Kaneb Pipe Line Co, LLC submits FERC 36 to reflect the application of the calculated Maximum Ceiling Rates under 18 CFR 342.3 for the period beginning 7/1/03, effective 7/1/03 under IS03-269.

Jnofflclal FERC-Generated PDF of 20030523-0178 Received by FERC OSEC 05/22/2003 in D o c k e t # : R P 0 3 - 1 6 2 - 0 0 0 I E X H I B I T NO. S - 19 FEDERAL ENERGY REGULATORY COMMISSION TRAILBLAZER PIPELINE COMPANY D O C K E T NO. RP 03 - 162 - 000 DIRECT TESTIMONY OF C O M M I S S I O N STAFF WITNESS F R A N K L I N D. K N I G H T May 22, 2003 W A S H I N G T O N , D.C. 20426 Jnofflclal FERC-Generated PDF of 20030523-0178 Received by FERC OSEC 05/22/2003 in D o c k e t # : R P 0 3 - 1 6 2 - 0 0 0 ExhibR No. S - 19 Page 3 of 29 1 with this approach? 2 A. No, I do not. The companies that Trailblazer's witness, Dr. J. Peter Williamson, is 3 using to derive a hypothetical capital structure are subsidiaries of larger, publicly 4 traded companies. Their capital structures can be manipulated by their corporate 5 parents. Most importantly, they are not market tested in the sense that they are not 6 stand-alone companies which must respond to supply and demand forces in the 7 marketplace. Consequently, it is improbable that their capital structures 8 realistically reflect the risks of their operations. 9 Q. What approach did you follow In deciding on an appropriate capital 10 structure? 11 A. Commission guidelines on this issue were first articulated in Kentucky West 12 Virginia Gas Co., 2 FERC 61,139 (1978) which stated: 13 The capital structure of subsidiary operations should not be 14 accepted for use in rate determinations without some showing 15 that it is reasonably reflective of the risks of those operations 16 and independent of the parent compan/s actions relating to its 17 other operations. ~ at 61,325). 18 19 Kentucky-West established a three step process to determine capital structure: 20 21 The first step is to examine the subject company's capital structure and use 22 that if it is appropriate based on the risks faced by the company. 23 24 If the subject company's capital structure is deemed inappropriate to use, 25 the second step is to examine the capital structure of the company's parent 26 and use that if appropriate. 27 28 The third step is to develop a hypothetical capital structure if the parent's 29 capital structure is inappropriate. Jnofflclal FERC-Generated PDF of 20030523-0178 Received by FERC OSEC 05/22/2003 in D o c k e t # : R P 0 3 - 1 6 2 - 0 0 0 Exhibit No. S - 19 Page 4 of 29 1 2 Q. What recent Commission opinions further established guidelines for 3 determining the appropriate capital structure? 4 A. The Commission ...