Brief On Remand of Commission Staff Counsel under IS12-226.

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Seaway Crude Pipeline Company LLC Docket No. IS12-226-000 BRIEF ON REMAND OF THE COMMISSION TRIAL STAFF Debora E. Lyon James R. Keegan Commission Staff Counsel Washington, D.C. April 11, 2014 TABLE OF CONTENTS Page I. Introduction .................................................................................................1 II. Argument .....................................................................................................2 A. The Acquisition Premium, Subject to Adjustments, Can be Reflected on Seaways Books as Carrier Property in Service for Seaway Regardless of How the Funds for the Purchase Were Managed Between Partners ..................................................................2 B. Seaways Claimed Actual 2012 Ad Valorem Property Tax Expense of $1.48 Million Should Be Adopted in this Case. ............... 4 C. The Appropriate Level of Depreciation Expense ................................6 1. The Record Most Strongly Supports an ARL of 28.5 Years ........6 2. While the Data Inputs on Which Seaway Relied To Derive its ARL of 28.5 Years as Shown in Exhibit No. SEA-51 Cannot Be Completely Vetted, Trial Staff Accepts the 28.5-Year Result as a Reasonable ARL ............................................................7 3. Trial Staffs 40-year Truncation Period Should be Used to Derive the Appropriate ARL in This Proceeding ..........................8 4. The 28.5 ARL Should be Used To Determine Seaways Depreciation Rate ...........................................................................10 D. Rate Design ...........................................................................................11 1. There Are True-Up Mechanisms in Some Oil and Gas Pipeline Rate Designs......................................................................11 2. Trial Staff Is Not Aware of Any Other Oil or Natural Gas Pipeline Cases Where the Negotiated Rate Revenues Generated by the Committed Shipper Contracts Exceed the Pipelines Overall Cost-of-Service.................................................14 3. Seaways Uncommitted Rates Are Not Indexed to the Committed Shipper Rates. .............................................................14 ii 4. No Participant Proposed a True-Up Mechanism with Respect to the Revenues Seaway Generated through Uncommitted Shipper Rates, but Seaway Did Propose a Crediting Mechanism. ....................................................................15 5. No Participant Has Designed an Uncommitted Rate That Is Entirely Independent of the Committed Shipper Rates..............15 6. There Is Effective Capacity in Excess of the Committed Shippers Volume Request and There Is an Existing Market for This Capacity. ...........................................................................16 III. Conclusion ..................................................................................................16 iv Texas Gas Transmis