this case is about contract interpretation and giving effect to the mutual intent of the parties to the contracts that is a fundamental and overriding principle of contract construction but it didn't happen in this case a s and edison negotiated two contracts at arm's length they agreed upon their meaning they fulfilled their obligations under the contracts but st instead of giving a fact the parties intent and the plain language of those contracts disregarded the parties agreed upon interpretations and substituted its own erroneous in on reasonable interpretations of those agreements so he didn't tell me something  seems to me that that's one for gets into the picture am i missing something aren't they aren't they the ones that get to approve or disapprove rate adjustments such as that st did have the authority to review the part to come from taxpayers rate payers is it doesn't further have a responsibility to approve or disapprove that yes for did have the authority to review the payment and whether or not it was supported the mechanism though for the payment itself which was provided for in section twenty five dollars of the transmission agreement that was part of the filed rate it wasn't the end of the contract it wasn't really a formula right it was at the point it was we agree to  bully after goshi ation that's all it said it said we agree to negotiate an equitable payment it did set forth four factors for the parties to consider in arriving at the payment there's no formula so so appropriate or not that's correct although the provision itself which was an end of life provision for a payment to be made at the end of the contract that actually was part of the filed rate contracts contacted me to prove nothing but what you maybe you could just b problem piggybacks on to judge a crude is because i recognise that you think that for a cat an opportunity just to to to say object or not approve the way you're describing is a formula although i tend to agree with you to coop it's more like a description of we're going to come up with a formula but be that as it may at that time fifty years ago they didn't even know who was going to pay which way the money was going to go right that's correct and the parties provided for that mcconnell the contract provides for two different charges or two different rates right why he doesn't want it and at this point so just to sort of not i don't want to telegraph the point i'm just going to tell you my problem and then let you have at it but it just seems to me that at this point there are surprising i think some surprising responses by from fur to the parties calculation but if the calculation yielded any increased payment any additional payment from their clients going over to edison then it decide that that's retroactive raping because the contract provided for it was a filed rate it was part of the contract that there would be a payment at the end of the life if they retain it but not how much a payment doesn't help at all and to further it could be a one million dollars or one dollar in your argument no would make any difference but doesn't have her cover responsibility to prove that the amount of the payment not that the payment would be made or not but the amount  to review the amount of the payment but st went further than that it around over payment you mean how much people are going to pay for this yes how much was going to be paid whether or not it was supported in terms of the value of the beneficial use going forward of the line and we agree that st had the authority to review how the parties arrived at that number what for did though and this is where we disagree is that st went further than that it didn't just hold million dollars payment and didn't show why there was under recovery or over recovery and explain why there was a benefit to the rate payers so isn't isn't that what they said they didn't say that that for that reason they did say that and we only went on to say of the beneficial use should equal net book value which strikes me as that's the part that's eyebrow raising yes but exactly but it doesn't matter and i don't know how they got there it doesn't seem logical to me if i question the support but it's more than they needed to say all they to get back to judge a kudos point even though i can i can imagine that this difficult for you to walk away from this because from from your team's perspective i can i can appreciate that but it was your claim to burden of  proof and i'm not sure why it was arbitrary and capricious for them to decide what they decided which is just that you didn't support the payment and on that st point in terms of whether or not supported the payment along with the notice of cancellation that was filed there were worksheets that were submitted that explained how the calculation was arrived at that edison and a p s agreed upon i looked at the work sheets that were cited in the brief one of the st complaints was you didn't explain  longer life of the plant was a brief pointed me to something showing a transmission depreciation rates as opposed to actually aiding this is our estimate of the life of the so there wasn't really anything it looks like it was a retrospective let's find something that will suggest what the service life is there is the sheet which is at page three  the record that shows the depreciation rate the pages immediately preceding at pages three hundred and one thousand three hundred of the record show the calculation that shows the life of the transmission assets at that point in time how long they have been in mark had any questions about the calculations or their support or the amount of the payment and the valuation of the beneficial use it could have set the matter for hearing it could have issued a deficiency letter which it often does to ask a p s how did you calculate it was then the pervert to say you didn't carry the burden and that's what they essentially said you didn't explain to us how this was supported because in this in a sense under rule to seventeen of the commissions rules of practice for can't some  correctly so arizona had another opportunity to respond to her concerns and apparently was unable to do so as a correct there was another very lengthy opinion that there were two opinions in response to a misnomer because there wasn't a hearing right there is a request for rehearing that's right but there was no i'm not missing anything right there's nothing there was a do ten request a hearing or is it typical that you would have an opportunity today to do that because this thing says request for a rehearing is what i'm looking at and then yes it was a request for a hearing and for it denied that the typically what for does in these situations if it has any questions about the facts underlying an application such as this for rate recovery it would could issue a notice of deficiency just to be arizona i am not sure about that i would need to check ok and that was marked as you know when when either would it be typical to request a hearing hearing typically when you file these applets these no it was a notice of cancellation or a request for rate recovery i do not believe way that you are handling this financially the expiration agreement or the implementation agreement was simply an agreement between addison in arizona to discuss how they would implemented the section twenty five point four of the agreement and come up with the calculation of beneficial use so what you're saying is the answer is yes they would need to have the expiration agreement in order to determine how you arrive due to calculation won't necessarily need to do that but they did that in this instance to well they negotiate the they ask for it and then you can get it asking the question don't think needed in order to determine how you've set this rate in order to determine whether or not it's reasonable i'm not sure about that i think that what the implementation agreement that i've seen and arizona entered into was between the parties it was a contractual agreement for the process for them to agree upon what the value of the future bennett was you see we have this this is not before us we don't have the expiration agreement first once it you say no we're not going to give it to you and i'm asking the question aren't you and some jeopardy here if the expiration agreement would assist for can determine whether or not the way the process q four was reasonable to the ratepayers the expiration agreement was attached to a p s is request for a rehearing of the july order and it was before for it was merely that one agreement that implemented the process of negotiation and on that issue i'd like to reserve some of my time but we do not believe that it was an agreement that needed to be filed at fir under for its own orders if it's an agreement that merely is implementing a filed rate that agreement itself didn't not need to be filed it was provided though to furthest part of the record on the purchase or if you're still requesting it i don't understand if you've already given it to me that wasn't clear in the briefs of the record where would i find that you've complied with the request for the implementation agreement be given to for it was its excerpt of record seventy one to ninety is where the implementation agreement was attached as an exhibit to arizona's request for a hearing ok thank you once if the rest of your time good morning carol banter for the commission before getting to the larger questions i can clear up some confusion about the expiration agreement the commission said that it should have been filed not i think because of the payment but because the commission said that it changed the terminations of the cause right the only basis for the argument that it should have been filed well yes his latest mission has no other basis for just the change in the expiration  they did subsequently comply but you have to why are you worried about it here if there's already a compliance because the petitioners object to them having been required to do that at all what's the implications of that why is that such a significant issue for and and it also requires that rates shall be just and reasonable the commission has strict filing requirements and does sometimes impose penalties on parties of penalty for for it could be it to verify that but once it was filed and it and it didn't change the date why why doesn't for take the position of saying you know thank you very much instead this is referred to it from portsmouth compliance well the commission didn't find that don't want to spend most of my time on it because it is a my it is a compliance issue and not the main substantive issue here but the commission did look at the language of the one thousand nine hundred and sixty the original agreement does not have a date it says the terms of the new lease and the all extensions right and i and i appreciate that in your in your brief when was clear and i don't want to jump on the messenger here but but it does strike me that that that language contemplated it would be the same exceptional holes in our records here by the way and you know hearing and no of course not just record opinion so we're doing the best we can but on this argument it strikes me that your position is a pretty tough slog well there's nothing in the agreement that is an issue here the  transmission agreement and supplement three together on it's face it's an extension so it would extend the term so i understand your argument that there is although the parties say that was not the in tant and there's certainly some logical support for their argument that when we're reviewing at and we're reviewing a contract what do we do about issues of parties and tant which which is a more of a  had was explicitly tied to that site lease even though the site lease is not for jurisdictional the only term that set a potential expiration date in the transmission agreement just because the lease itself is not jurisdictional doesn't mean that it can't be relevant any and all extensions or do we have to do we take into account logically the parties untanned is they they request well the commission said you haven't even brought this agreement before us for us to look at it was attached to things but that's maybe what the commission's looking at in the compliance proceeding i don't know it really was just and the commission noted that they had multiple instances in the recent past where they had failed to file for jurisdictional or green mints that are quietly filed and i've had an entire peals that are about the requirements of prior notice and filing it is a requirement the commission takes very serious seriously as a substantive issue because of the federal power act even if it is it is secondary in this case so to to go to the  issue here and it does tie in with that that this is not just about a contract and what the parties intended this is about a rate this is about rate making not just the amount that arizona proposed to pay edison but they called for one this arizona to reimburse it doesn't matter how much right that wouldn't implicate the conclusion the legal conclusion is impermissible the truck to write making was i'm sorry i may have misunderstood your question i reject their out on the ground says should be the same as book value well in the commission didn't say that it has to be and i'm glad you asked that because that is important a commission did not interpret beneficial use as necessarily being the same as net value when it went through the entire analysis in this case and found that no other value had been shown under section under the federal power act section two hundred and five showing where the arizona does meet the burden the commission said based on what we have in front of us in this case they are equal it was not saying that these terms meet mean the same thing but that it worked opposing counsel says the mission really went farther than it needed to go didn't well it did have to come to a conclusion of what beneficial use was in this case well they say they had to come to a conclusion that there that opposing counsel's client had met its burden of proof right well that would have been enough to write the commission to go further because it was value other than zero has been shown going forward not that it couldn't be and that was the analogy to acquisition premiums this is not an acquisition premium case but it is a longstanding principle of cost based making that when a utility wants to charge its customers through cost base treats for something other than what it cost to build or what it cost to build a facility they have to should go above and beyond to show specific quantifiable benefits that justify imposing that on the rate payers through cost base rate making and there's a heavy lift most acquisition premium cases fail but not all of them and not what this is you know but it is a similar principle of cost base ticket can you help me understand with what actually is going on here and obviously the the plant the transmission line has has been recognized by arizona and has been all of the ongoing costs have flowed through to the customers why is there a twelve million dollars payment to edison who i take it was not involved in the investment in the st place yeah i i can explain the context of the case to some extent i'd be speculating about the parties motivations but in the and sixty s the edison was getting exclusive use of this line although arizona spent the money to build it they didn't expect to need it for anything else so they said in arizona said in its own filing a commission relied on this you said coming in that the formula rate in section nine of the transmission agreement is literally a formula it's an algebraic formula it says this input means this and this means this and this is how we generate and specifically said three twenty five percent depreciation and arizona explain to the commission that over fifty years edison had completely paid the initial cost now there have been capital additions the thirty million dollars of net book value that is capital additions that is that can be and is being passed through to transmission rate payers by arizona now so they they are getting it for free they are paying for the thirty million dollars that it cost to build the build additions but the initial cost arizona told us are themselves edison over the course of that agreement paid the entire initial cost because the agreement was designed to do that because we didn't know we'd have a use for it later and they're saying they should have been paying that much because it turns out we do have use for it later what happened in the ninety's the commission issued a landmark order that required transmission service providers to give open access under an open access tariff these dedicated service agreements are a dinosaur they aren't permissible anymore but they're grandfather and to the utilities that have them they're extraordinarily valuable and if you see the commission mentioned in her five of the st order i think there was an earlier proceeding not just the initial proceeding where arizona tried to come in and cancel and pay forty million dollars to edison there was an a proceeding where edison came after that failed edison came in and said ok well what if we assign our dedicated pasadena back to arizona and they pay us the forty million so we still get the forty million and the commission said the catch with that is when you come in and revise a grandfathered agreement you lose the grandfathering and it becomes an open access line it's not dedicated anymore so it may be i'm spite i don't want to speculate but it may be that even if edison itself thought that it was overpaying for this line because it was going to complete the cost but it was going to be worth something something at the end edison would have had a strong motivation not to seek to change the filed rate under which it thought it was maybe overpaying because it got that dedicated service and it didn't have to share since one thousand nine hundred and six i believe was the date of that order and that grandfathering stayed in  do just before i run out of time i don't know if the court has any further questions but i did want to wrap up the that the commission has an independent obligation under section two of five that permian basin in the supreme court morgan stanley has recognized that the commission section two o five of the federal power act says that rates shall be just and reasonable and the commission takes that responsibility seriously and it looks when you come in and tell us that you have a cost based contract a cost based rate design and you have a cost base rate component that you want to pass through to rate peers going forward the commission is going to apply its expertise in cost based rate making very much like in the case in the kelpie you see cases where the commission got deference because ra making is it's reason for being and it is it's prime obligation under the federal power act and the court has no further questions thank you and you reiners asked about the implementation agreement and the basis for percs decision to require to be filed it for and you were correct about the sole basis for that decision was that for x determination that the implementation agreement had transmission agreement as the term is extended for it and all any and all supplements extensions etc supplement three says this is an extension of the lease and it's and forty one so if we're reviewing solely for plain language of the contract within those four corners i don't see why that was an incorrect ruling you're talking about intent of the parties when i look at supplement number and as well the lease may terminate before the transmission agreement terminates because i cut off at the earlier of the lease germination  they sell my interest in the power plants or the transmission agreement so the lease of the transmission agreement are not apparently linked so why isn't the firk on its face the for x ray they have those two contracts correct because the rd amendment to the lease created essentially a new lease but it doesn't say anything like that in a rd of it doesn't is there any any anything in the text of the contracts which support your reading about the parties and yes under the definition of lease it was the participants as lessees and addison was no longer a lease holder it had terminated its tenancy and could not be bound by the unilateral extension of the  in order for there to be a renewal or an extension of the lease there has to be continuity of relationships and here there was no continuity of relationship addison was no longer a party and there were additional current terms and conditions namely an extension of the  in terms of the policy reasons for filing these agreements those were all satisfied here errors or a p s filed its notice of cancellation and your bill for sed indicating what the end of the date of the transmission agreement would be so notice was provided to st notice was provided to a p s its customers no customers objected so the policy reasons behind the filing of agreements was satisfied in this case we've taken you over here because i ask you one more question yes i don't know where we end up with the expiration but i understand that the injection that made but is that i don't understand from the arguments i've heard  it has is no longer before us because it's the that has been given up where our what's your position or were you are on that issue is it still before us or not the question about whether or not the expiration agreement needed to be filed it for is still before the court because it's the basis of the referral to for enforcement the failure to file it in the st instance which will subject potentially subject a p penalties so that's why the question of whether or not it needed to be filed in the st instance is still a question for this corked for determined that a p s had failed to file it in if violating the federal power act and then using as a basis the case of arizona public service company versus firth is