Reply Brief of Canadian Association of Petroleum Producers under IS12-226.

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Seaway Crude Pipeline Company, LP ) Docket No. IS12-226-000 ) REPLY BRIEF OF THE CANADIAN ASSOCIATION OF PETROLEUM PRODUCERS Pursuant to Rule 706 of the Commissions Rules of Practice and Procedure, and in accordance with the governing procedural schedule, The Canadian Association of Petroleum Producers (CAPP) hereby submits its reply brief. 1. The Capital Structure Recommended By Mr. Parcell, Using The Average of Seaways Corporate Parents, Produces A Result That Is Within the Range Advocated By Seaway Itself, And Is Fully Consistent With Applicable Commission Precedent. As revealed in the initial briefs, no party advocates that the actual capital structure of Seaway be used to set its rates. This is because, as Seaways own witness noted, Seaway does not issue its own rated debt. SEA-45 at 4. Similarly, the nominal capitalization of Seaway of 100 percent equity is unreasonable for purposes of setting its rates, as Mr. Parcell testified: [I]t is not appropriate to utilize a capital structure containing 100 percent common equity for the purposes of determining the total cost of capital for Seaway. Exh. CAP-4 at 14. It is thus necessary to use a hypothetical capital structure. The principal issue centers on the choice between two average figures: the average debt-equity ratios of the pipelines corporate parents, or the average of the proxy group. CAPP, the Commission Staff (Initial Brief at 57-58), and ACN (Initial Brief at 38) each recommend that the corporate parents capital structure be employed, relying on Commission precedent that is cited in each of their respective briefs. In its initial brief, Seaway argues (at 38) that the Commission should instead use a hypothetical capital structure corresponding to the average of the proxy group, specifically, 52.17% debt and 47.83% equity, which is the average capital structure of the oil pipeline proxy group as of March 31, 2012. In the alternative, Seaway proposes the use of updated data that its witness, Dr. Fairchild, computed; a capital structure of 51.80% debt and 48.20% equity, based on data as of September 30, 2012. (at 39). Seaway thus stands in opposition to the Staff, CAPP, and ACN, each of which sponsor recommendations based on the use of the two corporate parents of the regulated pipeline. Seaways argument, however, relies on the same precedent that CAPP and Staff cite. Notably, Seaway wholly fails to acknowledge that the use of the parents data produces a result that is within the range of proxy-group capital structures computed by ...