Reply brief of High Island Offshore System LLC under RP03-221.

Jnofflclal FERC-Generated PDF of 20040213-0199 Received by FERC OSEC 02/12/2004 in D o c k e t # : R P 0 3 - 2 2 1 - 0 0 0 UNITED STATES OF AMERICA ORIGINAL BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION High Island Offshore System, L.L.C. ) Docket No. RP03-221-000 REPLY BRIEF Cl ". I~ OF HIGH ISLAND OFFSHORE SYSTEM, L.L.C. ,'~" r ~ , C - o~.~ :. "" ~ F"l t,d To: The Honorable Karen V. Johnson . Presiding Administrative Law Judge Kenneth M. Minesinger Howard L. Nelson Edward J. Twomey El Paso Corporation Matthew C. Schruers 555 1lth Street, N.W. Morrison & Foerster LLP Washington, DC 20005 Suite 5500 (202) 637-3500 2000 Pennsylvania Avenue, N.W. Washington, DC 20006 (202) 887-1500 COUNSEL FOR HIGH ISLAND OFFSHORE SYSTEM, L.L.C. February 12, 2004 Jnofflclal FERC-Generated PDF of 20040213-0199 Received by FERC OSEC 02/12/2004 in D o c k e t # : R P 0 3 - 2 2 1 - 0 0 0 TABLE OF CONTENTS INTRODUCTION .............................................................................................................. 1 ARGUMENT ...................................................................................................................... 5 I. H1OS's Proposed Operating Expense Allowance of Approximately $19.7 Million Is Just and Reasonable ................................................................... 5 A. Staff Has Not Justified Its Proposed Adjustment to HIOS's Rate Case Allowance .............................................................................. 5 B. Indicated Shippers Fail to Support Their Challenge to HIOS's Operating Expenses ........................................................................ 6 II. Staff Fails to Justify Its Inaequate Depreciation Expense Amount .......... 12 IlL Indicated Shippers' Challenge to HIOS's Negative Salvage Expense Is Too Late, Unsupported, and Fails to Respond to HIOS's Expert Testimony and Evidence ............................................................................................. 21 IV. Indicated Shippers' Position on Federal Income Taxes Conflicts With Commission Precedent .............................................................................. 23 V. HIOS's Proposed Management Fee Is Just and Reasonable .................... 25 A. Indicated Shippers' Apparent Proposal to Deny HIOS Any Management Fee or Return Allowance Is Unreasonable and Conflicts With Commission Precedent ......................................... 25 B. The Presiding Judge Should Approve H]OS's Proposed Management Fee and Reject Staff's Alternative .......................... 28 I. Staff's Management Fee Would Create a Disincentive to Invest in Pipeline Infrastructure, Whereas HIOS's Management Fee Would Encourage Investment .............. 28 . Staff's Management Fee Would Create a Serious Cash Flow Problem, Whereas HIOS's Management Fee Would Provide Adequate, Though Not Excessive, Liquidity ...... 35 . Staff's "Efficiency" Argument Collides With Commission Precedent ........