Exhibit IND-12 in Trailblazer Pipeline Co's proceeding under RP03-162:Direct testimony of Commission Staff Witness Franklin Knight.

Jnofflclal FERC-Generated PDF of 20040130-0162 Received by FERC OSEC 10/17/2003 in D o c k e t # : R P 0 3 - 1 6 2 - 0 0 0 II ml F'ED~ ENERGY REGULATORY COMMISSION T R A I L B L A Z E R PIPELINE C O M P A N Y D O C K E T NO, RP 03 - 162 000 DIRECT TESTIMONY OF CO]~[ISSION STAFF WITNESS FRAMKLIN D. KNIGHT M~n,20m WASHINGTON, D.C. 20426 FEDERAL ENERGy REGULATORY C0~ISSION Hearln8 Ex. ~:o. -'~D_--J~.'.'.'.'.'.'.'.'.~._ . . . . . . . . . D.t, Id.~tifl,~ -/U---!:9~3__ -- -- . . . . . - - ( ~ Jnofflclal FERC-Generated PDF of 20040130-0162 Received by FERC OSEC 10/17/2003 in D o c k e t # : R P 0 3 - 1 6 2 - 0 0 0 Exhibit No. S - 19 Page 25 of 29 I " A. l do not agree with the results of Dr. Wiiliamson ~ s ,analysis in a number of areas, 2 as discussed below 3 Q. Do you agree with Dr. Williamson=s proxy companies? - 4 A. No, l do not. l)r. Williamson applied the Commission approved DCF 5 methodology to two different proxy groups The first group he used is comprised 6 of one gas pipeline corporation and two gas pipeline partnerships. The second 7 group he used is comprised of five oil pipeline partnerships. Dr. Williamson 8 applied the Commission approved methodology to these groups, so the only 9 disagreement ! have with Dr. Williamson's DCF methodology is his choice of l0 proxy companies. 11 Q. What areyour specific objections to Dr. Williamson's proxy companies? 12 A, In his fu~group, Dr. Williamson includes two entities, (El Paso Energy Partners 13 anttNmthern Border Partners) that are master limited partnerships (MLP) rather 14 ~ emporations. As investments, partnerships are not directly comparable with t5- .o~porations. These MLP*s do not pay any income taxes because the taxable 16 income o f ~ is passed on to the paaners. Because ofthi% the M l ~ s 17 can pay out a greater percentage of earnings as distributions. Because MLP's do 18 not pay income taxes, investors In MLP's in effect are e,m g pre-tax returns on 19 their Investments. The following simple example will demonstrate this situation. 20 Assume two pipelines are equal in everything except that one is a corporation and 21 the other a partnership. They both have $100 of common equity invested. Below Jnofflclal FERC-Generated PDF of 20040130-0162 Received by FERC OSEC 10/17/2003 in D o c k e t # : R P 0 3 - 1 6 2 - 0 0 0 Page3 ol Exhibit No. S - 19 Page 26 of 29 ...