denying an analysis of our complaint under that standard my colleague randy elliott from the southern california water company will address the court second and will address the issues specifically about the contracts at issue for the nevada company and for southern california particularly for its erroneous ruling with regard to the contract claims in that case and why our clients did not give up their fundamental statutory rights third mr christensen with the snow much county group will be discussing for all of us why the application of an inappropriate lee narrow mobile sierra tast did not make sense here for any one of those three arguments if you agree with us whether the arguments that each of us are going to present that cover all of the three cases  essence you would have to reverse and remand this case let me begin by saying that there are sensually oh i apologize let me also introduce and not arguing with me as the representative of the questions about that position let me take just a couple of minutes to set the context of these cases the record in this case is very very large that actually i'm going to read to the court i'm not going to make my argument by reading but i'm going to read a couple of paragraphs of facts that i believe are absolutely critical that rock of what the court needs to begin considering in this case first of all the decision below in our three cases was a two to one decision there are only three first commissioners of the time where the trooper commissioners that are in the majority that we believe should be reversed by this court and remanded to again are couldn't even agree on their message so from a standpoint of deference the agency itself did not speak in the most coherent way we would argue that perhaps the most single most important document for this court three is commissioner massey's dissent commissioner massey is no longer a commissioner but address we think this case in a very coherent fashion let me begin by saying that in one thousand nine hundred three the enron company was granted the a party to make market based sales of power and in two thousand and three that authority was revoked and let me read one paragraph of the order revoking that that is they for a quarter and in that in that order that the first said enron quote participated in practices manipulate prices so as to charge unjust and unreasonable rates at another point it says quote accordingly we find based on the record in this proceeding that the behavior of the enron power marketers constitutes market manipulation and results and on just an unreasonable price of rates we find the same conduct violates the expressed requirements in our orders allowing enron power marketers to make sales and market based rates now why don't we start with enron because the totally dysfunctional so called western energy crisis that is was talked about is not just the criminal conspiracy of enron but it is dysfunction of that market but enron is at the core and part of this case for the nevada companies we have approximately six hundred million dollars of contracts in this case over half of those contracts are with enron so when one looks at this case every one of the contracts that the nevada companies entered into or entered into in the period of december two thousand till june two thousand and one or all our short duration contracts for less than twelve months first required refunds on spot market contracts for contract in that same time period just before this case was decided by the first by the very narrow two to one majority vote staff report on pricing if you lation in the western market was released and that's in the record of this case let me read you couple of quotes there because i'm going to tie those quotes up to how they are drawn together in the actual decision by the first in this case the first quote is the forward quote the forward contracts prices and all of the contracts that the three of us have at issue here today were forward contracts were courting to the fur quote distorted specifically the first report found quote forward power prices negotiated during two thousand two thousand and one in the western u influenced by the then current spot market spot power prices and then finally the staff report says quote the influence of spot prices on forward prices was the greatest for forward contracts with the shortest time to delivery one to two years those are exactly the neurotic when you said you're going to talk about the legal standard and your sort of guns some are far afield because you're now talking about what the factual distinction because eventually fark applying whatever standards apply and determine that you had made it your case with regard to the influence of the spot market on the hard market sometimes they seem to be first said that links that particular staff report to the decision and then let's talk about the legal standard if the the court had before it the paragraph ninety four of the water in this case through power prices particularly those for contracts with a short term nature of one to two years in other words you picked right out of the staff report and adopted that language it then said the commission has already concluded that the california iso p x pot markets were dysfunctional during the relevant periods and that rates in those markets were on just an unreasonable evidence of market manipulation merely suggest yet another because of those dysfunctions and the unjust and unreasonable rates in the spot market however and here's where we standard of review so what first that is don't look there don't worry about what actually occurred because we're not going to we're the only way you could get relief in that way is under the just and reasonable standard now let me to be saying that this was an impact which i would actually say that is not accurate because in the paragraph ninety four in the june twenty sixth water and again  louisiana energy it's been made clear that the first authority to rely on market rates which we do not challenge in this case must depend on the existence of the just and reasonable prices being the ultimate statutory crop promise in this case the only way that fur can justify and say that it is just and reasonable rates have been obtained i hundred ninety three and every three years thereafter they gave enron and the other companies the authority to sell at market based rates they say when we made that judgment the the members of this court should accept from us that we were equating that with a just and reasonable price and that is wrong that is fundamentally wrong and there is a disconnect between the promises that were made  here because the lockyer court said the mechanisms must be there to assure a just and reasonable rate and whether the market forces were truly determining the prices and are this is what i'm trying to clarify are you ar just and reasonable market rate and that's what we didn't get in this case this case is not about something that happened after we entered into the contract it is fundamentally that at the time we entered into these contracts we were denied a just and reasonable rate the problems of how their grants of market based rate authority would work there's not a point either in their decisional law or in their real making authority where they anticipated where we are today which is what happens market to spin out of control in the way that it did it protected the spot market it stepped in and said with regard to the stock markets we're not going to permit this any longer but what it never did was address the forward contracts sanctity of contract became a barrier to the evaluation occurring here so what we're saying is yes indeed just as you said a second ago we want that the just unreasonable determination of what the market price should have been at the time of the let me just say that it could have made these different trains of thought the train of thought that permits market based rates and the train of thought that meets their statutory responsibilities are just and reasonable prices if they had indicated that there would be a rebuttal presumption that the market based rate was deemed to be just unreasonable until it could be proven by us otherwise in other words you have to have a way of addressing this food has given us no guidance on those issues they simply said not withstanding the record you're not entitled to a just and reasonable determination because we said ned had they done so frankly these rates would have been radically change structure based on their own prior findings with that i'd actually like to call on mr elliott at this point to address the contract issue which we believe could be have respect in the california public utility commission case you're going to hear later in the day that there are no fine is i've heard on that point they declared the issue relevant as a matter of law so that is completely off the table organization the powerful and then it has been standardized terms or energy transactions that the members of the powerful will use in trading with one another that has this dual character virtue orders questions is most powerful agreement to me and the master agree it's not talking about how we amend individual transactions under the agreement it's only talking about how the two hundred parties to the agreement can amend the master argument the other thing i wanted to talk about in fact what really confuses the issue here the issue here is mr wright is explains about what happened at the time the contracts were born we're not talking about i signed a contract its responsibilities and it's going to that point they have to do the subsequent monitoring and they have to have in place a remedial scheme to make sure that the market is working and if that's not the step then and so that's a just a reasonable rates i think a lot years on all i'm sure you do after reading all the police in this case as mr elliott indicated i'm going to focus on for like public interest graph now the fundamental flaw here is the first conclusion here is that they don't even have to look at whether the markets giving ri markers that that in the market giving rise to these contracts has to be properly functioning and producing something something approaching marginal cost rates if it's not then the contracts are pushed taken just an unreasonable and th and this southern california water contract should reflect the long term marginal cost of building new generation in the west and in fact the contracts that we have are three to four times that amount so that the evidence is  that that protected individual residential consumers hospitals and schools exactly the people that we're trying to protect in this case and the court concluded that  to reserve him fifteen minutes of time at the end of the argument in order to address on behalf of the intervenors the i will do your doctrine in mobile as the supreme court found that the f d a allows parties to fix rates by contract and once the parties fix those rates by contract the parties themselves cannot unilaterally change those contracts just as they couldn't change any other applies under the a p a but we also have here the additional question of what does that mean with regard to what the commission can do with respect to occurrence that and they looked at the statute and the court intrepid and the staff to you to provide that because  deciding whether to modify the contract but it has to be an independent public interest that the commission is furthering and that was the burden of the era it was an extension on the mobile rule to address the question of well what does it mean once they set a contract rate what does that mean  commission can do and they were very clear about the commission can only be looking at whether the contract rate is unjust in a reasonable under two hundred six the commission's consideration is limited to whether it's contrary to public int basically asking for contract modification on the basis of the contracts were not just unreasonable when entered into them what that means i guess what that's really my common question is whether it matters when you have to parties well involved here because that that's not sufficient to show public interest because they didn't show an actual impact on their rate payers just the fact that a great might be too high or too low doesn't mean it's perfectly to the public interest you have to actually look at the burden that's being cars on the public no manipulation as they were talking about it and you know they were talking about enron earlier the commission well first of all the eight l j in the commission of the firm these findings found that there was no evidence of specific manipulation by any respondent that impacted the four market be discriminatory to people third party you know competitors other people and i think in some like in the p c case we're going to talk about later there wasn't i believe you and you can tell me if i'm right or wrong there there was no consumers on third parties and it did not find the public interest was implicated and if i may just make one point about the staff report because it keeps coming up repeatedly the stock report said that with regard to for ninety three in the borough lansdale is four ninety four fed second one one one two and the mobile theory has been extended to in both of those cases of the most public interest standard was extended to contracts that were not on par with commission and in fact being in the borough lansdale the court made a point and no forty one one for i knew that possibly comply with us because it goes back to your your honor it's a point being that you have to start with the commission did in the case intervened in support of the commission as i was listening to the arguments this morning and in preparing for today i'm reminded of what my first year property law professor taught me a long time ago but what was his name let's give  time your career probably more often than you're prepared to accept where you want to know what the answer is to a difficult legal question whose advice was to step back and think about what makes sense what's fair what's the r under the circumstances i didn't do the best they could you said they could have done better but but one way or another they were operating under very difficult circumstances which were not of their making and the question is yes there aren't happy with this over reliance on the spot market at times thirty percent of the needed load in california was bought in the spot market the commission the accuracy recognize that there was a problem and so they took steps to move that load into the four markets the commission understood at the time that prices in the four markets would rise because of that it's a natural reaction of a competitive marketplace that when new dimensions of prices rise that's important for a market to function because context of what they were starting out with which was extremely and an abnormally high rates in the spot market which meant that they were going into the power market to avoid dollars and just i just seems to to avoid this abnormally high spot market so it's being influenced by the spot market in that your honor is a functioning competitive marketplace that there is tight supply and demand conditions and high prices is what happens in a competitive marketplace starting from they were starting from a competitive marketplace they had to come for the positions had to come for the show with some component of their ford price was a dysfunctional was attributable to time thing other than supply and demand conditions and they did not read hearing order is one place we commission explains that when buyers have choices that shows us that proves that the competitive forces will appropriately discipline prices next the commission found that there were lots of choices available to these lock your case concerns market power the analysis of this focus this continuing monitoring obligation is focused on does the granting of market based rate authorization have market power as anything since we granted the authority changes the as if you have market power market power is not alleged it's not part of the grommet of the complaint any regard and we don't have market power second of all lockyer the concern there was a spot market type of transaction reporting these are all for contract cases a lot of them were for delivery after april two thousand and two when the commission issued its order defining lockyear and prescribe the reporting striving for clarifying the reporting requirements and or you know it's important here to focus on the fact that they had choices and they made a deliberate plan with what they were doing one of the things that's been a minute here is let's turn a discussion this morning is in the case of the nevada company their own one it made a ton of money in two thousand going along on power and selling it in the california at the same high prices everyone else on the ties seven hundred fifty dollars a megawatt hour to nomadic companies were worried that the marketplace would get wind of their true state of financial affairs they were trying to outmaneuver the marketplace they were trying to lock in as much supplies they could before the market realized that their credit was actually worse off and that was being presented and so they were trying to gain the marketplace themselves and it worked for a while again so they made about one hundred million dollars in two thousand using this technique and then the marketplace moved against them in the case of some homes in southern california water the creation there also found that those parties actually made money their private interests are locked up by the contract but if there's an adverse public interest and yes the commission will step in and reform the contract so here the complainants tried to present a case that there was some public impact and they couldn't do it in fact that's why they're standing before you asking for those other standard overview which honestly on a it's got a bad name to it it the statute is the statute it must be complied with at all times how we measure compliance is a difficult question times perhaps but where you have a fixed price contract where the parties in the contract understanding those risks then that's between those two parties the contract binds them if there's an adverse public in fact in the commission it can reform and in terms of normal judicial standing what spinning does the public utilities commission has to stand for in complaints then before ferkin complain about a contract in last there's been an impact on the public if the impact is only felt on the private parties t were reading from the commissions or they're talking about the private interest there and so when the answer to that is that when i don't laugh when i lack market power when i am a price taker when i am not free i do not  i think the commission has concluded that it was there was a workable competitive marketplace for board contracting and that therefore it's appropriate to presume that these contracts were just reasonable for all the reasons we have market based rates and that it i certainly you know we did ask for a rehearing clarification if i had my way i could write a better decision by the commission yes it doesn't quite work out that way for us but i don't think a remained as necessary are first of all there are no serious factual disputes here the factual record i everyone pretty much acknowledges that the question is the implication of a lot of that and even if you have trouble with the way the commission articulated its disposition of the causation question there's still the injury question and one of the impact with sufficient to warrant release here their own free will given the circumstances in the market that they found but if we don't answer the question then that first refused to answer our lips or explain why we're not answering the question that for refused to answer how can we say that that that the statutory requirement just a reasonable raise was being met because you're looking at whether there's a public impact and there's been no showing that there's been a material adverse public impact to thank the prices went up without ever marketplace and it's important because you know one of these the plan is to come in and afford marketplace because by moving low into the four marketplace by meeting it with supplies available there you this empower the rule dysfunction going on in the stock market you di the high profit because it was way more than your cost because of the nature of the spot market you may have been in a completely innocent that you still may have ended up getting a much larger profit than you would be entitled to an anonymous function market is exactly the wrong mindset for looking at this case because if somebody is cheating in the spot market if it was having an effect in the marketplace but you and i contract even if my price is higher than it would be but for their cheating the fact that you i are contracting is what several i seem to mix in this case our profit margin by itself in isolation any one contract is immaterial when the contract is executed under market rate regime and the reason why is because the profit margin will fluctuate wildly in any given series of time as a market based energy merchant and example of what i mean about that is just reforming this congress because you think we make too much money even though we were otherwise innocent and why that's wrong is that shown by opec we have a cartel outside the jurisdiction united states that fixes prices and because of that people in california people in texas wherever that's got well maybe they get more for their oil than they should but we don't punish them we don't take from them what we would perceive to be that unfair inflation and the reason that we don't apples to oranges comparison to take a cost of rape or cost the first rate standard and just superimpose it on one particular transaction done pursuant to a market based rate in any given instance you may find that the profit earned on that market based rate exceeds or vastly under a lax profit that would be allowed and a cost of rate regime so it's an apples to oranges comparison which you look at in a market based regime is where there are choices did the buyer have alternatives that were reasonably available and it's no use those choices exist then the competitive forces were will discipline prices that in the long run match marginal cost of production  you know well if the supplier didn't do anything wrong if the price resulted from a workable competitive marketplace in the buyer misjudged which direction prices were going well that's the buyers responsibility or one of our this functional marketplace if there can be shown to be dysfunction and perhaps the commission should act as it has in the california there we had a restructuring that was wholly different then bilateral negotiations where there's a back and forth in the california market guy so if you actually markets it's a single clearing price option that is the last supplier who's needed to fill the demand for that you can  out of here instead certain ones are getting a rate increase and this other second class doesn't look like a very high number to me that's what they found that's ridiculous the overall rate increases thirty eight percent that's undisputed spot market price dramatically in the quarter market prices fell dramatically and it became evident later in two thousand that the ninety five dollars price was grossly inflated over what i through competitive market would have been in march two thousand and and the manipulation the spot market itself is just one market and therefore we when that's not your argument you know i mean i think there are there are two arguments first of all that the dysfunction in the spot market i think that all markets all across the west including the forward markets including will result in a five percent increase so the rate payers and evolve that's what the paragraph says and it says that's not an excess of burden in other words they are good sure way the transfer of millions of dollars to enron and say here that's not an excessive burden i too have a learned professor that taught me something it was robert samuelson and in his economics class he used to say the law detains both women and order my client will be ordered to transfer money to enron that either we will be asked to eat as the utility or the shareholders the rate payers of nevada will be asked to pack that is not just soley on payments and right now he won because you might you might have to yes because that's what i would have in california as i understand it was a phrase on the right that that is a that is a possibility but let's go back to whether these contracts were specifically fact which is one of the issues we talk about in truth we ended up with half of the value of our contracts with enron with the particular company that has been demonstrated in this record to be criminally manipulating what kind of a market is it where half of the value of your contracts are with the party about which there can't be any so called western energy crisis there is a true crisis and a manipulated market in that way let me go to one or two other points at paragraph nineteen the fir made no finding that the long term market was functioning properly here just this what did in paragraph ninety four was ducking the issue i am willing to bet our entire case that the fir in no way approved and said that these markets were working properly and they couldn't in the nevada company's cases because our contracts were short term contracts in the very time period yes their forward contracts the just beyond the spot market it be lies live chick to try and insert a credit card between the forward contracts that are in the immediate short term period in two and their hearing was his best authority for the notion that paragraph ninety four's deliberate non finding is somehow met and i do not i think if you read the two together you find that paragraph ninety four requires this court frankly to reverse and remain and with instructions to look at the record under a just and reasonable standard let me just say that when the court was asking the questions earlier about what lockyer men i was struggling to find a particular phrase in the case that i think i would like to conclude with today at three eighty three x third at ten and seventeen they lock your court specifically rejected the notion that first initial market they straight authorization alone is adequate to insure just in reasonable rates since that determination quote here's the glock your court said this court said quote absolutely untrue show me something like i'd like to actually if i may compose an answer to that i don't little bit rattled at this moment if i can answer that in a single page in writing i think i'll give a more from your professors just to write them down because i collect them and  it was a good argument we thank you and we're going to we're going to take a short break and