good morning your honour's my name is tracy bone and i'm here representing the petitioner california public utilities commission or the c p you see with the court's permission i would like to reserve one minute for about all we're here today on behalf of california utility rate payers because the first quarter's on review in this case grant an incentive to p g and e for doing something it is already required to do to remain a member of the california independent system operator also referred to as the chi so what you mean by is required to do the mean there's a lot of static here as to whether they can get out or they can't get out well tell us about that yes your honor if you say they have no option to get out they're stuck right  say we have plenty of options to get out yes they do and as an initial matter those all of those arguments are post talk so never really addressed the issue of whether get out the simple fact is that in one thousand nine hundred five the california public utilities commission ordered p g and e and the other utilities to form and join the case so right in one nine hundred ninety eight we said you cannot cannot if p g and e were to come to the p u c and ask under section eight fifty one to transfer control of its assets away from the guy so the c p you see would not be able to grant that required is not be able to  because simply would you are you not me not able to is there some law that says not able to yes your honor and that is section three thirty of the public utilities code subsection  am required that the chi so be formed and that the assets be transferred to the chi so and the c p you see interprets that rule to be that unless there is a change in state law it cannot authorize p g any to transfer its assets away from the guy so so we believe that there would need to be a change in state law could there be yes there could that there could be a change in state law but the point could could your client cause that to  happen if you thought it was a good idea we could make that argument to let you play the charts and it's a new day there's something going on here that we haven't considered you could say yeah this is a great idea and you could change it they'd have to persuade the legislators in sacramento argument yes we would have to persuade the red bell legislators and sacramento and so the real question is if p g any contested your interpretation of the law i expect they could file a declaratory judgment  action and say yeah we'd like to leave we would like to leave and therefore we think their intro to the agency's interpretational law isn't correct that it's all correct and the fact is that all of these facts point to the fact that the courts it founded and senate was added to cost based rates can be no more that are needed for the purpose that awarding an incentive to encourage r t o membership that is already required by state regulations  affirmed by state law cannot be an incentive to unst to induce behavior these are windfalls to the utilities and based on these common sense principles we would urge you to reverse for by finding that it's grant of the membership incentive to p g any which is not a volunteer a member of the chi so results in an unjust and on reasonable rate as a matter of law is not one of the key words here joins jew joins and joins why is joined necessarily past tense as compared to what's going on now they're still involved so they join in the in the you pronounce it  why can't you incentivize that by saying we give you this benefit because the continued participation in the chi so is required by a c p u see order they're not raising the round that we discussed a few minutes or this going to the legislature that i mean they're just quietly doing it why can't you incentivize that with some kind of a benefit because the federal power act does not allow incentives to be granted that or any more than  to encourage that behavior here is just encouraging the behavior you're encouraging your behavior to stay in it no because p g and e is already required to be there we don't need to give them an incentive it's of it's a windfall to them we're giving them relief asking that it should only go to the chi so to get a it should only go to first to get approval for transferring facilities and we said no at assen you need to come to us because we need we have  statutory obligation under section i believe it's three thirty two of the california public utilities code to ensure that you have all of the assets that you need to safely and operate the system so we cannot  overlook section eight fifty one and allow you to do this with only for approval so i gather your argument though is that all of that's relevant to this case because for assumed that p g and e could is not consistent with its two thousand and six orders those orders had essentially created a robot write a rebuttable presumption that membership was voluntary and we wanted to show that p g a nice membership voluntary and ferk said that showings irrelevant because basically anybody who wants to who is a member of an art to you know and ask for the membership incentive can get your honors i know that i'm approaching seven minutes and i've given seven and a half minutes to my opposing counsel would you like to consider questions or should i your opposing you know your mean your i mean my my co counsel yes you should let him argue right ok morning your honour's my name is harvey writer and i'm appearing for the interveners the second medal municipal utility district the california department of water resources and the transmission agency of northern millions of dollars a year to p g and e for staying in a regional transmission organization is not free to leave without the c p c say so violates long standing commission policy and the common sense proposition that you can't provide an incentive for doing something you've already done or that you're obligated to do and the commission never really argues not in its words below and certainly not it in its briefs that the orders  approved below can be squared with that policy on the contrary until last month until last month the commission's argument has been well these policies these what they called old policies what i think they're saying is outdated policies were implicitly superceded by order six seventy nine but i say last month because last month in response to this court's directive to answer the twenty eight j letter that we in the c p c filed last november the commission essentially has conceded well you know what six thirty six seventy nine didn't supersede or didn't supersedeas this earlier policies apples and oranges and well no that that that that's the that's the point your honor the it's not apples and oranges what the what the courts what the commission said in the san diego case we cited was and the commission itself describes this is a general policy rationality say that pay paragraph twenty two of that order incentive cease to be incentives that the actions they are intended to promote has already occurred this is a principle a general principle and their argument in their twenty eight j letter is well yeah it's a general principle but it doesn't apply to participation continued participation in an r t oh well that doesn't make any sense if you look at paragraph three thirty two of this order six seventy nine they rely on there's a paragraph where the commission was asked well we're a bunch of utilities we think we should get an incentive force for participating in regional transmission planning a very good thing it promotes the public and the commission says no you're not going to get an incentive payment for that because we've ordered you to participate in regional planning it's not voluntary so that very principle not only that the earlier principle that predated six hundred not only wasn't implicitly superceded in six in the united was expressly indorsed in order six seventy nine the commission's orders congress you don't grapple with this at all and what we're left with is an agency that  is approved a winfall under a presumption that has become era bottle the premise for the for the adder was that participation was voluntary that's at paragraph thirty three thirty one of order seventy nine that was the entire premise for granting that continued participation atter the commission never gave the c p c or the interveners the opportunity to consider to rebut that and i think that calls for directions that they take take an action or so they can see the arguments that they were awful rot your honor i think in this case considering the these arguments would be a futile gesture the committee the commission submitted another twenty eight j letter which they took another crack at at dealing with with the contentions we know what they would say in verse in response to the argument that participation is not voluntary they don't dispute the existence of the california law that m counsel mentioned rather they say well it's voluntary because we didn't force the the p g d into the r t o well that that's really not much of an answer because the point is that it's still involuntary because  c requires their continued participation they also said well the transmission control agreement that under which p g d turn control of its assets over to over to the california i so requires consent first consent to with trouble it also requires the c p c's consent it requires the consent of appropriate regulatory authorities again if we give the commission another crack at this it's kind of a futile gesture i would say that given this general principle that given the general principle that you can't award an incentive for something you're required to do the add on becomes unjust an unreasonable it's the point that judge rogers on to a rate that's supposed to be cost based rendered sit on just an unreasonable so i think that i would agree that the purpose of the remaining would simply be to order the commission to to take the actions appropriate after reversal that is to order refunds to good morning your arse on and fist one off and on behalf of work just like to point out there we'd like to share three minutes of our time so it looks like most of the courts questions focused on the merits so i'll start there there w some questions about voluntary ness i just want to clarify that as we pointed out in our brief california hasn't taken the position that p genie is bound to stay in the system operator what they've said is that can seek to leave and if they do so california has before you can leave california has to consent to that so they haven't tried to take the position that the membership is the membership is that so i mean i'll just point out that first didn't go into the state law points here i think counsel for ph and you can speak more to the state law issues i think the commission's focus here was trying to interpret  leave you you still want you still give across the board incentives in this context right well so i think what the commission is trying to do is that in that current policy order six seven cover this issue because there is the same claim raise there where protesters including some of the folks here argued that if you're bound by state law to a system operator you shouldn't get the incentive and the commission found that it granted a fairly expansive  eligibility for the incentive and so what it said in the orders on review was that notwithstanding that argument it still had the power under six seven nine to grant the incentive to members there were ongoing members of those in that part that's been for a policy you'd have to concede that exactly and i think the point of that policy was to intentionally to make it a fairly low evidentiary threshold to receive the incentive and that was based on this policy goal that for cad that expressed in six seven nine in here that membership in these regional transmission organizations would result in numerous consumer benefits and the best way to spread those benefits as widely as possible so how does that comport with the idea that you must examine these on a case by case basis so i think what the commission said there were six seven nine was explain what it meant by case by case review and i think it satisfied that burden here and that my saying we can adopt a blanket roll that applies in each case i think what they said was that case by case review means that the utility has to come forward and ask for it it will not be an automatic larger filing that p g makes every year so some people i think probably would have favored an automatic grant where that maybe they wouldn't have to ask for it but what's required was that they have to come forward and ask for it it set up certain criteria that w it just they just have to show membership if they show on going membership that you're correct that they are presumed eligible for the incentive i think that's a what would it take to rebut that presumption in your view so the commission as i said it didn't list every possible scenario it gave a couple of examples in order six seven nine and here one example is if the utility stops being a member of the system operator it would not be able to get the incentive another qualification on the incentive was that  does touch on i mean i think that this is a case where the commission found that the showing for the raid itself was not just and reasonable and they went to a hearing process and that was eventually settled bowl courts have found was that in the that as long as the overall rate is within the zone of reasonable nest and that satisfies the requirements of the federal power act so the fact that the incentive here was granted doesn't necessarily mean that  company's going to get a windfall there is the rate that they ask for that rate payers are paying still has to meet that sort of statutory bounds why isn't it assuming for the sake of argument that the utility is not free to leave what's the point of the incentive one of the being and i mean that's the heart of california's argument is that you're giving them incentive for something they're required to do under state law and it's giving them a substantial amount of money for well i think that the point that the commission was trying to make in its policy in order six of nine was that remaining in system operator that is something that is there's no question about that but the idea is you want to provide incentives for people who can only to stay and if they can't leave what's the point of the incentive well i think to be clear i don't think that they've tried to argue that they can never leave what they've said in their briefs and for the question is that p g need could try to start the process for leaving and so if p g in it does have some ability to speak up and say you know what we actually do want to try to leave obviously you know that may be that has to be with california's consent if they actually do leave it we haven't really seen a reason why we haven't really seen why that itself makes the participation involuntary such that there shouldn't be an incentive under commission policy because i think what the commission has tried to say in six seven nine is that it wants to grant the incentive sort of on a widespread basis so you know that regardless of the circumstance it would be basically we coming down to they just have to show membership and you say it has really nothing to do with voluntariness or involuntary does according to for right well i think that again i think the commission was trying to avoid providing every possible scenario where it could be rebutted and there could be a future you cannot grant incentives one is truly in involuntary participation and then for would say well is it really voluntary or involuntary why would that be appropriate well i think fiza couple responses on that first of all in our recent fact involuntary under state law the second point is i think that we have to recognize the order six seven nine itself is not under review and this same question was presented there in the commission i'm happy to point you to the  paragraphs fairly expensive language for who is eligible who is presumed eligible for the incentive so there are requested restriction was it was actually two different sort of related restrictions one was the point that we've heard that if you're required under state law you should be eligible for an incentive and the other one was if you or you should be available for past behavior or for people who are have already been ongoing members and the commission say that as long as you're an ongoing member all utilities are presumed l so before the incentive so that was the policy position the commission took pointed out that that was obviously that's a fairly low evidentiary threshold to get that presumption but i think  that but that you also can find the circumstances under which the presumption can be rebutted i don't think we did because i think the commission explicitly in order six seven nine stated that it did not want to go through the exercise of listing every possible scenario in which it could i give you a couple of examples right when you when they leave and or when the right structure is unfair and unjust that's right and i think those are the only two but those are the only two that the commission i think clarified in six seven on the orders on really that's not to say that there would be a future scenario where the presumption could be rebutted but i think that was an intentional choices i stated earlier because the policy was to make this incentive vailable as much as possible to encourage  widespread membership and spread the consumer benefits from these organizations as widely as possible and i think the commission also pointed out that i don't think has been really challenge before the commission was this i do i do have under discrimination that is that if you're a new member you shouldn't get an incentive if you're an ongoing member you shouldn't be denied an incentive that a new member can receive because that wouldn't courage sort of perverse incentives for utilities to leave if they could if they could but i think that the commission is stated in the recent order that we filed that that membership in these organizations is generally voluntary and again as i pointed out earlier and we said in our briefs i'm not sure that california avoid making that determination on state law because under its policy regardless of whether membership is required by statute it still had the ability to grant the incentive as a matter of as a matter of federal policy and nobody taking that california supreme court could do that or legislature the commission and the california commission certainly and i think that i think the commission was trying to take care to avoid stepping into that state law question but i think he was trying to the point that the commission tried to make in the orders on review that notwithstanding about state law argument it still had authority under its own policy to get the inside out and so if the question is your granny and then the people who are not taking any voluntary  for encouraging ongoing membership and i think i'm going to turn they have no choice well i think that as as we pointed out in our brief p g he still does have a choice to try to leave now it's up to california to decide whether or we will never change our minds in the future but we have to deal with the law as it is certainly that's true trying hard and i think that  a future case if if they were showing that i don't want to speculate on what sort of showing would rebut the presumption that the commission set forth in order six seven nine but  issued a month ago and oh i'm sorry so will the effect of that later or i'll concede it doesn't it doesn't make the orders on review reasonable i think we tried to submit that to the into account but i mean that later order wouldn't necessarily correct a deficiency in the orders on review so the order but i think the orders under the stand on their own i think that the point there is that if the question is whether the commission's interpretation of its existing policy was reasonable that i think that i think you can make that finding on that basis with the orders on review there were some questions about which we've taken your your time that counsel for the c p c raised an argument that i had not heard before and certainly isn't in any of the briefs that somehow public utilities code section three thirty am would need to be repealed or revised in order for p g and e or any of the current i s o members to leave the i s o i've scoured the public utilities code three thirty i don't see anything in there suggesting that utilities are required to remain in the i s o indefinitely and until the statute is repealed in fact public utilities code three thirty simply expresses legislative intent that a restructuring of the california electric markets would be good for consumers and a number of things in that restructuring would be good and it encourages those things to happen including that all publicly owned utilities in  addition to investor owned utilities would join the i a so well if three thirty were a mandate and a state law the public utilities would be publicly owned utilities would be members of the i s o and none of them are so three thirty really is not any kind of mandate and this court can certainly look at the plain language of that statute and confirm that another public utilities code section that the  petitioner cites is three sixty five that section only directs the c p you see to take certain actions to encourage participation that the one using her age i think it says facilitate  i wrote it down it orders the c p c to facilitate the implementation of three thirty and to encourage it uses the word encourage all publicly owned utilities to join again there is nothing in three sixty five that constitutes a mandate that p g any or the other investor owned utilities must be and must remain in definitely absent legislative amendment so iowa is a state law allows you to leave the state law absolutely does not require me to stay in the only thing out there and the only thing in this record that might be interpreted as a requirement of state law is the c p u sees own order in one nine eight which did not mention three thirty as a requirement that must be revised in order for anyone to leave that nine hundred ninety eight c p c decision simply said before you leave we the you see require that you come back here now you're quoting are you paraphrasing before you leave say that we always have with lawyers you start paraphrasing and when you get to the actual language guess what ok you just said before you leave  a it's a it's sensually says i don't have the code there essentially is trouble to those are weasel words i let me go a different way your honor what does it say it says eight fifty one you must file an eight fifty one application with us if you want to take back operational control of your facilities from the i s o so you must come back here to the c p u c and file under under public utilities code eight fifty one for our authorization to take back your facility so implying if we can use a word from another case that the possibility that they would grant it that encourages you to do that you would not it doesn't say under no circumstances come back to us on this because you're not going to leave state whenever it's as if you want to do this g any southern california edison and san diego gas and electric company to work together and submit a proposal to fur for to establish the i s o the protocols that would be used and the mechanism for transferring operational control over their facilities to the i s o we did that the three utilities investor owned utilities worked together and did that for a cup proved it we transferred operational control the one thousand nine hundred eighty order  me take a step back in that one thousand nine hundred five order the c p c said you need to come to us after for sets all of the stuff up and file under section eight fifty one to get our authorization to actually transfer operational control of your facilities to the i s o o p g i never thought that was right anyway because eight fifty one talks about needing the c p u cs author the authority to sell lease sign mortgage or otherwise dispose of or encumber utility property that is needed for public use transferring operational control of the i s o does none of those things but the c p you see relied on the or otherwise dispose of language as saying that is our hook for having you come back to come to us for a filing you are otherwise disposing of your facilities by letting this third party do the scheduling over your facilities p g and still clones maintains repairs manually operates where manual operation is required it's facilities it hasn't disposed of anything but let's put that aside what's happening here is the c p u see also said in their one thousand nine hundred eighty order when you want to take that operational control back you have to come back to us with another eight fifty one and we're just saying that it's in the one thousand nine hundred eight decision your honor right so they so they take the position you've got to come back if you want to leave the i s o they take the position that and you disagree with that a section eight fifty one filing is required and there's no stretch of the imagination that taking back operational control can constitute leasing assigning mortgaging or even otherwise disposing of we're gaining something we're not right off loading anything it's an irrational interpretation of the of the section but what's at issue here is not whether or not you actually can leave or what's issue i think is here is whether for can take the position that it doesn't matter whether it's involuntary or not so why isn't the appropriate remedy to say you can't take that policy as counsel for it has indicated is is very welcoming of ongoing membership they want to encourage that p g any is an ongoing member voluntarily and i also point out to  your honor the other two investor owned utilities in california southern california edison company and san diego gas and electric company are also members of the i s o right voluntarily and they both have formula rates which explicitly provide that the fifty basis point at or is part of their return on equity and the c p you see was a participant in the proceedings which gave rise to those formula rates so the c p you see is being completely inconsistent in arguing that ferg should not allow an incentive for ongoing participation it's a windfall to the utility as it applies to p g any but it's ok that it explicitly provides that same incentive to the other two investor owned utilities in california it is a completely inconsistent application of what they say they believe policy should be were is this particular argument made in your briefs the inconsistency with respect to the other utilities it is not in and it was i thought well what do we do with that this whole new argument that the c p you see is raising on we are required by law to stay in and it is a windfall because we are required by law to stay in it wasn't in their first round of briefing they argued only that their permission was required we weren't free to leave so different shades of an argument were brought over time and we have furthe sections three thirty and three sixty five of the public utilities code and you can review those but those are the c p u sees interpretation of those code provisions is that we would not be able to grant p need the permission to leave the keiser out when the your honor asked about the how how this should be handled back up for i think that given postmark post hoc arguments  both in its twenty eight day letter and the ones that were made here today it's becoming clearer and clearer to me that this case is not just about the fact that ferg has refused to address the c p u sees arguments about whether genies membership is involuntary or not and whether that means that it should not get the incentive i think that the case is now boiling down to an issue of what voluntary means certain not and i am very concerned that given the  record on this issue that we've seen thus far that are remaining to her to address whether or not p g and e s membership is voluntary or not could could essentially wind us up back here three years from now with rate payers having paid on our other side unfortunately and neither am i which is why i'm the others making this point the other side tells us that you're treating the investor owned utilities differently that the rate that you're objecting to here are the end of the your object into here is essentially baked into their rates and so you're trying to stop them from doing something that you've allowed the others to do your answer to that is why yes the other utilities have had formula rates that we have not been able to challenge for the last five to read to the ad or incentive in those cases it just is no they were in voluntarily just as just as we settled we did not agree to the ad or we settled at a specific revenue requirement for p g and for the other utilities previously because we didn't feel the need to litigate this issue strike you as strange that you've agreed to in those two instances of the investor owned utilities exactly what you're fighting against here your honor  to the extent that this case finds that this is add or is not appropriate first of all we will be raising the issue when edison s t g any come forward with their rate proposals which will be in the next year we will be raising the same challenges there and i would be very surprised if the commission did not support moving forward against both of those utilities to seek to have the outer lemonade it and the play goes on yes thank you counsel thank you if we need further briefing on any of the issues that were raised in the context of this we'll ask for thank you all for your arguments and very helpful today we will be in recess we have some guests and