Legal Case Summary

Good morning. We're prepared to hear argument in PPL Energy Plus versus Miss Arian. Mr. Straps. Morning, Your Honor. May I please the Court? I'm here for the appellant the Maryland Public Service Commission and I wish to reserve three minutes for a puddle. Your Honor, this case concerns Maryland's effort to meet an obligation that all states over their citizens. The obligation to ensure that the lights stay on, now and in the future. Maryland conducted an investigation determined that the state was facing electric reliability risk and decided to take action before rather than after a crisis. Maryland responded by seeking competitive bids for a new power plant that would be built in the Arian most at risk. CPV responded to Maryland's RFP. CPV found, I'm sorry, Maryland found CPV's bid to be most cost effective for rate payers and consistent with state law directed its retail utilities to sign long-term agreements with CPV. Assuming the contract with CPV is furc jurisdictional, Maryland did not intrude on furc's rate-reviewed jurisdiction by directing its utilities to sign agreements that are subject to that jurisdiction. And Maryland has no control over which resources clear a federal auction. CPV must bid in compliance with all auction rules, including those adopted by Ferd to govern the participation of state-sponsored resources. CPV did so and it cleared on that basis. Now, Pellies claimed that CPV's participation interfered with the auction, but Ferd found the auction results just unreasonable and deemed CPV's resource economic, competitive and needed, notwithstanding the state support. Now, contrary to a Pellies claims of the natural world. Ferd actually addressed the state support portion of this scheme. They addressed the use of resources, they addressed the issue of resources bidding into the auction, having state support, state subsidies, and concluded that if the resource cleared in accordance with Ferd's rules on a cost basis, notwithstanding the subsidy, that they were needed, competitive and economic, and that they did not. That was just a general matter. I'm asking you to respect to this case, could they opine on that issue? They did not opine on this specific contract, but they certainly had the details of this contract in front of them in a series of cases

. Remember how this went down? Originally, under the original mover, the first minimum offer price rule, which Ferd adopted at the time in 2006, states were able to bid in resources needed to address capacity shortfalls. Why did you shift from the vertical integrated model and go into the interstate, went to the interstate regional auction system because you knew that there were going to be certain restrictions when you made that shift in your energy generation model? Yes, Your Honor. We knew that there would be certain restrictions moving to that model, but we also knew that the states had a backstop authority to make sure that the lights stayed on if the market didn't produce the needed response. In this case, Maryland investigated carefully. Are you saying there's no way you could produce additional generating capacity without the 20-year subsidy? The state put out an RFP for competitive bids and sought a long-term contract because we wanted to make sure the resource would be in order. That's 20 years as an awfully long guaranteed subsidy. I mean, a shorter subsidy would be more favorable for your case, but when you compare the 20-year subsidy with the three-year forward pricing model, there does seem to be an imbalance there trying to tilt the game board because what Ferke has done is it's got a carefully balanced scheme between new entrants into the interstate market and existing entrants. And it's got a particular three-year exception for new entrants. All of a sudden, you come with a 20-year guaranteed revenue stream. Yes, Your Honor. If I could address that. The new, the new, enterant pricing model, the three years you're talking about, that's the model under the RPM auction. But Ferke never said that the only way resources could be built was through the auction. As Judge Garb has found, parties can meet their obligations in the auctions any of three ways. They can build their own plant. They can buy the capacity bilaterally or they can buy through the auction. So parties are free to contract. There is a separate marketplace outside the auction, a bilateral marketplace to try to get plants built. Now, all resources that you build and you want to use to meet your obligations have to clear through the auction. And PJM will pay all resources that clear the same price. But here, remember, the CPV resource that you just know

. You can go into the auction low because you know that any, you can clear the auction and you know that any, you can bid low in the auction because you know you're going to have the difference made up. No, you can't. Because as a new resource, when you bid into the auction, you have to bid on a cost basis. And in this case, what happened is PJM set CPV's bid on a cost basis and it clear on that basis. Now, once it does clear, as with any resource that clears on a cost basis, you can bid as a price taker thereafter. Indeed, most of the resources did. As Judge Garb has found, 80% of the participants in the auction bid on a zero or price taker basis. There's nothing unusual about what the CPV resource is doing. They don't have an incentive that's any different than any other resource in the auction. So, folks power with respect to the interstate market is the power to set rates. And we amidst all of the different briefs and everything, all of the discussion here. There's one question that occurs to me. And that is, how can this not set the rate that CPV receives when there's a guaranteed through these contracts for differences? Is it guaranteed to them that they will receive a rate that makes up the difference between any revenue they receive at auction? And Maryland's got a set of, they're saying what they should receive as a return. And they're entering the market knowing that whatever they receive at auction, the difference is going to be made up between what Maryland thinks they are going to receive with these with this 20-year subsidy, work from coercing local electrical distributors to make up the difference. Now, how does that not set the rate that CPV receives? Let me address that question. As concerns the Federal Power Act, there are two points to remember. One is public utilities set rates as an initial matter and furt gets the right to review them. CPV bid into the RFP and Maryland accepted their bid. CPV's bid and the subsequent contract with the retail utilities sets a rate that may be a rate subject to furt's jurisdiction. This court finds it furt jurisdiction. Furt can go ahead and review that rate

. If furt finds that it offends some uniformly principal or some other principal, furt can reject the rate or modify the rate. But there is no preemption. Either the contracts are non-jurisdictional and operate outside the federal market, or they're subject to furt jurisdiction. But as the question before this court, whether they're preempted, the answer in either case is no. All right, thank you. Thank you. Mr. Elgar. Thank you. I represent CPV. We were the winning bidder. We're currently building a power plant in Charleston County. I'm just going to say a good question. How are other plants expected to compete with you that may be more efficient and everything? But if you have a 20 year guaranteed revenue street, how are other plants expected? How can they compete in the interstate market with you when you have this kind of guaranteed advantage? Doesn't it just give the markets significant? No, it does not, Your Honor, because the way, well, two reasons. One is the very purpose of providing a subsidy over 20 years to build particular generation capacity in a particular location, using a particular technology and guaranteeing we will continue to be online for 20 years. Was the very objective. So of course, there is a subsidy and a subsidy does provide an advantage or new construction. But for the sale of capacity. Can you provide that advantage when you construction with tax breaks and other things? Thank you, such as that rather than something like that. Yes, there are many ways to provide subsidies. But if you think about it, you'll realize this particular form of subsidy is actually the most economically adroit

. In other words, the capacity is sold. The issue is to whether it's economically adroit. The issue is whether you have a branch in problem by tying the subsidy to the rate. Of course, that's correct. And so when you do that, why don't you have a problem irrespective of how efficient it might be or otherwise? So the two questions, then, are the field preemption question. Turning from the question that Judge Wilkinson asked me, which is how the competitive market functions. The auction process functions independently. And we must participate in the auction according to the firm rules. So the competitive market, as determined by firm. And yes, firm determined in three rulings with these specific subsidies in front of it, as reflected in the recent Third Circuit decision in NJVPU. But also in three decisions, all included in the appendix. firm with these specific rules in front of it, set the market, the competitive market, the way the auction runs, functions behind. So that's conflict preemption. Now, feel, yes. I'm really afraid that we're going to mess this whole system up. If we affirm here, we could do so on a narrow ground, which said that 20-year guaranteed revenue stream is just too much, too antithetical. And we don't need to reach other things that the state might do. But if we reverse and uphold something like this, it provides a broad umbrella for all kinds of subsidies here there, which effectively set rates. And we can be doing some incredible damage. Not true. And the reason you can't do damage is because FURC has plenary authority over all of these issues

. FURC determines when the auction is not functioning, and FURC reacted specifically to these rates. And it determines that because of the importance of subsidies, the state should be allowed. And this is exactly what NJVPUL, the states must be allowed to support new generation. Meanwhile, FURC itself is looking out for exactly what this court just said, and making sure that there is no adverse effect on the auction. Remember, the auction is only a residual market. The main contracting market takes place usually with 20-year contracts in a bilateral way. So the length is not the issue. Now, FURC has not necessarily spoken in this case, but your opponents have attempted to expand the record by including a brief in a different case where apparently they did, it did voice a concern about this particular scheme. Yes, and FURC's, I have something to say about FURC's brief in that case, which is FURC, did not support the notion that these are rates or charges. They did not say a third party payment is a rate of charges. What they said is it affects the rates. Of course, it does. So when you ask the federal government how broad is their power? It is as big as the auction and as high as the universe. But their proposition was not in support of the notion that these are rates and charges, but rather it affects rates or charges. And the effect issue is not a yield preemption issue, under Northwest Central. That's a clear holding of the Supreme Court. Those go under 205 and 206. And as to the conflict, if there is a suggestion of conflict, we point to FURC's orders, rather than its commentary and a brief. Orders are subject to APA review. And those orders are the ones we've cited. 135 FURC and the specific paragraphs are mentioned

. 135 FURC at paragraph 175 deals with this. 137 FURC at paragraph 2131 through 33. The Supreme Court decision is broadly supportive of FURC's exclusive regulatory power in this whole field of interstate electricity sales. I mean, you read the Supreme Court opinions and they seem pretty supportive of FURC's exclusive powers. And doesn't that begin to suggest field preemption to you? No, you're on it. Only because Northwest Central really defines the lines between the two. And it says there are actually two lines of authority here. But what was the issue in Northwest Central? Wasn't it the timing? No, no, but the issue was the argument, the legal argument was if something affects in an important way, the rate being set by FURC, would that be field preempted? Then they went on to conflict preemption and said, again, you have to judge conflict preemption in terms of the fact there's going to be a necessary interplay between the two schemes, which is the state's power to create new generation capacity is as important to the national interest as anything that FURC does. But that's what you don't have electricity. Yes, Judge Keenan was suggesting earlier whether this is important to the national interest and whether this is a good idea or a bad idea. It may be a wonderful idea for all I know. But the discrete legal question before us is does it essentially set a rate? And when you guarantee a revenue stream that allows a CPV, your client to come in at a very low price with the knowledge that the difference is going to be made up in terms of the rate that CPV ultimately receives. Whether that's a good idea or a bad idea is beyond my pay grade, but we do have, I don't see how this doesn't boil down to the simple question of the combined revenue that CPV receives from the auction and from these contracts for difference. And the fact that the local electrical companies are going to make up the difference. Why doesn't that set the rate? Because what CPV receives from the electricity sales? It sets the rate, doesn't it? No, that is not the rate. The rate is defined as the amount that is exchanged in the sale which is covered under section 201. It affects the rate under section 205 and 206. It is not for the sale. It is an outside the market supplemental payment. Yes, it is important, but then it falls within FERC's jurisdiction to determine. And FERC has said over and over again, and we cited the Allen Ganey case on the one side and the Midwest power case on the other side of the equation that when the state chooses to procure direct disease to procure capacity in the long term, it is acting within the power of the state

. So long as the price here CPV's price was set by the market. So my point is in response to Judge Keenan that the Supreme Court has defined and FERC's own cases define a clear line, and that is what they call it, a clear line between the narrow power, which is the rate power of which FERC can take jurisdiction and supervise it at any time. If you say so, I don't like this. Thank you, Mr. Fordon. Thank you. You've got some time for a bottle as well. Thank you. Mr. Flemant. Good morning, honours and may please the Court, Paul Clement for the appellees. There are some preemption cases that come before this court where the state has sort of stumbled into a preemption problem or into a federal field. But that's not this case. This is a case where the state knew in 1999 that it was making a conscious decision to move away from a vertically integrated model where they would control the generation power suit to nuts and affirmatively went to a model where they would be reliant on the interstate market. When they did that, they knew there were going to be some advantages, namely lower rates, and that there were going to be some. What's the advantage they received from going to the interstate market? They received lower rates, they received more efficient service, they received the benefit of all of the FERC regulation. But it's not like when they went into that wholesale market, they didn't understand that FERC would be the one principally regulating that. Indeed, at that time, they specifically said, well, we understand by going away from the vertically integrated model, we're going to lose some control that we traditionally had. But in that respect, they made a conscious decision. Then, as the years went by, that was a decision they made in 1999, they did like some aspects of the way that things were working out. So, they did what you would expect a state to do when you made a conscious decision to go into a federally regulated market, which is they went to the federal regulators, they went to FERC and they said, we don't think this is working out that great

. We don't think that your current model, which basically gives a three-year cost recovery assumption, that's kind of the underlying assumption of the model because it allows somebody to bid for capacity three years in the future on the assumption, you're going to make up that money in three years. They said, we don't think that gives enough confidence to investors to actually put money. And we think that's part of the reason we're not seeing new generation facilities being built in Maryland. And the state is saying here, we're not setting a rate, we are simply incentivizing and funding construction of new generating capacity. What do you say with responses to that? Well, your honor, I'd say that both ends and means are important. And the fact that their end may be, we're trying to get new construction projects in Maryland, doesn't mean that the means aren't critical and important. And the means by which they're trying to do that is by setting a rate for wholesale energy transactions. And that's something that they just can't do. Do they actually set the rate here or is this a scheme that simply has an indirect impact on rates? They set the rate about as directly as any case you're going to see your honor. And that's because as you yourself indicated, they determine through state action what CPV is going to receive for sales on the wholesale market. And when confronted with that question, my friend on the other side, they're really their only response, the only response they could have is, well, no, because we have essentially two payment streams for these sales. We have the direct payment that we receive from PJM for our direct sales. And then the differences made up by what understate law the EDCs are forced to pay us. Now, a couple of companies, you're still setting a rate even if the revenue comes from two different sources. I'm saying that. And if I didn't have any text to rely on, I'd still say that was right as a matter of just common sense that a rate is what you receive. But of course, we are guided here by the Tax of the Federal Power Act. And it specifically talks and defining, and when it talks about rates, it specifically talks about what someone receives for the provision of energy or provision of related services. What are CPV here? Instead of receiving tax break or subsidy directly from Maryland. That would presumably have an impact on the rate. Is that problematic? It might be problematic depending how the subsidy was set up, but it wouldn't be problematic in the same obvious way that this is

. And I would quite agree. This is just too blatant. Well, it's blatant both in how it operates and it is blatant in the sense that it blatantly operates to set a rate. And I quite agree with Judge Wilkinson's suggestion that the proper course here is to decide this case narrowly. And we think in some respects, although you often think of field preemption, it's the broad way to decide a case. I think actually the field that is preempted here is relatively narrow. It's setting rates. Because it preempts only to the extent that state action accepts rates. Exactly. Exactly. And it really is a narrow field in that respect. We think that- There are conflict preemption, probably, between the three years and the 20 years. We certainly do. We think there is that. And we think that's a wholly independent ground for supporting the judgment below. And I think that gets back- The district court didn't make findings on conflict preemption. He did not make findings, but I don't with all due respect think that there are any findings that are necessary to support the conflict preemption judgment. Because I would say there's one finding here before I move on to conflict preemption that I think is critical. Which is the district court did after a six-day trial. Look at this and entertain the idea that somehow the money that CPV is receiving from the EDCs is different from or separate from the money they're receiving on the PGM. And the district court said, no, I'm not buying that

. The fact that you are receiving money from two different people under this scheme doesn't make any difference. You are still determining what they receive. You are still setting a rate. Let me ask you this. The states and the Amicus briefs and the rest are saying we've got to provide sufficient electrical capacity for our citizens. We've got to assure them of an adequate supply of electricity. If you say that this is illegitimate and it's feel-preempted, then there really are not a whole lot of options that remain to us in terms of just making sure that our citizens receive a reliable source of electrical supply. Now, are we cutting out because the states do have some authority in this area in terms of construction, siding, and all the matters. But what do we leave if we accept your view? What do we leave open to the states in terms of meeting the needs of their citizens in the PGM region? Well, I think there are a number of options that would still be open. As Judge Diaz suggested, there would be ways for the state to give a direct subsidy. If it really is a direct subsidy, I think there would be an independent problem if- What kind of direct subsidy are you talking about? Just write a check and say, we want you to have. We don't think the market is working. We want a plant here. We're going to give you $100 per megawatt in a state subsidy. It's going to come right out of general treasury revenues. It's not going to be contingent on you bidding and clearing into the federal auction. What makes this particularly insidious, for example, in a way that the direct subsidy is not? Well, two things, Your Honor. I mean, one is it's insidious as a legal matter because it sets a rate. But it is insidious as a practical matter because it's tied so directly to the federal auction. And I think that's why the bid and clear requirement is something that FERC focused on, in its third circuit brief, because FERC did not come into the third circuit and say, we want to have everything preempted that affects a rate. It said the test is what directly affects the rate. Now, you may have some questions in the long run about how easy it is to police the line between direct and indirect effects. But when a state law says, look, we're only going to give you money. If you bid and clear into the federal auction, that's about as direct a tying as you're going to get. And then it really does, I think, in that respect, you could have a state could build a plant and say, look, we're going to still be partially in the federal auction and the federal wholesale markets. But we're going to, for purposes of this plant, we're going to build this plant with subsidies, and we're going to have it supply some of our folks, or there are other alternatives as well. I'm just saying there are a number of different ways to state could go about this. But when they say, look, we're not going to really pull out of the federal auction. We're going to build a generation facility. And the only thing it's going to do is sell in the wholesale market. So that is, just to take a step back, when Congress reserved to the states, the ability to handle generation back in the federal power act in the 1930s, it could not have conceived of a state building a plant for the sole purpose of selling into an interstate market. So I do think in that respect to do that, there are still ways they can do that. But when they build a plant exclusively to sell into an interstate market, tie it to that interstate market, and then distort that market, because what that whole market is trying to do in addition to provide capacity, is to provide pricing signals to the market where they can efficiently build new signals. And the consequence of this being built with a 20 year subsidy in Maryland is not innocuous. It's that some plant is not going to be built in Delaware or Pennsylvania that's actually a more efficient plant. And I think that's why I can't compete because they can't compete. And they're not, you know, again, the whole federal market is operating under the idea that the right time horizon is three years. So for somebody to come in and say, never mind three years, we're going to guarantee your rate stream for 20 years. That plant's going to get built. And it's going to get built irrespective of the fact that there might have been a more efficient place to build that plant from the perspective of the federal regulators. And of course, the federal regulators are concerned about all of the PJM. They're not focused parochly at Maryland

. Now, you may have some questions in the long run about how easy it is to police the line between direct and indirect effects. But when a state law says, look, we're only going to give you money. If you bid and clear into the federal auction, that's about as direct a tying as you're going to get. And then it really does, I think, in that respect, you could have a state could build a plant and say, look, we're going to still be partially in the federal auction and the federal wholesale markets. But we're going to, for purposes of this plant, we're going to build this plant with subsidies, and we're going to have it supply some of our folks, or there are other alternatives as well. I'm just saying there are a number of different ways to state could go about this. But when they say, look, we're not going to really pull out of the federal auction. We're going to build a generation facility. And the only thing it's going to do is sell in the wholesale market. So that is, just to take a step back, when Congress reserved to the states, the ability to handle generation back in the federal power act in the 1930s, it could not have conceived of a state building a plant for the sole purpose of selling into an interstate market. So I do think in that respect to do that, there are still ways they can do that. But when they build a plant exclusively to sell into an interstate market, tie it to that interstate market, and then distort that market, because what that whole market is trying to do in addition to provide capacity, is to provide pricing signals to the market where they can efficiently build new signals. And the consequence of this being built with a 20 year subsidy in Maryland is not innocuous. It's that some plant is not going to be built in Delaware or Pennsylvania that's actually a more efficient plant. And I think that's why I can't compete because they can't compete. And they're not, you know, again, the whole federal market is operating under the idea that the right time horizon is three years. So for somebody to come in and say, never mind three years, we're going to guarantee your rate stream for 20 years. That plant's going to get built. And it's going to get built irrespective of the fact that there might have been a more efficient place to build that plant from the perspective of the federal regulators. And of course, the federal regulators are concerned about all of the PJM. They're not focused parochly at Maryland. Mr. Clement, I'd respect to that. If this is in fact as in cities, as you say it is, why hasn't the perc weighed in with respect to this issue? Well, they have weighed in in the third circuit. And footnote three of that Amicus brief says that essentially the the New Jersey Third Circuit, this is this case. Why haven't they said something about this case? Well, in the third circuit, they didn't weigh in until they were specifically asked by the third circuit. And I think what you can infer from that is that the federal regulators are not anxious to offer their views on these things. And you know, you could have your theories as to why that's the case. But they did provide their views when they were asked. And their views were unambiguous that these statutes are preempted. And they interfere with the operation of the federal regina. Well, it goes further than that. I mean, you're upon say that not only have they been silent, but they've actually tacitly perhaps expressly approved this very scheme. Well, I want to address that. But I mean, you know, that's a that's a hard argument to make after that third circuit brief that's filed with all due respect to them. And here's the problem with their argument that don't worry for his already taken care of this. The FERC has tried to take care of this with the MOPER, but it's tried to take care of it within the confines of its own modeling. And with all due respect, it's not a full response precisely because the difference between three years and 20 years. The way FERC does this is they only apply a screen the first year. And if you clear the screen based on your costs in the first year, then after that, you are free to bid in at zero. Now, that makes some sense in FERC's world because with the three-year time horizon, their view is if you're efficient in year one, you should be built. But that doesn't work with the 20-tier guaranteed time horizon

. Mr. Clement, I'd respect to that. If this is in fact as in cities, as you say it is, why hasn't the perc weighed in with respect to this issue? Well, they have weighed in in the third circuit. And footnote three of that Amicus brief says that essentially the the New Jersey Third Circuit, this is this case. Why haven't they said something about this case? Well, in the third circuit, they didn't weigh in until they were specifically asked by the third circuit. And I think what you can infer from that is that the federal regulators are not anxious to offer their views on these things. And you know, you could have your theories as to why that's the case. But they did provide their views when they were asked. And their views were unambiguous that these statutes are preempted. And they interfere with the operation of the federal regina. Well, it goes further than that. I mean, you're upon say that not only have they been silent, but they've actually tacitly perhaps expressly approved this very scheme. Well, I want to address that. But I mean, you know, that's a that's a hard argument to make after that third circuit brief that's filed with all due respect to them. And here's the problem with their argument that don't worry for his already taken care of this. The FERC has tried to take care of this with the MOPER, but it's tried to take care of it within the confines of its own modeling. And with all due respect, it's not a full response precisely because the difference between three years and 20 years. The way FERC does this is they only apply a screen the first year. And if you clear the screen based on your costs in the first year, then after that, you are free to bid in at zero. Now, that makes some sense in FERC's world because with the three-year time horizon, their view is if you're efficient in year one, you should be built. But that doesn't work with the 20-tier guaranteed time horizon. And in a sense, I think it's CPV's own allegations in this case make this clear. They are on record at least before the trial, we're saying this plant doesn't get built without this 20-year subsidy. Okay? This is the buck for cause of this plant existing is this subsidy. And so I don't see how they can turn around and say, don't worry, we're not going to have the distorted effect on the federal auction when this capacity is going to exist that would not exist at all given the price signals in the federal market. And especially given the fact that you have this three-year, 20-year disconnect, make no mistake about it. What you're going to get with this product, with this project, if it goes forward, is 19 years of zeros. I mean, after they clear the moat were in the first year, they would be crazy not to bid zero because they don't get a penny including from the EDCs if they don't clear the federal auction. Well, this isn't a static process I suppose the firm could respond to that result. They could, you're on it, but my point would be that in a sense, asking them to continually try to stay one step ahead of the states and try to further modify the moaters. I mean, I'm not really sure there's a good way for them to deal with this three-year, 20-year disconnect in the context of the moaters. Maybe they could further tweak their system, but that sure sounds to me like evidence of a conflict preemption. I mean, generally, we don't say, especially when states go into a federal field like Interstate Rights setting, we don't say, well, we'll just let the federal regulators see if they can sort of sort that out and try to hold themselves harmless from the effect of these state laws. The way we normally proceed is to say, no, I mean, that's not first job. I mean, you can also go into district court and you can get a state law that is ultra-virus because it's preempted. You can get that law invalidated so that it doesn't have to deal with that. Because that's really, it's first, you know, principal job is to try to get these interstate rates correct. That's hard enough without having to spend all of their time trying to counteract and sort of adopt new countermeasures to the latest innovation by the states, especially when those innovations are in the federal field. And that's why I do think, you know, to paraphrase a spring court, they'll be in a dissenting opinion. I mean, this wolf comes as a wolf. I mean, this is not some subtle effort where they've tripped over some sort of obscure federal requirement. Even in the generation order that led to this plan, they said, you know, we don't like what the federal government's doing, but we think the federal power act allows this

. And in a sense, I think it's CPV's own allegations in this case make this clear. They are on record at least before the trial, we're saying this plant doesn't get built without this 20-year subsidy. Okay? This is the buck for cause of this plant existing is this subsidy. And so I don't see how they can turn around and say, don't worry, we're not going to have the distorted effect on the federal auction when this capacity is going to exist that would not exist at all given the price signals in the federal market. And especially given the fact that you have this three-year, 20-year disconnect, make no mistake about it. What you're going to get with this product, with this project, if it goes forward, is 19 years of zeros. I mean, after they clear the moat were in the first year, they would be crazy not to bid zero because they don't get a penny including from the EDCs if they don't clear the federal auction. Well, this isn't a static process I suppose the firm could respond to that result. They could, you're on it, but my point would be that in a sense, asking them to continually try to stay one step ahead of the states and try to further modify the moaters. I mean, I'm not really sure there's a good way for them to deal with this three-year, 20-year disconnect in the context of the moaters. Maybe they could further tweak their system, but that sure sounds to me like evidence of a conflict preemption. I mean, generally, we don't say, especially when states go into a federal field like Interstate Rights setting, we don't say, well, we'll just let the federal regulators see if they can sort of sort that out and try to hold themselves harmless from the effect of these state laws. The way we normally proceed is to say, no, I mean, that's not first job. I mean, you can also go into district court and you can get a state law that is ultra-virus because it's preempted. You can get that law invalidated so that it doesn't have to deal with that. Because that's really, it's first, you know, principal job is to try to get these interstate rates correct. That's hard enough without having to spend all of their time trying to counteract and sort of adopt new countermeasures to the latest innovation by the states, especially when those innovations are in the federal field. And that's why I do think, you know, to paraphrase a spring court, they'll be in a dissenting opinion. I mean, this wolf comes as a wolf. I mean, this is not some subtle effort where they've tripped over some sort of obscure federal requirement. Even in the generation order that led to this plan, they said, you know, we don't like what the federal government's doing, but we think the federal power act allows this. They knew they were trading on dangerous territory. That's why, you know, you don't see a lot of state-generation orders that specifically address the federal power act. They specifically said, we don't think that the one year, three year forward pricing auction is working. Now, with all their respect, they have other ways of responding to the fact that they don't like the way that the federal market is working. They tried one of them, which is to go to FERC and get them to have a longer time horizon. Is it necessary to intrude in the auction process, as opposed to a direct subsidy or something? Why was it necessary to tire this so tightly to the federal regional auction? Well, I can certainly speculate, Your Honor, and what I would speculate is that there's a very good reason why they did that, because the bidding clear requirement or tying it directly is what makes this seemingly relatively obviously preempted. There is a reason why both New Jersey and Maryland did that. Now, they'll tell you it's well because we don't want to have the ratepayers pay any more than necessary. I think the more nefarious reason is that the states actually wanted these bids to be made on the federal auction, and they wanted them to be low, because that would suppress the price on the federal auction. CPP is not the only entity in Maryland. Maryland is going to be buying other energy off of these federal options. If they can use this new generation facility specifically to push down the price and guarantee it gets bid in with the price-suppressive effect, then they're going to buy some of their other energy at a cheaper price, and effectively get part of the subsidy paid for by power companies in other states or even principally power companies in other states like my clients. So I think what they're doing is, it's not exactly something that is innocuous from an interstate perspective. It's perfectly rational from the Maryland perspective, or the New Jersey perspective. We can get some of the subsidy actually paid for kind of through the back door by suppressing these rates and benefit from that with our other purchases. That's great. So I think that's why they tied it directly to it. So I don't think that's just an incidental feature of this. It's not like they committed a foot fault in an arena where they otherwise had lots of ways to do this. They could do it, but it's very different to say that in the subsidy context, we're going to do this and we're going to stick with our decision to have this capacity, whether or not it clears, we really want this new facility. There are also other ways they could address this with bilateral contracts

. They knew they were trading on dangerous territory. That's why, you know, you don't see a lot of state-generation orders that specifically address the federal power act. They specifically said, we don't think that the one year, three year forward pricing auction is working. Now, with all their respect, they have other ways of responding to the fact that they don't like the way that the federal market is working. They tried one of them, which is to go to FERC and get them to have a longer time horizon. Is it necessary to intrude in the auction process, as opposed to a direct subsidy or something? Why was it necessary to tire this so tightly to the federal regional auction? Well, I can certainly speculate, Your Honor, and what I would speculate is that there's a very good reason why they did that, because the bidding clear requirement or tying it directly is what makes this seemingly relatively obviously preempted. There is a reason why both New Jersey and Maryland did that. Now, they'll tell you it's well because we don't want to have the ratepayers pay any more than necessary. I think the more nefarious reason is that the states actually wanted these bids to be made on the federal auction, and they wanted them to be low, because that would suppress the price on the federal auction. CPP is not the only entity in Maryland. Maryland is going to be buying other energy off of these federal options. If they can use this new generation facility specifically to push down the price and guarantee it gets bid in with the price-suppressive effect, then they're going to buy some of their other energy at a cheaper price, and effectively get part of the subsidy paid for by power companies in other states or even principally power companies in other states like my clients. So I think what they're doing is, it's not exactly something that is innocuous from an interstate perspective. It's perfectly rational from the Maryland perspective, or the New Jersey perspective. We can get some of the subsidy actually paid for kind of through the back door by suppressing these rates and benefit from that with our other purchases. That's great. So I think that's why they tied it directly to it. So I don't think that's just an incidental feature of this. It's not like they committed a foot fault in an arena where they otherwise had lots of ways to do this. They could do it, but it's very different to say that in the subsidy context, we're going to do this and we're going to stick with our decision to have this capacity, whether or not it clears, we really want this new facility. There are also other ways they could address this with bilateral contracts. I'm a judge-key and panic. Oh, I'm sorry. They had to have known it was a risky proposition. It's what you're saying. And they had to have embraced it for a reason. And that was that they were betting on the come down the line that they could reap some of the benefits. That's exactly right. But what I understand you're saying to us here today is don't worry about any bright line rules. Okay, because this is so far over the bright line. So don't even try to articulate in terms of the fact that the how the subsidies are tied particularly to the rates. As I understand it, you're saying this is just so far over the line to say that it comes into the category of field preemption and not try to say exactly what else may come under Yes, I think that's basically right. You know, it's not not my mission to get the narrowest possible victory for my clients, but on the other hand, I do think there is a path of least resistance in this particular case. And the path of least resistance here is to really focus on the fact that whatever else is going on here, this particular state initiative set rates. And it's set rates. Now, I actually think that that holding will actually, you know, I'm not sure that's going to be real easy to circumvent so that you will just be back here with the next case just like this because as I said, I think there's a real reason that they tied it to the the the federal market clearing price. And I think that that's part and parcel of why they set rates with this, you know, they really they look to that price. We're going to get that price. We know we're going to get that price, but we want these guys to receive more for 20 years. So this is a simple deal. We're going to set what they're the bottom line of what they're going to get for a wholesale transaction. We're going to set that ourselves

. I'm a judge-key and panic. Oh, I'm sorry. They had to have known it was a risky proposition. It's what you're saying. And they had to have embraced it for a reason. And that was that they were betting on the come down the line that they could reap some of the benefits. That's exactly right. But what I understand you're saying to us here today is don't worry about any bright line rules. Okay, because this is so far over the bright line. So don't even try to articulate in terms of the fact that the how the subsidies are tied particularly to the rates. As I understand it, you're saying this is just so far over the line to say that it comes into the category of field preemption and not try to say exactly what else may come under Yes, I think that's basically right. You know, it's not not my mission to get the narrowest possible victory for my clients, but on the other hand, I do think there is a path of least resistance in this particular case. And the path of least resistance here is to really focus on the fact that whatever else is going on here, this particular state initiative set rates. And it's set rates. Now, I actually think that that holding will actually, you know, I'm not sure that's going to be real easy to circumvent so that you will just be back here with the next case just like this because as I said, I think there's a real reason that they tied it to the the the federal market clearing price. And I think that that's part and parcel of why they set rates with this, you know, they really they look to that price. We're going to get that price. We know we're going to get that price, but we want these guys to receive more for 20 years. So this is a simple deal. We're going to set what they're the bottom line of what they're going to get for a wholesale transaction. We're going to set that ourselves. And then everything else is a matter of math. The particular generation order has is I understand in your view, two major infirmities. One is the length of it and the duration of it, the 20 year period as opposed to the three year period. And the other is the fact that it attempts to skew the federal auction and to get low vids on the part of the on the part of CBB in that auction and it's tied directly into the auction. No, are those the two major infirmities here? Yes, I think that's right. I mean, I think that you know, as you think about it, those infirmities themselves sort of indicate further problems with what they're doing. I mean, you know, the fact that they're setting a rate, the fact that they've tied it so directly to the federal market. I mean, one of the things that is a very deliberate choice by FERC is that everybody that bids into the PJM auction gets the same price, right? I mean, they could have set this up very differently and said, look, you bid in and whatever you bid in, as long as you're a clearing bid, you could pay just what you bid in. But instead, they say, no, it's the last bid that clears. That's going to set the price for everyone. Well, just get another way to think about the conflict here is the net result of the Maryland plan is that CPV is getting a rate for clearing this auction that nobody else has get. And that's yet another way that there's conflict. So I don't mean to, in any way, disagree with what you said. I think you've captured the nub of where we think the problems are here. It's just that that each one of those, if you think about it further, creates additional ways in which there is a conflict here. And the last thing I'd say is, this is a case where I think as one would expect, when a state intrudes into a federal field, it's field-preempted, but there's also all sorts of conflicts that are created because the reason that Congress put aside this federal field was because that was something that the federal government should regulate in the process of regulating that they make certain judgments. And the state can't really intrude on that field without upsetting it, especially when their initial motivation for going into the field is we don't really like how this federal plan is working out. Thank you, Your Honours. Mr. Srinoss, please to hear from you. Thank you, Your Honour

. And then everything else is a matter of math. The particular generation order has is I understand in your view, two major infirmities. One is the length of it and the duration of it, the 20 year period as opposed to the three year period. And the other is the fact that it attempts to skew the federal auction and to get low vids on the part of the on the part of CBB in that auction and it's tied directly into the auction. No, are those the two major infirmities here? Yes, I think that's right. I mean, I think that you know, as you think about it, those infirmities themselves sort of indicate further problems with what they're doing. I mean, you know, the fact that they're setting a rate, the fact that they've tied it so directly to the federal market. I mean, one of the things that is a very deliberate choice by FERC is that everybody that bids into the PJM auction gets the same price, right? I mean, they could have set this up very differently and said, look, you bid in and whatever you bid in, as long as you're a clearing bid, you could pay just what you bid in. But instead, they say, no, it's the last bid that clears. That's going to set the price for everyone. Well, just get another way to think about the conflict here is the net result of the Maryland plan is that CPV is getting a rate for clearing this auction that nobody else has get. And that's yet another way that there's conflict. So I don't mean to, in any way, disagree with what you said. I think you've captured the nub of where we think the problems are here. It's just that that each one of those, if you think about it further, creates additional ways in which there is a conflict here. And the last thing I'd say is, this is a case where I think as one would expect, when a state intrudes into a federal field, it's field-preempted, but there's also all sorts of conflicts that are created because the reason that Congress put aside this federal field was because that was something that the federal government should regulate in the process of regulating that they make certain judgments. And the state can't really intrude on that field without upsetting it, especially when their initial motivation for going into the field is we don't really like how this federal plan is working out. Thank you, Your Honours. Mr. Srinoss, please to hear from you. Thank you, Your Honour. Let me explain for a moment again. The question before you is whether this is preempted rate setting. Under the Federal Power Act, public utilities set rates in the first instance. If a furt jurisdictional rate was set here, it was set by CPV, bidding into the auction, Maryland accepting the bid, and directing its utilities to sign contracts. Parties set rates by contracts all the time. There's nothing unusual about it. That's how the Federal Power Act works. If this is a furt jurisdictional contract, then it needs to be filed with furt and furt can review it. If furt finds it offends a uniformity principle of some kind, furt can reject it or modify it, but it's not preempted. And that's the question in front of you, whether it is preempted and it's not preempted. Questions about the impact on the auction? Remember, furt found that the auction results with the CPV resource clearing were just unreasonable. That's in the joint appendix at 1031 to 1032. They found the resource needed, competitive and economic, notwithstanding the subsidy. And that's in the joint appendix at 889 to 890. Now, the question about what the state is doing. Remember, at the time, furt approved the RPM market. They said that states could do exactly what Maryland is doing here. Incentivized new resources through long-term agreements. And that is in the joint appendix at page 824. There's nothing unusual going on here. Question about bidding below cost? Remember, CPV bid into the auction in accordance with rules that furt revised to address the participation of the resources that the state was trying to procure through these arrangements

. Let me explain for a moment again. The question before you is whether this is preempted rate setting. Under the Federal Power Act, public utilities set rates in the first instance. If a furt jurisdictional rate was set here, it was set by CPV, bidding into the auction, Maryland accepting the bid, and directing its utilities to sign contracts. Parties set rates by contracts all the time. There's nothing unusual about it. That's how the Federal Power Act works. If this is a furt jurisdictional contract, then it needs to be filed with furt and furt can review it. If furt finds it offends a uniformity principle of some kind, furt can reject it or modify it, but it's not preempted. And that's the question in front of you, whether it is preempted and it's not preempted. Questions about the impact on the auction? Remember, furt found that the auction results with the CPV resource clearing were just unreasonable. That's in the joint appendix at 1031 to 1032. They found the resource needed, competitive and economic, notwithstanding the subsidy. And that's in the joint appendix at 889 to 890. Now, the question about what the state is doing. Remember, at the time, furt approved the RPM market. They said that states could do exactly what Maryland is doing here. Incentivized new resources through long-term agreements. And that is in the joint appendix at page 824. There's nothing unusual going on here. Question about bidding below cost? Remember, CPV bid into the auction in accordance with rules that furt revised to address the participation of the resources that the state was trying to procure through these arrangements. And CPV bid at a cost set by PJN. It's not a low cost bid. It's not a below market bid. It's the cost bid that PJN calculated under their tariff, which is a file rate. And it cleared on that basis. There is no auction price suppression. None of those things are going on for family results just unreasonable. The way the industry works. And furt, as I said, doesn't think these kinds of contracts are insidious. Let me spend a minute again on the government's brief from the third circuit case. That brief says that the state statute is preempted to the extent that this rups the wholesale market. But we know what furt has already said about state-sponsored resources and their participation in these markets. When they participate in accordance with the revised rules, they do not disrupt the markets. That brief is simply inconsistent with furt's orders. Remember also, in that brief, furt does not adopt the theory that Maryland set a wholesale rate. It does not adopt the theory that Maryland offended some uniformity principle. It simply says that Maryland is to the extent Maryland's activities are disrupting the auction that's preempted. But we all know that they're not because that's what furt has found. In terms of bidding zero, let me explain again, as Judge Garbos found, in this case, one should clear on a cost basis. Everyone bid zero. One final point, a concern about furt having to chase and change its rules to address these kinds of concerns

. And CPV bid at a cost set by PJN. It's not a low cost bid. It's not a below market bid. It's the cost bid that PJN calculated under their tariff, which is a file rate. And it cleared on that basis. There is no auction price suppression. None of those things are going on for family results just unreasonable. The way the industry works. And furt, as I said, doesn't think these kinds of contracts are insidious. Let me spend a minute again on the government's brief from the third circuit case. That brief says that the state statute is preempted to the extent that this rups the wholesale market. But we know what furt has already said about state-sponsored resources and their participation in these markets. When they participate in accordance with the revised rules, they do not disrupt the markets. That brief is simply inconsistent with furt's orders. Remember also, in that brief, furt does not adopt the theory that Maryland set a wholesale rate. It does not adopt the theory that Maryland offended some uniformity principle. It simply says that Maryland is to the extent Maryland's activities are disrupting the auction that's preempted. But we all know that they're not because that's what furt has found. In terms of bidding zero, let me explain again, as Judge Garbos found, in this case, one should clear on a cost basis. Everyone bid zero. One final point, a concern about furt having to chase and change its rules to address these kinds of concerns. These rules would change at the behest of the appellees who filed pleadings at furt asking for the change. Furt didn't come out on its own and announced that the change just needed to be made. Thank you, Your Honours. Thank you, sir. Mr. Hillgarten? I have to say, everything was the stress just said. But let me see if I can go a little more slowly because he made some major points. The first point is on the issue of whether furt has considered this. Not only did furt consider this in the rules reviewed in the NJBPU and approved the subsidy and say all you need to do is clear the first auction because we have specifically determined that once you clear that first auction, it is better for the auction that you continue to participate at zero. They explained why and this is at 143 furt excited in our briefs to 11 to 12. Just last year, they said sunk costs is why everybody 80% to 97% of the bids go in zero because when you build a power plant, it's all sunk costs and then the bids go in in zero because you'd rather get something instead of nothing. That's why people bid into the market at zero. That's how this residual auction works. It's called a residual auction for a reason because most of the contracting takes place under these long term agreements, these very long term agreements that take place outside of the auction. The auctions are residual auction and whether you're in the traditional model or not in the traditional model or a bilateral contract, the way the auction works, all of that capacity, even if it's bilateral contracting, is put back into the auction and comes in at zero in exactly the same way. Furt knows that. That's why these problems are reside for resolution with furt as to the 20 year versus the three year period. The exception that they talked about is this Niva exception which Furt has and said we will grant allow a subsidy of a sort for new generation in limited circumstances. That subsidy would have been paid for by the participants in the residual auction buying capacity in the auction. They said you can't impose those costs unwillingly on purchasers in the auction. That doesn't state a broad policy that extends beyond the auction

. Thank you very much sir. We'd like to come down and greet council and then we will move directly into our next case