? Well, just to clarify that the word subsidies a little, it's used very loosely here. List back up a little bit. Our opponents are looking at cost solely on the basis of the price in a single year of an option. The reality is that a resource may be economic over the length, the term of the contract or maybe economic in several years, you know, after after a resource clears in the option. There's no reason to believe that the cost in one particular year reflects whether it's economic. But the meaning of the word economic again. But that also means that whatever harm you might be claiming in year one, the market is not static. Right. I mean, their view is we need to address this now because we're not just thinking about your one. We're thinking about your two, three, four. And this is our reaction to the market forces that we're looking at. Right. So I still come back to my question is, you know, what precludes them from doing that? Well, you're out of with the Maryland Public Service Commission is here looking at years, you know, one, two, three, four and beyond, ensuring reliability for its citizens. I think the bottom line is that looking at just cost in that one year, this is not the approach that it's not the approach that for took in 2006. And there is no reason, no reason in the record for for to have deviated from that approach now. We submit that there is no reason basis for a decision should be vacated. All right. We'll hear from you on the phone. Thank you. You're correct. Well, there is now. Thank you. Good afternoon, Your Honors. Dennis Lane. I'm certainly you may need to pull that. Thank you. Thanks. Okay. I'm representing the load petitioners. They are a group of their group of nonprofit consumer owned load serving entities who are obligated to serve their customers with reliable, affordable power over the long term. I've asked for two minutes for rebuttal. I won't surprise you that I'm going to attempt to answer your question from your order the other day. You raised two issues. First, whether the refusal, whether we were harmed by the commission's refusal to adopt our arguments in the 2011-12 auctions. And then if not, whether we have an injury that's reversible in this proceeding. And let me back up a little. Are you satisfied with the May 2013 change in the self-supply regime with the tests? No, Your Honor. The answer is simply out of contact. That's not question number one. Yeah

. That actually. I apologize. You were going to start and tell us whether you've got an actual injury. Was there any point in time after 2011 up till today when they're proposing to do something different yet again? Where this change actually affected the load petitioners? Yes, Your Honor. There. I'll just come to a place in the record of J.A. 2579. There's a statement by Patrick McCullough, who is the president and CEO of, we call it DMACC. It's one of the petitioners Delaware Electric Municipal Cooperative. He talks about in the 2011 auction his problems. Now, I don't want to confuse you. It isn't under the self-supply. The 2011 auction was still under what was called the unit mitigation. And he was brought in to be mitigated. His testimony, I'll summarize it all there. He indicated that the market monitor would require what wanted to said, look, even though you're a co-op and you have, Mr. McCullough came in and said, look, my costs of financing are low because I'm a co-op in the market monitor said, oh, that's a subsidy. And I'm going to bump you up. If the market monitor had bumped him up to the finance cost that the monitor wanted to use, he would not have cleared the market. But they wrangled for a while and Mr. McCullough was able to get it down somewhat. So in fact, he did clear the market. But I know Judge Jordan, you're saying, well, he cleared the market. So where's your harm? The harm, your honor, is what we consider the chilling effect of this kind of mitigation process on our ability to finance and to bring on load that we need, capacity that we need. You have to point to something, Mr. Lamb. I understand there might be a sort of an intentional inflection of emotional distress argument that you're making. But it's an odd thing to hear in this context or we might have that claim actually. So what can you point to that says between 2011 when they made this change and today when they're proposing to make another change, something happened where we had a loss that the function differently than it had pre 2011, we can point to it and we can say this was the problem. Got nothing? That's okay. No, I, well, I think Mr. McCullough, there is an issue that the problem that we're raising here, remember, is that not there's no guaranteed clearing that has been removed. We're not claiming anything about what we call the mover mitigation. I'm not, I'm not suggesting that if this didn't continue on the 2011 program, there might not be a problem. But right now, here's how it appears to me, Mr. Lane, you correct me if I'm wrong. We're bookended. We've got pre 2011, now we've got post May 2013. And that's the period of time within which this no automatic clearance for self-supply regime was in place. If what you're telling me is that in that period, the one, the, the most dramatic thing you can point to as affecting load petitioners is there was this episode with the Delaware folks and where they had to wrangle to get their supply cleared, that's okay. In the context of the 2011 auction, yes, but the premise of your question is not correct. It is. Because remember what we're asking for is the return of guaranteed clearing and that has not changed. You're saying what we call it in furkland is it's a locked in period. There was a locked in period. And you know, the rate was this and then a change at this point. And so you're just talking about that finite period of time. But we're talking about the guaranteed clearing. And that can be done. Don't you have the self self. Don't you have to make an argument or a pitch about the 2013. How can we? What, what good does it do for us to say that 2011 idea was a bad one because they're an answer to that is, well, we're not doing that anymore. We've got this other thing and you haven't made any arguments to. With the May 2013 amendment. The same clearing but with tests, right? Exactly. What's wrong with the test? The same thing that was wrong with the 2011. It can't be the same thing because they've re instituted certain things. I mean, it's a different regime and there's. And believe me, I'm not looking for more briefing, but there's no briefing in this case that would direct itself to why 2013 as opposed to pre 2011 represents an abuse of discretion. The only thing you folks have argued is 2011. This elimination of automatic clearance for self supply. They were, they didn't recognize that they were changing the route rule. And therefore what they did was unsupported in, you know, et cetera, et cetera. I think I understand your argument, but I expect the here maybe they'll surprise me, stand up and say, well, we're not doing that anymore. So they didn't. I don't know more of the mood. Give you judge Jordan than that. They did not eliminated the guarantee. I'm sorry. They didn't need to see elimination of the guaranteed clearing in the 2013. All right, but that's that's neither that's either here today. Okay, it was there at one point. They've made a change. They've made a change so that there be more. The more integrity, let's say to the cost features of the auction. So the guarantee clearing means people are coming in clearing at any price. And that they decided that's not that's not going to work. So now they put in a 2013 in amendment that provides for clearing with a test. Test that really I'm led to believe again, we don't have briefing accounts for are you a net taker and that buyer? What you know, who are you yourself supply? But are you coming in just for a small amount so that you know, it really is just a small amount that's not going to have an impact? How is that test? Not appropriate and how is it that it will continue to harm you? Okay. Judge Drendel, I just want to move back a little bit because even with guaranteed clearing, we were always subject to what I call the mover

. So that's what I call the mover mitigation. In other words, if we came in and are okay, we did zero and we cleared. And we guaranteed to clear we whatever we bid, we cleared. But then the prices were adjusted for the remaining auction so that there was no effect on the price. That was the regime in 2006. So there wasn't somehow this change in 2011 that price mitigation came in. We were we the LSEs have always been subject to that. The question that is separate from the question of guarantee clearing. But there's an explanation in the record. It's two pages. I can see it, but I can't remember what pages they were. They talked about how even if you were you were mitigated still it prevented the market. It prevented some of the low cost bidders to to be chosen. If you're right and I don't remember the page, but that's exactly the sense of the commission's answer. And our response is that's that's an option that people have all the time in the markets. You can choose a you can choose to buy a product that's more costly than another product. That's your choice. That's our consumers choice. They made a choice to build this load. And they are supporting it for whatever reasons. And I would add not to go back to an argument that both you and Judge Jordan seem to be concerned about. We don't agree with the commission's definition of economic. What as you say, Judge Randell, are we close enough? Are we small enough in the net short? That shouldn't be the only thing that they look at. So the return of guarantee clearance. Wouldn't solve your problem. Would solve our problem, Judge Green. Entirely. Would solve our problem because then we would not have the risk. The problem that we have is the risk that we won't clear if we don't clear. That means we can't guarantee, I want to say guarantee this bad word. We can't go to our finances and say, hey, look, here's the package we have together. Part of it is capacity and we know we're going to clear. And so we're going to get that cost. The finances are going to say, no, you don't get it. Look at what FERC did. And then we're not going to be able to build. And we may have foregone opportunities. However you want to put it, but that is the problem that we have. That's what we have all along. What's your articulation of why FERC can't do that? Is it any different than your co-counsel? Our articulate. I will not say I'm not going to. They argued very well. I'm going to make my own argument, Judge Greenway. I think that what we say is the problem with the commission's decision is that it said, look, the issue here is the prices are going too low. We're not getting enough capacity. Let's pretend that's valid. We don't agree it is, but let's pretend it's valid. What we say is there are two conditions. As I said, you have the guaranteed clearing on one side and you have what I call moper mitigation. And you've always had moper mitigation. That solves the problem because it keeps the price up in the market. You keep the price up even though you're guaranteed clearing. So what we're saying, the commission is wrong. It looked at guaranteed clearing, which has nothing to do with the pricing. And instead it had a perfect. It had a perfect vehicle for solving the market mitigation problems with the moper repricing. It should have just continued to use that and allowed us to have guaranteed clearing. Well, that's that's what you'd like to have. But I thought that your argument was, and please correct me if I've got you wrong, I thought your argument was different from the states in this important respect. You seem to be arguing that unlike for extreme of the automatic state exemption, when it came to the automatic clearing, I'll be it with mitigation for the load petitioners, that FERC didn't even acknowledge that it was changing the rule. It pretended that it was a clarification. PGM said, we're just clarifying this. And FERC bought it and said, yeah, we're just clarifying it. When it wasn't just clarifying it, it was doing something different. And in fact, doing something different in the face of 70 years, a history of how the load supply and entities do their business. And it constituted a radical change with no acknowledgement that it was a radical change. And because of that, they could not be said to have rationally approached this, and thereafter the fact excuses about it don't meet their burden of proof under 205 to show that PGM had, I should say, that PGM carried its burden of proof that this was just unreasonable. That's what I thought you were arguing. If I'm wrong about that, tell me. I couldn't have said it better. Okay, great. Now, if that's what you're arguing, that is what you're arguing. And now we're in 2013, and they say, you know what, we're changing this. And we're giving a rationale for changing it. We're doing something different. We're not going to give them automatic clearance, but we're going to recognize that there's value in what the LSEs are doing to meet their long-term capacity needs. And so we're just going to focus more than we had before on what we are concerned about deliberate market manipulation. So we're going to put a sort of a modified net short test back into the mix. If that seems to be what they're saying, if that's the case, don't all your arguments about arbitrary and capriciousness go out the window because now they are acknowledging a change, they are giving a rationale for it. They're doing something different, and they're acting within the broad scope of their discretion. Now, because what they're saying, it's the same problem that they had the first time

. How is it the same problem? If your problem before was, they didn't even acknowledge a change. And now they're acknowledging it, justifying it, and telling you see how it works. It isn't... This time is they've changed the test. They actually haven't changed the test. They've added a new test. They still have the unit test, which they had previously, and then they added the self-supply. And so if we have self-supply, and we're in LSE, and we need the conditions, and we're net... When they're not narrow, net short, net long range, then yes, we have an exemption. But what that does, again, is it goes back to mitigating crisis. Yeah, I know you don't like it, but I'm struggling with mootness here. That's what I'm working with, and I'm trying to draw you out on it. You're making arguments about what they did do. Now they got something different going on, and I understand you still don't like it. I just don't understand how the arguments you've made about 2011 are responsive to what's happening in 2013. Well, I guess one answer is you're on, and you came out with your order on Friday. I mean, I'm happy to brief it if you're on, and explain some of the differences, but I'm sure I saw Judge Randell's pile. So we're back to intentional inflection of a motion. You're going to sit down, but while you're sitting down and enjoying the afternoon with us, can you think about 514H4 and how it relates to the questions that Judge Jordan was asking me? I could answer it right now, Judge Greenway, if you'd like. It's exciting for me. Okay. Well, I think that what you see with 4, particularly, I don't know if you have our brief, it happens to be on page 820 of the appendix to our brief. And as you'll see, it's stricken. And in FERC, what that means is when you file a ray change and you want to eliminate part of the tariff, you just strike the language. But I'm assuming you're referring to one first all cell offers in their entirety designated a self-supply committed regardless of price. And that is the guaranteed clearing provision. It was never activated. It was never activated. No, it was activated. That's the point, Judge Rendell. But I mean, it was never applied, was it? It was always applied. We always cleared. Okay, let's go back. If you look at a 20 and you pretend there's no strikeout, that's what the tariff language from 2006 looked like. Then in 2011, PGM came in and they struck out that language. So in fact, Judge Rendell, from 2006 forward, it was applied. And only in 2011, was it no longer applied. That's the difference. And so that's what we're resting our change on, Judge Jordan. This was the language. This is how it was applied. We had mover mitigation to solve the pricing issues. This was a separate vehicle designed to do something different. And they conflated them together. I won't go through your wonderful explanation again, Dr. All right. Well, we will hear from you on. Thank you very much, Janice. May please the court. I stand for P3's two remaining issues. And I'd like to reserve two minutes for a bottle. All right. You stay tuned in for the record, please. Thank you. John Estes. Thank you. This is a case you'll hear from my colleagues. And we stand, we file a blue brief, but for all of the issues you heard, you heard the other. You really stand over there. I stand here, my colleague, EJM and the commission. And you'll hear from them why there's no jurisdictional issue here. This case is about reason decision making, where the normal strictures that are viewing court applies, given the difference in everything, satisfied on the issues presented here. Only the issues you don't like that they not satisfied it. That's right, Your Honor, remarkable. Amazing. Well, that's why we raised them. Why did reliability matter so much in 2006? And the states get all geared up to solve their reliability problem, building facilities. And then all of a sudden, you know, reliability really doesn't matter all that. That much. Let's make low cost, let's make cost that's not so low, the goal. It seems like there was a real shift. Your Honor, I wanted to get to that and I will right now, because it actually goes to, why we're right on our two issues and why they're wrong, all of the players. And it goes to the shift, which actually was not so much on this side of the table, but on this side of the table. It may have escaped you, but you have before you several contestants from the Greenland capacity wars, including me. And the same team had moved to PTAM and the same battles have been fought. And I was in the Connecticut case on the work side and these are old battle lines. And if you look at the other cases, the older cases, I were expert by the way, Dr

. Shanker, and his initial laugh at David, talked about this fact. Connecticut, the fight was, well, wait a second. We don't want to buy so much reliability. You're making us buy too much. You're setting too high a bar, which is why I judge a table in a remarkably incisive passage. So, well, you can just not build anything if you like. You'll pay a penalty because the price will go up. And that's exactly the way the incentives in FERC's market design were designed to work. The price, you know, a positive entry or a pain, one of the other, until you yield. This case is about a circumstance, you know, around three years ago, the tune changed and suddenly we see states concerned, we have to build. We're concerned about reliability now. Explain why that's a false concern in a second. But what the reason that Mr. Strauss is wrong is that if the incentive is you want to push prices down, then the market is not going to give a self-correcting incentive if you're successful. You just get the benefit of low prices in the whole marketplace suffers and consumers suffer in the long run. So, that's why FERC decided it needed the mover. Because the way this market is designed, and this is not in dispute here, by the way, much of the answer to everything lies in the fundamental design of the market is not in dispute, we have this cost of a new entry level and I have a few cripples with some of this, but the other side doesn't. And over time, on average, you're supposed to hit that. Because otherwise, merchantry can't occur. And the price has to oscillate around that level. Because you can't average it if you never get above it and below it. Well, and can you bring this takes you out of your two arguments, but you're already out of your two arguments. I'll get back to them. The state's pitch, as I understand it, is there's nothing that P3 and other power providers said in 2011. That was any different than what was being said in 2006. They have an incentive. They want everybody to have to take all their supply in this market. But the market's been operating and allowing people to do what they want to do for long term supply arrangements in lots of different ways long before that. And so, when they came in and they started making these noises about that, the FURC-MATED decision made a reason decision. PGM did suggest that the FURC-MATED reason decision that it's okay for us to give this special exemption to special state authorized supply because we recognize that the auction isn't the whole game. And then, when we actually act on it, when they elicit reliance and cost is imposed on us for relying on it, P3 comes back with the same fine wine and this time FURC drinks it. And that's not right. It shouldn't happen. There's no excuse for it because nothing in the real world changed except we relied on what they told us. What's wrong with that argument? Many things, Your Honor. Let me start by one, by the way. If you look at our original papers, the original complaint, we talk about the fact that New Jersey in particular was not shy about advertising its desire to suppress prices across the market and benefit globally. So we saw what's different though. That's what I'm trying to change in this, Your Honor. That their argument is I understand that it is nothing changed. And since nothing changed, for FURC to change its rule is by definition arbitrary and capricious thing. New what it was before. They got the same arguments later. The only thing in the real world that changed is we relied on them. And that can't be sound decision made. What I'm saying, Your Honor, is that something did change. But I also think that it would be defensible and sustainable on Judicial Review for an agency to look at a problem of fresh and say, you know, we think we didn't get this quite right before and it matters greatly. Okay, well, get back to that. You've had no review. Change, the change. The change was we had two states barreling down the highway ready to subsidize new entrants. Ready to do what the rule told them they could do, right? Ready to do what the tariff explicitly told them they could do. There were restrictions. It was not clear whether they would bind or how they would bind. We had real concerns that the rules weren't tight enough. That's true. And we came into the commission and explained this is a really serious problem. And I would submit to you, Your Honor, that it would be a serious problem for Firk to turn a blind eye to price suppression that Dr. Bauer and the independent market monitor said these two states could drop prices by $3 billion below the cost of new entry. And not, not, not disputing that with you at all. Just trying to get you to explain if there's a change. What I hear you saying is not really. Well, there is no real change except the reality of the problem became mounting. Yeah, it caused us greater concern as the reality of it was coming on to us. I think that my my, my kind of answer is that in New England and PJM over time, there was an increasing understanding of the severity of the threat that these types of subsidized entries represented. The severity of the price drop. And the harm that the consumers in the long run faced in the my clients and the markets faced as a result. If you're looking down the barrel of a shotgun, I'll branch you your on it. It looks different than it might have been your mind's eye when you didn't think it was real. And the real question is, is Firk justified its decision because they get to look at circumstances of fresh. And I'll submit to you that when these people stand up, you'll see chapter and verse of these arguments redressed. And I just like to go back though to I think one of the things that is the core and it starts to bring me to my two issues. Oh, yeah, sorry. The way they work at work. If you clear, now I have a few about once or twice and everything with it. But if you clear, that tells you, you know, it's time for you to come in. And be it once or twice, we'll put quotation marks around that because here's the right cost metric. The price is above it. And you know what? It's no harm. No foul. If you want to sponsor a project when the prices are down here, the whole market design is telling you it's not time to drink that one

. And if you want to drink it then, what are you doing? Why? It's cheaper to buy from the market. Why do you want to build something that costs this instead of buying here? The market has incentives that they will fly in and give consequences to that. They'll speak for themselves. I'm sure. But I anticipate they argument will be what's in their briefs, which is nobody ever intended for this residual market to replace sound planning for long term supply. That's the way the market has function for seven decades. And that's the way the bra was set up to be, the BRA, whatever you call the thing, that residual auction was supposed to be something to modify and even out price fluctuation at the far end. And it was never meant to be the whole market. And in fact, if you make that the whole market, you make all of us less secure. That's what I understand them to be telling us. And that doesn't sound frivolous to me. Well, I think, first out with it, and that argument is inconsistent with the fundamental design of the markets. Because the way the market is structured, you say, what's our target? It's a big target. It's like 150,000 megawatts. All in, we're going to build a volume market that seeks to purchase the full requirements to provide adequate reliable service. And then we're going to have, and so we're going to have a demand curve like this, downward slope, sloping to the right. And here's where we want it to intersect, to be right in equilibrium, okay, where my watch is. And then when supplies down here, you're not ready. When it's here, you buy 150,000. And then the question is, what makes up that that's a stack? And what we're fighting about is, do you get to go into that stack by matter of right automatically? Does it matter what price you're in? And do you get to go into a price taker or a volume, either have an effect, and be unmitigated? My side of the market doesn't get to argue about being mitigated. And by the way, these mitigations are screens in the first instance. We're subject to them all the time on the sell side. And what happens to us is, when we hit a screen, happens all the time. We go in and we talk to the market monitor. We have one of these case specific reviews that Ferck talks about. And if we really didn't like what happened, we'd file a complainant FERC. So the screen, as FERC says in its order, is meant to be conservative because you have these fail safes. And we don't want to build our net too loosely because then we could really crash the market. And if the metasum net is a little too tight, that's okay because we have case specific pressure release valves to make it right. You can always go in and say, hey, I think over over the period of years, I am in the money right now. And if I'm not for one year, if I'm calling it right, what's the big deal? Everybody guesses a little wrong. You have a right to enter this market on your own terms and shield your price effect from FERC's mitigation under Connecticut DPC. Before I go to my two issues, one more. Unless you're saying. Isn't that argument what you've just said a little bit contrary to your issue about the highest revenues? I mean, they're airing on the side of triggering the airing on the side of unfailing to trigger the MOPR as compared to unfairly triggering it. So they're being conservative on the night. With all due respect, Judge Wendell, I think the conservative language goes to catching too much, not too little. Because if you catch too much, you can always let your fish go. If it turns out in your case specific review, they were intended to get through the net. They should have got through the net. Well, we're saying, Your Honor, is that, and this is a perfect example of not giving recent attention to our two arguments. And they may seem small, I know. They may seem like details. And it's natural for a viewing court to look at this and kind of go, doesn't the agency get to decide these sorts of things. Now, I'll grant you expertise and everything like that. But they do have to engage us in this. We submit on these two issues they did not do. Let's take that one. We said. They did engage you on the local area delivery. They said, we think it makes sense to pitch it at the high end. That's a judgment we make based on our expertise. You've been leaning on so hard for all the other stuff you've gotten like. They made a decision that that's a, that's the soundest way to structure the market other than the fact that you don't like it. I don't agree. Yeah, well, actually, I'm welcome. They don't engage with it. They did engage and made a judgment. And they said why they made a judgment. I'm a bit different in the videotape that the order actually tells us how. If you look what we said is it's sort of like if you imagine someone telling all mortgage lenders and in the state of Pennsylvania. Somebody wants to buy a house in Philadelphia. You have to value it in the most expensive zip code that exists. When you can go on Zillow, you can find every other zip code. You can find every other street and every other house. What we said is you know, you have an interest. You know where he's located. There is a node there. There's a price-specific point that we know is accurate. And you should use that. And they disagreed with you. And I'm about to tell you why that doesn't engage our argument. Right. What they said is, well, we first, because they changed tune over time. First they said, well, we think PGM's right in saying that a reasonable screen uses the highest LMP that we see. Because otherwise, if you use my first and the total touch, you trigger market power screens even though the resource was simply using historical values for its own. Well, first of all, you know, that doesn't answer why more accuracy is bad. If you use the highest value, it's by nature going to be occasionally right only if the planets load up. And then you have the highest value that you can use to make sure that the planets are located there. And all of the times wrong. And there's a directional bias to the era

. Well, I thought that their assertion was we don't want to punish people for relying on historical data. And that sounds to me like a perfectly sound thing for an agency to say that there's historical data. People have to make forward projections. If they make it based on those projections, we're not going to punish them because they happen to be building something in a place where they're slower. And our energy and anti-dermost service revenues, which is not going to do that. Let's bear down on that because we, we, we, we, profit arguments and I really don't think they were addressed. It is addressing it. Isn't it isn't that isn't that rationale specifically answering your haven, no, go with the node assertion and saying, well, we could do that. But we choose not to because we've got this other reason. There's other reason that you mitigate less often. The mitigation binds less, really, but they're saying, in their first order, they changed their tune later. We came in and said, well, there is historical data, actually, for our new interest particular location. And why not more accuracy? Why not use that? We never got a good answer that sustained scrutiny. I would submit judgment. If the answer is, well, we're not going to penalize you for being in a lower price area, then you're giving him headroom that he shouldn't deserve, because he's not actually ever getting those dollars. And so he needs to have a higher bid into the auction. If somebody's located in less expensive... You're assuming that things are static. And I took it that this is market is not static. It's fluid. And that people recognizing fluidity at Perk said, well, we're going to give them the benefit of historical data to base their judgments on instead of making and trying to guess where the fluctuation is going to be. No, you're not like how stable it is. It's more like a fluid market worth things shift around and we're giving them the benefit. I guess I'm having a hard time seeing how you can argue for broad discretion. And then you're at a level of granularity here that is super fine sandpaper. And I'm having a tough time understanding how you can make that argument. Because they did not engage us. Let me try the historical point again. We're saying use historical data. By all means, use the right data set. Their first answer is a non-answer. Because they're talking about a research using its historical offset. Well, our new interest doesn't have an historical data set. And it certainly isn't necessarily the highest price data set. What we're focused on is we're going to let somebody use the wrong higher offset because it makes it easier for them to escape mitigation. And mitigation is supposed to be conservative. We call that question out. On rehearing, the commission changes its tune and doesn't really talk so much about this historical question. Because the accurate data are the accurate data. What they said next time is, well, you have an alternative. We get to choose PJM. And our answer, which is on brief at length, is I think entirely correct. And 12 of our private groups, actually our initial brief, goes through the cases. We've raised the reason why PGM's proposal is not just unreasonable. You can't just ignore it saying we don't have to look at alternatives. You have to look at it. And then finally, we hear from the commission in their brief, the red brief. They say, well, gosh, on rehearing, we had attacked. We had not supposedly waved this question of the historic VRR curve and you didn't address that. And I think, Your Honor, that's an unfair argument. The statute says that unless you have reasonable ground for not raising argument, you have to raise it on rehearing. We were not reasonably apprised as the case law requires that they were relying on the historical existing VRR curve for that particular issue. Because as we explain on reply, they have like five different points they made. This is the only one when you look at the substance of what they really said. Never mentioned this curve. This is a historical curve. And in fact, as PGM acknowledged, when it came to this question, the offset and the location and everything like that, they had to change their curve. And this is why the commission's original language was a little bit messed up. Because with the existing curve said, is it said, well, we're going to take the resource that we're hypothetically modeling. And it's in some location and we're going to use it. That's not the curve of structure. And PGM came in and said, well, no, no, no. We're going to use the highest. So we're already cut free from the existing curve. Ms. Carlsie, I hate to cut you short, but the right light's been on for quite a while. Could you comment on your second point? Hi, yes, Sharon. And then we will. I had to answer questions. The how many auctions do you have to clear? It's again, we would say a failure of reason decision making. PGM originally bid three. We said two, citing the New York markets where the functional equivalent had been endorsed. And the commission purporting to seize the fund of proposal from the independent market monitor said one, though they cut aside his caveat. He had said one clearing auction, but you have to show, you're not subsidized. The commission just cut aside the no subsidies, said, we're not going to do that. And said, we like his reasoning one auction. Now, we submit, they didn't grapple with our concerns. We've said, on rehearing and in our initial papers, both the piece that we're hearing and the P3 hearing, that you can have anomalous price increases that would last only a period of a year. Well, you could have the same thing over two years

. I mean, so you like two instead of one. It's a remarkable thing to say. It's arbitrary and capricious to be at one instead of two when the only thing you can really say is we think two is safer, because they can say and did say what we think one's good enough. But you know what they didn't do, Your Honor? They didn't explain their departure from the New York President. And that is a red letter shortcoming on you to share a good. We raised this case that is the economic equivalent in two years and said, you know, the order cites the fact that we rely on it, you know, the furt built these orders and they recount everybody's arguments and they go on for a long time. But they said, throw them everywhere. And then when you get to that, what would they really say? You look at the discussion. And it's a great word in a lot of ways, but you look at the discussion they never mentioned the nice case. And on rehearing, they never really deal with it. But these are different markets. Why do they have to respond to that? Isn't that what they said, basically, there's a regional nature they're adopting different rates or rules in different markets is not a changing course. I mean, didn't they really respond to you there? They said that on briefs, Your Honor. Yes. The orders don't say it, though. Pardon me? The orders don't say it. And in fact, the orders regularly cite the orders from other markets back and forth repeatedly. But do they always have to explain why they're not talking about something? Is that is that a really good idea? If you're under the Boston case from the DC Circuit, if you unresumably swear from prior precedent, without explaining it, you get a remand. I thought the New York ISO case said it's uneconomy. Oh, me see. Right. It's uneconomic to fail to clear the option without adhering to two years, three years. I thought that was the guiding principle now. Well, that option's a monthly auction. And so you had to clear a bunch. I think it's 12 different monthly auctions. To do that, as our expert explained, and nobody's ever contested us, that means a minimum of two years. Because you only get a clear in the summer probably. And so you need to get two summers. And the way that PGM works, that's really two years. And nobody's contested that I think reasonably, that ultimately, the New York model is a two-year approach. The commission said, that's right. All we were saying was, you had to explain why that doesn't, that doesn't mean you're wrong here. Was why we came up with two years to begin with. We called that out. And on rehearing, they never addressed this prior inconsistent testimony. You have more questions here from the bottom. Yeah. On this issue. Yes. So I don't get that. So it's because they don't explain why they didn't use two years as opposed to one year that they've acted arbitrary and proficiently. No, your honor. It's because if you raise a prior decision that they're contradicting in some fashion, they have to address it. All right. Well, you send it back from the address. That's all. All right. We'll hear from you on our bottle. Ms. Banta. Good afternoon. I'm Carol Banta for the commission. I will be responding to the arguments raised by the states and the load petitioners. My colleague, Holly Kaper will be responding to P3s, two issues. Although I'd like to start with a site that actually goes to what Mr. Estes was just discussing as well. It's not something that just appeared in our briefs on J 136, which is paragraph 112 of the November 2011 rehearing order. The commission made the point, as I think it makes elsewhere, but I focused on it here, that the markets don't need to be identical. We're paragraph for you. Oh, paragraph 112. At the bottom of J 136. That the markets do not need to, it was rejecting an argument that the markets did need to be identical. And said we recognize that each market is developed individually through its stakeholder process. And we do not see the need to require complete uniformity in this regard. And this goes to a larger point that I want to go to, that while this case is about the commission's decision making, I just want to put this discussion of this market in context, that PGM is the regional operator that operates this market. As the New England independent system operator operates, this market, New York has won, those are the ones that have really been dealing with the capacity issues so that the ones that come up the most, there are others in other parts of the country. And the commission does not impose a one size fits all, uniform solution of its own on these markets. These markets have, Mr. Flynn will stand up for PGM to talk more about how they do their process. But these markets, these operators run these markets, develop these markets, learn from each other, learn from the commission. These have been going on for something close to 10 years, I think, and all parties have learned a lot from them, including the regional operators. So when we're looking at this filing, and this is particularly true with regard to the issues raised by the states and the load petitioners, this was PGM coming in with its proposals to change its tariff, to further refine the market that it has created and developed. And the commission ruling often under Section 205, which is a very different standard than 206, as to whether this particular regional operators rules for its particular market are just unreasonable. They may not be the only way to do it. They don't even have to be the best way to do it. But they do have to acknowledge, at least, when they're changing something, right? I mean, the load petitioners, big complaint seems to be, they just pretended they weren't changing things, and they were really changing things, and Frick kept pretending they weren't changing things either. So we had a real problem with that. Yeah, before we get into that, let's deal with the mootness thing for a moment. Sorry. 2013 May shows up, you guys come up with a new rule. PJM comes up with a new rule that we do. PJM, which you approve, thank you. To the load petitioners arguments, all these arguments that they were pressing very vigorously about and unexplained change, can be an unacknowledged change, lose their force because of what happened in May 2013. I would love to tell you a definitive yes, but I can't because we don't know for a couple of reasons. One is that it really only matters for 2011, I think you were right, touch Jordan in your earlier comment that were bookended. We, Frick does not have the information as to which resources may have been mitigated under the minimum offer price rule in 2011 and 2012, and failed to clear, because they only have injury in those two years if they were subject to the rule had their, and I think we heard that there isn't, that the most that they had was one person had a negotiate and then they got cleared. And if that's the case, well, we haven't argued that they're moved, but based on that representation, that the one thing about a couple of things about 2013, which of course can't be before this court, it's actually pending rehearing before the commission, and would presumably be subject to some judicial review after that? I'm sure somebody's not gonna like it. That's the way it goes. So I don't know the answer, whether they're perfectly happy with the 2013 order, and even if they are, it is still subject to rehearing and judicial review. We know they're not perfectly happy with 2013. So we have not argued that. But if we take it face value, what we've heard here today, there was no, there was nothing between 2011 and 2013, that could be pointed to, except for the distressing circumstance of having to negotiate to get one issue clear that hadn't otherwise cleared. If that's the case, is there a just disable harm? Based on the representation, if there's no one who was mitigated and failed to clear, then I guess not. And I'm certainly not urging the court to continue with the issue. We just hadn't argued the mootness, because we didn't have any way to know, which entities, that's, I think even though PGM and theory knows they're not allowed to disclose. So really, the load petitioners have to be the ones to tell you we had units that, or we had resources that were mitigated and failed to clear. But going to that point, I did want, and I think this may be the site that Judge Randell was saying you could visualize the pages, because it is something I want to point out. The very end of volume one of the joint appendix is the last two pages, J-A-192 and 193, the very tail end of the second rehearing order in March 2012. Actually, I found what I was referring to, it was 2269, but that's okay. What's that page again? 192 and 193, it is the last two pages in volume one, at the very end of the March 15th. This is where the commission said, if we didn't make clear earlier, that we understand that the load petitioners thought they had guaranteed clearing, and that PJM's proposed removal of this tariff language took that away. This is where the commission answered that. And in paragraph 28, the very last paragraph of the second rehearing order. I think you should be running away from the load petitioner stuff right now, probably. Talking about the state issues. What's going on with this? Well, I would like to make one point that I don't want to lose, that goes to this idea of the residual base auction. I want to make clear, because it may not be clear, I mean, I think it is in the record, but it may not be clear as we're discussing this, that over 95% of the resources that bid into the auction are price takers. There are existing resources for the most part. In fact, in the 2012 base residual auction for 2015, 2016, the number is something like 97 and a half percent. So we're only talking about a narrow slice of the resources that bid into this auction at all. And that really goes, and I'd be happy to explain how the market works, but I do not want to impose further emotional distress, but the locating the price of the incremental new planned resource, three years in the future, that all, and the mitigation rules that apply that, that all takes place in a 2% slice of everything going on in this auction. So I did want to make that point, because, and I do have a site for that somewhere, because it's not always clear that we're really talking about a tiny percentage, and that the vast majority of the resources in the auction are existing price taking. But the state folks, both of them opened up by saying, we have needs in our state. In fact, PGM tells us we're going to be face in blackouts if we don't do something. And we negotiated with PGM. We came to a settlement in 2006. It wasn't like this came from on high. We had issues, we fought it out. We came to a reason the decision with them. It was mediated and we got a decision, and that decision included allowing the states, and this exemption, if they went through certain procedures. And we were good with that, because that protected us in our capacity to make long-term plans for the citizens of our states. Nothing at all in the real world changed between 2006, when that settlement was affected after lengthy negotiations, well like 60 years of talking about it, we finally get to something. Nothing changed, except I guess the P3 folks stomped their feet harder, and so PGM paid attention. And then suddenly, Firk says, you know what, we're worried. And that that can't be reasoned decision-making. That's just arbitrary, that's like the definition of arbitrary and capricious. Nothing in the real world changes, except we act and rely on what you do, and you pull the rug out from under us. Now that's the argument, what's the comeback? The comeback is, well there are several. And one, which is in our brief, is that actually an agency can change its mind if it doesn't pretend that it didn't. It can, the cases that we cited at, but can it change its mind as to policy? I mean, you look at OS6 and everything was about reliability. And we need to give the states the ability to have reliable energy, not have problems. And reliability seems to be a policy matter. And then all of a sudden, when PGM comes in says, you know, we want to change because we want it to be cost-based. That's a huge, oh. That's a huge policy. Actually, the structure of the market, the slope demand curve, and- It's always been cost-based. Yes. Well, that's fine. But not avoiding, but not to the point that the policy is avoidance of low cost bidding at all costs, is it? I mean, that's the B all in the end all. We're not looking at reliability at all. We're not looking at reliance. We're not looking at, you know, what the states have done or are they going to then not build capacity so their citizens won't have the power. It's all about cost, all of a sudden. No, the market was always about reliability and incentivizing new generation into the market, sending price signals for competitors to enter the market. Now you're disincentivizing and free by states. No, no. Well, first of all, I do have to make the point that- today's the first that I had heard that there was one of the New Jersey resources that didn't clear, because what we knew from CPV's brief as well as New Jersey's reply brief is that the New Jersey, that their sponsored resources, they were mitigated by the minimum offer price. Well, they did clear as did Maryland's, according to CPV's brief, CPV said they had the resource in Maryland. No, the market was always based on the cost, which changed is that, of course, the last time the commission had visited this was in 2006. There was a settlement, but let's make clear that was approved under 205, Justin reasonable. That was not approved as a black box package settlement. And I'm not aware of any case law that there's some kind of contractual, reliance entitlements on the commission's 205, Justin reasonable finding. Because again, something else- No, but there's APA law that says that- reasonable reliance is a factor in deciding whether or not a change in agency position is legitimate or arbitrary and capricious, I think, state farms, is that I think I'm pretty sure Fox television says that. So, Steve, if that's the motor vehicle case, the case said there that an agency's view of what is in the public interest may change, either with or without a change in circumstances, we quoted on page 50 of our brief. Yeah, here's the Fox television case. It says sometimes when, for example, its new policy rests on factual findings that contradict those which underlates prior policy, or when its prior policy has engendered serious reliance interests that must be taken into account. And those circumstances, a more detailed justification that would suffice for a new policy may be needed. So, that seems to me to be the Supreme Court of the United States saying you can't ignore FERC, the reliance interest that you engender in the market. If you lay out a rule and people act on it, you can't say, change my mind. Without some reason for changing your mind that would justify imposing those costs on the public who act on what FERC says. Right, but in this case, well, of course, PGM proposed a rule under 205 that included an exception

. PJM comes up with a new rule that we do. PJM, which you approve, thank you. To the load petitioners arguments, all these arguments that they were pressing very vigorously about and unexplained change, can be an unacknowledged change, lose their force because of what happened in May 2013. I would love to tell you a definitive yes, but I can't because we don't know for a couple of reasons. One is that it really only matters for 2011, I think you were right, touch Jordan in your earlier comment that were bookended. We, Frick does not have the information as to which resources may have been mitigated under the minimum offer price rule in 2011 and 2012, and failed to clear, because they only have injury in those two years if they were subject to the rule had their, and I think we heard that there isn't, that the most that they had was one person had a negotiate and then they got cleared. And if that's the case, well, we haven't argued that they're moved, but based on that representation, that the one thing about a couple of things about 2013, which of course can't be before this court, it's actually pending rehearing before the commission, and would presumably be subject to some judicial review after that? I'm sure somebody's not gonna like it. That's the way it goes. So I don't know the answer, whether they're perfectly happy with the 2013 order, and even if they are, it is still subject to rehearing and judicial review. We know they're not perfectly happy with 2013. So we have not argued that. But if we take it face value, what we've heard here today, there was no, there was nothing between 2011 and 2013, that could be pointed to, except for the distressing circumstance of having to negotiate to get one issue clear that hadn't otherwise cleared. If that's the case, is there a just disable harm? Based on the representation, if there's no one who was mitigated and failed to clear, then I guess not. And I'm certainly not urging the court to continue with the issue. We just hadn't argued the mootness, because we didn't have any way to know, which entities, that's, I think even though PGM and theory knows they're not allowed to disclose. So really, the load petitioners have to be the ones to tell you we had units that, or we had resources that were mitigated and failed to clear. But going to that point, I did want, and I think this may be the site that Judge Randell was saying you could visualize the pages, because it is something I want to point out. The very end of volume one of the joint appendix is the last two pages, J-A-192 and 193, the very tail end of the second rehearing order in March 2012. Actually, I found what I was referring to, it was 2269, but that's okay. What's that page again? 192 and 193, it is the last two pages in volume one, at the very end of the March 15th. This is where the commission said, if we didn't make clear earlier, that we understand that the load petitioners thought they had guaranteed clearing, and that PJM's proposed removal of this tariff language took that away. This is where the commission answered that. And in paragraph 28, the very last paragraph of the second rehearing order. I think you should be running away from the load petitioner stuff right now, probably. Talking about the state issues. What's going on with this? Well, I would like to make one point that I don't want to lose, that goes to this idea of the residual base auction. I want to make clear, because it may not be clear, I mean, I think it is in the record, but it may not be clear as we're discussing this, that over 95% of the resources that bid into the auction are price takers. There are existing resources for the most part. In fact, in the 2012 base residual auction for 2015, 2016, the number is something like 97 and a half percent. So we're only talking about a narrow slice of the resources that bid into this auction at all. And that really goes, and I'd be happy to explain how the market works, but I do not want to impose further emotional distress, but the locating the price of the incremental new planned resource, three years in the future, that all, and the mitigation rules that apply that, that all takes place in a 2% slice of everything going on in this auction. So I did want to make that point, because, and I do have a site for that somewhere, because it's not always clear that we're really talking about a tiny percentage, and that the vast majority of the resources in the auction are existing price taking. But the state folks, both of them opened up by saying, we have needs in our state. In fact, PGM tells us we're going to be face in blackouts if we don't do something. And we negotiated with PGM. We came to a settlement in 2006. It wasn't like this came from on high. We had issues, we fought it out. We came to a reason the decision with them. It was mediated and we got a decision, and that decision included allowing the states, and this exemption, if they went through certain procedures. And we were good with that, because that protected us in our capacity to make long-term plans for the citizens of our states. Nothing at all in the real world changed between 2006, when that settlement was affected after lengthy negotiations, well like 60 years of talking about it, we finally get to something. Nothing changed, except I guess the P3 folks stomped their feet harder, and so PGM paid attention. And then suddenly, Firk says, you know what, we're worried. And that that can't be reasoned decision-making. That's just arbitrary, that's like the definition of arbitrary and capricious. Nothing in the real world changes, except we act and rely on what you do, and you pull the rug out from under us. Now that's the argument, what's the comeback? The comeback is, well there are several. And one, which is in our brief, is that actually an agency can change its mind if it doesn't pretend that it didn't. It can, the cases that we cited at, but can it change its mind as to policy? I mean, you look at OS6 and everything was about reliability. And we need to give the states the ability to have reliable energy, not have problems. And reliability seems to be a policy matter. And then all of a sudden, when PGM comes in says, you know, we want to change because we want it to be cost-based. That's a huge, oh. That's a huge policy. Actually, the structure of the market, the slope demand curve, and- It's always been cost-based. Yes. Well, that's fine. But not avoiding, but not to the point that the policy is avoidance of low cost bidding at all costs, is it? I mean, that's the B all in the end all. We're not looking at reliability at all. We're not looking at reliance. We're not looking at, you know, what the states have done or are they going to then not build capacity so their citizens won't have the power. It's all about cost, all of a sudden. No, the market was always about reliability and incentivizing new generation into the market, sending price signals for competitors to enter the market. Now you're disincentivizing and free by states. No, no. Well, first of all, I do have to make the point that- today's the first that I had heard that there was one of the New Jersey resources that didn't clear, because what we knew from CPV's brief as well as New Jersey's reply brief is that the New Jersey, that their sponsored resources, they were mitigated by the minimum offer price. Well, they did clear as did Maryland's, according to CPV's brief, CPV said they had the resource in Maryland. No, the market was always based on the cost, which changed is that, of course, the last time the commission had visited this was in 2006. There was a settlement, but let's make clear that was approved under 205, Justin reasonable. That was not approved as a black box package settlement. And I'm not aware of any case law that there's some kind of contractual, reliance entitlements on the commission's 205, Justin reasonable finding. Because again, something else- No, but there's APA law that says that- reasonable reliance is a factor in deciding whether or not a change in agency position is legitimate or arbitrary and capricious, I think, state farms, is that I think I'm pretty sure Fox television says that. So, Steve, if that's the motor vehicle case, the case said there that an agency's view of what is in the public interest may change, either with or without a change in circumstances, we quoted on page 50 of our brief. Yeah, here's the Fox television case. It says sometimes when, for example, its new policy rests on factual findings that contradict those which underlates prior policy, or when its prior policy has engendered serious reliance interests that must be taken into account. And those circumstances, a more detailed justification that would suffice for a new policy may be needed. So, that seems to me to be the Supreme Court of the United States saying you can't ignore FERC, the reliance interest that you engender in the market. If you lay out a rule and people act on it, you can't say, change my mind. Without some reason for changing your mind that would justify imposing those costs on the public who act on what FERC says. Right, but in this case, well, of course, PGM proposed a rule under 205 that included an exception. It came in and proposed removing that exception under 205. I mean, these tariffs, PGM's tariffs, these market rules are constantly being changed, usually under 205. So, I think that that they still was removing it, or did they proposed, did they actually propose removing it? Yes. It was a proposed adding a condition. Well, what they, what, what it said previously is that they could give an exemption if they came to PGM and made a certain showing. And PGM said, we want to remove this because PGM is not in a good position to be made. So, PGM said, let FERC do it. Right, and the commission said, well, I can't make this. We're not going to make this a tariff, but we are doing it. Absolutely, no, the commission said, removing the exemption is just a reasonable. We understand why you don't want that there. Let's be clear, the states and the commission emphasize this numerous times in its order, the states can come in to the commission with a 206 complaint. Now, they're complaining, they don't like their burden under it. Yeah, different. But, but we haven't had that case, we haven't seen them trying to make a showing. You yourself said that's different. It's a different thing to come in on 206. Well, it's a pretty big shift to say, you've got this automatic exemption too, you can come in and persuade us if you want to give it a shot. Well, it wasn't, you do, you have to come in and show that this, that mitigating these resources to the minimum offer price would be unjust and unreasonable as applied to you. Now, given that virtually all of their resources, as far as we know, cleared with the mitigated bid, it's true they might have a difficult time making that show. And they lost one, which to them I think it is not chump change, if you've got to, you've invested, or you got somebody else committed to a customer. Can you focus on this? Could you focus for the next couple of minutes on the reasons for the change? What articulate for us? 2006 to 2011? Right. PJ, first of all, it had the state exemption that required it to make the determination that came in and said we want to remove this. So we looked at it and said, we think that's reasonable. We think it's just a reasonable not to have this exemption because we admit we didn't fully appreciate the size of this loophole. And in the first rule, when it was there, somebody complained about it, it was the first time we were putting in the minimum offer price rule. I think PJ pointed out his brief that in the first seven auctions, the minimum offer price rule was never triggered, which is part of the reason they wanted to change it because it wasn't doing anything. How do you know it wasn't doing anything? That's a striking comment. How do you know something is not working because it isn't triggered? I mean, if there are minimum mandatory drug sentences and nobody gets sentenced to them, I guess you could say it's because they're set at a drug level or maybe it's because nobody's committing the crime because it's working so well. How do you know it's not triggered because everything's working perfectly? I spoke to Hasteland, I spoke for PJ. I know that PJ thought that it believed, based on an experience, it's experienced and it's the experience of other markets that it should tighten up its rule. And it came in with a filing that the commission considered under 205. That's what I should have said. And it's for PJ to say what the significance of not being triggered was. But that was why they were looking at. But it's only the data of the distortion that would occur and the magnitude of it as compared to the harm caused by the states. Yes, and I'm hoping that I have a site for it because I know that the New Jersey in particular, the reason that there was concern about the impact on the market, the effect on the market of what New Jersey was looking to do was that there was something like 2000 megawatts. And I know we say that in our brief, we may not have cited is that these auctions are run separately in certain constrained areas. I forget exactly which area New Jersey is and whether it's Eastern Mac or I get that confused. But my understanding is that the total cleared resources or the capacity resources in that market I think is something along the lines of 10,000 megawatts. So you're looking at introducing 2,000 megawatts of price taking below cost bidding resources. Wasn't that fully in the mix when you guys were looking at that in 2006? I mean, that was. Well, the initial question was that we didn't we didn't appreciate, we didn't fully understand how big this loophole could be. Let me read just something from the joint appendix that goes to this and shows I think that it's seemed to me like FERC was appreciating that what it's role, what this might be. On page 3089 of the joint appendix, you say that on paragraph 169, this is going back to April 2006. The commission recognizes a party's concerns. It's our view, however, that PGM has demonstrated that the short term nature of the commitments required under PGM's current capacity contract has contributed to lack of investment in keeping generating generation operating and in building new generation. In other words, we understand what's going on. We think that what we're doing here is gonna, I read this to me, we're gonna incent the creation of new generation. Quote, contrary to the protesters' arguments, RPM will not make PGM a centralized planner and procure of capacity under a cost of service rate-making regime. That looked to me like FERC was specifically saying, don't worry, we recognize that there's more than cost to be dealt with by you folks. And we're not gonna let PGM just become, we're not gonna let this base residual auction take over the market so that everything's gotta be cost-based. We're gonna let other issues like state concerns about long-term reliability work their way in and we've built that in. And is that not what the commission said and the reasons why it said it? Well, I think you have to go on to the next couple of sentences, where the commission says this market is going to provide the price signals and the price stability that allows the private players or the municipal's and cooperatives, that it's not PGM deciding what will be done. PGM is running the market, which includes the market rules that will produce the price signals that everyone can act upon so that they know when it's- You have it, but the price signals weren't supposed to be, I mean, that's the reason there was this negotiated result, the load petitioner say, we negotiated for automatic clearance. The state say, we negotiated for and got this exemption for special state mandated resources. We worked this out because there are things besides cost that need to be taken account of and FERC seems to be acknowledging that. Don't worry, we're not gonna let this all become just about some economist in the back room with a green eye shade figuring costs to rule the roost. We recognize these other things and we've set it up to allow that, no? No, what I would say to that is the commission's orders, in this case, were very much about making sure that that market produces real price signals. I mean, competitive, what is the competitive price? And it's a little hard for me to explain how it's visualized, but if you have too much new entry, which again, we're only talking about two and a half percent being new entry, but if you have new entry that is coming in at zero, price taking is coming in at zero. It's displacing resources that actually are needed by the market, that the price signal, a real price signal would say, this is what economic needs. Ischa-nomic the way in this context means that it can actually clear between the demand curve and supply curve that it can clear based on its actual costs? Well, this goes back to Judge Greenway's question. What is it between 2006 and 2011 that changed that made it so, Firk said, wait a second, we gotta worry about this uneconomic supply being dumped on the market. Well, it goes back to what I was saying about the same things were being sent in thousands. But the 2000 megawatts in a 10,000 megawatt market, you're so displacing actual economic needed by the market capacity that you're discouraging new entrance to the market who would be able to come in on a cost justified basis. And again, with a three-year forward market and the fact that you're only looking at gas-fired resources, that means they don't get built. The reason it's a three-year, the timing, as well as the price rules in this market, are shaped around gas-fired because they can be built quickly. So you do the market three years out. If a resource, if a new planned resource doesn't clear in that market, there's never any steel in the ground. Because that resource could be built in the three years to begin service at that time. So that's why the commission had said gas-fired resources can test the market. If they don't clear, they aren't even built. So, but we have this market. We're looking at just the two and a half percent of new stuff. We have people trying to make plans on that. Let's shift the entire curve over substantially by allowing so much price-taking, non-cost competitive, coming in at zero, it shifts the entire curve over, actually, I guess it shifts it this way. Things up here that would have cleared, don't clear, could be some existing resources that are still trying to recover their costs. It's probably new planned resources that will now never be built. And to visualize this, Mr. Estes was trying to do it on his arm and I'm just waving in the air. I didn't want to burden you with graphs, but I will just point you, should you want to look? On J-A-31-48 to 31-50, which is in the, the 2007 rehearing order on the prior one, there's some graphs

. It came in and proposed removing that exception under 205. I mean, these tariffs, PGM's tariffs, these market rules are constantly being changed, usually under 205. So, I think that that they still was removing it, or did they proposed, did they actually propose removing it? Yes. It was a proposed adding a condition. Well, what they, what, what it said previously is that they could give an exemption if they came to PGM and made a certain showing. And PGM said, we want to remove this because PGM is not in a good position to be made. So, PGM said, let FERC do it. Right, and the commission said, well, I can't make this. We're not going to make this a tariff, but we are doing it. Absolutely, no, the commission said, removing the exemption is just a reasonable. We understand why you don't want that there. Let's be clear, the states and the commission emphasize this numerous times in its order, the states can come in to the commission with a 206 complaint. Now, they're complaining, they don't like their burden under it. Yeah, different. But, but we haven't had that case, we haven't seen them trying to make a showing. You yourself said that's different. It's a different thing to come in on 206. Well, it's a pretty big shift to say, you've got this automatic exemption too, you can come in and persuade us if you want to give it a shot. Well, it wasn't, you do, you have to come in and show that this, that mitigating these resources to the minimum offer price would be unjust and unreasonable as applied to you. Now, given that virtually all of their resources, as far as we know, cleared with the mitigated bid, it's true they might have a difficult time making that show. And they lost one, which to them I think it is not chump change, if you've got to, you've invested, or you got somebody else committed to a customer. Can you focus on this? Could you focus for the next couple of minutes on the reasons for the change? What articulate for us? 2006 to 2011? Right. PJ, first of all, it had the state exemption that required it to make the determination that came in and said we want to remove this. So we looked at it and said, we think that's reasonable. We think it's just a reasonable not to have this exemption because we admit we didn't fully appreciate the size of this loophole. And in the first rule, when it was there, somebody complained about it, it was the first time we were putting in the minimum offer price rule. I think PJ pointed out his brief that in the first seven auctions, the minimum offer price rule was never triggered, which is part of the reason they wanted to change it because it wasn't doing anything. How do you know it wasn't doing anything? That's a striking comment. How do you know something is not working because it isn't triggered? I mean, if there are minimum mandatory drug sentences and nobody gets sentenced to them, I guess you could say it's because they're set at a drug level or maybe it's because nobody's committing the crime because it's working so well. How do you know it's not triggered because everything's working perfectly? I spoke to Hasteland, I spoke for PJ. I know that PJ thought that it believed, based on an experience, it's experienced and it's the experience of other markets that it should tighten up its rule. And it came in with a filing that the commission considered under 205. That's what I should have said. And it's for PJ to say what the significance of not being triggered was. But that was why they were looking at. But it's only the data of the distortion that would occur and the magnitude of it as compared to the harm caused by the states. Yes, and I'm hoping that I have a site for it because I know that the New Jersey in particular, the reason that there was concern about the impact on the market, the effect on the market of what New Jersey was looking to do was that there was something like 2000 megawatts. And I know we say that in our brief, we may not have cited is that these auctions are run separately in certain constrained areas. I forget exactly which area New Jersey is and whether it's Eastern Mac or I get that confused. But my understanding is that the total cleared resources or the capacity resources in that market I think is something along the lines of 10,000 megawatts. So you're looking at introducing 2,000 megawatts of price taking below cost bidding resources. Wasn't that fully in the mix when you guys were looking at that in 2006? I mean, that was. Well, the initial question was that we didn't we didn't appreciate, we didn't fully understand how big this loophole could be. Let me read just something from the joint appendix that goes to this and shows I think that it's seemed to me like FERC was appreciating that what it's role, what this might be. On page 3089 of the joint appendix, you say that on paragraph 169, this is going back to April 2006. The commission recognizes a party's concerns. It's our view, however, that PGM has demonstrated that the short term nature of the commitments required under PGM's current capacity contract has contributed to lack of investment in keeping generating generation operating and in building new generation. In other words, we understand what's going on. We think that what we're doing here is gonna, I read this to me, we're gonna incent the creation of new generation. Quote, contrary to the protesters' arguments, RPM will not make PGM a centralized planner and procure of capacity under a cost of service rate-making regime. That looked to me like FERC was specifically saying, don't worry, we recognize that there's more than cost to be dealt with by you folks. And we're not gonna let PGM just become, we're not gonna let this base residual auction take over the market so that everything's gotta be cost-based. We're gonna let other issues like state concerns about long-term reliability work their way in and we've built that in. And is that not what the commission said and the reasons why it said it? Well, I think you have to go on to the next couple of sentences, where the commission says this market is going to provide the price signals and the price stability that allows the private players or the municipal's and cooperatives, that it's not PGM deciding what will be done. PGM is running the market, which includes the market rules that will produce the price signals that everyone can act upon so that they know when it's- You have it, but the price signals weren't supposed to be, I mean, that's the reason there was this negotiated result, the load petitioner say, we negotiated for automatic clearance. The state say, we negotiated for and got this exemption for special state mandated resources. We worked this out because there are things besides cost that need to be taken account of and FERC seems to be acknowledging that. Don't worry, we're not gonna let this all become just about some economist in the back room with a green eye shade figuring costs to rule the roost. We recognize these other things and we've set it up to allow that, no? No, what I would say to that is the commission's orders, in this case, were very much about making sure that that market produces real price signals. I mean, competitive, what is the competitive price? And it's a little hard for me to explain how it's visualized, but if you have too much new entry, which again, we're only talking about two and a half percent being new entry, but if you have new entry that is coming in at zero, price taking is coming in at zero. It's displacing resources that actually are needed by the market, that the price signal, a real price signal would say, this is what economic needs. Ischa-nomic the way in this context means that it can actually clear between the demand curve and supply curve that it can clear based on its actual costs? Well, this goes back to Judge Greenway's question. What is it between 2006 and 2011 that changed that made it so, Firk said, wait a second, we gotta worry about this uneconomic supply being dumped on the market. Well, it goes back to what I was saying about the same things were being sent in thousands. But the 2000 megawatts in a 10,000 megawatt market, you're so displacing actual economic needed by the market capacity that you're discouraging new entrance to the market who would be able to come in on a cost justified basis. And again, with a three-year forward market and the fact that you're only looking at gas-fired resources, that means they don't get built. The reason it's a three-year, the timing, as well as the price rules in this market, are shaped around gas-fired because they can be built quickly. So you do the market three years out. If a resource, if a new planned resource doesn't clear in that market, there's never any steel in the ground. Because that resource could be built in the three years to begin service at that time. So that's why the commission had said gas-fired resources can test the market. If they don't clear, they aren't even built. So, but we have this market. We're looking at just the two and a half percent of new stuff. We have people trying to make plans on that. Let's shift the entire curve over substantially by allowing so much price-taking, non-cost competitive, coming in at zero, it shifts the entire curve over, actually, I guess it shifts it this way. Things up here that would have cleared, don't clear, could be some existing resources that are still trying to recover their costs. It's probably new planned resources that will now never be built. And to visualize this, Mr. Estes was trying to do it on his arm and I'm just waving in the air. I didn't want to burden you with graphs, but I will just point you, should you want to look? On J-A-31-48 to 31-50, which is in the, the 2007 rehearing order on the prior one, there's some graphs. And it's not all relevant to you because it includes a vertical demand line that this was for the purpose of saying why the slope demand was better than the vertical for this purpose. But I've used this to visualize what it means when I'm saying stuff over here clears and stuff over here doesn't. When too much price-taking, zero dollar resources come in, they shift that whole curve. And that goes back to the site I had given you on the very last page volume one, the paragraph 28 in the second rehearing order that says assuring every unit with an adjusted unit, even this was in response to the load petitioners, even if we mitigate you, but then we guarantee you clearing. Every one of these things that clears the market could result in PGM rejecting the offer from a less expensive unit that otherwise would have cleared. And that's when you don't have a true price signal anymore. But the question is how is that analysis different in 2006 on the one hand and 2011 on the other? I think just based on the size of the truck that was heading for the loophole. And the commission was straightforward about that. When we said this in 2006, you didn't anticipate that this would be a 2000 megawatt hole? In a 10,000 megawatt market, that's right. You didn't. Right, I think that's right. Yeah. I mean, that's what the commission was saying. That that. So you didn't really believe you just know it or I'm sorry. No, no, I'm trying to figure that out. Okay, so I'm one of your advisors in 2006. Are I whispering to you? You know, there could be a 2000 megawatt issuers, this like a revelation in 2011. And that's what counts for. I'm not aware of what the specific morning was in 2006. I will say this because I we have I know that Maryland in particular thinks that the commission was was looking at the intent of the states. And I know that some of the other parties have made allegations about the intent of the states. And the commission said in paragraph three, I think of the first re hearing order that you were careful to distance yourself from that. But I think on that, they're a little troubled maybe because they may feel like they got led down the garden path. Because when you say who could have known, but that's a little like saying we never thought they'd actually do what we told them they could do. Well, go ahead and build some plants. And then they build start to do it. And you say that did you anticipate they were going to come in at zero? Well, was that a fair anticipation? I think I think whatever they would have been bringing in that the original rule would allow them to bring it in a zero. I'll point you to paragraph three in the commission's first re hearing order. In this case, that's November 2011 paragraph three on J a 105. Our intent is not to pass judgment on state and local policies and objectives. We are forced to act however when subsidized entry supported by one states or localities policies has the effect of disrupting the competitive price signals. So I think what I said about the truck coming toward the loophole, the extent to which it would distort the price signal was the reason. And that's what the commission said was the three. Thank you for the question. Thank you. Good afternoon, Holly Kfer for the commission. Lift the microphone, please. Thank you. Thank you. To back up just for a minute, I think it's important to reflect on the balancing that the commission has done here in these orders. As is evident, no one is happy and perhaps the same will hold true in 2013. I guess we don't know. But to move this to the point about the mitigation period, in particular there, the commission was dealing with competing proposals. And what it found was not only was the existing giant loophole in PGMs. Rule there, unjust and unreasonable, forcing the commission to act under 206 as opposed to 205. But none of the proposals before it would do the rule justice either. And yes, is there any recourse for a party like the states here when? Because what we've heard is the only thing that changed was a realization that the states are actually going to do this. And when they do it, it's actually going to affect the market. I mean, if I can, I certainly can understand, I think, that recognizing a problem is an important thing for an agency to do. But when you've told a party like a sovereign state, hey, do this if you want. And they actually do what you told them they could do. And then the federal agency says, not anymore. That's, there's just nothing for the state to do. They're just out of luck. I'm not as prepared as my colleague, Ms. Nata, to address those issues. I am intending to respond to the P3 issues. However, I won't let that stop me. And I'll just comment that the commission deals with every day, evolving market behavior in response to evolving markets. There was nothing evolving about this. There was a statement you can do this thing. They did that thing. And then you said, no, you can't do that thing. It's like a kids game of red light green light. And there's nothing that happened there that wasn't that it's hard to, it's hard to hear that nobody anticipated this when you said to the states, go ahead and do this. And then your reason for stopping them is to say, well, we can't let states one state do something to affect all of that. No, once you told the states, go ahead and do this. You had to anticipate that if any of one of them did it and came in under the price point, which they were surely going to do, they were going to come in and zero and be price takers, that it was going to affect everybody else. It's just a, it's a strange thing to hear the federal government come in and say, yeah, well, who knew? I believe Miss Santa reflected on the magnitude of the truck as she referred it to it. And, you know, that the commission wasn't driven primarily by that. But also that the commission here was acting under 205 where it's not necessarily comparing the existing rule against what was proposed to it. If the question is maybe what was there was just unreasonable, maybe something else would be just unreasonable. But what PJM is proposing here is also just unreasonable. There is a reason basis to now, now do this as opposed to the actual change itself. So I don't want to say that we're looking at things in reliance interests. You're relevant. Well, perhaps I should wisely turn to the issues that I'm actually prepared to address that are raised by P3 and PJM. Are you saying it's as easy as looking at what the commission can do? Resume to 205 on the one hand and 206 on the other? Is that what you're saying? The commission's role under 205 is more limited. Obviously, then it is under 206. And that and that does actually tie into the mitigation period issue that P3 and PGM have raised

. And it's not all relevant to you because it includes a vertical demand line that this was for the purpose of saying why the slope demand was better than the vertical for this purpose. But I've used this to visualize what it means when I'm saying stuff over here clears and stuff over here doesn't. When too much price-taking, zero dollar resources come in, they shift that whole curve. And that goes back to the site I had given you on the very last page volume one, the paragraph 28 in the second rehearing order that says assuring every unit with an adjusted unit, even this was in response to the load petitioners, even if we mitigate you, but then we guarantee you clearing. Every one of these things that clears the market could result in PGM rejecting the offer from a less expensive unit that otherwise would have cleared. And that's when you don't have a true price signal anymore. But the question is how is that analysis different in 2006 on the one hand and 2011 on the other? I think just based on the size of the truck that was heading for the loophole. And the commission was straightforward about that. When we said this in 2006, you didn't anticipate that this would be a 2000 megawatt hole? In a 10,000 megawatt market, that's right. You didn't. Right, I think that's right. Yeah. I mean, that's what the commission was saying. That that. So you didn't really believe you just know it or I'm sorry. No, no, I'm trying to figure that out. Okay, so I'm one of your advisors in 2006. Are I whispering to you? You know, there could be a 2000 megawatt issuers, this like a revelation in 2011. And that's what counts for. I'm not aware of what the specific morning was in 2006. I will say this because I we have I know that Maryland in particular thinks that the commission was was looking at the intent of the states. And I know that some of the other parties have made allegations about the intent of the states. And the commission said in paragraph three, I think of the first re hearing order that you were careful to distance yourself from that. But I think on that, they're a little troubled maybe because they may feel like they got led down the garden path. Because when you say who could have known, but that's a little like saying we never thought they'd actually do what we told them they could do. Well, go ahead and build some plants. And then they build start to do it. And you say that did you anticipate they were going to come in at zero? Well, was that a fair anticipation? I think I think whatever they would have been bringing in that the original rule would allow them to bring it in a zero. I'll point you to paragraph three in the commission's first re hearing order. In this case, that's November 2011 paragraph three on J a 105. Our intent is not to pass judgment on state and local policies and objectives. We are forced to act however when subsidized entry supported by one states or localities policies has the effect of disrupting the competitive price signals. So I think what I said about the truck coming toward the loophole, the extent to which it would distort the price signal was the reason. And that's what the commission said was the three. Thank you for the question. Thank you. Good afternoon, Holly Kfer for the commission. Lift the microphone, please. Thank you. Thank you. To back up just for a minute, I think it's important to reflect on the balancing that the commission has done here in these orders. As is evident, no one is happy and perhaps the same will hold true in 2013. I guess we don't know. But to move this to the point about the mitigation period, in particular there, the commission was dealing with competing proposals. And what it found was not only was the existing giant loophole in PGMs. Rule there, unjust and unreasonable, forcing the commission to act under 206 as opposed to 205. But none of the proposals before it would do the rule justice either. And yes, is there any recourse for a party like the states here when? Because what we've heard is the only thing that changed was a realization that the states are actually going to do this. And when they do it, it's actually going to affect the market. I mean, if I can, I certainly can understand, I think, that recognizing a problem is an important thing for an agency to do. But when you've told a party like a sovereign state, hey, do this if you want. And they actually do what you told them they could do. And then the federal agency says, not anymore. That's, there's just nothing for the state to do. They're just out of luck. I'm not as prepared as my colleague, Ms. Nata, to address those issues. I am intending to respond to the P3 issues. However, I won't let that stop me. And I'll just comment that the commission deals with every day, evolving market behavior in response to evolving markets. There was nothing evolving about this. There was a statement you can do this thing. They did that thing. And then you said, no, you can't do that thing. It's like a kids game of red light green light. And there's nothing that happened there that wasn't that it's hard to, it's hard to hear that nobody anticipated this when you said to the states, go ahead and do this. And then your reason for stopping them is to say, well, we can't let states one state do something to affect all of that. No, once you told the states, go ahead and do this. You had to anticipate that if any of one of them did it and came in under the price point, which they were surely going to do, they were going to come in and zero and be price takers, that it was going to affect everybody else. It's just a, it's a strange thing to hear the federal government come in and say, yeah, well, who knew? I believe Miss Santa reflected on the magnitude of the truck as she referred it to it. And, you know, that the commission wasn't driven primarily by that. But also that the commission here was acting under 205 where it's not necessarily comparing the existing rule against what was proposed to it. If the question is maybe what was there was just unreasonable, maybe something else would be just unreasonable. But what PJM is proposing here is also just unreasonable. There is a reason basis to now, now do this as opposed to the actual change itself. So I don't want to say that we're looking at things in reliance interests. You're relevant. Well, perhaps I should wisely turn to the issues that I'm actually prepared to address that are raised by P3 and PJM. Are you saying it's as easy as looking at what the commission can do? Resume to 205 on the one hand and 206 on the other? Is that what you're saying? The commission's role under 205 is more limited. Obviously, then it is under 206. And that and that does actually tie into the mitigation period issue that P3 and PGM have raised. And that is that the door was sort of open there because the commission had found that PJM's existing rule was unreasonable. PJM's proposal was unreasonable. The other proposals before the commission it also found wouldn't work. And so under 206, it had more leeway to do that here. That's drawing a contrast to what was done with the state exemption, if you will. And on the mitigation period, what the commission needed to do was adequately respond to the arguments before that. It did that. It doesn't need to respond to every single case that is raised before it or differences between PJM and every single other market. What it did here was explain that here resources are economic if they clear once. And by the way, it said the same thing in the New York case and even pointed that out in the Terra quarter at paragraph 16, note 87, JA 73. So in fact, we did actually mention the case. We didn't go into as much detail as P3 and Psy would. PSEG would prefer. But our response was adequate there. Bringing this around to Judge Randell's point about regional differences. The commission does as it did here in this brief and as it did in the orders rely on the regional differences in the markets and allow the parties to craft their own approaches. And I should mention here that it seems relevant to the continuing evolution of the markets that the commission is even holding a technical conference at the end of this month where it will be addressing capacity markets in general and minimum price rules and variations on that and other markets in general. What's your response though to the assertion that we heard from Mr. Estes that on the question of how to estimate those ancillary services that going with the highest cost in the LED distorts the market and you have ready right there available to you. Accurate data, which you refuse to use and that that is in and of itself. It's an arbitrary thing to not to not use the best data. What's the? I think Mr. Estes referred to that issue and also the mitigation period issue as a quibble himself and on that point, the commission is using an estimate there because it's looking for the price for a reference resource, not the specific unit that's bidding into the market. That's not the way that estimating the cost of new entry works. It's based on a reference resource. It's supposed to be an estimate and the commission said what I understand them to be saying is you can have better and worse estimates and we proposed for you a way that you could have a better estimate and you declined and chose to go with a worse estimate and you didn't really satisfactorily explain why worse is better than better. My understanding is that Mr. Estes' clients think that it would be a better estimate because it would result in more frequent triggering of the rule and what the commission did. You do have that accuracy. It would be more accurate. He really didn't talk about it. He would trigger more. So I think the best means he would talk about that. I was going more. I'm sorry. Is it more accurate? Is the highest more accurate than what he's proposing? Not in the sense that the commission is choosing an estimate of the revenues for a reference resource, not for any particular specific unit that might later after that reference resource and the cost of new entry has decided bid into the market. It's an estimate for a reference resource, a hypothetical unit. It's a hypothetical. So why choose a specific price or revenue estimate for a specific unit? Well, why choose the highest? Why choose the highest to avoid over-triggering the rule and subjecting units that? Well, I think that's his problem. He says triggering isn't the be-all in the end all. It's the accuracy of what you're using that you should concern yourself. The revenue estimate methodology that the commission is using is accurate. It's possible that P3's methodology could even, could be better, could be more accurate, but it doesn't need to be here under the commission section 205 burden. That's one response. The other one is that, again, it's a reference resource. It's intended to be an estimate. The commission even said that it doesn't need to be perfect. It needs to be a reasonably accurate forecast. And that's the first rehearing order of paragraph 20HAA113. So we're not going for extreme accuracy. What's your response to the assertion that you never really engaged with us? It didn't really meet our arguments. You just, there was an Ipsy Dixit. We're doing it this way because we can do it this way. Surely the commission didn't exhaust itself, I guess, on these issues. And it didn't go on and on for it for pages. But the commission did respond to the arguments raised by the parties. And in particular, in, I'm sorry, that paragraph that I referenced, 113. And also in the J.A. At 40 and 41, that's the tariff order at paragraphs 43 and 47. And that goes in particular to P3's argument that the commission didn't adequately address the consistency with the variable resource requirements curve, the VRR curve, which they assert was not adequately raised or which we assert was not adequately raised by them on rehearing. Again, that was that site is in the tariff order. The commission mentioned it twice. We don't think something more is required. Thank you. Thank you. Good afternoon. My name is John Shepherd. I'm here on behalf of the PGM Power Providers Group. And with the indulgence of public service selection and gas cooperation. I think I'd like to begin first with the courts. Very apt, targeted questions about what had changed about the market. But I'm going to start a little bit earlier than that and say that Judge Jordan in particular, I think that you are making a reliance argument that is even stronger than the petitioners have made. The state petitioners have made. And it is also a reliance argument that is unwarranted. All of us agree that the reason for the state exemption was to allow states to have proceedings, to build new capacity in response to documented valid capacity, under supply concerns, with PGM's involvement. As you know, these proceedings happened. PGM's IMM and the PINIT market monitor came in. Testified this was a very bad thing that they were doing. But the most important part of what's wrong, hold up. Let me start for a minute

. And that is that the door was sort of open there because the commission had found that PJM's existing rule was unreasonable. PJM's proposal was unreasonable. The other proposals before the commission it also found wouldn't work. And so under 206, it had more leeway to do that here. That's drawing a contrast to what was done with the state exemption, if you will. And on the mitigation period, what the commission needed to do was adequately respond to the arguments before that. It did that. It doesn't need to respond to every single case that is raised before it or differences between PJM and every single other market. What it did here was explain that here resources are economic if they clear once. And by the way, it said the same thing in the New York case and even pointed that out in the Terra quarter at paragraph 16, note 87, JA 73. So in fact, we did actually mention the case. We didn't go into as much detail as P3 and Psy would. PSEG would prefer. But our response was adequate there. Bringing this around to Judge Randell's point about regional differences. The commission does as it did here in this brief and as it did in the orders rely on the regional differences in the markets and allow the parties to craft their own approaches. And I should mention here that it seems relevant to the continuing evolution of the markets that the commission is even holding a technical conference at the end of this month where it will be addressing capacity markets in general and minimum price rules and variations on that and other markets in general. What's your response though to the assertion that we heard from Mr. Estes that on the question of how to estimate those ancillary services that going with the highest cost in the LED distorts the market and you have ready right there available to you. Accurate data, which you refuse to use and that that is in and of itself. It's an arbitrary thing to not to not use the best data. What's the? I think Mr. Estes referred to that issue and also the mitigation period issue as a quibble himself and on that point, the commission is using an estimate there because it's looking for the price for a reference resource, not the specific unit that's bidding into the market. That's not the way that estimating the cost of new entry works. It's based on a reference resource. It's supposed to be an estimate and the commission said what I understand them to be saying is you can have better and worse estimates and we proposed for you a way that you could have a better estimate and you declined and chose to go with a worse estimate and you didn't really satisfactorily explain why worse is better than better. My understanding is that Mr. Estes' clients think that it would be a better estimate because it would result in more frequent triggering of the rule and what the commission did. You do have that accuracy. It would be more accurate. He really didn't talk about it. He would trigger more. So I think the best means he would talk about that. I was going more. I'm sorry. Is it more accurate? Is the highest more accurate than what he's proposing? Not in the sense that the commission is choosing an estimate of the revenues for a reference resource, not for any particular specific unit that might later after that reference resource and the cost of new entry has decided bid into the market. It's an estimate for a reference resource, a hypothetical unit. It's a hypothetical. So why choose a specific price or revenue estimate for a specific unit? Well, why choose the highest? Why choose the highest to avoid over-triggering the rule and subjecting units that? Well, I think that's his problem. He says triggering isn't the be-all in the end all. It's the accuracy of what you're using that you should concern yourself. The revenue estimate methodology that the commission is using is accurate. It's possible that P3's methodology could even, could be better, could be more accurate, but it doesn't need to be here under the commission section 205 burden. That's one response. The other one is that, again, it's a reference resource. It's intended to be an estimate. The commission even said that it doesn't need to be perfect. It needs to be a reasonably accurate forecast. And that's the first rehearing order of paragraph 20HAA113. So we're not going for extreme accuracy. What's your response to the assertion that you never really engaged with us? It didn't really meet our arguments. You just, there was an Ipsy Dixit. We're doing it this way because we can do it this way. Surely the commission didn't exhaust itself, I guess, on these issues. And it didn't go on and on for it for pages. But the commission did respond to the arguments raised by the parties. And in particular, in, I'm sorry, that paragraph that I referenced, 113. And also in the J.A. At 40 and 41, that's the tariff order at paragraphs 43 and 47. And that goes in particular to P3's argument that the commission didn't adequately address the consistency with the variable resource requirements curve, the VRR curve, which they assert was not adequately raised or which we assert was not adequately raised by them on rehearing. Again, that was that site is in the tariff order. The commission mentioned it twice. We don't think something more is required. Thank you. Thank you. Good afternoon. My name is John Shepherd. I'm here on behalf of the PGM Power Providers Group. And with the indulgence of public service selection and gas cooperation. I think I'd like to begin first with the courts. Very apt, targeted questions about what had changed about the market. But I'm going to start a little bit earlier than that and say that Judge Jordan in particular, I think that you are making a reliance argument that is even stronger than the petitioners have made. The state petitioners have made. And it is also a reliance argument that is unwarranted. All of us agree that the reason for the state exemption was to allow states to have proceedings, to build new capacity in response to documented valid capacity, under supply concerns, with PGM's involvement. As you know, these proceedings happened. PGM's IMM and the PINIT market monitor came in. Testified this was a very bad thing that they were doing. But the most important part of what's wrong, hold up. Let me start for a minute. Didn't PGM representative actually testify during the New Jersey proceedings? Yes, he did. So you were in the loop. You went in. You talked with them about it. And you didn't say to him at that point, hey, don't do this. Right? Oh, no. PGM's independent market monitor went to New Jersey and to Maryland and said, what you are doing is very bad. New Jersey, what you're going to do is going to cost the market at least a billion dollars. And then subsequently, when Maryland, when Maryland acted, PGM's IMM said, now together, what you guys are going to do is crash the market by $3 billion. And the gains that you're going to get out of it are fractional compared to the damage that you're doing to everyone else. And there isn't a reason why utilities or states, other states should be responsible for subsidizing what you're now describing as non-economic things like job programs or environmental concerns. Can I ask you, the gains would be minimal because we're just talking about the smallest, the last 2% of capacity here. No, your honor, the net benefit to them would be on the order of $250 million. But the damage done to everybody else who's just in the market would be a thousand. And then this comes, I see, it looks like you're struggling for a joint appendix citation for this discussion. Judge Jordan, so would you please look at the testimony of Dr. Shanker at JAPage's 317-318. It doesn't actually have all of the IMM's testimony in it, but what it does is quote, liberally from it. And so that should get you what you need. So relevant pages you would want to look at. But this was an anticipated that this would be catastrophic. I very much want to turn to that point. But first, I want to make this point, and it's from the same pages of the joint appendix that I just gave you. We asked Dr. Shanker and his role as an expert. Is there a capacity problem in New Jersey? Is there a capacity problem in Maryland? Is there the lacking sufficient capacity they need to build a new reliability? These new units in order to accomplish reliability needs? Or are they really just trying to change the price? Any answer to the question? And there isn't a problem with, at the time, there was no problem with their lacking capacity. You asked a question about what changed. And Judge Jordan, I want to reverse the chronology that you gave about the way that we should do this problem. You ended with the state and about the fact things that were working well for 70 years and where are we upending everything. No, things were not working well for 70 years, which is why we got RTOs. 1996, Firk said, you know what? You guys are vertically integrated utilities. You're using your control over the transmission lines to try to prevent competition in generation. That's not going to work. You're going to have ISOs. Next thing we got as an evolution was RTOs. California blew up. And then it became very politically unpalatable for there to be all energy markets where people would accept wild swings up in price that would give accurate price signals. So they said, you know what? We're going to mitigate your energy and ancillary services maximum prices. This created what is called the missing money problem. The missing money problem is why we now have capacity markets. You have to pay suppliers who are marginal, peakers rarely used. Super hot days like today is when they get turned on. Otherwise they're sitting idle in order to make sure that they actually have a basis to keep going. And the shift between the imposition of market caps and the development of capacity markets, a lot of people said, well, we can't operate. We're going to shut down. And there were a lot of plants that started to close. So then we got a capacity market and people started to rebuild. What is, this is the, let me have you respond to something that the, this is I think, from the load, now it's the, it's the rural electric national rural electric power system. That was a nice fellow. Right. They say the bilateral market for capacities far more wide and deep than the three or four at RPM Construct. This is page 1926 in the joint appendix. The vast majority of LSEs generally cover the vast majority of their load obligations with owned capacity and long term contracts. In other words, what I understand that to be saying is not stuff that they acquire through the BRA. It is widely considered in fact to be irresponsible for LSEs to rely upon an RTO centralized market for more than a fraction of their electricity needs. So when I read this, I understood them to be saying the following. The history you just described of everyone with everybody dramatically and it costing too much pensumers. And there was, and then there was this problem with the cap and they moved to the short term market with a, like a literally vertical demand curve. And that wasn't working because price volatility. And so the BRA constructed downward sloping demand curve is brought into play. But in all of this, the aim was to try to at the top end, just like you said on the hottest days of the year, for example, when you needed some extra capacity to have actual extra capacity, this whole residual market was supposed to be a residual market. It was not supposed to take over the way LSEs planned for and built and developed generation and made long term plans. This is a case of the exception now turning into something that's turning around and swallowing the historical way in which these markets have operated. Are they wrong about that? We have a place where they operate like that, that way in the fixed resource requirement areas. People, their response to that is that's no answer at all because we can't function that way. That only works. There's one outfit on the whole planet that's situated to take advantage of that in economic way. So to say, oh, you've got the FRR rule, it's really to give the back to something serious. There was so much extra capacity that they could actually affect them like that by saying, so I guess one might ask if you think the MOPR isn't working well because it's never been triggered. Why do you think FRR is working well if it's triggered once ever? If one person will take advantage of it, why do you think that's a satisfactory out for these states and others who are saying we've got long term needs and we've always met our long term needs and the fact that we needed something to address the peak road problem doesn't mean that they should take away the purpose and work. On the purpose of the, and you've shifted ground apparently between the state exemption and the load exemption. And so I'm not sure which target you want to shoot at. Well, I want you to shoot at the general use stood up and I understood you correctly. You were taking issue with the assertion that I took from low petitioners argument, but I also understood to be basically something that was being said by parties more generally, which is we have to plan for our long term needs and we do that outside the context of the base residual auction. It's supposed to be a residual auction. We have long term needs that we plan for outside that and that PGM and FERC are forcing us into a situation where we can't do that because now in spite of what FERC said in 2004 about, don't worry, we're not going to let this turn into a cost based circumstance where PGM is running the whole market, that's exactly what's happening. You're on our irrespective of the title. I don't think that FERC's orders established in the market could be interpreted in any other way than that. We want to achieve the least cost, the least cost purchase of capacity that is going to satisfy reliability needs. That's the capacity side of the market, the same way that location and marginal pricing satisfies it on the energy and insularious services side. That's the objective

. Didn't PGM representative actually testify during the New Jersey proceedings? Yes, he did. So you were in the loop. You went in. You talked with them about it. And you didn't say to him at that point, hey, don't do this. Right? Oh, no. PGM's independent market monitor went to New Jersey and to Maryland and said, what you are doing is very bad. New Jersey, what you're going to do is going to cost the market at least a billion dollars. And then subsequently, when Maryland, when Maryland acted, PGM's IMM said, now together, what you guys are going to do is crash the market by $3 billion. And the gains that you're going to get out of it are fractional compared to the damage that you're doing to everyone else. And there isn't a reason why utilities or states, other states should be responsible for subsidizing what you're now describing as non-economic things like job programs or environmental concerns. Can I ask you, the gains would be minimal because we're just talking about the smallest, the last 2% of capacity here. No, your honor, the net benefit to them would be on the order of $250 million. But the damage done to everybody else who's just in the market would be a thousand. And then this comes, I see, it looks like you're struggling for a joint appendix citation for this discussion. Judge Jordan, so would you please look at the testimony of Dr. Shanker at JAPage's 317-318. It doesn't actually have all of the IMM's testimony in it, but what it does is quote, liberally from it. And so that should get you what you need. So relevant pages you would want to look at. But this was an anticipated that this would be catastrophic. I very much want to turn to that point. But first, I want to make this point, and it's from the same pages of the joint appendix that I just gave you. We asked Dr. Shanker and his role as an expert. Is there a capacity problem in New Jersey? Is there a capacity problem in Maryland? Is there the lacking sufficient capacity they need to build a new reliability? These new units in order to accomplish reliability needs? Or are they really just trying to change the price? Any answer to the question? And there isn't a problem with, at the time, there was no problem with their lacking capacity. You asked a question about what changed. And Judge Jordan, I want to reverse the chronology that you gave about the way that we should do this problem. You ended with the state and about the fact things that were working well for 70 years and where are we upending everything. No, things were not working well for 70 years, which is why we got RTOs. 1996, Firk said, you know what? You guys are vertically integrated utilities. You're using your control over the transmission lines to try to prevent competition in generation. That's not going to work. You're going to have ISOs. Next thing we got as an evolution was RTOs. California blew up. And then it became very politically unpalatable for there to be all energy markets where people would accept wild swings up in price that would give accurate price signals. So they said, you know what? We're going to mitigate your energy and ancillary services maximum prices. This created what is called the missing money problem. The missing money problem is why we now have capacity markets. You have to pay suppliers who are marginal, peakers rarely used. Super hot days like today is when they get turned on. Otherwise they're sitting idle in order to make sure that they actually have a basis to keep going. And the shift between the imposition of market caps and the development of capacity markets, a lot of people said, well, we can't operate. We're going to shut down. And there were a lot of plants that started to close. So then we got a capacity market and people started to rebuild. What is, this is the, let me have you respond to something that the, this is I think, from the load, now it's the, it's the rural electric national rural electric power system. That was a nice fellow. Right. They say the bilateral market for capacities far more wide and deep than the three or four at RPM Construct. This is page 1926 in the joint appendix. The vast majority of LSEs generally cover the vast majority of their load obligations with owned capacity and long term contracts. In other words, what I understand that to be saying is not stuff that they acquire through the BRA. It is widely considered in fact to be irresponsible for LSEs to rely upon an RTO centralized market for more than a fraction of their electricity needs. So when I read this, I understood them to be saying the following. The history you just described of everyone with everybody dramatically and it costing too much pensumers. And there was, and then there was this problem with the cap and they moved to the short term market with a, like a literally vertical demand curve. And that wasn't working because price volatility. And so the BRA constructed downward sloping demand curve is brought into play. But in all of this, the aim was to try to at the top end, just like you said on the hottest days of the year, for example, when you needed some extra capacity to have actual extra capacity, this whole residual market was supposed to be a residual market. It was not supposed to take over the way LSEs planned for and built and developed generation and made long term plans. This is a case of the exception now turning into something that's turning around and swallowing the historical way in which these markets have operated. Are they wrong about that? We have a place where they operate like that, that way in the fixed resource requirement areas. People, their response to that is that's no answer at all because we can't function that way. That only works. There's one outfit on the whole planet that's situated to take advantage of that in economic way. So to say, oh, you've got the FRR rule, it's really to give the back to something serious. There was so much extra capacity that they could actually affect them like that by saying, so I guess one might ask if you think the MOPR isn't working well because it's never been triggered. Why do you think FRR is working well if it's triggered once ever? If one person will take advantage of it, why do you think that's a satisfactory out for these states and others who are saying we've got long term needs and we've always met our long term needs and the fact that we needed something to address the peak road problem doesn't mean that they should take away the purpose and work. On the purpose of the, and you've shifted ground apparently between the state exemption and the load exemption. And so I'm not sure which target you want to shoot at. Well, I want you to shoot at the general use stood up and I understood you correctly. You were taking issue with the assertion that I took from low petitioners argument, but I also understood to be basically something that was being said by parties more generally, which is we have to plan for our long term needs and we do that outside the context of the base residual auction. It's supposed to be a residual auction. We have long term needs that we plan for outside that and that PGM and FERC are forcing us into a situation where we can't do that because now in spite of what FERC said in 2004 about, don't worry, we're not going to let this turn into a cost based circumstance where PGM is running the whole market, that's exactly what's happening. You're on our irrespective of the title. I don't think that FERC's orders established in the market could be interpreted in any other way than that. We want to achieve the least cost, the least cost purchase of capacity that is going to satisfy reliability needs. That's the capacity side of the market, the same way that location and marginal pricing satisfies it on the energy and insularious services side. That's the objective. If they're saying that they would like to build whatever they want to build to satisfy their own reliability needs and the way that they perceive them to be and not in the way that the market perceives them to be, that is perfectly fine. If they want to sell in the industry. When you say that this is what the market wants, this isn't this base residual market, this is in a real market. Is it? This is a real market in the sense of people walking in and commodities changing hand. This is a, it sounds like a sensible logical construct where you try to mimic market forces, but it's, I guess I'm struggling with what you're saying. It's different than other markets in the sense, because electricity is a very special kind of commodity. It's not tomato. It's not stinky. It has to be in perfect demand and as you've heard, balanced all the time and is not really commercially store all those people making some experiments along those lines of these days. As a result, unlike anything else, and I had to grapple with this like crazy when I was a clerk and dealt with my first case and then later on when I entered private practice, every other situation I'm in commercially, jeans, food, whatever, it does not operate by the law of one price. But I don't like to store one place. I get another place. That's not the way electricity works. It works according to the law of one price and as I'm understanding your concerns about how this is not a real market, I guess I'm saying it's unlike other markets, but it is absolutely a real market. People place very serious bets about which way the market is going to work out. I apologize when I, real is probably a bad word to use. I wanted you to. The VRR is a theoretical construct, is it not? It's not like there's a demand curve out there. You create a demand curve to mimic market forces so that you can create an environment in which price signals can help people make sound judgments about how and where to build capacity. Is that not true? That is correct. But no one is having a fight here about whether or not VRR curves as such are bitter bad things. That fight was well passed in the DC. I understand that. The point that I am trying to put to you in a question perhaps in artfully is you seem to be saying that this is a, this market, we had to do what we did in 2011 because things just weren't working and the story we're hearing from the other side is things were working. There was a way that they worked for seven decades and when we hit a place where things were problematic because of the way society had developed and the technology had developed that we needed to do something about a capacity or honor to make. It did not work. The price for all resources was too high. There was over build everywhere before paying for legacy trash that was built back in World War II and they were getting guaranteed costs for turn rates at 13%. The world was broken. If we didn't have water at 88 and create the kind of markets that we have right now, electricity prices would be through the roof. The great recession would be even worse. So it's PGM's position that these bilateral contracts, these long term supply arrangements, these decisions that states for example are making about how to avoid rolling blackouts. That that's all bad policy, bad decision making because the only game in town is the base residual auction and if you were sensible people you'd come here to our auction because that's where sensible decisions are made. I think at some point you have to make a decision about whether or not you believe that capitalism works whether the markets work or whether the markets don't work. With these, they are perfect. They are perfect decision. Mr. Shepherd about whether FERC means what it says when FERC assures people in 2006, don't worry, it's not going to become a centralized market under PGM's control based strictly on cost. That's FERC's language loosely translated hypothesis and go back and read it again. But that's what they assured people in 2006 when they signed off on this settlement and what I hear you saying is not so the centralized market, that's the only legitimate way for this thing to work. I'm saying it's the smartest way for it to work. If people want to go the FR route, they want to go the traditional route, they want to over build, they want their consumers to pay more, that's fine. But if the question is how are you going to get least cost capacity or at least cost energy or least cost-angular services, it's always going to be through the market. That's true. That's true. And FERC says what it said in 2006, we come back to the question of do we have an arbitrary and capricious problem? When they say we're going to have these outs for load bearing petitioners, for the load of petitioners, for automatic clearance, for states, for their exemption. We're turning to the arbitrary and capricious problem, two issues. And they're different with the state and they're different with the load. The first one is did states reasonably rely on this exemption that was built in or did they abuse it with respect to the load petitioners? It's a different question. Did the tariff not actually include this? It's been troublesome to hear you in great arguments that are better even than the one that's asking questions. Let's just say this, but what I'm worried about is that I keep hearing you say things like, so you want to return back to the days we had guaranteed clearing? We don't agree that there was guaranteed clearing. PGM doesn't agree there was guaranteed clearing. Not there's FERC. So that's not a return. Although I realize you were just articulating, I don't want to spend too much time on that. I guess I could spend a little bit of time asking what is confusing about the words, all cell offers in their entirety designated a self-supply, committed regardless of price. I guess we could spend some time trying to figure out what could possibly be ambiguous about that. But since we've got the load petitioner stuff set aside here for other reasons, that's probably not a sound investment of time. If you can help us with the one question that we've come back with several people on, what was different between 2006 and 2011 that made PGM's decision to go to FERC to try to persuade it to change its tariff just unreasonable? Well, I think it's been at a good point about the size of the truck. I do think it's fair to say that no one, people reasonably expect that folks are going to do things with a good heart. FERC went out of its way to try to explain that they were going to only look at non-intent based things. But there is a lot of money on the line, and I'm not prepared to be so polite and so diplomatic. You have alluded to it. It's clear to me that you and Judge Rendell, who's both alluded to this, are aware of the statements that were made by the New Jersey legislature that were made by Ms. Brand, for example, and her testimony to the New Jersey Board of Public Utility Control. Please, please read GA259, which includes excerpts from her testimony, because it is difficult to hear them talk about a lack of any evidence that there was an intent to depress prices when that is exactly what we see going on in the testimony. So, I disagree with the idea that there was a reliance here. I think that there was abuse here. This got signaled, quickly got signaled in the end of 2010, and we pounced on it as fast as we could. I wanted to point out, in addition, I don't know if this point sank in. There was not a lack of generation in either PGM or in Maryland. We talk about that in Dr. Shanker's testimony. Given your perhaps your clerks can help chase down the pages, they've already said them in the record. In particular, look at 317 and 318. But we have been arguing about capacity markets in stereo, in Iceland, England, and in PGM, now in the Midwest, I so, and the same issues keep coming up again and again. There's a new evolution every time. But what is very, very odd is to hear the claim being made in this case, oh gosh, we needed to build these new things because they're going to increase our reliability. Then sometimes there'll be some additions, oh, we're concerned about fuel mix, or maybe we're concerned about environmental things. The case that was going on in the DC Circuit at the very same time that all this was happening, Maryland Public Service Commission. For this, I'll point you to page 318 and join appendix at note 25 for the complete citation

. If they're saying that they would like to build whatever they want to build to satisfy their own reliability needs and the way that they perceive them to be and not in the way that the market perceives them to be, that is perfectly fine. If they want to sell in the industry. When you say that this is what the market wants, this isn't this base residual market, this is in a real market. Is it? This is a real market in the sense of people walking in and commodities changing hand. This is a, it sounds like a sensible logical construct where you try to mimic market forces, but it's, I guess I'm struggling with what you're saying. It's different than other markets in the sense, because electricity is a very special kind of commodity. It's not tomato. It's not stinky. It has to be in perfect demand and as you've heard, balanced all the time and is not really commercially store all those people making some experiments along those lines of these days. As a result, unlike anything else, and I had to grapple with this like crazy when I was a clerk and dealt with my first case and then later on when I entered private practice, every other situation I'm in commercially, jeans, food, whatever, it does not operate by the law of one price. But I don't like to store one place. I get another place. That's not the way electricity works. It works according to the law of one price and as I'm understanding your concerns about how this is not a real market, I guess I'm saying it's unlike other markets, but it is absolutely a real market. People place very serious bets about which way the market is going to work out. I apologize when I, real is probably a bad word to use. I wanted you to. The VRR is a theoretical construct, is it not? It's not like there's a demand curve out there. You create a demand curve to mimic market forces so that you can create an environment in which price signals can help people make sound judgments about how and where to build capacity. Is that not true? That is correct. But no one is having a fight here about whether or not VRR curves as such are bitter bad things. That fight was well passed in the DC. I understand that. The point that I am trying to put to you in a question perhaps in artfully is you seem to be saying that this is a, this market, we had to do what we did in 2011 because things just weren't working and the story we're hearing from the other side is things were working. There was a way that they worked for seven decades and when we hit a place where things were problematic because of the way society had developed and the technology had developed that we needed to do something about a capacity or honor to make. It did not work. The price for all resources was too high. There was over build everywhere before paying for legacy trash that was built back in World War II and they were getting guaranteed costs for turn rates at 13%. The world was broken. If we didn't have water at 88 and create the kind of markets that we have right now, electricity prices would be through the roof. The great recession would be even worse. So it's PGM's position that these bilateral contracts, these long term supply arrangements, these decisions that states for example are making about how to avoid rolling blackouts. That that's all bad policy, bad decision making because the only game in town is the base residual auction and if you were sensible people you'd come here to our auction because that's where sensible decisions are made. I think at some point you have to make a decision about whether or not you believe that capitalism works whether the markets work or whether the markets don't work. With these, they are perfect. They are perfect decision. Mr. Shepherd about whether FERC means what it says when FERC assures people in 2006, don't worry, it's not going to become a centralized market under PGM's control based strictly on cost. That's FERC's language loosely translated hypothesis and go back and read it again. But that's what they assured people in 2006 when they signed off on this settlement and what I hear you saying is not so the centralized market, that's the only legitimate way for this thing to work. I'm saying it's the smartest way for it to work. If people want to go the FR route, they want to go the traditional route, they want to over build, they want their consumers to pay more, that's fine. But if the question is how are you going to get least cost capacity or at least cost energy or least cost-angular services, it's always going to be through the market. That's true. That's true. And FERC says what it said in 2006, we come back to the question of do we have an arbitrary and capricious problem? When they say we're going to have these outs for load bearing petitioners, for the load of petitioners, for automatic clearance, for states, for their exemption. We're turning to the arbitrary and capricious problem, two issues. And they're different with the state and they're different with the load. The first one is did states reasonably rely on this exemption that was built in or did they abuse it with respect to the load petitioners? It's a different question. Did the tariff not actually include this? It's been troublesome to hear you in great arguments that are better even than the one that's asking questions. Let's just say this, but what I'm worried about is that I keep hearing you say things like, so you want to return back to the days we had guaranteed clearing? We don't agree that there was guaranteed clearing. PGM doesn't agree there was guaranteed clearing. Not there's FERC. So that's not a return. Although I realize you were just articulating, I don't want to spend too much time on that. I guess I could spend a little bit of time asking what is confusing about the words, all cell offers in their entirety designated a self-supply, committed regardless of price. I guess we could spend some time trying to figure out what could possibly be ambiguous about that. But since we've got the load petitioner stuff set aside here for other reasons, that's probably not a sound investment of time. If you can help us with the one question that we've come back with several people on, what was different between 2006 and 2011 that made PGM's decision to go to FERC to try to persuade it to change its tariff just unreasonable? Well, I think it's been at a good point about the size of the truck. I do think it's fair to say that no one, people reasonably expect that folks are going to do things with a good heart. FERC went out of its way to try to explain that they were going to only look at non-intent based things. But there is a lot of money on the line, and I'm not prepared to be so polite and so diplomatic. You have alluded to it. It's clear to me that you and Judge Rendell, who's both alluded to this, are aware of the statements that were made by the New Jersey legislature that were made by Ms. Brand, for example, and her testimony to the New Jersey Board of Public Utility Control. Please, please read GA259, which includes excerpts from her testimony, because it is difficult to hear them talk about a lack of any evidence that there was an intent to depress prices when that is exactly what we see going on in the testimony. So, I disagree with the idea that there was a reliance here. I think that there was abuse here. This got signaled, quickly got signaled in the end of 2010, and we pounced on it as fast as we could. I wanted to point out, in addition, I don't know if this point sank in. There was not a lack of generation in either PGM or in Maryland. We talk about that in Dr. Shanker's testimony. Given your perhaps your clerks can help chase down the pages, they've already said them in the record. In particular, look at 317 and 318. But we have been arguing about capacity markets in stereo, in Iceland, England, and in PGM, now in the Midwest, I so, and the same issues keep coming up again and again. There's a new evolution every time. But what is very, very odd is to hear the claim being made in this case, oh gosh, we needed to build these new things because they're going to increase our reliability. Then sometimes there'll be some additions, oh, we're concerned about fuel mix, or maybe we're concerned about environmental things. The case that was going on in the DC Circuit at the very same time that all this was happening, Maryland Public Service Commission. For this, I'll point you to page 318 and join appendix at note 25 for the complete citation. What was the complaint of New Jersey and Maryland in that case? I mean, this is just flit because of what happened to follow before the other one. It was that they were being told they had to pay for too much. You can go ahead and know who needs all this damn extra capacity that you're making us buy. You made us pay $2 billion more than we needed to pay in order to keep our lights on. Where are they getting the assertion that they were being told by you folks? You're going to face rolling brownouts if you don't do something. Because you heard Ms. Tustin up and that's for opening line to us. Yeah, and I'll be conned and say it's inaccurate or ill-informed. The whole basis for the decision in the Maryland PSE case, the reason for that is that there's a wonderful graph in the briefs there that says, here was where your capacity was before the RPM started and then boom, here's this fan, multi-colored rainbow fan of all the new things that have been added. Now that you got the, now that you have it, the fact is they've got the capacity that they need now. What they're saying now is we think we're paying too much. The other thing that changed your honor is that after we had capacity markets, people began to observe how they operated. We get the results published. We see the price separation between the different location of deliverability areas. We see the price separation between the different cones. And there's sometimes radical differences. First energy closed down seven plants last two years ago and there's 150 point price difference in their capacity prices. When you begin to get very specific data about what the clearing prices really are and exactly how much people need, exactly how much you need to do in order to manipulate the market. And that is why I think this happened. I can't jump into their heads. I think that the public testimony speaks for itself about why they did what they did. I think that the complaints, this is somehow unduly discriminatory because they didn't do the same thing to Wyndon Solar are utterly without merit when you consider the fact that those resources globally throughout PGM are less than one half of 1% of all the megawatts there when you want to drop a 1000 or 2000 one entity thing which completely obliterate all renewables together in one location. Now, this was not reasonable alliance, this was abuse. And I don't mean to be undiplomatic by saying that but I think that's what the record shows. And if people want to look to testimony of Chairman Zarian or they want to look to other post-hoc things like the nice cleanup that New Jersey did and it's last version of its version of the bill once we alerted them to all the things that were going to cause prevention issues, then I don't think those can be credited. And this is not some small problem. Well, it is on this case. There's a parallel case that raises exactly the same issue in the D-circuit right now about Iso-Nuangland. There's a prevention case that's already been argued in waiting for decision in New Jersey. Premchant case in federal district court in Maryland already been argued a waiting decision. The state case in Maryland and the preemption case just started today while we're making this for a long time. This is not some small thing. So you're saying this could have been in the fourth circuit or the D-C circuit? We were worried about it. We were worried about it. But I hope that I have answered your question. I don't think there's reasonable alliance here. Thank you. I don't know. P.J. and last but not least. It's a culprit. P3. I guess it seemed like a good idea at the time to come in to tariff. Good afternoon, Mayor. Please the court, Paul Flynn, on behalf of P.J. and Miner-Connectionale, I'll see. Let me correct a misimpression that I was hearing about a significant change in policy or philosophy from 2006 to 2011. This has, from P.J. and his perspective, this has always been about reliability and continues to be about reliability. What the RPM market says is that we are trying to determine a way that we can create a market in P.J. and that supports through competitive revenues, the construction of new capacity, when and where it is needed. That's what drives everything that we're talking about here. We are trying to make sure that the price signals that this market sends will support the construction of new capacity that only relies on the revenues in our market. If you are a resource that is not lucky enough to have some state providing you and out of market payment, we want to make sure that you get enough revenue from our market that you can be built when and where we need you. That's what this has always been about. There wasn't a shift from 2006 where, oh my gosh, we're worried about reliability to 2011. We were only worried about cost. We were worried about offers below, new entry offers below net cost from the very beginning, and that's what's always driven this market. There was a mopper from the very beginning. For it said, in approving the mopper as part of the 2006 capacity settlement, that it was designed to prevent self-supply offers from suppressing the price by offering in and below what it would actually cost to build a new power plant. That has always been the case. I would say that what has changed, we had a comprehensive settlement in 2006 that addressed the great number of issues. PJM looked at the state exemption and said, there will be an opportunity for us to participate. This is something we can live with. But after 2006, we saw the experience in New England where there was a great deal of out-of-market activity. There were new plants being supported by payments outside of their capacity market. So it was really bringing the price and their capacity market down, such that it was clear that it was not going to be able to support independent new generation, which is what we're trying to do. So we saw that experience. And then we also saw the discussions going on in New Jersey and Maryland about doing something very much like that, which came to a head, I guess, with the passage of this law in New Jersey at the end of 2010. And to get to the alliance interesting, we acted very quickly as that thing was moving forward, such that we got a filing into FERC within a month and a half after they passed their law to say in which they directed their commission to go forth and undertake this process. So our filing was before FERC, proposing to change these rules while they were going through their process. So again, it wasn't that much of a alliance interest. And again, the... Well, when you say there wasn't that much of a alliance interest, there was four years of alliance and sovereign legislature moving through a process and a third party being drawn in. I mean, stuff was happening based on the exemption that PGM had supported, right? Well, there were no state-sponsored new entry projects that triggered the mover during this entire time

. What was the complaint of New Jersey and Maryland in that case? I mean, this is just flit because of what happened to follow before the other one. It was that they were being told they had to pay for too much. You can go ahead and know who needs all this damn extra capacity that you're making us buy. You made us pay $2 billion more than we needed to pay in order to keep our lights on. Where are they getting the assertion that they were being told by you folks? You're going to face rolling brownouts if you don't do something. Because you heard Ms. Tustin up and that's for opening line to us. Yeah, and I'll be conned and say it's inaccurate or ill-informed. The whole basis for the decision in the Maryland PSE case, the reason for that is that there's a wonderful graph in the briefs there that says, here was where your capacity was before the RPM started and then boom, here's this fan, multi-colored rainbow fan of all the new things that have been added. Now that you got the, now that you have it, the fact is they've got the capacity that they need now. What they're saying now is we think we're paying too much. The other thing that changed your honor is that after we had capacity markets, people began to observe how they operated. We get the results published. We see the price separation between the different location of deliverability areas. We see the price separation between the different cones. And there's sometimes radical differences. First energy closed down seven plants last two years ago and there's 150 point price difference in their capacity prices. When you begin to get very specific data about what the clearing prices really are and exactly how much people need, exactly how much you need to do in order to manipulate the market. And that is why I think this happened. I can't jump into their heads. I think that the public testimony speaks for itself about why they did what they did. I think that the complaints, this is somehow unduly discriminatory because they didn't do the same thing to Wyndon Solar are utterly without merit when you consider the fact that those resources globally throughout PGM are less than one half of 1% of all the megawatts there when you want to drop a 1000 or 2000 one entity thing which completely obliterate all renewables together in one location. Now, this was not reasonable alliance, this was abuse. And I don't mean to be undiplomatic by saying that but I think that's what the record shows. And if people want to look to testimony of Chairman Zarian or they want to look to other post-hoc things like the nice cleanup that New Jersey did and it's last version of its version of the bill once we alerted them to all the things that were going to cause prevention issues, then I don't think those can be credited. And this is not some small problem. Well, it is on this case. There's a parallel case that raises exactly the same issue in the D-circuit right now about Iso-Nuangland. There's a prevention case that's already been argued in waiting for decision in New Jersey. Premchant case in federal district court in Maryland already been argued a waiting decision. The state case in Maryland and the preemption case just started today while we're making this for a long time. This is not some small thing. So you're saying this could have been in the fourth circuit or the D-C circuit? We were worried about it. We were worried about it. But I hope that I have answered your question. I don't think there's reasonable alliance here. Thank you. I don't know. P.J. and last but not least. It's a culprit. P3. I guess it seemed like a good idea at the time to come in to tariff. Good afternoon, Mayor. Please the court, Paul Flynn, on behalf of P.J. and Miner-Connectionale, I'll see. Let me correct a misimpression that I was hearing about a significant change in policy or philosophy from 2006 to 2011. This has, from P.J. and his perspective, this has always been about reliability and continues to be about reliability. What the RPM market says is that we are trying to determine a way that we can create a market in P.J. and that supports through competitive revenues, the construction of new capacity, when and where it is needed. That's what drives everything that we're talking about here. We are trying to make sure that the price signals that this market sends will support the construction of new capacity that only relies on the revenues in our market. If you are a resource that is not lucky enough to have some state providing you and out of market payment, we want to make sure that you get enough revenue from our market that you can be built when and where we need you. That's what this has always been about. There wasn't a shift from 2006 where, oh my gosh, we're worried about reliability to 2011. We were only worried about cost. We were worried about offers below, new entry offers below net cost from the very beginning, and that's what's always driven this market. There was a mopper from the very beginning. For it said, in approving the mopper as part of the 2006 capacity settlement, that it was designed to prevent self-supply offers from suppressing the price by offering in and below what it would actually cost to build a new power plant. That has always been the case. I would say that what has changed, we had a comprehensive settlement in 2006 that addressed the great number of issues. PJM looked at the state exemption and said, there will be an opportunity for us to participate. This is something we can live with. But after 2006, we saw the experience in New England where there was a great deal of out-of-market activity. There were new plants being supported by payments outside of their capacity market. So it was really bringing the price and their capacity market down, such that it was clear that it was not going to be able to support independent new generation, which is what we're trying to do. So we saw that experience. And then we also saw the discussions going on in New Jersey and Maryland about doing something very much like that, which came to a head, I guess, with the passage of this law in New Jersey at the end of 2010. And to get to the alliance interesting, we acted very quickly as that thing was moving forward, such that we got a filing into FERC within a month and a half after they passed their law to say in which they directed their commission to go forth and undertake this process. So our filing was before FERC, proposing to change these rules while they were going through their process. So again, it wasn't that much of a alliance interest. And again, the... Well, when you say there wasn't that much of a alliance interest, there was four years of alliance and sovereign legislature moving through a process and a third party being drawn in. I mean, stuff was happening based on the exemption that PGM had supported, right? Well, there were no state-sponsored new entry projects that triggered the mover during this entire time. There was no case in which they came to us with a new entry offer, a plan new entry offer, and we were involved in commenting on that. Maybe it could have been an option. There was a state law passed at the end of 2010, which initiated, which told the New Jersey VPU to do this process in 2011, which they started to do. And while they were doing that in order to clarify the rules, we said, we better get in. What did PGM think was going to happen? In 2006, when this settlement was struck, and it included the exemption, what did PGM think was going to happen? Yeah, I may be impossible to go back and recreate that. It's tough, because you're looking at a total package settlement that does a lot of things including the slope demand curve, the locational pricing, three or four. These are all huge things that we got on the summit. And I think we anticipated that whatever happened, it wouldn't be enough of a problem, and we'd be able to live with it. It was that level, it was friendly at that level. You'd heard the complaints from P3 and other power providers prior to this becoming the rule, right? We knew that that was potentially a risk. We thought it would be manageable, but then we saw that our own market monitors saying, look, this is a $3 billion problem, and we also have the experience, you know, experiences, a great teacher of what happened up in New England, where they were having a real problem with the level of, with their attempt to do something similar, which is to set up a market that could support independent new entry to provide competitive capacity, when and where it was needed. And that was the essential thing. So what you're telling us is, yes, there are differences between the world as we knew it in 2006, and the world as we knew it in 2011. We were constantly monitoring the market, and our assessment was over that period of time. There were different things that occurred that informed us that change was necessary. Yeah, what brought it to, and frankly, it hadn't been an issue because there wasn't any such state-sponsored new entry on the table until this process, which moved very quickly at the end of 2010 at the state level, started to have these proposals. And frankly, among PGM, it caused some considerable harm, because we were looking at, oh my gosh, this is really going to destroy what we're trying to do with these price signals in this market. And so those folks who are dependent on this market for the revenue in order to do new entry won't be able to do it, and that is a major reliability concern. Yeah, this state will take care of itself, but what about the rest of the region? If we've got a market that doesn't provide those price signals, then we've got a serious problem, and we need to let everybody know that, look, we can't let that happen. So we're going to get in front of FERC as quickly as possible while you guys are still thinking about this to make clear this is how we want to change the rule. And frankly, the processes moved in parallel. Our filing was on with submitted February 11, 2011. They started to do their process, roughly contemporaneous with the time of FERC had this proceeding before. We can send you a proposal. And you line up the times as being pretty roughly the same time. Are you talking about their building or their contracting process? Now, the state said directed the New Jersey DPU to hire consultant to do a study and take offers from new capacity. And then select one of those offers and then direct them to clear in PGM's market and also accept this contract for differences, which would say, OK, whatever you don't get from the PGM capacity market, if your actual cost or higher will pay the difference. And so it directed them to do all of that. And so what was going on in the first quarter of 2011 was they retained the consultant. They decided what the offer, the parameter for the offer should be that they were soliciting. They got those solicitations. The consultant did a report. That was all happening in the first quarter of 2011. So again, the key consideration there is that it was always about reliability. The marginal resource sets the price for everybody. The last resource to come in sets the price that all other generators are paid and sets the price that loads after that. And so it's always about making sure that you're matching up all the loads with all the supply. So it has always been the case contrary to the portrayal. This is, oh, this was always about don't let PGM put everything in the market from the time we initiated RPM. OK, everything was in the market. And I gave you some citations to the reliability insurance agreement that said that everybody has to pay the reliability charge all loads. Even if you've done your own deal, you have to pay our reliability charge. You can also offset some of that by putting stuff into our auction clearing and being paid. But that's subject to all the rules of participation of the auction, including the rule that you can't offer new entry below the cost to build it. Thank you. We'll now hear rebuttal and we're going to keep it pretty tight. If that's OK with my clients, just make your make your points or else the emotional distress level will be ratcheted up even higher. And we let you have a little more to all of you have more time in your main items. So just hit hit your high points. Good evening. Are you already used 10 seconds? I got it. All New Jersey was trying to do was avoid the blackouts. PJM said we had to worry about and lessen reliance on old coal plants and not pay twice in doing so. In doing that, we relied on rules that FERC had found were reasonable and consistent with the federal power act. This was a fail safe provision to address a specific problem. We bargained for it. It was approved. PJM, which now says, gee, we didn't know what was going to happen called respectful, reasonable and balanced and said they understood why the states wanted it. Now, there's been a lot of talk about a barreling truck, a New Jersey barreling truck. To be clear, there's no analysis in the FERC orders of what the New Jersey resources would do to prices. As to whether it would shift it on the curve and whether they were uneconomic, New Jersey went through a competitive RFP process to select those resources. They wore the least cost resources to meet the criteria that New Jersey had. There was nothing uneconomic about them. There's been a lot of talk about New Jersey's intent. There was no finding in the FERC order as to New Jersey's intent. There's no finding that New Jersey didn't meet the requirements of the exemption. Remember what happened. Instead of making a finding FERC might have said, look, you didn't meet the requirements. P3 and all these people say there's no capacity shortfall. That's not what happened here. Instead, what happened is FERC eliminated the exemption, which is implicitly finding that New Jersey had met the requirements. And that instead of allowing New Jersey to have the rights at bargain for, FERC took them away. Finally, one final point. There's a lot of concern by FERC about shifting on the curve and what's going to happen. Keep in mind that the same time that PJM came in and proposed eliminating the exemption, it proposed additional exemptions for wind and solar facilities. There's nothing in the record about what those facilities cost, whether they're economic or not, how many of them are going to be built, and what impact that would have on the curve. And it's completely inconsistent to say that New Jersey couldn't have those gas resources, but you can build wind and solar till the cows come home. If you're worried about a barreling truck, FERC has announced in that decision that there could be a convoy of trucks containing wind and solar barreling down the highway. My time's up. Thank you. Thank you

. There was no case in which they came to us with a new entry offer, a plan new entry offer, and we were involved in commenting on that. Maybe it could have been an option. There was a state law passed at the end of 2010, which initiated, which told the New Jersey VPU to do this process in 2011, which they started to do. And while they were doing that in order to clarify the rules, we said, we better get in. What did PGM think was going to happen? In 2006, when this settlement was struck, and it included the exemption, what did PGM think was going to happen? Yeah, I may be impossible to go back and recreate that. It's tough, because you're looking at a total package settlement that does a lot of things including the slope demand curve, the locational pricing, three or four. These are all huge things that we got on the summit. And I think we anticipated that whatever happened, it wouldn't be enough of a problem, and we'd be able to live with it. It was that level, it was friendly at that level. You'd heard the complaints from P3 and other power providers prior to this becoming the rule, right? We knew that that was potentially a risk. We thought it would be manageable, but then we saw that our own market monitors saying, look, this is a $3 billion problem, and we also have the experience, you know, experiences, a great teacher of what happened up in New England, where they were having a real problem with the level of, with their attempt to do something similar, which is to set up a market that could support independent new entry to provide competitive capacity, when and where it was needed. And that was the essential thing. So what you're telling us is, yes, there are differences between the world as we knew it in 2006, and the world as we knew it in 2011. We were constantly monitoring the market, and our assessment was over that period of time. There were different things that occurred that informed us that change was necessary. Yeah, what brought it to, and frankly, it hadn't been an issue because there wasn't any such state-sponsored new entry on the table until this process, which moved very quickly at the end of 2010 at the state level, started to have these proposals. And frankly, among PGM, it caused some considerable harm, because we were looking at, oh my gosh, this is really going to destroy what we're trying to do with these price signals in this market. And so those folks who are dependent on this market for the revenue in order to do new entry won't be able to do it, and that is a major reliability concern. Yeah, this state will take care of itself, but what about the rest of the region? If we've got a market that doesn't provide those price signals, then we've got a serious problem, and we need to let everybody know that, look, we can't let that happen. So we're going to get in front of FERC as quickly as possible while you guys are still thinking about this to make clear this is how we want to change the rule. And frankly, the processes moved in parallel. Our filing was on with submitted February 11, 2011. They started to do their process, roughly contemporaneous with the time of FERC had this proceeding before. We can send you a proposal. And you line up the times as being pretty roughly the same time. Are you talking about their building or their contracting process? Now, the state said directed the New Jersey DPU to hire consultant to do a study and take offers from new capacity. And then select one of those offers and then direct them to clear in PGM's market and also accept this contract for differences, which would say, OK, whatever you don't get from the PGM capacity market, if your actual cost or higher will pay the difference. And so it directed them to do all of that. And so what was going on in the first quarter of 2011 was they retained the consultant. They decided what the offer, the parameter for the offer should be that they were soliciting. They got those solicitations. The consultant did a report. That was all happening in the first quarter of 2011. So again, the key consideration there is that it was always about reliability. The marginal resource sets the price for everybody. The last resource to come in sets the price that all other generators are paid and sets the price that loads after that. And so it's always about making sure that you're matching up all the loads with all the supply. So it has always been the case contrary to the portrayal. This is, oh, this was always about don't let PGM put everything in the market from the time we initiated RPM. OK, everything was in the market. And I gave you some citations to the reliability insurance agreement that said that everybody has to pay the reliability charge all loads. Even if you've done your own deal, you have to pay our reliability charge. You can also offset some of that by putting stuff into our auction clearing and being paid. But that's subject to all the rules of participation of the auction, including the rule that you can't offer new entry below the cost to build it. Thank you. We'll now hear rebuttal and we're going to keep it pretty tight. If that's OK with my clients, just make your make your points or else the emotional distress level will be ratcheted up even higher. And we let you have a little more to all of you have more time in your main items. So just hit hit your high points. Good evening. Are you already used 10 seconds? I got it. All New Jersey was trying to do was avoid the blackouts. PJM said we had to worry about and lessen reliance on old coal plants and not pay twice in doing so. In doing that, we relied on rules that FERC had found were reasonable and consistent with the federal power act. This was a fail safe provision to address a specific problem. We bargained for it. It was approved. PJM, which now says, gee, we didn't know what was going to happen called respectful, reasonable and balanced and said they understood why the states wanted it. Now, there's been a lot of talk about a barreling truck, a New Jersey barreling truck. To be clear, there's no analysis in the FERC orders of what the New Jersey resources would do to prices. As to whether it would shift it on the curve and whether they were uneconomic, New Jersey went through a competitive RFP process to select those resources. They wore the least cost resources to meet the criteria that New Jersey had. There was nothing uneconomic about them. There's been a lot of talk about New Jersey's intent. There was no finding in the FERC order as to New Jersey's intent. There's no finding that New Jersey didn't meet the requirements of the exemption. Remember what happened. Instead of making a finding FERC might have said, look, you didn't meet the requirements. P3 and all these people say there's no capacity shortfall. That's not what happened here. Instead, what happened is FERC eliminated the exemption, which is implicitly finding that New Jersey had met the requirements. And that instead of allowing New Jersey to have the rights at bargain for, FERC took them away. Finally, one final point. There's a lot of concern by FERC about shifting on the curve and what's going to happen. Keep in mind that the same time that PJM came in and proposed eliminating the exemption, it proposed additional exemptions for wind and solar facilities. There's nothing in the record about what those facilities cost, whether they're economic or not, how many of them are going to be built, and what impact that would have on the curve. And it's completely inconsistent to say that New Jersey couldn't have those gas resources, but you can build wind and solar till the cows come home. If you're worried about a barreling truck, FERC has announced in that decision that there could be a convoy of trucks containing wind and solar barreling down the highway. My time's up. Thank you. Thank you. Your Honor, I just want to address a couple of points quickly. Ms. Banta described the New Jersey and Maryland programs as trucks barreling down the highway. The fact is the size of the state mandated entry is dictated by the size of the reliability problem. If a smart car or a Prius addresses the problem, that's what Maryland will be getting, not a Hummer and not a truck, because the state exemption, all that is justified under the state exemption is the amount of reliability that's needed to address the shortfall. Mr. Flynn talked about concerns about price signals in the market, and Judge Jordan, you correctly pointed out this was designed to be a base residual auction. This was not designed to be the be all and end all capacity in the region. Mr. Shepherd of P3 talked about Mr. Shanker's evaluations of capacity problems. Mr. Shanker is P3's expert, and it's not Mr. Shanker's role to determine whether there's a capacity problem. That role is the role of the Maryland Public Service Commission, a similar state agencies, to determine what is needed in the state. As a reminder, Maryland considered developing view resources because there was a reliability need that PGM first identified. The undisputed fact is that despite very high prices in the capacity market in constrained parts of Maryland, so basically the Baltimore Washington corridor, the Eastern Shore, these regions have seemed some of the highest prices in all of PGM, and yet no new generation was being built in response to PGM's price signals, no new resources to address the very real need in those regions. I think at bottom it comes down to the fact that RPM is a short-term market, and Maryland has to look at the long-term. Maryland has to look at reliability five years, 10 years, 15, 20 years down the road to ensure reliability for its citizens. And one final word about harm is true, even without the state exemption, Maryland could develop new resources. But without that exemption, there's a very real risk that our citizens will have to pay twice for that capacity, because if the new entry doesn't clear. But that would just be in the first year, right? Correct, but it's a very real, it's still a very significant risk for our citizens. And I think you're correct that we were led down the garden path to Jordan that we relied on this exemption. We understood that we would be able to address our reliability concerns. And one final final word, Ms. Danta, suggests in that this new entry is displacing resources in the market that are truly needed. That's not the case, as we've said, the problem is exactly the reverse. We're developing these new resources because we've seen high prices in Maryland and new new generation coming in to address that need. Okay, thank you. Thank you very much. I just like to address the mootness issue. And I want to, if I may, read a passage from Shays and Mehan versus Federal Election Commission 414 Fed 3rds 76 at 90. And it says, although the FEC Federal Election Commission insists that the congressman, the plaintiffs happen to be congressman, and it happened to be a political obvious. We got it. It's too late in the afternoon. Although the FEC insists that the congressman must demonstrate that specific rivals have exploited each challenge rules, our cases hold that when adverse use of illegally granted opportunities appear inevitable, affecting parties may challenge the government's authorizations of those opportunities without waiting for specific competitors to seize them. And they cite two fur cases, Louisiana Energy Power Authority, the FIRC 141 F3364 at 367, associated gas to servitors, the FIRC at 899 F21230 at 1259. There are all DC circuit cases. The point that I'm trying to make is that the guaranteed clearing elimination remains in existence. The fact that someone wasn't cleared in a particular, someone cleared in a particular year doesn't take away the fact that those opportunities will continue to happen year after year under both the 2000 F3364. Under the 2006, under the 2011, under the 2013 changes, and that is a risk that is harmed us. We are injured. Do you have a challenge to the 2013 matter pending? No, it's still on rehearing Judge Jordan, which means until you're seeking the process. It's in process. Yes, it's still at the commission level. So I'll try to bring it up here because I know how much fun you've had today. Okay. Ms. Kaffir talked about the one year two year issue and my argument about the nicer case. She pointed to two pages of paragraphs, both the dry holes for her. The first is 70A73. I call that out. They explained that we cited it. They cited the wrong paragraph. Then you look at the reasoning and they never addressed it. She mentioned a passage at J-136 where the commission talked about markets can be different. That's where Hess, if you look at it, someone was saying they have to be the same. And if Koshka was saying no, there was no reason engagement of our argument on the issue. So two with the highest of, you were right, Judge Rendell, they never explained the highest of. Ms. Kaffir talked about the fact that we were modeling a hypothetical resource. Well, PGM's original approach was to say, hey, here's a hypothetical resource and here's the zone where it's located. That might at least, if random, be symmetrically wrong one way or the other. PGM went and changed it and said it's the highest, which is always wrong in a direction that hurts the outcome. And that was never explained, never addressed by the commission. They just simply whipped it. Thank you. And thank you for your indulgence for everyone. Thank you, your case as well, argued. We're taking our advice when we have asked that the parties arrange for a transcript to be made of this argument. Someone could contact the clerk's office and we were asked that you share the expense of that. Thank you very much. Thank you. Thank you.

Good afternoon. Let me ask at the outset if the order that we established is workable. If it isn't and you prefer to do something different, we're open to suggestions. I'm prepared to proceed on the basis in the court's order. All right, that's fine. And you can reserve her bottle of fuel. I'd like to reserve two minutes for her bottle. Thank you. May I proceed your honor? Yes. May I please the court? I am Scott Strauss and I'm counsel to the New Jersey Division of Wake Council. I'm here today on behalf of the New Jersey Petitionist Group. And I've joined that council's table by Alex Moro, who is a deputy attorney general, and is who would hear on behalf of the Petitionist New Jersey Board of Public Utilities. In the electric utility industry, making decisions about future generation resources involves more than money. As the cheapest option may not satisfy environmental goals or avoid over dependence on a fuel type or technology source or promote local economic development. Weighing these considerations is called resource planning. And in the Federal Power Act, Congress left that job to the States, which have always regulated retail electric service, including deciding. Yes, your basic argument been met in part by the DC Circuit's opinion in the Connecticut public utilities case where they said, look, FERC can regulate directly prices. So it can regulate indirectly prices. And accordingly, you don't have a complaint that they're outside their jurisdiction when they're doing the kind of thing that they're doing here. Your Honor, yes, we do. Because what's wrong with the DC Circuit's reasoning? Nothing. The DC Circuit's reasoning is fine. We don't think what FERC did in our case matches the DC Circuit's reasoning. Because they explain why. They make sure. Because in the DC Circuit case, what the court said was, the States get to decide how to meet their capacity obligations. FERC sets the number and the States have the options to decide what to do. Those are choices the States make, and they may have natural impacts on the outcome. What that means is, if the States decide not to build any additional resources, that may constrict the supply and raise the price. They flood the market with resources that may lower the price. But either way, the States get to make those choices. And FERC is saying, you still get to make the choice. You just don't get to offer your supply into the residual auction on a subsidized basis. You can build a power plant if you want, knock yourself out. You just don't get to subsidize in the auction. Well, but what FERC is doing through applying an economic test, and remember only in the context of gas resources, not as to anything else. So only in the context of new gas resources, the resources that the State of New Jersey saw as necessary to meet a problem that they identified after hearing from PGM that there would be rolling blackouts in New Jersey. Based on that, New Jersey identified gas resources as those. FERC has said, if you want to build those, you have to meet an economic criterion. If you want to build wind, solar, hydro, nuclear, whatever you want, go right ahead. We're not worried about price suppression. We're only worried about your price suppression. And that's the script. Well, that doesn't sound like an argument going to the exercise of discretion, not to the question of jurisdiction. It sounded to me like you were starting out making jurisdictional argument, and you've shifted your ground now, and you're complaining about how they exercise their jurisdiction. No. Would you acknowledge that they've got the jurisdiction to say you can make whatever plans you want, but here's the parameters in which you have to offer your supply into the auction. Our argument is that they do not have the jurisdiction to dictate to the States how they need capacity obligations. They can deal with the rate impacts of those choices. If the State of New Jersey builds gas resources, and FERC wants to do something to mitigate the price and the capacity auction, that may be an option available to them, assuming they can do so in a way consistent with the statute. Why should the States have been given this benefit in the first place? Seems to me it was something that was possibly agreed upon in 2006 as a carrot or for the settlement, but why should there be an exemption? Their exemption should be there, Your Honor, because the Federal Power Act provides that FERC does not get to regulate matters left to the States. And both FERC and the Supreme Court have said on numerous occasions we haven't noticed. Well, then you'd complain that they gave the State exemption in the first place. That seems to me to be having given something that maybe they're not entitled to do. Now they're just equalizing the playing field. No, no, the exemption that we had in the original market design met our concerns because it allowed the States in the instances in which they found a capacity deficiency to take action, to try to address that deficiency, and to be sure that they could use those resources to meet the deficient. One problem I have is I do not understand, I don't understand, I don't understand how the States have been harmed. I see no data about, we're never going to build power plants again, this is horrible. If you're going to make an argument that FERC has done something dastardly, we've got to back it up to my mind, they're requiring you to be efficient and economical in what you do. They're only requiring us to be efficient and economical if we build gas. Well, but now you're getting into the discrimination. They have their reasons as to why gas. Clearly the briefs are full of reasons as to why gas is different, whether you buy it or not. Let's just talk about the harm that has been visited upon you. Did you clear in the auction? Two of the three plants cleared, one of them did not. So 600 megawatt gas plant that New Jersey wanted to have built to meet its needs for now and into the future will not be built. When you say, is that always going to be an issue? Some clearance, some not. I mean, other entrants into the market, they'd be having the same issue. It would not be an issue for the states because the states have the authority to select in the instances of the exemption when there is a capacity deficiency, which by the way, FERC never found that New Jersey hadn't met the conditions of the exemption. FERC eliminated the exemption. Yeah, but here's the thing, and I apologize if I'm being obtuse, but I'm still not understanding your answer on this, Mr. Strauss. Am I right that FERC didn't say, and PJM didn't ask him to say, listen, don't build any gas-fired power plants. What they said was, if you're going to build gas-fired power plants and you're going to subsidize them, then you can't offer that into the market, into the auction, without facing the same mitigation that everybody else does. Am I right that that's what they said, not don't build power plants? No, what they said was, if you build a gas-power plant and you have a state-sponsored program to do that, you can offer it into the auction, but you alone of all the resource types will be required to meet a mitigation standard. All the other resource types will be permitted to bid zero and will clear the auction. Okay, so you're back. I'm just saying your complaint is with how they've exercised. Maybe I'm having a difficult time following you, but it sounds to me like what you're saying is, they have unlawfully discriminated and they're not supposed to do that. Well, not, they're not allowed to tell us the terms on which we participate in the auction. It's an excellent question. It actually addresses both. For sure, they're not allowed to discriminate. We also take the position that we have the jurisdiction under the Federal Power Act to decide how we meet those capacity obligations. And that's what that exemption is about. It protects that right. We were invoking that right and relying on it to build the plants. And therefore, we've had an entitlement to have those plants clear in the auction at a zero price. That's another piece that's missing here is this reliance piece. That's really not, it's really not scratch. Let me ask you another question. I mean, aren't the very contracts that you entered into? Evidence that FERC had reason, if you were going to come in and artificially lower the price, and that's what the contracts provided, FERC had to react to that. The contracts did not provide for artificially lowering the prices you're on. You said in your brief that you were price takers. I mean, you acknowledged it's your price takers, which means that no matter what the price is, you were going in anyway. Yes, of course, because we felt we had a capacity deficiency and had to meet that. We needed to have the resources clear to be able to use them. In that regard, FERC had wanted to regulate the price impact, the rate impact of that decision, because they thought that that had some unfair impact on the price. They could have done that, but that's not what they did. That's what they're saying they did. Unless I completely misunderstand this case, their assertion is the assertion from the Connecticut case out of the DC Circuit. They're saying we could have told you this is the rate, but instead of doing that, we've set up this auction system, and we're telling you the basis on which you can participate in the auction. You build your plan if you want. We're not telling you not to, but if you do, and you subsidize it, you're not coming into this auction without being mitigated. Now, how is that different in a meaningful sense than a rate? It is not a rate regulation. It isn't because what they're doing is not regulating rates. They're resetting offers. And in this case, a zero offer is an offer not to buy from the auction. The auction is a residual last resort device. If you can't procure something anywhere else, you have the auction. It was never intended to be, it never intended to be the only arbiter of whether or not you got to use capacity resources. Here, FERC has completely transformed the game. You're not going to hear me necessarily disagree with that, but it doesn't sound to me like a jurisdictional argument. Mr. Stras, it sounds like you don't like the way they exercised the jurisdiction. That's right. So you say they've completely transformed the game. If they had transformed the game in a way that allowed all three of your plans to clear, I presume you'd have no problem. We might not have a problem today because the plants had cleared. But this regimen will restrict us into the future assuming it's not changed. So whatever happens, they have no right to change the rules of the game. No, of course they do your own. Certainly they do. They have a right to change them as long as their changes are consistent with their authority on the Federal Power Act. The point of our concern and the thrust of our concern is that they are involving themselves and interfering in state decisions about resource planning and how you meet capacity obligation. But here's what I don't understand. I would think that you'd have a better argument if none of the plans cleared. I don't understand the fact that two of them cleared and one of them didn't leave you in an untenable position. Well, at least it's in an untenable position because 600 megawatts that New Jersey wanted built to ensure its power supply needs to be there. No, I understand you have a bad capacity. Well, I mean get that. But sure, but you know, this song says two out of three ain't bad. None. None work here. Okay. So tell me why it doesn't work here because all of those plans should have cleared and the test that they established, a cost-based test for these resources is an inappropriate standard. It's not the way in which the market was to work. So your argument is just across the board. They have no authority to not at all your own. They have authority over the rate impacts of our decisions, but that's not what they did here. They didn't set rates. Listen, I'm really eager to have you distinguish because you've said we're different from this DC circuit case. Here's the case. Well, it says the commission made directly established prices for capacity or much the same prices for failing to acquire enough capacity, even for the express purpose of incentivizing construction new generation facilities. And you don't disagree with that. You've said they can do that, right? Then the court says that the commission may do so directly, would seem to include the power to do so indirectly by setting a target for capacity demand and using a market mechanism to locate the price appropriate to that quantity. How is that not exactly this case? How? It's not this case because what the court also said in the Connecticut case was that states can make choices about how to meet their capacity obligations without federal interference. And that those choices will have impacts on the market and that those impacts are natural. Here, remember, FERC is going the opposite direction here. In the Connecticut case, what was going on was the state of Connecticut was free to make choices about how much or any actor knew it was free to make choices about how much got built or not got built. That would have an impact on the supply, which would have an impact on the price. Here, FERC is saying, we, New Jersey, we don't want you to have that impact. So we're going to reach upstream and we're going to skew your choices. We're going to tell you if you want to build gas units, you're not going to be able to even get them into our auction unless they meet this price test. That's different. It is also discriminatory and it is not the Connecticut case. The Connecticut case actually goes our way, as we said in our case. But if you're not objecting to the price, you're not objecting to the FERC is not saying don't go in. Your argument is the price effect makes it harder or less favorable to go in. I don't think so, Your Honor. What FERC is saying is if you want to try to build these new gas plants and only new gas plants and get them into the auction, you will have to meet a cost criterion. Otherwise, we won't accept them. That's contrary to what RPM is about. We believe that's contrary to their jurisdiction to impose that. We think the Connecticut case is consistent with that. So it's a different argument where FERC could have regulated the rate outcome here, but that's not what they did. They reached upstream and they regulated the state's choice. And that's where we think they crossed the jurisdictional trip. All right. I'm going to hear from you. Thank you. Good afternoon, then may please the court. This is Anna Chu representing the Maryland Public Service Commission. The Maryland Public Service Commission has a statutory obligation to keep the lights on throughout the state of Maryland. This is a responsibility that the public service commission takes very seriously. So when PJM came to the commission in 2007 and 2008 and said that Maryland could be looking at rolling blackouts and brownouts beginning in 2011, if capacity shortfalls were not addressed, the commission listened and took steps to address that problem. After putting in place temporary measures, Mr. Chu, can I ask you the degree or disagree with the assertion by New Jersey Council, Mr. Strauss, that that FERC was just outside its jurisdiction here? We support the position of Mr. Strauss and New Jersey, but we also believe that even if the court decides that FERC was acting within the jurisdiction, the decision still should be vacated because FERC decided arbitrarily and capriciously to eliminate the state exemption. Okay, and your assertion that it was arbitrary and capricious is based on the fact that what, they changed the rule, right? But they gave a reason for it. Well, respectfully, Your Honor, we don't agree that FERC provided an adequate reason for it. When FERC adopted the rule in 2006, FERC specifically found that the state exemption was just and reasonable because it, quote, enables states to meet their responsibilities to ensure local reliability. They, sure, and then they get five years experience with the auctions and PJM comes forward and says, we're concerned and it seems like it's, you know, it looks like the facts are, the P3 folks come in and say, hey, there are about the subsidized bunch of stuff in the auction, don't let them. And, and PJM says, yeah, to FERC, don't let them. And FERC says, well, we think that is a problem. We think that subsidies on those levels would be a problem. That it would distort the price signals and it would foul up what we're trying to do here. So I guess we won't let them. If that's the route that this took, why isn't FERC allowed to identify that there's a change, except that there's a change, give a reason for the change and implement it? Well, Your Honor, I appreciate the very good size summary of what happened. But I, I have to submit that FERC didn't provide a real reason for the change. The five years of experience in the capacity auctions, nothing changed except for the fact that Barrelin started considering doing exactly what the rule contemplated. Marlon began thinking that the rule contemplated that the states would come in at artificially low prices. No, well, that's no, no, absolutely not. But isn't that what was predicted to happen and the knowledge that PJ MP3 and FERC were operating under? No, Your Honor, there is absolutely no showing whatsoever that the Marlon Public Service Commission was coming in, was intentionally coming in and seeking to suppress prices in the capacity market. Well, what were you going to do? Were you going to come in at cost? And is so? No, there's no problem. No, the issue, Your Honor, is we think that that the other side respectfully is trying too hard to focus only on cost. No, but that's the reason that they set up. I asked Mr. Strauss, then you're saying that FERC does not have the ability to say this is going to be cost-based. We're going to require everyone to be economical. You're not just attacking your own situation, you're attacking the whole premise of their view of how the market, how to get the market to operate in a proper way. Are you not? Your Honor, actually, I apologize I'll get to that in one minute. I should have asked to reserve two minutes for a bother. I apologize. But no, I mean, would you have come in at cost? The planning exactly was to not come in at cost, right? Exactly. Well, the expectation is that the new generation resource, realistically, a new generation resource is going to be more expensive than some of the other resources in the market. It is true that a new gas-fired, cleaner gas-fired resource will be more expensive to bring online than the whole reaction is still there. There are resources to go to FERC and ask for a specific situation and appeal to them on that basis. The only thing you're not getting now is an automatic exemption. Right, a couple items there, Your Honor. This is by no means an automatic exemption. The exemption has some very important and significant safeguards built into it. The exemption itself says that it only exempts plan generation capacity resources, developed in response to a state regulatory or legislative mandate to resolve a projected capacity shortfall. As determined, pursuant to a state evidentiary proceeding that includes do notice, PGM participation and an opportunity to be heard. I don't think anybody is questioning that Maryland and New Jersey walk through this, or at least I don't recall reading it in the masses of paper that were given to us, disputing that people in Maryland and New Jersey, the regulators didn't walk through those steps. The only issue I think that we're dealing with with the states is could FERC properly change the rule, change its mind? I mean, get acknowledged that it was changing it, and it gave a reason for why it was changing it. Now, you can disagree as to whether it's as well supported as you'd like, but they seem to have said, hey, we recognize what we're doing here is different from what we said before, but we think there's a real risk to the price mechanism. And that's why we're making a change. And I guess the question I'm trying to put to you is in the broad discretion these folks have, how does that fall outside it? Right, no, I understand your honor. The issue here is that we don't believe that FERC adequately supported its decision. Its basis for changing its mind was nothing more than supposition and conjecture. And this is supposition and conjecture that was actually raised to FERC back in 2006. So, and FERC at the time said to the generators who raised these concerns, and these are to stay in generators. Sure. That are here and seeking to keep prices up in the market. Right, is it enough though for them to say, believe me, I can, I think I can appreciate to some degree the frustration that the states are expressing. And I'm just saying with having relied on this rule, having invested themselves, having encouraged other people to invest, to have FERC come in and say on the basis of the same things as you point out that we're said in 2006, oops, changed our minds. But, but is there something in the law that prevents them from changing their mind? From saying, well, that seemed like a good idea at the time, but we're concerned about what this is going to do to our base residual auction setup. If you are allowed on a large scale to be dumping capacity in that quote, un-economic, unquote. Well, so, as a couple of things there, Your Honor, I think the law that prevents FERC from doing this is Supreme Court of Third Circuit precedent that says that when an agency departs from established precedent, it has to announce a principled reason for that reversal. Otherwise, its action is arbitrary and capricious. And I think the issue here with FERC's decision, so it hasn't explained its reversal. And also it has said that there's concern about cross suppression. Right. Curvels? Well, it's unsubstantiated. It's unsubstantiated and flies in the face of the substantial evidence that the Maryland Public Service Commission entered in that we relied on this exemption. It's good faith because the market wasn't working for us. Well, isn't it just an instance where you're looking at the same data, some of which is theoretical and you're just coming to different conclusions? I think that's a fair questioner, but no, it's not just a matter of looking at data. It's also a matter of looking at the evidence, as a matter of looking at what has happened in the market. There has been no evidence of the fact that you haven't been, I mean, in a sense that it had to be theoretical because while the exemption was in place, it's only when you folks started to actually turn it into something real and the power providers complained again that things changed. And then they said, you know what? I guess you may be right. You power provider folks. If these people come in with subsidized offers, it will distort the price signals. And that will, is problematic enough that we shouldn't have this exemption. Now, I grant you that it doesn't look and I've looked. I haven't seen that there was anything that they couldn't have anticipated in 2006 that's different in 2011 except it changes from maybe this will happen to wait. This is actually going to happen and it's going to wreck things. And maybe bigger quantity. There's some reference to thousands of megawatts. I don't know whether the impact is bigger. But the real question is, as they look at that change or see change however you want to explain it, why are they not empowered to make come to a different conclusion? Yeah, make a change. What should we say you're precluded from this because? Right. No, I understand a concern. I mean, let me just correct one. Let me just make one statement. We're not looking at Maryland is not going out there and knocking itself out building new plants just for the sake of it. There was a deliberate process where Maryland found that there was a specific reliability need. And after the record closed, Maryland determined that a new plant should come online to meet that need and it was narrow is limited to that specific need. We're talking 400 megawatts instead of thousands of megawatts. Oh, excuse me, like 600 megawatts. So in the in judge Greenway going to your question. Firk is constrained by the administrative procedure act and the federal power act. It has to decide on based on substantial evidence that there is substantial evidence is actually a very low threshold. It sounds you'd be surprised in immigration while you think substantial evidence is actually very low. But the point is they looked at what they looked at and they came to the conclusion that there are that there's a legitimate concern about suppression of prices. If there were a continuance of the blow cost capacity offers and allowing the states to continue as they were. Why can't they when looking at that data, looking at the arguments come to a different conclusion and say we need to change? Right. The issue though is that when you look at the underlining data, when you look at what the generator submitted, what PJM submitted, I think your orders, respectively, you will see that. But none of that evidence actually creates a causal connection between new entry into the PJM market and prices in the market that are not just a reasonable. There's nothing connecting these two. So Firk really, Firk relied on circular logic and just presumed that the state mandated resources are quote unquote un-economics. Well, they can presume that New Jersey admitted and I assume you would have to as well that your subs that you're going to be price takers. You're going to you're going to be price takers. You're you're you've made the arrangement and the arrangement is we're subsidizing you go in, take whatever it is. Isn't that in that kind of that's not made up that's in that's baked in in it? Right. Well, your honor, respectfully Maryland does not concede that the entry is un-economic. I mean, there are many benefits to new generation to a state to a state such as environmental benefits and. Well, I suppose we could get into the semantics of what it means to be un-economic, but in this context, the use of that term seems to be strictly talking about whether it's an actual cost justified. Or a subsidized price at which one is offering their capacity into the market. If we stick with that, Maryland, just like New Jersey was planning to build a plant. And then is it CPV? I remember the initials right. That's correct. CPV your other. CPV was going to was going to go in take whatever the price was. Didn't matter to them because they were going to get subsidized by Maryland, right? Well, just to clarify that the word subsidies a little, it's used very loosely here. List back up a little bit. Our opponents are looking at cost solely on the basis of the price in a single year of an option. The reality is that a resource may be economic over the length, the term of the contract or maybe economic in several years, you know, after after a resource clears in the option. There's no reason to believe that the cost in one particular year reflects whether it's economic. But the meaning of the word economic again. But that also means that whatever harm you might be claiming in year one, the market is not static. Right. I mean, their view is we need to address this now because we're not just thinking about your one. We're thinking about your two, three, four. And this is our reaction to the market forces that we're looking at. Right. So I still come back to my question is, you know, what precludes them from doing that? Well, you're out of with the Maryland Public Service Commission is here looking at years, you know, one, two, three, four and beyond, ensuring reliability for its citizens. I think the bottom line is that looking at just cost in that one year, this is not the approach that it's not the approach that for took in 2006. And there is no reason, no reason in the record for for to have deviated from that approach now. We submit that there is no reason basis for a decision should be vacated. All right. We'll hear from you on the phone. Thank you. You're correct. Well, there is now. Thank you. Good afternoon, Your Honors. Dennis Lane. I'm certainly you may need to pull that. Thank you. Thanks. Okay. I'm representing the load petitioners. They are a group of their group of nonprofit consumer owned load serving entities who are obligated to serve their customers with reliable, affordable power over the long term. I've asked for two minutes for rebuttal. I won't surprise you that I'm going to attempt to answer your question from your order the other day. You raised two issues. First, whether the refusal, whether we were harmed by the commission's refusal to adopt our arguments in the 2011-12 auctions. And then if not, whether we have an injury that's reversible in this proceeding. And let me back up a little. Are you satisfied with the May 2013 change in the self-supply regime with the tests? No, Your Honor. The answer is simply out of contact. That's not question number one. Yeah. That actually. I apologize. You were going to start and tell us whether you've got an actual injury. Was there any point in time after 2011 up till today when they're proposing to do something different yet again? Where this change actually affected the load petitioners? Yes, Your Honor. There. I'll just come to a place in the record of J.A. 2579. There's a statement by Patrick McCullough, who is the president and CEO of, we call it DMACC. It's one of the petitioners Delaware Electric Municipal Cooperative. He talks about in the 2011 auction his problems. Now, I don't want to confuse you. It isn't under the self-supply. The 2011 auction was still under what was called the unit mitigation. And he was brought in to be mitigated. His testimony, I'll summarize it all there. He indicated that the market monitor would require what wanted to said, look, even though you're a co-op and you have, Mr. McCullough came in and said, look, my costs of financing are low because I'm a co-op in the market monitor said, oh, that's a subsidy. And I'm going to bump you up. If the market monitor had bumped him up to the finance cost that the monitor wanted to use, he would not have cleared the market. But they wrangled for a while and Mr. McCullough was able to get it down somewhat. So in fact, he did clear the market. But I know Judge Jordan, you're saying, well, he cleared the market. So where's your harm? The harm, your honor, is what we consider the chilling effect of this kind of mitigation process on our ability to finance and to bring on load that we need, capacity that we need. You have to point to something, Mr. Lamb. I understand there might be a sort of an intentional inflection of emotional distress argument that you're making. But it's an odd thing to hear in this context or we might have that claim actually. So what can you point to that says between 2011 when they made this change and today when they're proposing to make another change, something happened where we had a loss that the function differently than it had pre 2011, we can point to it and we can say this was the problem. Got nothing? That's okay. No, I, well, I think Mr. McCullough, there is an issue that the problem that we're raising here, remember, is that not there's no guaranteed clearing that has been removed. We're not claiming anything about what we call the mover mitigation. I'm not, I'm not suggesting that if this didn't continue on the 2011 program, there might not be a problem. But right now, here's how it appears to me, Mr. Lane, you correct me if I'm wrong. We're bookended. We've got pre 2011, now we've got post May 2013. And that's the period of time within which this no automatic clearance for self-supply regime was in place. If what you're telling me is that in that period, the one, the, the most dramatic thing you can point to as affecting load petitioners is there was this episode with the Delaware folks and where they had to wrangle to get their supply cleared, that's okay. In the context of the 2011 auction, yes, but the premise of your question is not correct. It is. Because remember what we're asking for is the return of guaranteed clearing and that has not changed. You're saying what we call it in furkland is it's a locked in period. There was a locked in period. And you know, the rate was this and then a change at this point. And so you're just talking about that finite period of time. But we're talking about the guaranteed clearing. And that can be done. Don't you have the self self. Don't you have to make an argument or a pitch about the 2013. How can we? What, what good does it do for us to say that 2011 idea was a bad one because they're an answer to that is, well, we're not doing that anymore. We've got this other thing and you haven't made any arguments to. With the May 2013 amendment. The same clearing but with tests, right? Exactly. What's wrong with the test? The same thing that was wrong with the 2011. It can't be the same thing because they've re instituted certain things. I mean, it's a different regime and there's. And believe me, I'm not looking for more briefing, but there's no briefing in this case that would direct itself to why 2013 as opposed to pre 2011 represents an abuse of discretion. The only thing you folks have argued is 2011. This elimination of automatic clearance for self supply. They were, they didn't recognize that they were changing the route rule. And therefore what they did was unsupported in, you know, et cetera, et cetera. I think I understand your argument, but I expect the here maybe they'll surprise me, stand up and say, well, we're not doing that anymore. So they didn't. I don't know more of the mood. Give you judge Jordan than that. They did not eliminated the guarantee. I'm sorry. They didn't need to see elimination of the guaranteed clearing in the 2013. All right, but that's that's neither that's either here today. Okay, it was there at one point. They've made a change. They've made a change so that there be more. The more integrity, let's say to the cost features of the auction. So the guarantee clearing means people are coming in clearing at any price. And that they decided that's not that's not going to work. So now they put in a 2013 in amendment that provides for clearing with a test. Test that really I'm led to believe again, we don't have briefing accounts for are you a net taker and that buyer? What you know, who are you yourself supply? But are you coming in just for a small amount so that you know, it really is just a small amount that's not going to have an impact? How is that test? Not appropriate and how is it that it will continue to harm you? Okay. Judge Drendel, I just want to move back a little bit because even with guaranteed clearing, we were always subject to what I call the mover. So that's what I call the mover mitigation. In other words, if we came in and are okay, we did zero and we cleared. And we guaranteed to clear we whatever we bid, we cleared. But then the prices were adjusted for the remaining auction so that there was no effect on the price. That was the regime in 2006. So there wasn't somehow this change in 2011 that price mitigation came in. We were we the LSEs have always been subject to that. The question that is separate from the question of guarantee clearing. But there's an explanation in the record. It's two pages. I can see it, but I can't remember what pages they were. They talked about how even if you were you were mitigated still it prevented the market. It prevented some of the low cost bidders to to be chosen. If you're right and I don't remember the page, but that's exactly the sense of the commission's answer. And our response is that's that's an option that people have all the time in the markets. You can choose a you can choose to buy a product that's more costly than another product. That's your choice. That's our consumers choice. They made a choice to build this load. And they are supporting it for whatever reasons. And I would add not to go back to an argument that both you and Judge Jordan seem to be concerned about. We don't agree with the commission's definition of economic. What as you say, Judge Randell, are we close enough? Are we small enough in the net short? That shouldn't be the only thing that they look at. So the return of guarantee clearance. Wouldn't solve your problem. Would solve our problem, Judge Green. Entirely. Would solve our problem because then we would not have the risk. The problem that we have is the risk that we won't clear if we don't clear. That means we can't guarantee, I want to say guarantee this bad word. We can't go to our finances and say, hey, look, here's the package we have together. Part of it is capacity and we know we're going to clear. And so we're going to get that cost. The finances are going to say, no, you don't get it. Look at what FERC did. And then we're not going to be able to build. And we may have foregone opportunities. However you want to put it, but that is the problem that we have. That's what we have all along. What's your articulation of why FERC can't do that? Is it any different than your co-counsel? Our articulate. I will not say I'm not going to. They argued very well. I'm going to make my own argument, Judge Greenway. I think that what we say is the problem with the commission's decision is that it said, look, the issue here is the prices are going too low. We're not getting enough capacity. Let's pretend that's valid. We don't agree it is, but let's pretend it's valid. What we say is there are two conditions. As I said, you have the guaranteed clearing on one side and you have what I call moper mitigation. And you've always had moper mitigation. That solves the problem because it keeps the price up in the market. You keep the price up even though you're guaranteed clearing. So what we're saying, the commission is wrong. It looked at guaranteed clearing, which has nothing to do with the pricing. And instead it had a perfect. It had a perfect vehicle for solving the market mitigation problems with the moper repricing. It should have just continued to use that and allowed us to have guaranteed clearing. Well, that's that's what you'd like to have. But I thought that your argument was, and please correct me if I've got you wrong, I thought your argument was different from the states in this important respect. You seem to be arguing that unlike for extreme of the automatic state exemption, when it came to the automatic clearing, I'll be it with mitigation for the load petitioners, that FERC didn't even acknowledge that it was changing the rule. It pretended that it was a clarification. PGM said, we're just clarifying this. And FERC bought it and said, yeah, we're just clarifying it. When it wasn't just clarifying it, it was doing something different. And in fact, doing something different in the face of 70 years, a history of how the load supply and entities do their business. And it constituted a radical change with no acknowledgement that it was a radical change. And because of that, they could not be said to have rationally approached this, and thereafter the fact excuses about it don't meet their burden of proof under 205 to show that PGM had, I should say, that PGM carried its burden of proof that this was just unreasonable. That's what I thought you were arguing. If I'm wrong about that, tell me. I couldn't have said it better. Okay, great. Now, if that's what you're arguing, that is what you're arguing. And now we're in 2013, and they say, you know what, we're changing this. And we're giving a rationale for changing it. We're doing something different. We're not going to give them automatic clearance, but we're going to recognize that there's value in what the LSEs are doing to meet their long-term capacity needs. And so we're just going to focus more than we had before on what we are concerned about deliberate market manipulation. So we're going to put a sort of a modified net short test back into the mix. If that seems to be what they're saying, if that's the case, don't all your arguments about arbitrary and capriciousness go out the window because now they are acknowledging a change, they are giving a rationale for it. They're doing something different, and they're acting within the broad scope of their discretion. Now, because what they're saying, it's the same problem that they had the first time. How is it the same problem? If your problem before was, they didn't even acknowledge a change. And now they're acknowledging it, justifying it, and telling you see how it works. It isn't... This time is they've changed the test. They actually haven't changed the test. They've added a new test. They still have the unit test, which they had previously, and then they added the self-supply. And so if we have self-supply, and we're in LSE, and we need the conditions, and we're net... When they're not narrow, net short, net long range, then yes, we have an exemption. But what that does, again, is it goes back to mitigating crisis. Yeah, I know you don't like it, but I'm struggling with mootness here. That's what I'm working with, and I'm trying to draw you out on it. You're making arguments about what they did do. Now they got something different going on, and I understand you still don't like it. I just don't understand how the arguments you've made about 2011 are responsive to what's happening in 2013. Well, I guess one answer is you're on, and you came out with your order on Friday. I mean, I'm happy to brief it if you're on, and explain some of the differences, but I'm sure I saw Judge Randell's pile. So we're back to intentional inflection of a motion. You're going to sit down, but while you're sitting down and enjoying the afternoon with us, can you think about 514H4 and how it relates to the questions that Judge Jordan was asking me? I could answer it right now, Judge Greenway, if you'd like. It's exciting for me. Okay. Well, I think that what you see with 4, particularly, I don't know if you have our brief, it happens to be on page 820 of the appendix to our brief. And as you'll see, it's stricken. And in FERC, what that means is when you file a ray change and you want to eliminate part of the tariff, you just strike the language. But I'm assuming you're referring to one first all cell offers in their entirety designated a self-supply committed regardless of price. And that is the guaranteed clearing provision. It was never activated. It was never activated. No, it was activated. That's the point, Judge Rendell. But I mean, it was never applied, was it? It was always applied. We always cleared. Okay, let's go back. If you look at a 20 and you pretend there's no strikeout, that's what the tariff language from 2006 looked like. Then in 2011, PGM came in and they struck out that language. So in fact, Judge Rendell, from 2006 forward, it was applied. And only in 2011, was it no longer applied. That's the difference. And so that's what we're resting our change on, Judge Jordan. This was the language. This is how it was applied. We had mover mitigation to solve the pricing issues. This was a separate vehicle designed to do something different. And they conflated them together. I won't go through your wonderful explanation again, Dr. All right. Well, we will hear from you on. Thank you very much, Janice. May please the court. I stand for P3's two remaining issues. And I'd like to reserve two minutes for a bottle. All right. You stay tuned in for the record, please. Thank you. John Estes. Thank you. This is a case you'll hear from my colleagues. And we stand, we file a blue brief, but for all of the issues you heard, you heard the other. You really stand over there. I stand here, my colleague, EJM and the commission. And you'll hear from them why there's no jurisdictional issue here. This case is about reason decision making, where the normal strictures that are viewing court applies, given the difference in everything, satisfied on the issues presented here. Only the issues you don't like that they not satisfied it. That's right, Your Honor, remarkable. Amazing. Well, that's why we raised them. Why did reliability matter so much in 2006? And the states get all geared up to solve their reliability problem, building facilities. And then all of a sudden, you know, reliability really doesn't matter all that. That much. Let's make low cost, let's make cost that's not so low, the goal. It seems like there was a real shift. Your Honor, I wanted to get to that and I will right now, because it actually goes to, why we're right on our two issues and why they're wrong, all of the players. And it goes to the shift, which actually was not so much on this side of the table, but on this side of the table. It may have escaped you, but you have before you several contestants from the Greenland capacity wars, including me. And the same team had moved to PTAM and the same battles have been fought. And I was in the Connecticut case on the work side and these are old battle lines. And if you look at the other cases, the older cases, I were expert by the way, Dr. Shanker, and his initial laugh at David, talked about this fact. Connecticut, the fight was, well, wait a second. We don't want to buy so much reliability. You're making us buy too much. You're setting too high a bar, which is why I judge a table in a remarkably incisive passage. So, well, you can just not build anything if you like. You'll pay a penalty because the price will go up. And that's exactly the way the incentives in FERC's market design were designed to work. The price, you know, a positive entry or a pain, one of the other, until you yield. This case is about a circumstance, you know, around three years ago, the tune changed and suddenly we see states concerned, we have to build. We're concerned about reliability now. Explain why that's a false concern in a second. But what the reason that Mr. Strauss is wrong is that if the incentive is you want to push prices down, then the market is not going to give a self-correcting incentive if you're successful. You just get the benefit of low prices in the whole marketplace suffers and consumers suffer in the long run. So, that's why FERC decided it needed the mover. Because the way this market is designed, and this is not in dispute here, by the way, much of the answer to everything lies in the fundamental design of the market is not in dispute, we have this cost of a new entry level and I have a few cripples with some of this, but the other side doesn't. And over time, on average, you're supposed to hit that. Because otherwise, merchantry can't occur. And the price has to oscillate around that level. Because you can't average it if you never get above it and below it. Well, and can you bring this takes you out of your two arguments, but you're already out of your two arguments. I'll get back to them. The state's pitch, as I understand it, is there's nothing that P3 and other power providers said in 2011. That was any different than what was being said in 2006. They have an incentive. They want everybody to have to take all their supply in this market. But the market's been operating and allowing people to do what they want to do for long term supply arrangements in lots of different ways long before that. And so, when they came in and they started making these noises about that, the FURC-MATED decision made a reason decision. PGM did suggest that the FURC-MATED reason decision that it's okay for us to give this special exemption to special state authorized supply because we recognize that the auction isn't the whole game. And then, when we actually act on it, when they elicit reliance and cost is imposed on us for relying on it, P3 comes back with the same fine wine and this time FURC drinks it. And that's not right. It shouldn't happen. There's no excuse for it because nothing in the real world changed except we relied on what they told us. What's wrong with that argument? Many things, Your Honor. Let me start by one, by the way. If you look at our original papers, the original complaint, we talk about the fact that New Jersey in particular was not shy about advertising its desire to suppress prices across the market and benefit globally. So we saw what's different though. That's what I'm trying to change in this, Your Honor. That their argument is I understand that it is nothing changed. And since nothing changed, for FURC to change its rule is by definition arbitrary and capricious thing. New what it was before. They got the same arguments later. The only thing in the real world that changed is we relied on them. And that can't be sound decision made. What I'm saying, Your Honor, is that something did change. But I also think that it would be defensible and sustainable on Judicial Review for an agency to look at a problem of fresh and say, you know, we think we didn't get this quite right before and it matters greatly. Okay, well, get back to that. You've had no review. Change, the change. The change was we had two states barreling down the highway ready to subsidize new entrants. Ready to do what the rule told them they could do, right? Ready to do what the tariff explicitly told them they could do. There were restrictions. It was not clear whether they would bind or how they would bind. We had real concerns that the rules weren't tight enough. That's true. And we came into the commission and explained this is a really serious problem. And I would submit to you, Your Honor, that it would be a serious problem for Firk to turn a blind eye to price suppression that Dr. Bauer and the independent market monitor said these two states could drop prices by $3 billion below the cost of new entry. And not, not, not disputing that with you at all. Just trying to get you to explain if there's a change. What I hear you saying is not really. Well, there is no real change except the reality of the problem became mounting. Yeah, it caused us greater concern as the reality of it was coming on to us. I think that my my, my kind of answer is that in New England and PJM over time, there was an increasing understanding of the severity of the threat that these types of subsidized entries represented. The severity of the price drop. And the harm that the consumers in the long run faced in the my clients and the markets faced as a result. If you're looking down the barrel of a shotgun, I'll branch you your on it. It looks different than it might have been your mind's eye when you didn't think it was real. And the real question is, is Firk justified its decision because they get to look at circumstances of fresh. And I'll submit to you that when these people stand up, you'll see chapter and verse of these arguments redressed. And I just like to go back though to I think one of the things that is the core and it starts to bring me to my two issues. Oh, yeah, sorry. The way they work at work. If you clear, now I have a few about once or twice and everything with it. But if you clear, that tells you, you know, it's time for you to come in. And be it once or twice, we'll put quotation marks around that because here's the right cost metric. The price is above it. And you know what? It's no harm. No foul. If you want to sponsor a project when the prices are down here, the whole market design is telling you it's not time to drink that one. And if you want to drink it then, what are you doing? Why? It's cheaper to buy from the market. Why do you want to build something that costs this instead of buying here? The market has incentives that they will fly in and give consequences to that. They'll speak for themselves. I'm sure. But I anticipate they argument will be what's in their briefs, which is nobody ever intended for this residual market to replace sound planning for long term supply. That's the way the market has function for seven decades. And that's the way the bra was set up to be, the BRA, whatever you call the thing, that residual auction was supposed to be something to modify and even out price fluctuation at the far end. And it was never meant to be the whole market. And in fact, if you make that the whole market, you make all of us less secure. That's what I understand them to be telling us. And that doesn't sound frivolous to me. Well, I think, first out with it, and that argument is inconsistent with the fundamental design of the markets. Because the way the market is structured, you say, what's our target? It's a big target. It's like 150,000 megawatts. All in, we're going to build a volume market that seeks to purchase the full requirements to provide adequate reliable service. And then we're going to have, and so we're going to have a demand curve like this, downward slope, sloping to the right. And here's where we want it to intersect, to be right in equilibrium, okay, where my watch is. And then when supplies down here, you're not ready. When it's here, you buy 150,000. And then the question is, what makes up that that's a stack? And what we're fighting about is, do you get to go into that stack by matter of right automatically? Does it matter what price you're in? And do you get to go into a price taker or a volume, either have an effect, and be unmitigated? My side of the market doesn't get to argue about being mitigated. And by the way, these mitigations are screens in the first instance. We're subject to them all the time on the sell side. And what happens to us is, when we hit a screen, happens all the time. We go in and we talk to the market monitor. We have one of these case specific reviews that Ferck talks about. And if we really didn't like what happened, we'd file a complainant FERC. So the screen, as FERC says in its order, is meant to be conservative because you have these fail safes. And we don't want to build our net too loosely because then we could really crash the market. And if the metasum net is a little too tight, that's okay because we have case specific pressure release valves to make it right. You can always go in and say, hey, I think over over the period of years, I am in the money right now. And if I'm not for one year, if I'm calling it right, what's the big deal? Everybody guesses a little wrong. You have a right to enter this market on your own terms and shield your price effect from FERC's mitigation under Connecticut DPC. Before I go to my two issues, one more. Unless you're saying. Isn't that argument what you've just said a little bit contrary to your issue about the highest revenues? I mean, they're airing on the side of triggering the airing on the side of unfailing to trigger the MOPR as compared to unfairly triggering it. So they're being conservative on the night. With all due respect, Judge Wendell, I think the conservative language goes to catching too much, not too little. Because if you catch too much, you can always let your fish go. If it turns out in your case specific review, they were intended to get through the net. They should have got through the net. Well, we're saying, Your Honor, is that, and this is a perfect example of not giving recent attention to our two arguments. And they may seem small, I know. They may seem like details. And it's natural for a viewing court to look at this and kind of go, doesn't the agency get to decide these sorts of things. Now, I'll grant you expertise and everything like that. But they do have to engage us in this. We submit on these two issues they did not do. Let's take that one. We said. They did engage you on the local area delivery. They said, we think it makes sense to pitch it at the high end. That's a judgment we make based on our expertise. You've been leaning on so hard for all the other stuff you've gotten like. They made a decision that that's a, that's the soundest way to structure the market other than the fact that you don't like it. I don't agree. Yeah, well, actually, I'm welcome. They don't engage with it. They did engage and made a judgment. And they said why they made a judgment. I'm a bit different in the videotape that the order actually tells us how. If you look what we said is it's sort of like if you imagine someone telling all mortgage lenders and in the state of Pennsylvania. Somebody wants to buy a house in Philadelphia. You have to value it in the most expensive zip code that exists. When you can go on Zillow, you can find every other zip code. You can find every other street and every other house. What we said is you know, you have an interest. You know where he's located. There is a node there. There's a price-specific point that we know is accurate. And you should use that. And they disagreed with you. And I'm about to tell you why that doesn't engage our argument. Right. What they said is, well, we first, because they changed tune over time. First they said, well, we think PGM's right in saying that a reasonable screen uses the highest LMP that we see. Because otherwise, if you use my first and the total touch, you trigger market power screens even though the resource was simply using historical values for its own. Well, first of all, you know, that doesn't answer why more accuracy is bad. If you use the highest value, it's by nature going to be occasionally right only if the planets load up. And then you have the highest value that you can use to make sure that the planets are located there. And all of the times wrong. And there's a directional bias to the era. Well, I thought that their assertion was we don't want to punish people for relying on historical data. And that sounds to me like a perfectly sound thing for an agency to say that there's historical data. People have to make forward projections. If they make it based on those projections, we're not going to punish them because they happen to be building something in a place where they're slower. And our energy and anti-dermost service revenues, which is not going to do that. Let's bear down on that because we, we, we, we, profit arguments and I really don't think they were addressed. It is addressing it. Isn't it isn't that isn't that rationale specifically answering your haven, no, go with the node assertion and saying, well, we could do that. But we choose not to because we've got this other reason. There's other reason that you mitigate less often. The mitigation binds less, really, but they're saying, in their first order, they changed their tune later. We came in and said, well, there is historical data, actually, for our new interest particular location. And why not more accuracy? Why not use that? We never got a good answer that sustained scrutiny. I would submit judgment. If the answer is, well, we're not going to penalize you for being in a lower price area, then you're giving him headroom that he shouldn't deserve, because he's not actually ever getting those dollars. And so he needs to have a higher bid into the auction. If somebody's located in less expensive... You're assuming that things are static. And I took it that this is market is not static. It's fluid. And that people recognizing fluidity at Perk said, well, we're going to give them the benefit of historical data to base their judgments on instead of making and trying to guess where the fluctuation is going to be. No, you're not like how stable it is. It's more like a fluid market worth things shift around and we're giving them the benefit. I guess I'm having a hard time seeing how you can argue for broad discretion. And then you're at a level of granularity here that is super fine sandpaper. And I'm having a tough time understanding how you can make that argument. Because they did not engage us. Let me try the historical point again. We're saying use historical data. By all means, use the right data set. Their first answer is a non-answer. Because they're talking about a research using its historical offset. Well, our new interest doesn't have an historical data set. And it certainly isn't necessarily the highest price data set. What we're focused on is we're going to let somebody use the wrong higher offset because it makes it easier for them to escape mitigation. And mitigation is supposed to be conservative. We call that question out. On rehearing, the commission changes its tune and doesn't really talk so much about this historical question. Because the accurate data are the accurate data. What they said next time is, well, you have an alternative. We get to choose PJM. And our answer, which is on brief at length, is I think entirely correct. And 12 of our private groups, actually our initial brief, goes through the cases. We've raised the reason why PGM's proposal is not just unreasonable. You can't just ignore it saying we don't have to look at alternatives. You have to look at it. And then finally, we hear from the commission in their brief, the red brief. They say, well, gosh, on rehearing, we had attacked. We had not supposedly waved this question of the historic VRR curve and you didn't address that. And I think, Your Honor, that's an unfair argument. The statute says that unless you have reasonable ground for not raising argument, you have to raise it on rehearing. We were not reasonably apprised as the case law requires that they were relying on the historical existing VRR curve for that particular issue. Because as we explain on reply, they have like five different points they made. This is the only one when you look at the substance of what they really said. Never mentioned this curve. This is a historical curve. And in fact, as PGM acknowledged, when it came to this question, the offset and the location and everything like that, they had to change their curve. And this is why the commission's original language was a little bit messed up. Because with the existing curve said, is it said, well, we're going to take the resource that we're hypothetically modeling. And it's in some location and we're going to use it. That's not the curve of structure. And PGM came in and said, well, no, no, no. We're going to use the highest. So we're already cut free from the existing curve. Ms. Carlsie, I hate to cut you short, but the right light's been on for quite a while. Could you comment on your second point? Hi, yes, Sharon. And then we will. I had to answer questions. The how many auctions do you have to clear? It's again, we would say a failure of reason decision making. PGM originally bid three. We said two, citing the New York markets where the functional equivalent had been endorsed. And the commission purporting to seize the fund of proposal from the independent market monitor said one, though they cut aside his caveat. He had said one clearing auction, but you have to show, you're not subsidized. The commission just cut aside the no subsidies, said, we're not going to do that. And said, we like his reasoning one auction. Now, we submit, they didn't grapple with our concerns. We've said, on rehearing and in our initial papers, both the piece that we're hearing and the P3 hearing, that you can have anomalous price increases that would last only a period of a year. Well, you could have the same thing over two years. I mean, so you like two instead of one. It's a remarkable thing to say. It's arbitrary and capricious to be at one instead of two when the only thing you can really say is we think two is safer, because they can say and did say what we think one's good enough. But you know what they didn't do, Your Honor? They didn't explain their departure from the New York President. And that is a red letter shortcoming on you to share a good. We raised this case that is the economic equivalent in two years and said, you know, the order cites the fact that we rely on it, you know, the furt built these orders and they recount everybody's arguments and they go on for a long time. But they said, throw them everywhere. And then when you get to that, what would they really say? You look at the discussion. And it's a great word in a lot of ways, but you look at the discussion they never mentioned the nice case. And on rehearing, they never really deal with it. But these are different markets. Why do they have to respond to that? Isn't that what they said, basically, there's a regional nature they're adopting different rates or rules in different markets is not a changing course. I mean, didn't they really respond to you there? They said that on briefs, Your Honor. Yes. The orders don't say it, though. Pardon me? The orders don't say it. And in fact, the orders regularly cite the orders from other markets back and forth repeatedly. But do they always have to explain why they're not talking about something? Is that is that a really good idea? If you're under the Boston case from the DC Circuit, if you unresumably swear from prior precedent, without explaining it, you get a remand. I thought the New York ISO case said it's uneconomy. Oh, me see. Right. It's uneconomic to fail to clear the option without adhering to two years, three years. I thought that was the guiding principle now. Well, that option's a monthly auction. And so you had to clear a bunch. I think it's 12 different monthly auctions. To do that, as our expert explained, and nobody's ever contested us, that means a minimum of two years. Because you only get a clear in the summer probably. And so you need to get two summers. And the way that PGM works, that's really two years. And nobody's contested that I think reasonably, that ultimately, the New York model is a two-year approach. The commission said, that's right. All we were saying was, you had to explain why that doesn't, that doesn't mean you're wrong here. Was why we came up with two years to begin with. We called that out. And on rehearing, they never addressed this prior inconsistent testimony. You have more questions here from the bottom. Yeah. On this issue. Yes. So I don't get that. So it's because they don't explain why they didn't use two years as opposed to one year that they've acted arbitrary and proficiently. No, your honor. It's because if you raise a prior decision that they're contradicting in some fashion, they have to address it. All right. Well, you send it back from the address. That's all. All right. We'll hear from you on our bottle. Ms. Banta. Good afternoon. I'm Carol Banta for the commission. I will be responding to the arguments raised by the states and the load petitioners. My colleague, Holly Kaper will be responding to P3s, two issues. Although I'd like to start with a site that actually goes to what Mr. Estes was just discussing as well. It's not something that just appeared in our briefs on J 136, which is paragraph 112 of the November 2011 rehearing order. The commission made the point, as I think it makes elsewhere, but I focused on it here, that the markets don't need to be identical. We're paragraph for you. Oh, paragraph 112. At the bottom of J 136. That the markets do not need to, it was rejecting an argument that the markets did need to be identical. And said we recognize that each market is developed individually through its stakeholder process. And we do not see the need to require complete uniformity in this regard. And this goes to a larger point that I want to go to, that while this case is about the commission's decision making, I just want to put this discussion of this market in context, that PGM is the regional operator that operates this market. As the New England independent system operator operates, this market, New York has won, those are the ones that have really been dealing with the capacity issues so that the ones that come up the most, there are others in other parts of the country. And the commission does not impose a one size fits all, uniform solution of its own on these markets. These markets have, Mr. Flynn will stand up for PGM to talk more about how they do their process. But these markets, these operators run these markets, develop these markets, learn from each other, learn from the commission. These have been going on for something close to 10 years, I think, and all parties have learned a lot from them, including the regional operators. So when we're looking at this filing, and this is particularly true with regard to the issues raised by the states and the load petitioners, this was PGM coming in with its proposals to change its tariff, to further refine the market that it has created and developed. And the commission ruling often under Section 205, which is a very different standard than 206, as to whether this particular regional operators rules for its particular market are just unreasonable. They may not be the only way to do it. They don't even have to be the best way to do it. But they do have to acknowledge, at least, when they're changing something, right? I mean, the load petitioners, big complaint seems to be, they just pretended they weren't changing things, and they were really changing things, and Frick kept pretending they weren't changing things either. So we had a real problem with that. Yeah, before we get into that, let's deal with the mootness thing for a moment. Sorry. 2013 May shows up, you guys come up with a new rule. PJM comes up with a new rule that we do. PJM, which you approve, thank you. To the load petitioners arguments, all these arguments that they were pressing very vigorously about and unexplained change, can be an unacknowledged change, lose their force because of what happened in May 2013. I would love to tell you a definitive yes, but I can't because we don't know for a couple of reasons. One is that it really only matters for 2011, I think you were right, touch Jordan in your earlier comment that were bookended. We, Frick does not have the information as to which resources may have been mitigated under the minimum offer price rule in 2011 and 2012, and failed to clear, because they only have injury in those two years if they were subject to the rule had their, and I think we heard that there isn't, that the most that they had was one person had a negotiate and then they got cleared. And if that's the case, well, we haven't argued that they're moved, but based on that representation, that the one thing about a couple of things about 2013, which of course can't be before this court, it's actually pending rehearing before the commission, and would presumably be subject to some judicial review after that? I'm sure somebody's not gonna like it. That's the way it goes. So I don't know the answer, whether they're perfectly happy with the 2013 order, and even if they are, it is still subject to rehearing and judicial review. We know they're not perfectly happy with 2013. So we have not argued that. But if we take it face value, what we've heard here today, there was no, there was nothing between 2011 and 2013, that could be pointed to, except for the distressing circumstance of having to negotiate to get one issue clear that hadn't otherwise cleared. If that's the case, is there a just disable harm? Based on the representation, if there's no one who was mitigated and failed to clear, then I guess not. And I'm certainly not urging the court to continue with the issue. We just hadn't argued the mootness, because we didn't have any way to know, which entities, that's, I think even though PGM and theory knows they're not allowed to disclose. So really, the load petitioners have to be the ones to tell you we had units that, or we had resources that were mitigated and failed to clear. But going to that point, I did want, and I think this may be the site that Judge Randell was saying you could visualize the pages, because it is something I want to point out. The very end of volume one of the joint appendix is the last two pages, J-A-192 and 193, the very tail end of the second rehearing order in March 2012. Actually, I found what I was referring to, it was 2269, but that's okay. What's that page again? 192 and 193, it is the last two pages in volume one, at the very end of the March 15th. This is where the commission said, if we didn't make clear earlier, that we understand that the load petitioners thought they had guaranteed clearing, and that PJM's proposed removal of this tariff language took that away. This is where the commission answered that. And in paragraph 28, the very last paragraph of the second rehearing order. I think you should be running away from the load petitioner stuff right now, probably. Talking about the state issues. What's going on with this? Well, I would like to make one point that I don't want to lose, that goes to this idea of the residual base auction. I want to make clear, because it may not be clear, I mean, I think it is in the record, but it may not be clear as we're discussing this, that over 95% of the resources that bid into the auction are price takers. There are existing resources for the most part. In fact, in the 2012 base residual auction for 2015, 2016, the number is something like 97 and a half percent. So we're only talking about a narrow slice of the resources that bid into this auction at all. And that really goes, and I'd be happy to explain how the market works, but I do not want to impose further emotional distress, but the locating the price of the incremental new planned resource, three years in the future, that all, and the mitigation rules that apply that, that all takes place in a 2% slice of everything going on in this auction. So I did want to make that point, because, and I do have a site for that somewhere, because it's not always clear that we're really talking about a tiny percentage, and that the vast majority of the resources in the auction are existing price taking. But the state folks, both of them opened up by saying, we have needs in our state. In fact, PGM tells us we're going to be face in blackouts if we don't do something. And we negotiated with PGM. We came to a settlement in 2006. It wasn't like this came from on high. We had issues, we fought it out. We came to a reason the decision with them. It was mediated and we got a decision, and that decision included allowing the states, and this exemption, if they went through certain procedures. And we were good with that, because that protected us in our capacity to make long-term plans for the citizens of our states. Nothing at all in the real world changed between 2006, when that settlement was affected after lengthy negotiations, well like 60 years of talking about it, we finally get to something. Nothing changed, except I guess the P3 folks stomped their feet harder, and so PGM paid attention. And then suddenly, Firk says, you know what, we're worried. And that that can't be reasoned decision-making. That's just arbitrary, that's like the definition of arbitrary and capricious. Nothing in the real world changes, except we act and rely on what you do, and you pull the rug out from under us. Now that's the argument, what's the comeback? The comeback is, well there are several. And one, which is in our brief, is that actually an agency can change its mind if it doesn't pretend that it didn't. It can, the cases that we cited at, but can it change its mind as to policy? I mean, you look at OS6 and everything was about reliability. And we need to give the states the ability to have reliable energy, not have problems. And reliability seems to be a policy matter. And then all of a sudden, when PGM comes in says, you know, we want to change because we want it to be cost-based. That's a huge, oh. That's a huge policy. Actually, the structure of the market, the slope demand curve, and- It's always been cost-based. Yes. Well, that's fine. But not avoiding, but not to the point that the policy is avoidance of low cost bidding at all costs, is it? I mean, that's the B all in the end all. We're not looking at reliability at all. We're not looking at reliance. We're not looking at, you know, what the states have done or are they going to then not build capacity so their citizens won't have the power. It's all about cost, all of a sudden. No, the market was always about reliability and incentivizing new generation into the market, sending price signals for competitors to enter the market. Now you're disincentivizing and free by states. No, no. Well, first of all, I do have to make the point that- today's the first that I had heard that there was one of the New Jersey resources that didn't clear, because what we knew from CPV's brief as well as New Jersey's reply brief is that the New Jersey, that their sponsored resources, they were mitigated by the minimum offer price. Well, they did clear as did Maryland's, according to CPV's brief, CPV said they had the resource in Maryland. No, the market was always based on the cost, which changed is that, of course, the last time the commission had visited this was in 2006. There was a settlement, but let's make clear that was approved under 205, Justin reasonable. That was not approved as a black box package settlement. And I'm not aware of any case law that there's some kind of contractual, reliance entitlements on the commission's 205, Justin reasonable finding. Because again, something else- No, but there's APA law that says that- reasonable reliance is a factor in deciding whether or not a change in agency position is legitimate or arbitrary and capricious, I think, state farms, is that I think I'm pretty sure Fox television says that. So, Steve, if that's the motor vehicle case, the case said there that an agency's view of what is in the public interest may change, either with or without a change in circumstances, we quoted on page 50 of our brief. Yeah, here's the Fox television case. It says sometimes when, for example, its new policy rests on factual findings that contradict those which underlates prior policy, or when its prior policy has engendered serious reliance interests that must be taken into account. And those circumstances, a more detailed justification that would suffice for a new policy may be needed. So, that seems to me to be the Supreme Court of the United States saying you can't ignore FERC, the reliance interest that you engender in the market. If you lay out a rule and people act on it, you can't say, change my mind. Without some reason for changing your mind that would justify imposing those costs on the public who act on what FERC says. Right, but in this case, well, of course, PGM proposed a rule under 205 that included an exception. It came in and proposed removing that exception under 205. I mean, these tariffs, PGM's tariffs, these market rules are constantly being changed, usually under 205. So, I think that that they still was removing it, or did they proposed, did they actually propose removing it? Yes. It was a proposed adding a condition. Well, what they, what, what it said previously is that they could give an exemption if they came to PGM and made a certain showing. And PGM said, we want to remove this because PGM is not in a good position to be made. So, PGM said, let FERC do it. Right, and the commission said, well, I can't make this. We're not going to make this a tariff, but we are doing it. Absolutely, no, the commission said, removing the exemption is just a reasonable. We understand why you don't want that there. Let's be clear, the states and the commission emphasize this numerous times in its order, the states can come in to the commission with a 206 complaint. Now, they're complaining, they don't like their burden under it. Yeah, different. But, but we haven't had that case, we haven't seen them trying to make a showing. You yourself said that's different. It's a different thing to come in on 206. Well, it's a pretty big shift to say, you've got this automatic exemption too, you can come in and persuade us if you want to give it a shot. Well, it wasn't, you do, you have to come in and show that this, that mitigating these resources to the minimum offer price would be unjust and unreasonable as applied to you. Now, given that virtually all of their resources, as far as we know, cleared with the mitigated bid, it's true they might have a difficult time making that show. And they lost one, which to them I think it is not chump change, if you've got to, you've invested, or you got somebody else committed to a customer. Can you focus on this? Could you focus for the next couple of minutes on the reasons for the change? What articulate for us? 2006 to 2011? Right. PJ, first of all, it had the state exemption that required it to make the determination that came in and said we want to remove this. So we looked at it and said, we think that's reasonable. We think it's just a reasonable not to have this exemption because we admit we didn't fully appreciate the size of this loophole. And in the first rule, when it was there, somebody complained about it, it was the first time we were putting in the minimum offer price rule. I think PJ pointed out his brief that in the first seven auctions, the minimum offer price rule was never triggered, which is part of the reason they wanted to change it because it wasn't doing anything. How do you know it wasn't doing anything? That's a striking comment. How do you know something is not working because it isn't triggered? I mean, if there are minimum mandatory drug sentences and nobody gets sentenced to them, I guess you could say it's because they're set at a drug level or maybe it's because nobody's committing the crime because it's working so well. How do you know it's not triggered because everything's working perfectly? I spoke to Hasteland, I spoke for PJ. I know that PJ thought that it believed, based on an experience, it's experienced and it's the experience of other markets that it should tighten up its rule. And it came in with a filing that the commission considered under 205. That's what I should have said. And it's for PJ to say what the significance of not being triggered was. But that was why they were looking at. But it's only the data of the distortion that would occur and the magnitude of it as compared to the harm caused by the states. Yes, and I'm hoping that I have a site for it because I know that the New Jersey in particular, the reason that there was concern about the impact on the market, the effect on the market of what New Jersey was looking to do was that there was something like 2000 megawatts. And I know we say that in our brief, we may not have cited is that these auctions are run separately in certain constrained areas. I forget exactly which area New Jersey is and whether it's Eastern Mac or I get that confused. But my understanding is that the total cleared resources or the capacity resources in that market I think is something along the lines of 10,000 megawatts. So you're looking at introducing 2,000 megawatts of price taking below cost bidding resources. Wasn't that fully in the mix when you guys were looking at that in 2006? I mean, that was. Well, the initial question was that we didn't we didn't appreciate, we didn't fully understand how big this loophole could be. Let me read just something from the joint appendix that goes to this and shows I think that it's seemed to me like FERC was appreciating that what it's role, what this might be. On page 3089 of the joint appendix, you say that on paragraph 169, this is going back to April 2006. The commission recognizes a party's concerns. It's our view, however, that PGM has demonstrated that the short term nature of the commitments required under PGM's current capacity contract has contributed to lack of investment in keeping generating generation operating and in building new generation. In other words, we understand what's going on. We think that what we're doing here is gonna, I read this to me, we're gonna incent the creation of new generation. Quote, contrary to the protesters' arguments, RPM will not make PGM a centralized planner and procure of capacity under a cost of service rate-making regime. That looked to me like FERC was specifically saying, don't worry, we recognize that there's more than cost to be dealt with by you folks. And we're not gonna let PGM just become, we're not gonna let this base residual auction take over the market so that everything's gotta be cost-based. We're gonna let other issues like state concerns about long-term reliability work their way in and we've built that in. And is that not what the commission said and the reasons why it said it? Well, I think you have to go on to the next couple of sentences, where the commission says this market is going to provide the price signals and the price stability that allows the private players or the municipal's and cooperatives, that it's not PGM deciding what will be done. PGM is running the market, which includes the market rules that will produce the price signals that everyone can act upon so that they know when it's- You have it, but the price signals weren't supposed to be, I mean, that's the reason there was this negotiated result, the load petitioner say, we negotiated for automatic clearance. The state say, we negotiated for and got this exemption for special state mandated resources. We worked this out because there are things besides cost that need to be taken account of and FERC seems to be acknowledging that. Don't worry, we're not gonna let this all become just about some economist in the back room with a green eye shade figuring costs to rule the roost. We recognize these other things and we've set it up to allow that, no? No, what I would say to that is the commission's orders, in this case, were very much about making sure that that market produces real price signals. I mean, competitive, what is the competitive price? And it's a little hard for me to explain how it's visualized, but if you have too much new entry, which again, we're only talking about two and a half percent being new entry, but if you have new entry that is coming in at zero, price taking is coming in at zero. It's displacing resources that actually are needed by the market, that the price signal, a real price signal would say, this is what economic needs. Ischa-nomic the way in this context means that it can actually clear between the demand curve and supply curve that it can clear based on its actual costs? Well, this goes back to Judge Greenway's question. What is it between 2006 and 2011 that changed that made it so, Firk said, wait a second, we gotta worry about this uneconomic supply being dumped on the market. Well, it goes back to what I was saying about the same things were being sent in thousands. But the 2000 megawatts in a 10,000 megawatt market, you're so displacing actual economic needed by the market capacity that you're discouraging new entrance to the market who would be able to come in on a cost justified basis. And again, with a three-year forward market and the fact that you're only looking at gas-fired resources, that means they don't get built. The reason it's a three-year, the timing, as well as the price rules in this market, are shaped around gas-fired because they can be built quickly. So you do the market three years out. If a resource, if a new planned resource doesn't clear in that market, there's never any steel in the ground. Because that resource could be built in the three years to begin service at that time. So that's why the commission had said gas-fired resources can test the market. If they don't clear, they aren't even built. So, but we have this market. We're looking at just the two and a half percent of new stuff. We have people trying to make plans on that. Let's shift the entire curve over substantially by allowing so much price-taking, non-cost competitive, coming in at zero, it shifts the entire curve over, actually, I guess it shifts it this way. Things up here that would have cleared, don't clear, could be some existing resources that are still trying to recover their costs. It's probably new planned resources that will now never be built. And to visualize this, Mr. Estes was trying to do it on his arm and I'm just waving in the air. I didn't want to burden you with graphs, but I will just point you, should you want to look? On J-A-31-48 to 31-50, which is in the, the 2007 rehearing order on the prior one, there's some graphs. And it's not all relevant to you because it includes a vertical demand line that this was for the purpose of saying why the slope demand was better than the vertical for this purpose. But I've used this to visualize what it means when I'm saying stuff over here clears and stuff over here doesn't. When too much price-taking, zero dollar resources come in, they shift that whole curve. And that goes back to the site I had given you on the very last page volume one, the paragraph 28 in the second rehearing order that says assuring every unit with an adjusted unit, even this was in response to the load petitioners, even if we mitigate you, but then we guarantee you clearing. Every one of these things that clears the market could result in PGM rejecting the offer from a less expensive unit that otherwise would have cleared. And that's when you don't have a true price signal anymore. But the question is how is that analysis different in 2006 on the one hand and 2011 on the other? I think just based on the size of the truck that was heading for the loophole. And the commission was straightforward about that. When we said this in 2006, you didn't anticipate that this would be a 2000 megawatt hole? In a 10,000 megawatt market, that's right. You didn't. Right, I think that's right. Yeah. I mean, that's what the commission was saying. That that. So you didn't really believe you just know it or I'm sorry. No, no, I'm trying to figure that out. Okay, so I'm one of your advisors in 2006. Are I whispering to you? You know, there could be a 2000 megawatt issuers, this like a revelation in 2011. And that's what counts for. I'm not aware of what the specific morning was in 2006. I will say this because I we have I know that Maryland in particular thinks that the commission was was looking at the intent of the states. And I know that some of the other parties have made allegations about the intent of the states. And the commission said in paragraph three, I think of the first re hearing order that you were careful to distance yourself from that. But I think on that, they're a little troubled maybe because they may feel like they got led down the garden path. Because when you say who could have known, but that's a little like saying we never thought they'd actually do what we told them they could do. Well, go ahead and build some plants. And then they build start to do it. And you say that did you anticipate they were going to come in at zero? Well, was that a fair anticipation? I think I think whatever they would have been bringing in that the original rule would allow them to bring it in a zero. I'll point you to paragraph three in the commission's first re hearing order. In this case, that's November 2011 paragraph three on J a 105. Our intent is not to pass judgment on state and local policies and objectives. We are forced to act however when subsidized entry supported by one states or localities policies has the effect of disrupting the competitive price signals. So I think what I said about the truck coming toward the loophole, the extent to which it would distort the price signal was the reason. And that's what the commission said was the three. Thank you for the question. Thank you. Good afternoon, Holly Kfer for the commission. Lift the microphone, please. Thank you. Thank you. To back up just for a minute, I think it's important to reflect on the balancing that the commission has done here in these orders. As is evident, no one is happy and perhaps the same will hold true in 2013. I guess we don't know. But to move this to the point about the mitigation period, in particular there, the commission was dealing with competing proposals. And what it found was not only was the existing giant loophole in PGMs. Rule there, unjust and unreasonable, forcing the commission to act under 206 as opposed to 205. But none of the proposals before it would do the rule justice either. And yes, is there any recourse for a party like the states here when? Because what we've heard is the only thing that changed was a realization that the states are actually going to do this. And when they do it, it's actually going to affect the market. I mean, if I can, I certainly can understand, I think, that recognizing a problem is an important thing for an agency to do. But when you've told a party like a sovereign state, hey, do this if you want. And they actually do what you told them they could do. And then the federal agency says, not anymore. That's, there's just nothing for the state to do. They're just out of luck. I'm not as prepared as my colleague, Ms. Nata, to address those issues. I am intending to respond to the P3 issues. However, I won't let that stop me. And I'll just comment that the commission deals with every day, evolving market behavior in response to evolving markets. There was nothing evolving about this. There was a statement you can do this thing. They did that thing. And then you said, no, you can't do that thing. It's like a kids game of red light green light. And there's nothing that happened there that wasn't that it's hard to, it's hard to hear that nobody anticipated this when you said to the states, go ahead and do this. And then your reason for stopping them is to say, well, we can't let states one state do something to affect all of that. No, once you told the states, go ahead and do this. You had to anticipate that if any of one of them did it and came in under the price point, which they were surely going to do, they were going to come in and zero and be price takers, that it was going to affect everybody else. It's just a, it's a strange thing to hear the federal government come in and say, yeah, well, who knew? I believe Miss Santa reflected on the magnitude of the truck as she referred it to it. And, you know, that the commission wasn't driven primarily by that. But also that the commission here was acting under 205 where it's not necessarily comparing the existing rule against what was proposed to it. If the question is maybe what was there was just unreasonable, maybe something else would be just unreasonable. But what PJM is proposing here is also just unreasonable. There is a reason basis to now, now do this as opposed to the actual change itself. So I don't want to say that we're looking at things in reliance interests. You're relevant. Well, perhaps I should wisely turn to the issues that I'm actually prepared to address that are raised by P3 and PJM. Are you saying it's as easy as looking at what the commission can do? Resume to 205 on the one hand and 206 on the other? Is that what you're saying? The commission's role under 205 is more limited. Obviously, then it is under 206. And that and that does actually tie into the mitigation period issue that P3 and PGM have raised. And that is that the door was sort of open there because the commission had found that PJM's existing rule was unreasonable. PJM's proposal was unreasonable. The other proposals before the commission it also found wouldn't work. And so under 206, it had more leeway to do that here. That's drawing a contrast to what was done with the state exemption, if you will. And on the mitigation period, what the commission needed to do was adequately respond to the arguments before that. It did that. It doesn't need to respond to every single case that is raised before it or differences between PJM and every single other market. What it did here was explain that here resources are economic if they clear once. And by the way, it said the same thing in the New York case and even pointed that out in the Terra quarter at paragraph 16, note 87, JA 73. So in fact, we did actually mention the case. We didn't go into as much detail as P3 and Psy would. PSEG would prefer. But our response was adequate there. Bringing this around to Judge Randell's point about regional differences. The commission does as it did here in this brief and as it did in the orders rely on the regional differences in the markets and allow the parties to craft their own approaches. And I should mention here that it seems relevant to the continuing evolution of the markets that the commission is even holding a technical conference at the end of this month where it will be addressing capacity markets in general and minimum price rules and variations on that and other markets in general. What's your response though to the assertion that we heard from Mr. Estes that on the question of how to estimate those ancillary services that going with the highest cost in the LED distorts the market and you have ready right there available to you. Accurate data, which you refuse to use and that that is in and of itself. It's an arbitrary thing to not to not use the best data. What's the? I think Mr. Estes referred to that issue and also the mitigation period issue as a quibble himself and on that point, the commission is using an estimate there because it's looking for the price for a reference resource, not the specific unit that's bidding into the market. That's not the way that estimating the cost of new entry works. It's based on a reference resource. It's supposed to be an estimate and the commission said what I understand them to be saying is you can have better and worse estimates and we proposed for you a way that you could have a better estimate and you declined and chose to go with a worse estimate and you didn't really satisfactorily explain why worse is better than better. My understanding is that Mr. Estes' clients think that it would be a better estimate because it would result in more frequent triggering of the rule and what the commission did. You do have that accuracy. It would be more accurate. He really didn't talk about it. He would trigger more. So I think the best means he would talk about that. I was going more. I'm sorry. Is it more accurate? Is the highest more accurate than what he's proposing? Not in the sense that the commission is choosing an estimate of the revenues for a reference resource, not for any particular specific unit that might later after that reference resource and the cost of new entry has decided bid into the market. It's an estimate for a reference resource, a hypothetical unit. It's a hypothetical. So why choose a specific price or revenue estimate for a specific unit? Well, why choose the highest? Why choose the highest to avoid over-triggering the rule and subjecting units that? Well, I think that's his problem. He says triggering isn't the be-all in the end all. It's the accuracy of what you're using that you should concern yourself. The revenue estimate methodology that the commission is using is accurate. It's possible that P3's methodology could even, could be better, could be more accurate, but it doesn't need to be here under the commission section 205 burden. That's one response. The other one is that, again, it's a reference resource. It's intended to be an estimate. The commission even said that it doesn't need to be perfect. It needs to be a reasonably accurate forecast. And that's the first rehearing order of paragraph 20HAA113. So we're not going for extreme accuracy. What's your response to the assertion that you never really engaged with us? It didn't really meet our arguments. You just, there was an Ipsy Dixit. We're doing it this way because we can do it this way. Surely the commission didn't exhaust itself, I guess, on these issues. And it didn't go on and on for it for pages. But the commission did respond to the arguments raised by the parties. And in particular, in, I'm sorry, that paragraph that I referenced, 113. And also in the J.A. At 40 and 41, that's the tariff order at paragraphs 43 and 47. And that goes in particular to P3's argument that the commission didn't adequately address the consistency with the variable resource requirements curve, the VRR curve, which they assert was not adequately raised or which we assert was not adequately raised by them on rehearing. Again, that was that site is in the tariff order. The commission mentioned it twice. We don't think something more is required. Thank you. Thank you. Good afternoon. My name is John Shepherd. I'm here on behalf of the PGM Power Providers Group. And with the indulgence of public service selection and gas cooperation. I think I'd like to begin first with the courts. Very apt, targeted questions about what had changed about the market. But I'm going to start a little bit earlier than that and say that Judge Jordan in particular, I think that you are making a reliance argument that is even stronger than the petitioners have made. The state petitioners have made. And it is also a reliance argument that is unwarranted. All of us agree that the reason for the state exemption was to allow states to have proceedings, to build new capacity in response to documented valid capacity, under supply concerns, with PGM's involvement. As you know, these proceedings happened. PGM's IMM and the PINIT market monitor came in. Testified this was a very bad thing that they were doing. But the most important part of what's wrong, hold up. Let me start for a minute. Didn't PGM representative actually testify during the New Jersey proceedings? Yes, he did. So you were in the loop. You went in. You talked with them about it. And you didn't say to him at that point, hey, don't do this. Right? Oh, no. PGM's independent market monitor went to New Jersey and to Maryland and said, what you are doing is very bad. New Jersey, what you're going to do is going to cost the market at least a billion dollars. And then subsequently, when Maryland, when Maryland acted, PGM's IMM said, now together, what you guys are going to do is crash the market by $3 billion. And the gains that you're going to get out of it are fractional compared to the damage that you're doing to everyone else. And there isn't a reason why utilities or states, other states should be responsible for subsidizing what you're now describing as non-economic things like job programs or environmental concerns. Can I ask you, the gains would be minimal because we're just talking about the smallest, the last 2% of capacity here. No, your honor, the net benefit to them would be on the order of $250 million. But the damage done to everybody else who's just in the market would be a thousand. And then this comes, I see, it looks like you're struggling for a joint appendix citation for this discussion. Judge Jordan, so would you please look at the testimony of Dr. Shanker at JAPage's 317-318. It doesn't actually have all of the IMM's testimony in it, but what it does is quote, liberally from it. And so that should get you what you need. So relevant pages you would want to look at. But this was an anticipated that this would be catastrophic. I very much want to turn to that point. But first, I want to make this point, and it's from the same pages of the joint appendix that I just gave you. We asked Dr. Shanker and his role as an expert. Is there a capacity problem in New Jersey? Is there a capacity problem in Maryland? Is there the lacking sufficient capacity they need to build a new reliability? These new units in order to accomplish reliability needs? Or are they really just trying to change the price? Any answer to the question? And there isn't a problem with, at the time, there was no problem with their lacking capacity. You asked a question about what changed. And Judge Jordan, I want to reverse the chronology that you gave about the way that we should do this problem. You ended with the state and about the fact things that were working well for 70 years and where are we upending everything. No, things were not working well for 70 years, which is why we got RTOs. 1996, Firk said, you know what? You guys are vertically integrated utilities. You're using your control over the transmission lines to try to prevent competition in generation. That's not going to work. You're going to have ISOs. Next thing we got as an evolution was RTOs. California blew up. And then it became very politically unpalatable for there to be all energy markets where people would accept wild swings up in price that would give accurate price signals. So they said, you know what? We're going to mitigate your energy and ancillary services maximum prices. This created what is called the missing money problem. The missing money problem is why we now have capacity markets. You have to pay suppliers who are marginal, peakers rarely used. Super hot days like today is when they get turned on. Otherwise they're sitting idle in order to make sure that they actually have a basis to keep going. And the shift between the imposition of market caps and the development of capacity markets, a lot of people said, well, we can't operate. We're going to shut down. And there were a lot of plants that started to close. So then we got a capacity market and people started to rebuild. What is, this is the, let me have you respond to something that the, this is I think, from the load, now it's the, it's the rural electric national rural electric power system. That was a nice fellow. Right. They say the bilateral market for capacities far more wide and deep than the three or four at RPM Construct. This is page 1926 in the joint appendix. The vast majority of LSEs generally cover the vast majority of their load obligations with owned capacity and long term contracts. In other words, what I understand that to be saying is not stuff that they acquire through the BRA. It is widely considered in fact to be irresponsible for LSEs to rely upon an RTO centralized market for more than a fraction of their electricity needs. So when I read this, I understood them to be saying the following. The history you just described of everyone with everybody dramatically and it costing too much pensumers. And there was, and then there was this problem with the cap and they moved to the short term market with a, like a literally vertical demand curve. And that wasn't working because price volatility. And so the BRA constructed downward sloping demand curve is brought into play. But in all of this, the aim was to try to at the top end, just like you said on the hottest days of the year, for example, when you needed some extra capacity to have actual extra capacity, this whole residual market was supposed to be a residual market. It was not supposed to take over the way LSEs planned for and built and developed generation and made long term plans. This is a case of the exception now turning into something that's turning around and swallowing the historical way in which these markets have operated. Are they wrong about that? We have a place where they operate like that, that way in the fixed resource requirement areas. People, their response to that is that's no answer at all because we can't function that way. That only works. There's one outfit on the whole planet that's situated to take advantage of that in economic way. So to say, oh, you've got the FRR rule, it's really to give the back to something serious. There was so much extra capacity that they could actually affect them like that by saying, so I guess one might ask if you think the MOPR isn't working well because it's never been triggered. Why do you think FRR is working well if it's triggered once ever? If one person will take advantage of it, why do you think that's a satisfactory out for these states and others who are saying we've got long term needs and we've always met our long term needs and the fact that we needed something to address the peak road problem doesn't mean that they should take away the purpose and work. On the purpose of the, and you've shifted ground apparently between the state exemption and the load exemption. And so I'm not sure which target you want to shoot at. Well, I want you to shoot at the general use stood up and I understood you correctly. You were taking issue with the assertion that I took from low petitioners argument, but I also understood to be basically something that was being said by parties more generally, which is we have to plan for our long term needs and we do that outside the context of the base residual auction. It's supposed to be a residual auction. We have long term needs that we plan for outside that and that PGM and FERC are forcing us into a situation where we can't do that because now in spite of what FERC said in 2004 about, don't worry, we're not going to let this turn into a cost based circumstance where PGM is running the whole market, that's exactly what's happening. You're on our irrespective of the title. I don't think that FERC's orders established in the market could be interpreted in any other way than that. We want to achieve the least cost, the least cost purchase of capacity that is going to satisfy reliability needs. That's the capacity side of the market, the same way that location and marginal pricing satisfies it on the energy and insularious services side. That's the objective. If they're saying that they would like to build whatever they want to build to satisfy their own reliability needs and the way that they perceive them to be and not in the way that the market perceives them to be, that is perfectly fine. If they want to sell in the industry. When you say that this is what the market wants, this isn't this base residual market, this is in a real market. Is it? This is a real market in the sense of people walking in and commodities changing hand. This is a, it sounds like a sensible logical construct where you try to mimic market forces, but it's, I guess I'm struggling with what you're saying. It's different than other markets in the sense, because electricity is a very special kind of commodity. It's not tomato. It's not stinky. It has to be in perfect demand and as you've heard, balanced all the time and is not really commercially store all those people making some experiments along those lines of these days. As a result, unlike anything else, and I had to grapple with this like crazy when I was a clerk and dealt with my first case and then later on when I entered private practice, every other situation I'm in commercially, jeans, food, whatever, it does not operate by the law of one price. But I don't like to store one place. I get another place. That's not the way electricity works. It works according to the law of one price and as I'm understanding your concerns about how this is not a real market, I guess I'm saying it's unlike other markets, but it is absolutely a real market. People place very serious bets about which way the market is going to work out. I apologize when I, real is probably a bad word to use. I wanted you to. The VRR is a theoretical construct, is it not? It's not like there's a demand curve out there. You create a demand curve to mimic market forces so that you can create an environment in which price signals can help people make sound judgments about how and where to build capacity. Is that not true? That is correct. But no one is having a fight here about whether or not VRR curves as such are bitter bad things. That fight was well passed in the DC. I understand that. The point that I am trying to put to you in a question perhaps in artfully is you seem to be saying that this is a, this market, we had to do what we did in 2011 because things just weren't working and the story we're hearing from the other side is things were working. There was a way that they worked for seven decades and when we hit a place where things were problematic because of the way society had developed and the technology had developed that we needed to do something about a capacity or honor to make. It did not work. The price for all resources was too high. There was over build everywhere before paying for legacy trash that was built back in World War II and they were getting guaranteed costs for turn rates at 13%. The world was broken. If we didn't have water at 88 and create the kind of markets that we have right now, electricity prices would be through the roof. The great recession would be even worse. So it's PGM's position that these bilateral contracts, these long term supply arrangements, these decisions that states for example are making about how to avoid rolling blackouts. That that's all bad policy, bad decision making because the only game in town is the base residual auction and if you were sensible people you'd come here to our auction because that's where sensible decisions are made. I think at some point you have to make a decision about whether or not you believe that capitalism works whether the markets work or whether the markets don't work. With these, they are perfect. They are perfect decision. Mr. Shepherd about whether FERC means what it says when FERC assures people in 2006, don't worry, it's not going to become a centralized market under PGM's control based strictly on cost. That's FERC's language loosely translated hypothesis and go back and read it again. But that's what they assured people in 2006 when they signed off on this settlement and what I hear you saying is not so the centralized market, that's the only legitimate way for this thing to work. I'm saying it's the smartest way for it to work. If people want to go the FR route, they want to go the traditional route, they want to over build, they want their consumers to pay more, that's fine. But if the question is how are you going to get least cost capacity or at least cost energy or least cost-angular services, it's always going to be through the market. That's true. That's true. And FERC says what it said in 2006, we come back to the question of do we have an arbitrary and capricious problem? When they say we're going to have these outs for load bearing petitioners, for the load of petitioners, for automatic clearance, for states, for their exemption. We're turning to the arbitrary and capricious problem, two issues. And they're different with the state and they're different with the load. The first one is did states reasonably rely on this exemption that was built in or did they abuse it with respect to the load petitioners? It's a different question. Did the tariff not actually include this? It's been troublesome to hear you in great arguments that are better even than the one that's asking questions. Let's just say this, but what I'm worried about is that I keep hearing you say things like, so you want to return back to the days we had guaranteed clearing? We don't agree that there was guaranteed clearing. PGM doesn't agree there was guaranteed clearing. Not there's FERC. So that's not a return. Although I realize you were just articulating, I don't want to spend too much time on that. I guess I could spend a little bit of time asking what is confusing about the words, all cell offers in their entirety designated a self-supply, committed regardless of price. I guess we could spend some time trying to figure out what could possibly be ambiguous about that. But since we've got the load petitioner stuff set aside here for other reasons, that's probably not a sound investment of time. If you can help us with the one question that we've come back with several people on, what was different between 2006 and 2011 that made PGM's decision to go to FERC to try to persuade it to change its tariff just unreasonable? Well, I think it's been at a good point about the size of the truck. I do think it's fair to say that no one, people reasonably expect that folks are going to do things with a good heart. FERC went out of its way to try to explain that they were going to only look at non-intent based things. But there is a lot of money on the line, and I'm not prepared to be so polite and so diplomatic. You have alluded to it. It's clear to me that you and Judge Rendell, who's both alluded to this, are aware of the statements that were made by the New Jersey legislature that were made by Ms. Brand, for example, and her testimony to the New Jersey Board of Public Utility Control. Please, please read GA259, which includes excerpts from her testimony, because it is difficult to hear them talk about a lack of any evidence that there was an intent to depress prices when that is exactly what we see going on in the testimony. So, I disagree with the idea that there was a reliance here. I think that there was abuse here. This got signaled, quickly got signaled in the end of 2010, and we pounced on it as fast as we could. I wanted to point out, in addition, I don't know if this point sank in. There was not a lack of generation in either PGM or in Maryland. We talk about that in Dr. Shanker's testimony. Given your perhaps your clerks can help chase down the pages, they've already said them in the record. In particular, look at 317 and 318. But we have been arguing about capacity markets in stereo, in Iceland, England, and in PGM, now in the Midwest, I so, and the same issues keep coming up again and again. There's a new evolution every time. But what is very, very odd is to hear the claim being made in this case, oh gosh, we needed to build these new things because they're going to increase our reliability. Then sometimes there'll be some additions, oh, we're concerned about fuel mix, or maybe we're concerned about environmental things. The case that was going on in the DC Circuit at the very same time that all this was happening, Maryland Public Service Commission. For this, I'll point you to page 318 and join appendix at note 25 for the complete citation. What was the complaint of New Jersey and Maryland in that case? I mean, this is just flit because of what happened to follow before the other one. It was that they were being told they had to pay for too much. You can go ahead and know who needs all this damn extra capacity that you're making us buy. You made us pay $2 billion more than we needed to pay in order to keep our lights on. Where are they getting the assertion that they were being told by you folks? You're going to face rolling brownouts if you don't do something. Because you heard Ms. Tustin up and that's for opening line to us. Yeah, and I'll be conned and say it's inaccurate or ill-informed. The whole basis for the decision in the Maryland PSE case, the reason for that is that there's a wonderful graph in the briefs there that says, here was where your capacity was before the RPM started and then boom, here's this fan, multi-colored rainbow fan of all the new things that have been added. Now that you got the, now that you have it, the fact is they've got the capacity that they need now. What they're saying now is we think we're paying too much. The other thing that changed your honor is that after we had capacity markets, people began to observe how they operated. We get the results published. We see the price separation between the different location of deliverability areas. We see the price separation between the different cones. And there's sometimes radical differences. First energy closed down seven plants last two years ago and there's 150 point price difference in their capacity prices. When you begin to get very specific data about what the clearing prices really are and exactly how much people need, exactly how much you need to do in order to manipulate the market. And that is why I think this happened. I can't jump into their heads. I think that the public testimony speaks for itself about why they did what they did. I think that the complaints, this is somehow unduly discriminatory because they didn't do the same thing to Wyndon Solar are utterly without merit when you consider the fact that those resources globally throughout PGM are less than one half of 1% of all the megawatts there when you want to drop a 1000 or 2000 one entity thing which completely obliterate all renewables together in one location. Now, this was not reasonable alliance, this was abuse. And I don't mean to be undiplomatic by saying that but I think that's what the record shows. And if people want to look to testimony of Chairman Zarian or they want to look to other post-hoc things like the nice cleanup that New Jersey did and it's last version of its version of the bill once we alerted them to all the things that were going to cause prevention issues, then I don't think those can be credited. And this is not some small problem. Well, it is on this case. There's a parallel case that raises exactly the same issue in the D-circuit right now about Iso-Nuangland. There's a prevention case that's already been argued in waiting for decision in New Jersey. Premchant case in federal district court in Maryland already been argued a waiting decision. The state case in Maryland and the preemption case just started today while we're making this for a long time. This is not some small thing. So you're saying this could have been in the fourth circuit or the D-C circuit? We were worried about it. We were worried about it. But I hope that I have answered your question. I don't think there's reasonable alliance here. Thank you. I don't know. P.J. and last but not least. It's a culprit. P3. I guess it seemed like a good idea at the time to come in to tariff. Good afternoon, Mayor. Please the court, Paul Flynn, on behalf of P.J. and Miner-Connectionale, I'll see. Let me correct a misimpression that I was hearing about a significant change in policy or philosophy from 2006 to 2011. This has, from P.J. and his perspective, this has always been about reliability and continues to be about reliability. What the RPM market says is that we are trying to determine a way that we can create a market in P.J. and that supports through competitive revenues, the construction of new capacity, when and where it is needed. That's what drives everything that we're talking about here. We are trying to make sure that the price signals that this market sends will support the construction of new capacity that only relies on the revenues in our market. If you are a resource that is not lucky enough to have some state providing you and out of market payment, we want to make sure that you get enough revenue from our market that you can be built when and where we need you. That's what this has always been about. There wasn't a shift from 2006 where, oh my gosh, we're worried about reliability to 2011. We were only worried about cost. We were worried about offers below, new entry offers below net cost from the very beginning, and that's what's always driven this market. There was a mopper from the very beginning. For it said, in approving the mopper as part of the 2006 capacity settlement, that it was designed to prevent self-supply offers from suppressing the price by offering in and below what it would actually cost to build a new power plant. That has always been the case. I would say that what has changed, we had a comprehensive settlement in 2006 that addressed the great number of issues. PJM looked at the state exemption and said, there will be an opportunity for us to participate. This is something we can live with. But after 2006, we saw the experience in New England where there was a great deal of out-of-market activity. There were new plants being supported by payments outside of their capacity market. So it was really bringing the price and their capacity market down, such that it was clear that it was not going to be able to support independent new generation, which is what we're trying to do. So we saw that experience. And then we also saw the discussions going on in New Jersey and Maryland about doing something very much like that, which came to a head, I guess, with the passage of this law in New Jersey at the end of 2010. And to get to the alliance interesting, we acted very quickly as that thing was moving forward, such that we got a filing into FERC within a month and a half after they passed their law to say in which they directed their commission to go forth and undertake this process. So our filing was before FERC, proposing to change these rules while they were going through their process. So again, it wasn't that much of a alliance interest. And again, the... Well, when you say there wasn't that much of a alliance interest, there was four years of alliance and sovereign legislature moving through a process and a third party being drawn in. I mean, stuff was happening based on the exemption that PGM had supported, right? Well, there were no state-sponsored new entry projects that triggered the mover during this entire time. There was no case in which they came to us with a new entry offer, a plan new entry offer, and we were involved in commenting on that. Maybe it could have been an option. There was a state law passed at the end of 2010, which initiated, which told the New Jersey VPU to do this process in 2011, which they started to do. And while they were doing that in order to clarify the rules, we said, we better get in. What did PGM think was going to happen? In 2006, when this settlement was struck, and it included the exemption, what did PGM think was going to happen? Yeah, I may be impossible to go back and recreate that. It's tough, because you're looking at a total package settlement that does a lot of things including the slope demand curve, the locational pricing, three or four. These are all huge things that we got on the summit. And I think we anticipated that whatever happened, it wouldn't be enough of a problem, and we'd be able to live with it. It was that level, it was friendly at that level. You'd heard the complaints from P3 and other power providers prior to this becoming the rule, right? We knew that that was potentially a risk. We thought it would be manageable, but then we saw that our own market monitors saying, look, this is a $3 billion problem, and we also have the experience, you know, experiences, a great teacher of what happened up in New England, where they were having a real problem with the level of, with their attempt to do something similar, which is to set up a market that could support independent new entry to provide competitive capacity, when and where it was needed. And that was the essential thing. So what you're telling us is, yes, there are differences between the world as we knew it in 2006, and the world as we knew it in 2011. We were constantly monitoring the market, and our assessment was over that period of time. There were different things that occurred that informed us that change was necessary. Yeah, what brought it to, and frankly, it hadn't been an issue because there wasn't any such state-sponsored new entry on the table until this process, which moved very quickly at the end of 2010 at the state level, started to have these proposals. And frankly, among PGM, it caused some considerable harm, because we were looking at, oh my gosh, this is really going to destroy what we're trying to do with these price signals in this market. And so those folks who are dependent on this market for the revenue in order to do new entry won't be able to do it, and that is a major reliability concern. Yeah, this state will take care of itself, but what about the rest of the region? If we've got a market that doesn't provide those price signals, then we've got a serious problem, and we need to let everybody know that, look, we can't let that happen. So we're going to get in front of FERC as quickly as possible while you guys are still thinking about this to make clear this is how we want to change the rule. And frankly, the processes moved in parallel. Our filing was on with submitted February 11, 2011. They started to do their process, roughly contemporaneous with the time of FERC had this proceeding before. We can send you a proposal. And you line up the times as being pretty roughly the same time. Are you talking about their building or their contracting process? Now, the state said directed the New Jersey DPU to hire consultant to do a study and take offers from new capacity. And then select one of those offers and then direct them to clear in PGM's market and also accept this contract for differences, which would say, OK, whatever you don't get from the PGM capacity market, if your actual cost or higher will pay the difference. And so it directed them to do all of that. And so what was going on in the first quarter of 2011 was they retained the consultant. They decided what the offer, the parameter for the offer should be that they were soliciting. They got those solicitations. The consultant did a report. That was all happening in the first quarter of 2011. So again, the key consideration there is that it was always about reliability. The marginal resource sets the price for everybody. The last resource to come in sets the price that all other generators are paid and sets the price that loads after that. And so it's always about making sure that you're matching up all the loads with all the supply. So it has always been the case contrary to the portrayal. This is, oh, this was always about don't let PGM put everything in the market from the time we initiated RPM. OK, everything was in the market. And I gave you some citations to the reliability insurance agreement that said that everybody has to pay the reliability charge all loads. Even if you've done your own deal, you have to pay our reliability charge. You can also offset some of that by putting stuff into our auction clearing and being paid. But that's subject to all the rules of participation of the auction, including the rule that you can't offer new entry below the cost to build it. Thank you. We'll now hear rebuttal and we're going to keep it pretty tight. If that's OK with my clients, just make your make your points or else the emotional distress level will be ratcheted up even higher. And we let you have a little more to all of you have more time in your main items. So just hit hit your high points. Good evening. Are you already used 10 seconds? I got it. All New Jersey was trying to do was avoid the blackouts. PJM said we had to worry about and lessen reliance on old coal plants and not pay twice in doing so. In doing that, we relied on rules that FERC had found were reasonable and consistent with the federal power act. This was a fail safe provision to address a specific problem. We bargained for it. It was approved. PJM, which now says, gee, we didn't know what was going to happen called respectful, reasonable and balanced and said they understood why the states wanted it. Now, there's been a lot of talk about a barreling truck, a New Jersey barreling truck. To be clear, there's no analysis in the FERC orders of what the New Jersey resources would do to prices. As to whether it would shift it on the curve and whether they were uneconomic, New Jersey went through a competitive RFP process to select those resources. They wore the least cost resources to meet the criteria that New Jersey had. There was nothing uneconomic about them. There's been a lot of talk about New Jersey's intent. There was no finding in the FERC order as to New Jersey's intent. There's no finding that New Jersey didn't meet the requirements of the exemption. Remember what happened. Instead of making a finding FERC might have said, look, you didn't meet the requirements. P3 and all these people say there's no capacity shortfall. That's not what happened here. Instead, what happened is FERC eliminated the exemption, which is implicitly finding that New Jersey had met the requirements. And that instead of allowing New Jersey to have the rights at bargain for, FERC took them away. Finally, one final point. There's a lot of concern by FERC about shifting on the curve and what's going to happen. Keep in mind that the same time that PJM came in and proposed eliminating the exemption, it proposed additional exemptions for wind and solar facilities. There's nothing in the record about what those facilities cost, whether they're economic or not, how many of them are going to be built, and what impact that would have on the curve. And it's completely inconsistent to say that New Jersey couldn't have those gas resources, but you can build wind and solar till the cows come home. If you're worried about a barreling truck, FERC has announced in that decision that there could be a convoy of trucks containing wind and solar barreling down the highway. My time's up. Thank you. Thank you. Your Honor, I just want to address a couple of points quickly. Ms. Banta described the New Jersey and Maryland programs as trucks barreling down the highway. The fact is the size of the state mandated entry is dictated by the size of the reliability problem. If a smart car or a Prius addresses the problem, that's what Maryland will be getting, not a Hummer and not a truck, because the state exemption, all that is justified under the state exemption is the amount of reliability that's needed to address the shortfall. Mr. Flynn talked about concerns about price signals in the market, and Judge Jordan, you correctly pointed out this was designed to be a base residual auction. This was not designed to be the be all and end all capacity in the region. Mr. Shepherd of P3 talked about Mr. Shanker's evaluations of capacity problems. Mr. Shanker is P3's expert, and it's not Mr. Shanker's role to determine whether there's a capacity problem. That role is the role of the Maryland Public Service Commission, a similar state agencies, to determine what is needed in the state. As a reminder, Maryland considered developing view resources because there was a reliability need that PGM first identified. The undisputed fact is that despite very high prices in the capacity market in constrained parts of Maryland, so basically the Baltimore Washington corridor, the Eastern Shore, these regions have seemed some of the highest prices in all of PGM, and yet no new generation was being built in response to PGM's price signals, no new resources to address the very real need in those regions. I think at bottom it comes down to the fact that RPM is a short-term market, and Maryland has to look at the long-term. Maryland has to look at reliability five years, 10 years, 15, 20 years down the road to ensure reliability for its citizens. And one final word about harm is true, even without the state exemption, Maryland could develop new resources. But without that exemption, there's a very real risk that our citizens will have to pay twice for that capacity, because if the new entry doesn't clear. But that would just be in the first year, right? Correct, but it's a very real, it's still a very significant risk for our citizens. And I think you're correct that we were led down the garden path to Jordan that we relied on this exemption. We understood that we would be able to address our reliability concerns. And one final final word, Ms. Danta, suggests in that this new entry is displacing resources in the market that are truly needed. That's not the case, as we've said, the problem is exactly the reverse. We're developing these new resources because we've seen high prices in Maryland and new new generation coming in to address that need. Okay, thank you. Thank you very much. I just like to address the mootness issue. And I want to, if I may, read a passage from Shays and Mehan versus Federal Election Commission 414 Fed 3rds 76 at 90. And it says, although the FEC Federal Election Commission insists that the congressman, the plaintiffs happen to be congressman, and it happened to be a political obvious. We got it. It's too late in the afternoon. Although the FEC insists that the congressman must demonstrate that specific rivals have exploited each challenge rules, our cases hold that when adverse use of illegally granted opportunities appear inevitable, affecting parties may challenge the government's authorizations of those opportunities without waiting for specific competitors to seize them. And they cite two fur cases, Louisiana Energy Power Authority, the FIRC 141 F3364 at 367, associated gas to servitors, the FIRC at 899 F21230 at 1259. There are all DC circuit cases. The point that I'm trying to make is that the guaranteed clearing elimination remains in existence. The fact that someone wasn't cleared in a particular, someone cleared in a particular year doesn't take away the fact that those opportunities will continue to happen year after year under both the 2000 F3364. Under the 2006, under the 2011, under the 2013 changes, and that is a risk that is harmed us. We are injured. Do you have a challenge to the 2013 matter pending? No, it's still on rehearing Judge Jordan, which means until you're seeking the process. It's in process. Yes, it's still at the commission level. So I'll try to bring it up here because I know how much fun you've had today. Okay. Ms. Kaffir talked about the one year two year issue and my argument about the nicer case. She pointed to two pages of paragraphs, both the dry holes for her. The first is 70A73. I call that out. They explained that we cited it. They cited the wrong paragraph. Then you look at the reasoning and they never addressed it. She mentioned a passage at J-136 where the commission talked about markets can be different. That's where Hess, if you look at it, someone was saying they have to be the same. And if Koshka was saying no, there was no reason engagement of our argument on the issue. So two with the highest of, you were right, Judge Rendell, they never explained the highest of. Ms. Kaffir talked about the fact that we were modeling a hypothetical resource. Well, PGM's original approach was to say, hey, here's a hypothetical resource and here's the zone where it's located. That might at least, if random, be symmetrically wrong one way or the other. PGM went and changed it and said it's the highest, which is always wrong in a direction that hurts the outcome. And that was never explained, never addressed by the commission. They just simply whipped it. Thank you. And thank you for your indulgence for everyone. Thank you, your case as well, argued. We're taking our advice when we have asked that the parties arrange for a transcript to be made of this argument. Someone could contact the clerk's office and we were asked that you share the expense of that. Thank you very much. Thank you. Thank you