have some ability to buy electricity as the pirate last resort and so in order to do that it enact in legislation that entitle cd w r to go out and buy electricity and made it mandatory  that the rates would then get passed along directly to consumer in fact the rates were so large that it was literally impossible to pass them along directly so what california did was from the perspective of the law this was in the first instance a case of statutory interpretation and we have very clear statutory language and acted by congress which says that all rat focused on the public not purely private interests and that was the distinction drawn in those two cases in other words if two parties between themselves want to make a contract and do we in our grief we've set forward those propositions and with regard to the second one we know that there's no authority for there i'm the first one the at least one bite at the apple and we think you should have more but for this case we only need one because we haven't that's right and half of those cases are quite simple in those cases is seller may go hunt track with the buyer the seller failed to file the contract never filed then went and said i'd like to unilaterally change this contract and so and i get to do it because that i never filed it in the first place and they said no nothing in either one of those cases holds that someone else couldn't come in and challenge that contract for never having a first bite at the apple and the seller could turn around and say because i didn't violent but never gets to review whether the rates are just an unreasonable so the cases hardly would wouldn't that's hardly remarkable and all  i have for you was in the other case it was said that there was it was not relevant because there was no challenge to any market power issue in the forward market is that true in this instance doesn't  the the challenge here in this case the theory of the case i believe your honor actually got it right on the head earlier was that whether or not the forward market was functioning competitively  two three years is the period of time in basically the way you have to that way and i let it play is it takes roughly three to four years to bring on substantial new production capacity which could be one of the things that would tame the first staff said infer came out with focusing on exactly the same time friend as to where this mirror effect would occur in functioning market but so so is the answer to the question i asked yes there is no challenge forward market is necessarily a derivative market it is morally neutral if tomorrow opec took over energy production in the spot market in california and the forward market remained perfectly functioning like the chicago options market based rates they said well what we're going to do is we're going to do it by saying if the markets function in the free market will produce just right and what lockyer says is we're going to let you go that a totally dysfunctional market in which market power and market abuses of the worst kind going on and which their own staff finds will therefore directly influence forward prices they're not going to pay any or i would point the court paragraph thirty seven of the original decision and paragraph sixty nine and one of two of the rehearing petition one of those is identical to the paragraph that court read this morning are irrelevant they would only be relevant if we were operating under a just and reasonable standard of review which we act and that's what they said about the rest of our other it it in fact in the entire proceedings it wasn't just at the end i mean we didn't see another proposition that in considering the public interest it should be relevant to consider whether the seller was itself gaining market and so we start to do discovery into rake it in the forward market by withholding shutting down your plant falsely on the spot market that makes everybody thinks that when you get think that we'll get another ninety degree next summer our rates are going to go way up again and by market fundamentals water goes down temperature goes up or spot prices no improper behavior the fact the prices at all in any markets in california one after it after another go to c n n i would go up and try to challenge that decision so we don't have a whole set of facts findings like you did in the case this morning if we're going to go back to the commission though i want to get across the point that the record that we were allowed to put together movies i'm not arguing th sound abuse and i can't quantify how do i cross examined two professors from harvard who are up there saying this was all supply and demand and i going to ask about market power and i'm told can't because we're assuming it but then i can't quantify it and then at the end of the case someone says you never quantified it is true even if bizarre record of a proceeding which we never got so the guillotine coming down at the end because the commission to look at you said everything's irrelevant but i i did want to get across the point that there's this notion that somehow in this case these contracts at all costs have to be left inviol their energy all the generating capacity they still have stuff left over to sell to others in three years allows them to pay off one hundred percent of all those plants that they bought in california and then everything is complete gravy on top of that forever and we suggested that that startling fact is relevant for precisely the reasons your honor said is that how could a functioning market if you buy the theory of market based rates has conceded that the markets were entirely dysfunctional and ironically i mean the most amazing thing about this regulatory versus free market environment is that california has now got the worst of both worlds because in december and that out to a firm for is what this plan would need to hold in the context of the work market failure in these electricity markets experience i'd like to go back to the point that was raised this morning and it was addressed just now about what is the proper standard here the the question that's been raised i think probably by you time how can you read the public interest into a statute that says just unreasonable and that is a question that is not i'm sorry to say original to  was take out of whole cloth that was the purser kits were taken out of whole cloth and come up with a scheme that makes practical sense in carrying out the purposes of the act in the purposes of the act are to according to the supreme court one is the stability of reasonable amounts of electricity at reasonable prices with price regulation so you are trying to do those two things in this in the way that congress that that often the f p a was to allow unlike other statues that had been before that allow private parties because in infers world as you've heard every number anybody throws out a number to a court it's going to be tens hundreds of millions of dollars in these cases we don't have really small cases effort that's why we have all these lawyers are just because they can afford to pay for lawyers to be here but seriously that's what the court says look when you're coming in with a supply you have got to spend a lot of money on generation transmission if you're the virus you may have to spend money to to set up a line in mobile that was the issue that was a industrial buyer and they had a set up a line so what you want in that situation it's stability of contract court justice harlan's says well we don't see anything in the federal in the natural gas act i mean by exemption in the federal power act and to as you can abrogate contracts so then what do you have  if you look at three fifty three and three fifty four of the year after what happened there now admittedly as you guys you recognize this morning judge verges on we don't know whether the contract was just in reasonable in a cost of service and when it was entered but what happened in this is the fact that sierra was the hump and he came in and said look we're only getting two point six percent return on equity  terminations every three years you know that isn't that your were we should differentiate between between two things the system that you're talking about is the system under two o by which is when a company comes in with a filing so under cost the service if i know if i'm in a utility i have to come to the commission and say i want to set up a new rate is going to be whatever in we fight about it now in the market base racing all i do is i come to the commission and i say i want to have market based pricing authority the commission goes through the analysis under to all five because i times i've said something you said no when we've talked through and it turns out that my suggestion seems to be correct because in this instance in that at the time of mobile sierra scene in the particular contract what happened from it is first in this instance th particular contract does not have to be submitted for us and what has to happen is there has to be a market rate basis already issued and that can go on and that's good for several years if you don't do it over again well yes so therefore the you know i'm like several different answers to that first of all even in the market based rate us already as you know from last year you have to submit the time track to information and it's it the problem in la in lock ar if you go back and read it is on a quarterly basis what we require utilities to do is time in with specific information about their contract they don't have to do the contract person but they actually have to tell you what's in them the problem in locked here was people aggregated it for the entire quarter and you're supposed to do it on an individual contract by time track basis now because the filing requirements under the federal power after subject to our discretion you found in other courts are found we can set up how the contracts are to be filed so i would say to you yes the contract under market pays rates are filed with us just as they were  in mobile sears time it's a different situation now i'm not going to say words you know we know from last year that it was filed as an aggregated data everybody made quarterly report filed in a way sierra in what the court relies on is two zero six power remember this case was instituted by section two zero six complaint a state condition or the commission on its own motion can come can come in and due to a complaint and say are these rates just in reasonable that could have occurred at any time in this case it occurred approximately is my understanding about one year after the contracts were entered or some period of time it could have occurred at the same time there's no the complaint was filed you'll see that the name of the case below is somebody would be somebody else that is compliant proceeding that after two  told us and i might add if you look at the city of richmond case which i'm sure you will look at this but nowhere is the where the court says the commission went to the just a reasonable standard because the commission said mobile sierra doesn't fit with our regulation it takes away our two zero six power just that's just a reasonable rate in the court said that's wrong the same thing happened in the boston edison case the first i'm sorry the first ne utilities case where the court told us that we had been slated the just in reasonable standard with the public interest standard so yes we don't use the service cost of service right making you the reason that you set up cost of service right making is because you have a new monopoly situation and you're trying to get back to a what competitive price would point just to start out to the initial order and paragraph eight was whether the dysfunctional spot market affected the forward market these particular contracts so ye believe that for address specifically the question that was raised in the complaint and specifically the issue that you're raising now do we go we didn't go back to cost the service back to correct what we did do however was look at if you recall from the record that cal b w r said that we are going to try to get a price of seventy dollars a megawatt hour that was based on january two thousand and one the rates dollars a megawatt found that the contract here did not exceed that price over their term and came to that conclusion so we didn't do a cost of service correct but it wasn't like we didn't look at anything we looked at what cal v w are they as you may recall from those days they were not no one in california was for us one of our friends  us put it that way during that period of time and they certainly weren't picking a number that would make our job easier but if you look at the record in this case and what the commission found was that the prices here did not exceed that that was one of the goals that was reached another goal was that cal d w are not the commission cals of the w r said we want to get a diverse supply we w want to have lower prices in the early years higher prices in the later years they got those things the commission looked at every one of those indicia of what cal the w r had picked as being presumably just reason because that's what the california legislature told them in their statute to do and went through the record found that those things were masked and therefore there was no harm to the to third parties only one just in reasonable standard under the act for contracts in that it's by the supreme court in mobile c r and we if you go back and look at the early patients you can see that the co resisted that over and over again and got shot down over and over again and now we are following what the court has told us it this is this is what the supreme court has told us is the just in reasonable standard under our act in this in the situation of these types of contracts and is it in the statute and no obvious the public interest as perry said this morning is found in two zero one nine into a five or to a six but the supreme court interpreted the act in we are required to follow that think it's i think it's for the very reason that the act was the per if you look at the purposes of the act that when you have private parties agreeing to a particular type of contract they want stability for examples or they may have made investment decisions on that whatever and so you're going to say and also the second thing that you have to recall is that in under our industries we have very large parties and what the act does is assess the risk of having either a too high or too low contract to those parties instance rather than the commission so if they decide they want to set up a rate that is not just unreasonable and the admittedly all the cases are below but remember and sierra they were response here you have a dysfunctional market you did have a dysfunctional market and asked the question we looked but read about what the commission found several things on that the commission found that yes the staff report did find in the commission i don't think this is a valid is that the one to two year contract had an effect however most of the contracts  mindset of the commission no i'm trying to i think she was asking you multiple questions i apologize your honor i was not trying to be disrespectful to like what i was trying to say is first of all that the commission found respect the commission found that most of their contracts were for ten years so that is the first point and the second point at seven fifty to seven fifty the commission said look we understand the staff report found that there was a relationship between spot in the market but we think the market fundamentals override that so they considered it but they also considered other factors in those other factors overrode the doctor to kill or finding so i don't think they ignored it the dysfunction in the market i think that they just looked at it as one factor you know what i remember that period was that everything were running around like chicken little you know like the sky was falling in and the you know the public officials were were were being blamed when they were desperate for to try to ameliorate the situation and so you were dealing with the normal market you were dealing with a kind of a here there was no finding on this route i mean this is between us i won't tell anyone else you're out i think the repeat that you you heard the name enron how many times today  which when you say what i'm saying is that they did investigate i i want to take the first part of your first part of your answer in the second part because there was a heightened standard if you consider the public interest heightened over the just and reasonable standard but they looked at all the factors and they didn't find enough i'm not saying they found no effect on the spot market what i'm saying is they did not find enough of an effect to override that to require the modifications of the contract under the public interest entered as in mobile  in the end there was never any at an inquiry parallel to the one that would have been made in the first instance with regard to whether and there was a functioning market that would justify a market based authority as the manner of determining just you recently say never made that decision in the way they would have and did when they first granted the authority did the individual companies did the commission look at the individual companies market power in two thousand two thousand and one to determine if they were exercising market power or if they were operating in a functional market that would justified market based already at that time i think in the prior case you heard about the scores of investigations that we have got ongoing as we speak to those very issues and yes they did consider all those factors here and yes they did take away enron's market based power in the area have to have show cause proceedings to look at other whether to take away the market power from let's take enron and i understanding is that the enron authority shouldn't have existed at the time they entered into the contract doesn't matter because that's not what you looked at that's my understanding but i'm just i just want to go you said the refund for person i don't think the commission said it doesn't matter the commission said we investigated the matter we looked at all these factors particularly when we looked at the d w r s objectives we found that they are maybe they didn't hit him exactly on the targets but they were often enough to require modifications of these contracts so that it didn't it isn't that the commission didn't say we don't have authority to look at this authority we are going to set up an investigation we are going to look at and it's going to be under the models the earth standard but here is all the factors that we've looked into for any of these contracts with enron not what you're saying you're saying that if you had that if they had come forward in this proceeding with the same evidence they came forward with in the market right authority proceeding with enron you would have found you would have considered under the public interest and  power and there is a they have to should come in with a whole bunch of exhibits as to their market power what's the relevant market and things like that and that's a different analysis so that if  enron had a contract is your question is if enron had a contract in this case would we have not looked at it would you have what you have simply said to the public interest or out requires we do under the act in mobile c r but in this case we looked at every single factor that was presented in found that the evidence didn't show that there was an excessive burden on the third parties which is the standard for public interest of the third party group or those would be the rate payers people who the people who are not is because there's something on the other side of the bounce reason is that the supreme court has recognized that the federal power act cares about not only the low prices right now for consumers but also the well as present consumer interests and maintain the ability to attract the capital that's necessary to be built generation resources the court recognized that it's important not to lightly throw away contracts on which the suppliers have relied in building new plants or in going out and buying energy to resell because if you do that these companies aren't going to do that for consumers they're not going to come in during a crisis and build new plants in california unequivocal public necessity in our cover says hall the supreme court's of the commission itself lacks affirmative authority absent extraordinary circumstances to abrogate contractual arrangements so when the first circuit in the d c circuit held that you can't translate the word merely just a reasonable standard with the public interest and that applies when contracts are an issue they weren't just making it up and they weren't getting it wrong they were getting it from the supreme court apples and oranges we'll try not to do that but but whether in other words when you haven't even once yet i realize that your honor in my blood sugar still in the same way but the question is when you first signed a contract point i undoubtedly believes you have authority first of all i believe that this is this passes where they say a new rate is no more a proposed rate than any other rate all of which are equally subject commission review i think that's what they're saying but accurately it was a seller and the seller and the buyer had a contract that was never filed with the commission and the seller wanted to increase the rate and the supreme court held that the public interest standard should apply to that desire to increase then it's this from curtis didn't address it neither mobile nor c r involved that situation we can agree on how that's right but the reasoning of the supreme court in mobile in zero which is that it really is the contract between the parties that way your honor that doesn't create any kind of a power truck formation problem how it was influenced is like any other forward market what you're willing to pay for something in the future is influenced by what you expect the prices to be in the future and you can this is the first case which is mary noble theora with market based rates now shouldn't work now even if you believe that it was important for her to take a look at the kind at the contract in the first instance under a lower standard i believe that's hospice world the contract is filed with the commission and the commission has the ability if it wishes to review it or else you can just let it go into effect right in the market based world it's true that there's a lag time between the time of the initial finding that the markets are working properly sometimes although in the case of sempra for example in this case it's the stock market based authorization two months before the contract was signed but first certainly for many of the sellers there can be a lag time however try to prove that these contracts exceeded that which a competitive market would have produced and they tried to do it and they tried to do it they had one of their experts determine what the cost of the contracts would have been had you built a new but significant buying power here exceeded the long run marginal cost he couldn't prove aren't not being able to prove that they exceed the long run marginal cost destroyed their case because if you can't can if you can't prove that the prices are higher than they should be in a perfectly working competitive marketplace or even in a workable competitive marketplace you can't meet the public interest in it which is what  required to meet in this case or say this because i know the stakes are high here and there these are very complicated cases and we had a very thorough discussion feels that they have a burning information that they need to present you can go ahead and send us a letter