[00:00:02] Speaker 01:
Case number 13-1138 at L, Area Energy LLC at L, Petitioners vs. Federal Energy Regulatory Commission.

[00:00:10] Speaker 01:
Mr. Moirty for Petitioner, Kern River Gas Transmission Company.

[00:00:14] Speaker 01:
Ms.

[00:00:14] Speaker 01:
Edwards for Petitioners, Area Energy LLC at L. And Ms.

[00:00:18] Speaker 01:
Perry for Respondent.

[00:00:50] Speaker 03:
Mr. Moriarty, we will wait for the courtroom to clear.

[00:01:46] Speaker 01:
Okay.

[00:01:50] Speaker 00:
Good morning.

[00:01:51] Speaker 01:
Good morning.

[00:01:52] Speaker 00:
May it please the court, my name is James Moriarty here on behalf of the appellant Kern River Gas Transmission Company.

[00:02:00] Speaker 00:
The appeal concerns a complex rate case which was filed by Kern River at the Federal Energy Regulatory Commission in 2004.

[00:02:08] Speaker 04:
We'd be very grateful if you simplified it.

[00:02:12] Speaker 00:
Yes, I will, Your Honor.

[00:02:13] Speaker 00:
We raise two issues.

[00:02:17] Speaker 00:
The first is, when did the FERC fix the rate under Section 5 of the Natural Gas Act?

[00:02:27] Speaker 00:
If you agree with us that electrical district controls... What about trans-western?

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And if you don't agree with us, then go with Trans-Western.

[00:02:35] Speaker 00:
Trans-Western allowed the Commission to fix a rate without having a specific rate actually saved.

[00:02:42] Speaker 00:
Just a formula?

[00:02:43] Speaker 00:
Just a formula.

[00:02:43] Speaker 04:
Why isn't this case a for sure?

[00:02:46] Speaker 04:
Because, Your Honor, our race... Because in this case, we don't have a formula.

[00:02:50] Speaker 04:
We just have one factor that is added to it.

[00:02:55] Speaker 04:
The Commission says change that one factor, and everybody has the model, and they can do it.

[00:03:02] Speaker 04:
It's just a mathematical calculation.

[00:03:05] Speaker 04:
Correct, but that's not... Why isn't that A-force URI to Trans-Western?

[00:03:08] Speaker 00:
Because that's not what happened here, Your Honor.

[00:03:11] Speaker 00:
This is a case that started in 2004.

[00:03:12] Speaker 00:
No, no.

[00:03:14] Speaker 04:
Just go specifically to the mathematical calculation.

[00:03:18] Speaker 00:
Isn't that correct?

[00:03:19] Speaker 00:
Well, not for our case, Your Honor.

[00:03:21] Speaker 00:
We were told in 2004, I'm sorry, in 2010 to change one element of this rate case that would have been in place for six years.

[00:03:31] Speaker 04:
Go ahead.

[00:03:32] Speaker 00:
Okay, so we went back and we had to change what were the billing determinants that were incorporated into the rates for four different classes of customers.

[00:03:41] Speaker 00:
The expansion ship... Council, it's still just one number, isn't it?

[00:03:45] Speaker 00:
It was one number, Your Honor.

[00:03:47] Speaker 00:
It took us 45 days to recalculate the rates for all the individual shippers.

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We filed that with the FERC, and it took the FERC 10 months to approve our compliance filing, which stated those actual rates.

[00:04:02] Speaker 04:
But the model that you used was given to all the shippers.

[00:04:08] Speaker 00:
Your Honor, it was available to them, and anybody, I guess, could have tried to do that, but none did.

[00:04:12] Speaker 04:
In other words, this is a complicated mathematical task, but it's easily, I mean, it's calculable.

[00:04:21] Speaker 00:
It is calculable, Your Honor.

[00:04:22] Speaker 04:
Why would it take you 10 months?

[00:04:23] Speaker 04:
You can't find people who can calculate like that?

[00:04:26] Speaker 00:
It didn't, Your Honor.

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It took us 45 days.

[00:04:28] Speaker 04:
It took the commission 10 months.

[00:04:31] Speaker 04:
Well, FERC is slow.

[00:04:32] Speaker 04:
But why did it take you 45 days?

[00:04:35] Speaker 00:
Well, Your Honor, once we file a rate, you know, the file-rate doctrine controls, so we have to make sure that it's the correct rate that we charge all the individual shippers on our system.

[00:04:45] Speaker 00:
So it is not as simple as saying, if this happens, the rate is 10, and if this happens, the rate is 8.

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Like in the Trans-Western case, where there are only three shippers.

[00:04:55] Speaker 04:
But it's definable.

[00:04:57] Speaker 00:
Yes, sir.

[00:04:57] Speaker 00:
It is definable.

[00:04:58] Speaker 00:
It just is a complicated process.

[00:05:01] Speaker 00:
And it wasn't a stated rate until the compliance filing was actually accepted by the FERC.

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So that's the simple version of the first issue.

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The second issue has to do with whether the FERC, the Federal Injury Regulatory Commission, violated the Administrative Procedure Act by failing to address an issue that Kern River raised.

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That issue had to do with the rolled-in rate credits

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that occurred because shippers were moving from period one rates to period two rates.

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The Commission ultimately determined that because of that transition of those shippers from period one to period two, that there should be a role in rate credit in period two.

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What Kern River had been arguing is for the very same reasons there should have been a rate credit in period one.

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The Commission did not address Kern River's arguments when those were raised.

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It was only two years later when Kern River again raised those issues that the Commission said that the period one rates had been established.

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It didn't provide any rationales to how they'd been established.

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It was only then later, a year later, in another re-hearing decision that they again denied Kern River's arguments.

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We heard for the first time on the appeal here in the briefs that the reason that Colonel Rivers' arguments were rejected is because we should have sought rehearing of 486D three or four years ago because that's when the Commission found that our arguments as to period one were rejected.

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Our position is we were not given that guidance.

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at any time until these briefs were filed.

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That is post hoc rationalization and cannot be accepted by this court as a reason for federal agency action.

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And that's issue two.

[00:07:02] Speaker 00:
Thank you very much.

[00:07:18] Speaker 02:
May it please the Court, I'm Katherine Edwards here on behalf of the Kern River customers.

[00:07:23] Speaker 02:
We are shippers, producers, electrical generators, and we use the Kern River pipeline to transport supply to California marniquets.

[00:07:34] Speaker 02:
We will all qualify for period two rates beginning in, for by customers beginning in 2016.

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So that is the basis of our interest in the design of these period two rates.

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What we're going to try to convince you all today is that you should not defer to Burke's failure to adjust the rate of return on equity in Kern River's period two rates.

[00:08:00] Speaker 04:
Can I ask you a couple of questions, preliminary?

[00:08:02] Speaker 04:
I was very, a little confused.

[00:08:04] Speaker 04:
Why do you necessarily assume that the cost of equity is less than the cost of debt?

[00:08:11] Speaker 04:
or vice versa.

[00:08:12] Speaker 04:
Doesn't it vary depending on economic conditions?

[00:08:17] Speaker 04:
Sometimes debt is more expensive than equity.

[00:08:19] Speaker 04:
Sometimes equity is more expensive than debt.

[00:08:23] Speaker 02:
Your Honor, I'm certainly not a financial expert and I can't give a very sophisticated answer to that question.

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But in this case, the debt equity component was mandated by the rate design.

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So in period one, the rates were assumed

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to have 70% debt, which was assumed to be equivalent to 70% of the initial investment.

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And 30% equity would be the difference.

[00:08:50] Speaker 04:
Yeah, I did understand.

[00:08:51] Speaker 04:
Another question I have.

[00:08:53] Speaker 04:
I'm a little confused as the interconnection between levelized rate and the equity debt relationship.

[00:09:04] Speaker 04:
I didn't quite understand that in the briefs.

[00:09:07] Speaker 02:
The levelized rate is really an independent question of the debt equity component in this sense.

[00:09:14] Speaker 04:
That's what I thought, yet in the briefs it was connected and I couldn't figure out what the connection was.

[00:09:20] Speaker 02:
No, sir, we didn't intend to.

[00:09:22] Speaker 02:
Not in your brief and some of the other briefs.

[00:09:24] Speaker 02:
Yeah, not in our brief, no.

[00:09:25] Speaker 02:
The levelized rate goes to the fact that as depreciation

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decreases over time instead of reducing the rate.

[00:09:34] Speaker 04:
I understand how the levelized rate works.

[00:09:36] Speaker 04:
I couldn't figure out what the connection was between the levelized rate and the debt equity ratio.

[00:09:43] Speaker 02:
We believe there is none.

[00:09:45] Speaker 04:
Well, that helps.

[00:09:46] Speaker 02:
In the levelized rates in period one, it's based on a debt equity ratio of 70-30.

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In the levelized rates in period two, it's based on 100% equity in the capital structure.

[00:10:00] Speaker 04:
Wait a minute.

[00:10:01] Speaker 04:
Levelized rates are based on the equity?

[00:10:03] Speaker 04:
No, there are levelized rates in... Well, the levelized rates deal with the cost basis, right?

[00:10:09] Speaker 02:
Exactly.

[00:10:09] Speaker 04:
What's that got to do with the... What you're saying is the cost of equity is part of the cost of the rate.

[00:10:17] Speaker 04:
It goes into the rate base.

[00:10:19] Speaker 04:
Exactly.

[00:10:20] Speaker 04:
Yes, but I don't see what the connection is.

[00:10:24] Speaker 04:
Perhaps you can explain it.

[00:10:26] Speaker 04:
Go ahead.

[00:10:28] Speaker 02:
The levelized rates, the exercise of levelizing the rate is independent of the capital structure that's embedded in the levelized rate.

[00:10:38] Speaker 05:
So this, that we see before us today, this rate system could have occurred without regard to what the net equity ratio was?

[00:10:47] Speaker 05:
Yes, yes, you're right.

[00:10:48] Speaker 02:
Yes, you're right.

[00:10:49] Speaker 02:
The original orders defined what the net equity ratio was, but the levelization

[00:10:55] Speaker 02:
aspect is independent of what that is.

[00:10:57] Speaker 05:
If the definition had been 90-10 instead of 70-30, we still could have come up with the same rate, same levelized rate?

[00:11:06] Speaker 02:
The rate would have been different, but it would have been levelized over a set period of time, all else being equal.

[00:11:13] Speaker 04:
The rate would be different depending on the cost of capital.

[00:11:16] Speaker 02:
That's exactly right.

[00:11:18] Speaker 02:
But the process of levelizing would be the same in both cases.

[00:11:23] Speaker 05:
Exactly.

[00:11:24] Speaker 05:
That's exactly right.

[00:11:28] Speaker 02:
That's exactly right.

[00:11:31] Speaker 02:
So the legal issue really at play is the principle that as the equity component in a capital structure increases, debt is retired, risk is reduced,

[00:11:46] Speaker 02:
And therefore, the return on equity that's applied to that equity component, the rate of return on equity, which we're calling the ROE, should be reduced accordingly.

[00:11:56] Speaker 02:
This principle was described in the Missouri Public Service Commission case as a common sense principle.

[00:12:02] Speaker 04:
Excuse me.

[00:12:02] Speaker 04:
FERC's response to that is, well, the financial risk may be different, but there's a business risk that offsets.

[00:12:09] Speaker 02:
That's exactly what FERC's argument is.

[00:12:11] Speaker 02:
That's their primary argument.

[00:12:13] Speaker 02:
It's what I call the offset argument.

[00:12:15] Speaker 02:
Burke's argument is they speculated that in period two, there's no evidence to this fact, they speculated that in period two, beginning in 2011, that there will be increased business risk on Kern River because of the contracts that expire in period one.

[00:12:34] Speaker 02:
I.e.

[00:12:34] Speaker 04:
that competitors will get into the market.

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Potentially, or the market will change in some way.

[00:12:41] Speaker 02:
That's the speculation.

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and that that increase in business risk will offset what nobody can test, will be a decrease in financial risk associated with the 100 percent equity capitals.

[00:12:55] Speaker 05:
Now there is a statement in at least one of the briefs that this pipeline is unique in being 100 percent equity.

[00:13:05] Speaker 05:
This is the only one that FERC is regulating.

[00:13:11] Speaker 02:
It is the only one we are aware of.

[00:13:13] Speaker 02:
Yes, Your Honor.

[00:13:15] Speaker 02:
Thank you.

[00:13:15] Speaker 02:
And we cited at page 31, I believe, of our initial brief, various cases that describe equity components in the ranges of 80 and 90 percent as being anomalous, so that clearly 100 percent equity is anomalous.

[00:13:30] Speaker 02:
And we're not aware of any other pipeline in the country that.

[00:13:32] Speaker 02:
It's more than anomalous.

[00:13:33] Speaker 05:
It may be unique.

[00:13:35] Speaker 02:
We believe it is a crime, yes.

[00:13:37] Speaker 04:
But this was part of the original deal, wasn't it?

[00:13:40] Speaker 02:
Yes, and we're not complaining about 100 percent equity.

[00:13:43] Speaker 02:
What we're arguing here, based on this legal principle in the Missouri Public Service Commission case, is because of this anomalously high equity, then the ROE must be reduced

[00:13:58] Speaker 02:
below the median, which was the 11.55 percent.

[00:14:02] Speaker 02:
And FERC's answer to that is that no, there's this manufactured increased business risk that offsets the decreased financial risk.

[00:14:13] Speaker 02:
But the problem with FERC's argument is that it's undermined by other statements in the record.

[00:14:20] Speaker 02:
FERC itself has said

[00:14:24] Speaker 02:
that in 486B, that's at paragraph 148, at JA 658, FERC found that Kern River's competitive position will be enhanced, improved over what it was in period one.

[00:14:41] Speaker 02:
So FERC can't have it both ways.

[00:14:43] Speaker 04:
And what opinion did they say that in?

[00:14:46] Speaker 04:
What date?

[00:14:47] Speaker 02:
Your Honor, it was 486B.

[00:14:50] Speaker 02:
What date?

[00:14:50] Speaker 02:
Paragraph 148, it was

[00:14:54] Speaker 02:
January 15, 2009.

[00:15:00] Speaker 02:
Furthermore, FERC relied on standards and force reports.

[00:15:03] Speaker 05:
It said that... Don't get back away from that just yet.

[00:15:06] Speaker 05:
Give me the page number in that 468.

[00:15:08] Speaker 02:
Yes, Your Honor.

[00:15:10] Speaker 02:
It's opinion 486B at paragraph 148, JA site is 658.

[00:15:21] Speaker 02:
FERC also relied on standards and pours.

[00:15:23] Speaker 02:
There's a standard and pours report that came out in 2010.

[00:15:26] Speaker 02:
And in that report, standard and pours, which is supposed to represent the views of the investor community, said that Current River's prospects are more favorable.

[00:15:37] Speaker 02:
And this is even at 2010, which is the eve of when the 2011 period two is supposed to begin.

[00:15:44] Speaker 02:
And then a third problem with FERC's theory that the

[00:15:50] Speaker 02:
business risk will increase because of the contract expirations, is that FERC itself, in its orders, has said that the fact that contracts expire does not distinguish Kern River from any other pipeline in the natural gas industry.

[00:16:06] Speaker 02:
And that site is at 486E.

[00:16:10] Speaker 04:
That was with respect to volume, right?

[00:16:12] Speaker 04:
Two.

[00:16:13] Speaker 04:
Volume.

[00:16:14] Speaker 04:
That was with respect to volume.

[00:16:16] Speaker 02:
No, Your Honor.

[00:16:17] Speaker 04:
That's what FERC was addressing when they said that, right?

[00:16:19] Speaker 02:
Yes, it was addressing the billing determinant volume issue, but the point is the same.

[00:16:24] Speaker 04:
I understand your point, but that's what they were getting at.

[00:16:26] Speaker 02:
Yes, it was in the context of addressing volume, billing determinants.

[00:16:30] Speaker 02:
Yes, sir.

[00:16:31] Speaker 02:
So the problem here is we've got FERC speculating about a risk that's going to occur 2011 and afterwards.

[00:16:41] Speaker 02:
And its speculations are completely undermined

[00:16:44] Speaker 02:
by statements in its orders that are contradictory.

[00:16:48] Speaker 02:
That's the classic case of unreasoned decision making and requires a remand in our view.

[00:16:55] Speaker 02:
There are many other examples of inconsistencies, and I can go on.

[00:17:00] Speaker 02:
They all relate to this offset argument.

[00:17:03] Speaker 02:
Another example is where Frick talks about what a 2004 investor would expect would occur in 2011.

[00:17:13] Speaker 02:
And at one point, Bert says that in its argument, it depends on the fact that a 2004 investor would appreciate that there would be additional risk in 2011 and onward.

[00:17:26] Speaker 02:
And then in another part of its orders, it says the 2004 investor would believe that the competitive risk, because of Kern River's success over the years in getting expansions and contract renewals, was not particularly threatening.

[00:17:41] Speaker 02:
And yet, in a third part of its order, two paragraphs prior to the one I just referred to, FERC determined that the details of the higher risk environment in 2011 would unlikely have been visible to even the most discerning investor.

[00:17:57] Speaker 02:
So FERC is all over the lot as to what a 2004 investor might think is going to happen in 2011.

[00:18:04] Speaker 02:
And the only objective evidence we have in the record as to what the investment community thought about the risk is, in fact, the Standard & Poor's report, which demonstrates that Kern River's prospects are more favorable than negative.

[00:18:18] Speaker 02:
So the merits of the assumption that there will be increased risk in 2011 and forward are completely contradicted by various statements in the record.

[00:18:30] Speaker 02:
Am I out of time already?

[00:18:32] Speaker 02:
There are four other arguments Spurt makes.

[00:18:34] Speaker 02:
We've addressed them all in our briefs.

[00:18:36] Speaker 02:
I'm happy to answer any other questions that you might have, and I'll just take a couple minutes for rebuttal.

[00:18:40] Speaker 02:
Thank you.

[00:18:43] Speaker 01:
Thank you.

[00:18:48] Speaker 03:
May it please the court, Lona Perry for the commission.

[00:18:52] Speaker 03:
I would like to begin, if it's okay, with the return on equity issue that we just ended with.

[00:18:59] Speaker 03:
I'd like to start

[00:19:01] Speaker 03:
with the discussing the 100% equity structure and why it is that the commission did not apply its standard policy with respect to 100% equity structures in this case.

[00:19:13] Speaker 03:
And it's actually best explained by the commission in the discussion in 48060 the petitioner was referring to just now.

[00:19:21] Speaker 03:
It's paragraphs 159 to 162 in your joint appendix at 911 to 913.

[00:19:28] Speaker 03:
And there the commission explains that in traditional rate making, there's a snapshot in time.

[00:19:34] Speaker 03:
The capital structure and the rate base are of a particular moment in time in that they continue to apply for the rates throughout the life of the pipeline until it files another Section 4 case.

[00:19:47] Speaker 03:
In this case, this is a very unique capital structure because it was reached by agreement.

[00:19:54] Speaker 03:
and it was an overall just and reasonable rate structure.

[00:19:57] Speaker 03:
It began with a 70-30 debt equity ratio and it was just structured to say that the debt was recovered over the course of the first levelized period and then only the equity remained.

[00:20:10] Speaker 03:
But the significant factors are, first of all, that it started with 70-30 debt equity and then it went to 100.

[00:20:18] Speaker 03:
But the second important point you have to bear in mind about this particular capital structure is that

[00:20:23] Speaker 03:
the rate base continually declines.

[00:20:27] Speaker 03:
Unlike traditional rate making, if you had 100% equity structure, the rate base would continue the same throughout.

[00:20:34] Speaker 03:
But in this case, the rate base continually declines, which the commission held helps to assure that there wouldn't be an over-recovery with the 100% equity structure, unlike under traditional rate making.

[00:20:48] Speaker 04:
And that's why... Why does the rate base decline?

[00:20:50] Speaker 03:
Because that's how, this is a unique structure, and it was set up that way specifically in order to make sure that there wouldn't be excessive recovery.

[00:21:00] Speaker 04:
You mean because of the levelized?

[00:21:02] Speaker 03:
Because of the levelized rates, Your Honor, and it was part of making sure that there wouldn't be excess recovery during the 100% equity phase.

[00:21:09] Speaker 03:
And this is also discussed at 486E, paragraph 62, JA 2702,

[00:21:16] Speaker 03:
paragraph 154 of 55, JA 2745 and 46, and 486F paragraph 213, the joint appendix at 3765.

[00:21:28] Speaker 03:
See, the commission was making the point that because of this declining rate base and because of this overall structure,

[00:21:36] Speaker 03:
that this was a just and reasonable rate that was simply not comparable to the 100% equity structures that they were talking about in the cases that the petitioner relies on in their brief.

[00:21:47] Speaker 03:
And as a matter of fact, in note 202 and JA912, the commission distinguishes that precedent from this equity structure.

[00:21:56] Speaker 04:
That's true.

[00:21:57] Speaker 04:
What about the argument that you're inconsistent?

[00:22:00] Speaker 04:
The specific arguments counsel just made.

[00:22:03] Speaker 03:
There is no inconsistency, Your Honor.

[00:22:05] Speaker 03:
I'll begin, first of all, with the last one that she was talking about where she is making reference to, in the period two case, Kern River was arguing that its return on equity should go up because of the risks in re-contracting while the shippers were arguing it should go down.

[00:22:29] Speaker 03:
And in that argument,

[00:22:31] Speaker 03:
the testimony that they presented and supported that argument had to do with events that occurred in 2010 and 2011, which is the advent of the Ruby Pipeline, which provided new shipping to California, and the Rockies Express Pipeline, which provided shipping to the East, which provided takeaway capacity and competition with Fern River.

[00:22:51] Speaker 03:
And the commission said, in the parts that she is referring to,

[00:22:55] Speaker 03:
The commission rejected that evidence because it was not in the 2004 test period.

[00:23:02] Speaker 03:
The issue is, why would somebody in 2004 proceed?

[00:23:05] Speaker 03:
And so the commission rejected that.

[00:23:07] Speaker 03:
And this is at paragraphs 486F, 249 and 250, joint appendix 3776 and 77.

[00:23:14] Speaker 04:
Excuse me, counsel.

[00:23:16] Speaker 04:
I think the thing that's puzzling is she said that the contention

[00:23:23] Speaker 04:
that the business risk offset the financial risk in period two as anticipated back in 2004 is inconsistent with the way you treated the case in other respects and inconsistent the way you treat other cases.

[00:23:47] Speaker 04:
Isn't that what I understood our argument to be?

[00:23:49] Speaker 03:
That's her argument, Your Honor, but I'm trying to explain why that's not the case.

[00:23:54] Speaker 03:
I mean, in this particular case, with regard to the 2010 evidence that they rejected, the Commission specifically said in those same paragraphs I just cited that a 2004 investor would have anticipated that there would be competition because there were high basis differentials in 2004 that would

[00:24:13] Speaker 04:
Incent somebody to compete with the only thing it's one thing for you to say I'm not we're not going to allow evidence to come in on that Now because it's too late But it's quite different for you to say in 2004 investors would have anticipated this situation

[00:24:30] Speaker 03:
That's exactly right.

[00:24:32] Speaker 03:
The commission was saying an investor in 2004 would not have anticipated these particular pipelines that came along, but they would have anticipated that somebody would come along, because those high basis differentials are very attractive to competition.

[00:24:46] Speaker 03:
And so they wouldn't have had the specific evidence that Karn River was trying to put in, in support of its 13% return on equity, but they would have anticipated that there would be competition.

[00:24:57] Speaker 03:
And that was the reason why the commission found that there was business risk.

[00:25:01] Speaker 03:
I mean, obviously, there is business risk inherent in the nature of the turning over to the period two, because every single period one contract is expiring.

[00:25:12] Speaker 03:
I mean, they have patent re-contracting risk.

[00:25:15] Speaker 03:
And the only question is, what other options will shippers have at that time?

[00:25:20] Speaker 03:
What competition will be there?

[00:25:22] Speaker 03:
What other things could they do?

[00:25:24] Speaker 03:
But every period one contract is expiring, so there's inherent re-contracting.

[00:25:29] Speaker 05:
This may have been in your answer, but I didn't get it.

[00:25:33] Speaker 05:
Does the fact, the unique structure of having 100% equity change anything in what you just said about business risk, or is the business risk the same as it would be if this were, say, a 70-30 risk?

[00:25:46] Speaker 03:
It definitely affects the financial risk, Your Honor, and the Commission acknowledged that it lowers the financial risk.

[00:25:52] Speaker 04:
No, Council, uh, uh, Council, Joe Centelle asked whether it affected the business risk.

[00:25:57] Speaker 04:
Yeah.

[00:25:59] Speaker 03:
Well, no, the business risk, it has to, it wouldn't affect the business risk.

[00:26:03] Speaker 05:
It would not affect the business risk.

[00:26:04] Speaker 05:
It just lowers the financial risk.

[00:26:06] Speaker 05:
I know you said the opposing Council would be saying that first was relying on changing the business risk.

[00:26:11] Speaker 05:
Did I misunderstand her, or was she wrong, or?

[00:26:15] Speaker 03:
Well, the commission is relying on a change in the business risk for period two because of the expiring contracts.

[00:26:21] Speaker 05:
But you're not asserting that the business risk is any different than it would be without the unique capital.

[00:26:26] Speaker 03:
Well, no, Your Honor.

[00:26:28] Speaker 03:
I don't think, with respect to the re-contracting risk, that's a function of all of the period one contracts expiring and the fact that it's attractive for competitive purposes to other pipelines.

[00:26:41] Speaker 03:
So,

[00:26:43] Speaker 03:
see a direct link there.

[00:26:47] Speaker 03:
With regard to the statements in 486B, 486B was looking at the return on equity in terms of 2004 itself.

[00:26:57] Speaker 03:
It's not period two, it's period one.

[00:27:00] Speaker 03:
And in 2004 itself, I mean, Kern River was fully subscribed.

[00:27:05] Speaker 03:
And

[00:27:05] Speaker 03:
That's the analysis of risk that was going on, and they made reference to the fact that the prices would go down for period two contracts, and that is true.

[00:27:15] Speaker 03:
I mean, as between period one contracts and period two, the period two

[00:27:19] Speaker 03:
rates are lower.

[00:27:20] Speaker 03:
But the commission was looking in terms of business risk at the competition, the pipeline competition that would be coming online and the other options that shippers would have other than simply renewing their contract on Kern River.

[00:27:39] Speaker 03:
But essentially that was the discussion for the risk in 2004 and the return on equity for the period one rates, not for the period two rates.

[00:27:52] Speaker 04:
What about Kern River's argument?

[00:27:56] Speaker 03:
With regard to the first argument, the Commission found that in terms of the fixing the rates in place... Why did it take FERC 10 months to accept the compliance filing if it was just

[00:28:13] Speaker 04:
a number put in the model that changed.

[00:28:16] Speaker 03:
Because, Your Honor, what FERC did in 486D, which is what came out 10 months later, was it addressed numerous issues about the scope of the hearing on period two.

[00:28:26] Speaker 03:
All it did was accept, in paragraph 100 of 486D, it accepted the compliance filing with the corrected numbers.

[00:28:35] Speaker 03:
What took so long was all of the effort that went into confining and defining and

[00:28:42] Speaker 03:
the scope of the period two hearing.

[00:28:45] Speaker 03:
And that's why.

[00:28:46] Speaker 03:
But the commission wasn't concerned about that because it had already fixed the rate as of 486C.

[00:28:51] Speaker 03:
So it didn't feel that there was a need, because the rate had already been fixed for period one, that there was a need to address that hastily without addressing the rest of the issues that they wanted to cover on the period two hearing.

[00:29:07] Speaker 03:
And with regard to the roll-in rate credits, that was the initial decision in the period two hearing rejected.

[00:29:18] Speaker 03:
Colonel Rivers' arguments on the period, attempting to adjust the period one rates.

[00:29:22] Speaker 04:
Would you explain the roll-in credits, please?

[00:29:27] Speaker 03:
Yes, Your Honor, it is.

[00:29:28] Speaker 04:
That's because of a new shippers coming in.

[00:29:34] Speaker 03:
What it is, Your Honor, is there was the original system that started in 92 and then in 2002 there was an expansion.

[00:29:42] Speaker 03:
And that expansion, because it would lower the rates for everybody, they were allowed to roll in.

[00:29:47] Speaker 04:
By an expansion, you're talking an expansion of the pipeline or expansion of the shippers, a number of shippers?

[00:29:52] Speaker 03:
Expansion of the pipeline.

[00:29:54] Speaker 03:
They added compression to the pipeline.

[00:29:56] Speaker 04:
That wasn't clear.

[00:29:57] Speaker 04:
Okay.

[00:29:58] Speaker 04:
But that's only done when you have new customers, right?

[00:30:02] Speaker 03:
That's right, Your Honor.

[00:30:03] Speaker 04:
So you had expansion of the shippers, too?

[00:30:05] Speaker 03:
That's right.

[00:30:06] Speaker 03:
There were 2002 expansion shippers.

[00:30:09] Speaker 03:
And because it lowered the rates of the original shippers, if you rolled them all in together,

[00:30:15] Speaker 03:
the commission allowed for rolled in rates.

[00:30:18] Speaker 03:
So they combined the original system and the expansion system rates together.

[00:30:23] Speaker 04:
So the original shippers got the benefit?

[00:30:26] Speaker 03:
That's right, Your Honor.

[00:30:27] Speaker 03:
But because they had different contract durations, they couldn't literally roll them all in together.

[00:30:32] Speaker 03:
And so they came up with this mechanism whereby they would calculate a credit to the original shipper's rates, which would reflect the benefit to them of those 2002 shippers coming in.

[00:30:44] Speaker 03:
And so that's the issue.

[00:30:47] Speaker 04:
What is the issue?

[00:30:49] Speaker 03:
Well, the issue is they have a rate credit.

[00:30:53] Speaker 03:
And the problem arises.

[00:30:55] Speaker 04:
Whose they have?

[00:30:56] Speaker 03:
I'm sorry.

[00:30:56] Speaker 03:
There's a rate credit to the original shippers that reflects this benefit.

[00:31:00] Speaker 03:
OK.

[00:31:01] Speaker 03:
And it's the benefit that they get from the 2002 expansion shippers joining.

[00:31:06] Speaker 04:
OK, got that.

[00:31:07] Speaker 04:
Now what?

[00:31:08] Speaker 03:
So the issue arises because

[00:31:11] Speaker 03:
There are a 2002 expansion shipper that steps down to period 2 rates, which means his rates go down, when there are still 15-year original shippers paying period 1 rates.

[00:31:27] Speaker 03:
And so what Kern River wanted to do is to go back and adjust those 15 years original shippers period one rates to account for the lower benefit that they were getting from the 2002 expansion shipper that had stepped down to lower period two rates.

[00:31:46] Speaker 04:
Why would Kern River, that sounds like Kern River wanted to reduce the rates for some people?

[00:31:50] Speaker 04:
No, that can't be.

[00:31:53] Speaker 03:
They, they actually, it actually increased, it would increase the original shippers rates because their benefit would go down.

[00:32:00] Speaker 04:
That's what I, because what?

[00:32:02] Speaker 03:
Their benefit from the expansion shippers would go down.

[00:32:04] Speaker 04:
Okay, gotcha, now, because there's no way Kern River would want to reduce the rates.

[00:32:08] Speaker 04:
They always want to increase the rates.

[00:32:09] Speaker 03:
Right, Your Honor.

[00:32:10] Speaker 03:
And they wanted to increase the shippers period one rates.

[00:32:12] Speaker 04:
I got it, I got it.

[00:32:14] Speaker 04:
And so what's, what's FERC's answer to that or what's FERC, Kern River's position and what's your answer?

[00:32:21] Speaker 03:
Kern River's position is

[00:32:23] Speaker 03:
that even though they never asked for any adjustment to the period one rates while the period one hearing was going on, that they should have been able to reopen the record in the period two hearing and raise it there.

[00:32:36] Speaker 03:
And the commission, the ALJ said, you can't do that.

[00:32:40] Speaker 03:
The period one rates were finished as of 486D.

[00:32:43] Speaker 03:
It's not part of this proceeding.

[00:32:46] Speaker 03:
and the commission affirmed the ALJ in 486E and denied rehearing in 486F and also stated in those opinions that period one rates were final as of 486D and that the hearing that was set on period two rates was only for period two rates.

[00:33:07] Speaker 03:
It didn't include any period one rate issues.

[00:33:11] Speaker 03:
And so it simply was

[00:33:14] Speaker 03:
they should have raised it in the period one proceeding, and they didn't.

[00:33:18] Speaker 03:
And therefore, they were not allowed to make that adjustment.

[00:33:22] Speaker 03:
The commission did make the adjustment for the period two rates that they asked for in the period two rate hearing, but they did not allow the adjustment for the already finalized period one rates.

[00:33:34] Speaker 03:
If there are no further questions, thank you.

[00:33:49] Speaker 00:
I won't take up much time.

[00:33:51] Speaker 00:
I'd like to go back to Judge Silberman that Kern River always wants to make sure that it's charging just and reasonable rates.

[00:33:58] Speaker 00:
And if there are credits in one, it'll increase elsewhere.

[00:34:03] Speaker 00:
I also would like to say that Kern River does support most of what the Commission has done here.

[00:34:09] Speaker 00:
over these eight opinions.

[00:34:11] Speaker 00:
It was a very difficult, time-consuming, challenging series of proceedings, and Kern River much appreciates what the Commission had to go through.

[00:34:20] Speaker 00:
We only raised two very narrow issues.

[00:34:23] Speaker 00:
One is that under Section 5 of the Natural Gas Act, when do you fix a rate?

[00:34:27] Speaker 00:
And Judge Silberman had raised earlier in the earlier argument about Judge, then Judge Scalia, who said in the electrical district case that you can't fix what you don't see.

[00:34:41] Speaker 04:
And here there was no rate to see in order for... But Judge Williams in Trans-Western seemed to take a somewhat different position, less formalistic?

[00:34:49] Speaker 00:
Well, I think what he found there, Your Honor, is that if there were only three shippers,

[00:34:54] Speaker 00:
And the three shippers were responsible for 100% of the cost.

[00:34:58] Speaker 00:
And one of those shippers backed out that the other two then would be responsible for 100% of the cost.

[00:35:03] Speaker 00:
A rather straightforward formula.

[00:35:05] Speaker 04:
It was a formula, right?

[00:35:06] Speaker 00:
It was a formula, Your Honor.

[00:35:07] Speaker 00:
And most rates are formula.

[00:35:09] Speaker 00:
I mean, you plug in the data inputs and you come out with what the rates are.

[00:35:16] Speaker 00:
And on the last issue, I just would like to say that Kern River was not given notice by the Commission that the period one rates were locked in and took the language in D, 486D, about addressing issues in the transition from period one to period two, as indicating that those issues could be raised, which they were, and ended up in benefits flowing to the period two shippers.

[00:35:43] Speaker 04:
Was that what you think was ambiguous?

[00:35:45] Speaker 00:
Your Honor, I guess now with the post-hoc rationalization that's been provided, it's clear, but at the time it was not clear.

[00:35:53] Speaker 04:
It was ambiguous.

[00:35:54] Speaker 04:
It was ambiguous, Your Honor.

[00:35:55] Speaker 04:
So are they entitled to deference as to their interpretation of their own rules?

[00:36:00] Speaker 00:
Your Honor, when it's stated, yes.

[00:36:01] Speaker 00:
When it's not stated, no.

[00:36:03] Speaker 00:
Okay.

[00:36:04] Speaker 00:
Thank you very much.

[00:36:05] Speaker 01:
Thank you.

[00:36:12] Speaker 01:
You had no time left, but we'll give you two minutes.

[00:36:15] Speaker 02:
Oh, thank you.

[00:36:16] Speaker 02:
Thank you.

[00:36:17] Speaker 02:
I've got three very good points.

[00:36:22] Speaker 02:
First point, Councilman Furke did not address the basic inconsistency.

[00:36:27] Speaker 02:
You asked Judge Silverman, she never responded and explained why the language in 46B, that current risks are enhanced, I'm sorry, are reduced in period two,

[00:36:40] Speaker 02:
because of the lower rates, she never addressed that inconsistency with the argument that she's making.

[00:36:47] Speaker 02:
Point one.

[00:36:48] Speaker 02:
Point two, Judge Suntel.

[00:36:51] Speaker 04:
You're getting used to this, right, this morning?

[00:36:57] Speaker 02:
In response to your question, also, that was not answered by counsel for FERC, as to the relationship between the 100% equity capital structure and business risk, again, I refer to that very same paragraph

[00:37:11] Speaker 02:
and 46B148.

[00:37:13] Speaker 02:
As the reduced Phase II rates become effective, Kern River's competitive position should be enhanced and its equity risk will decline significantly.

[00:37:27] Speaker 02:
This will further improve its competitive position regarding firms already in the market.

[00:37:34] Speaker 02:
equity does have an impact on reducing business risk.

[00:37:40] Speaker 02:
And then the final point I would like to leave you with is that these orders are rife with inconsistencies as we pointed out in the brief.

[00:37:51] Speaker 02:
If FERC's orders are affirmed on this record, it would render meaningless the legal principle at issue here

[00:37:59] Speaker 02:
which is that the higher the equity component, the ROE should be reduced.

[00:38:04] Speaker 02:
Because we can't conceive of any case with facts any more compelling than this case where everything else is the same and the only thing that changes is the 100% equity capital structure that reduces risk.

[00:38:20] Speaker 02:
We can't conceive of any facts that would require

[00:38:24] Speaker 02:
a reduction in the area if this case does not.

[00:38:27] Speaker 02:
It would just write that legal principle out of the law.

[00:38:31] Speaker 04:
So that's all we have.

[00:38:32] Speaker 04:
Can I ask the government to come back and respond to those points?

[00:38:35] Speaker 04:
Would that be all right?

[00:38:37] Speaker 04:
Sure.

[00:38:37] Speaker 04:
Yeah.

[00:38:38] Speaker 02:
Thank you.

[00:38:38] Speaker 04:
I'd like to ask the government to come back and answer those specific points that she says you didn't respond to her two points, two inconsistencies.

[00:38:50] Speaker 04:
And I didn't think you did either, did you?

[00:38:53] Speaker 03:
I thought I did.

[00:38:54] Speaker 04:
Well, what about her specific point?

[00:38:58] Speaker 03:
The point that she was just raising, was it the only thing that changed here was the... Not the last point, the first two points.

[00:39:04] Speaker 04:
You listened carefully, didn't you?

[00:39:06] Speaker 03:
I did, but now I was focusing on the last one, and now I have... I have... the first two have escaped me.

[00:39:13] Speaker 04:
You know, if you get confused in this case, what hope do we have?

[00:39:17] Speaker 03:
Well, the first one was 486-D.

[00:39:21] Speaker 04:
Yes, the point that you were inconsistent in talking about business risk.

[00:39:28] Speaker 04:
That is correct.

[00:39:29] Speaker 04:
That in one opinion you said you would actually not have a business risk, you, Kern River would not have a business risk in the phase two area because, phase two period, because they were hot, they were a hot item or something like that.

[00:39:47] Speaker 04:
Did you say that?

[00:39:48] Speaker 04:
And is that not inconsistent with saying there is a greater business risk that offsets the financial risk?

[00:39:55] Speaker 03:
It's not at all inconsistent, Your Honor.

[00:39:57] Speaker 03:
All they were saying... Whose they?

[00:39:59] Speaker 03:
I'm sorry, the Commission.

[00:40:01] Speaker 03:
All the Commission was saying in 486B, and this is paragraph 148 that she's referring to in the Joint Appendix, 658,

[00:40:09] Speaker 03:
Well, first of all, again, they were talking about period one return on equity, not period two return on equity.

[00:40:16] Speaker 03:
This is period one we're talking about.

[00:40:19] Speaker 03:
And they were saying the only point they were making is the rates are going to go down in period two as opposed to period one.

[00:40:26] Speaker 04:
No, we're talking about business risk.

[00:40:27] Speaker 03:
And that's a good thing.

[00:40:28] Speaker 04:
We're talking about business risk.

[00:40:30] Speaker 04:
If I understood counsel, at one point FERC indicated there would be no business risk in phase two, and at another point they say there is a business risk.

[00:40:39] Speaker 04:
Is that correct or not correct?

[00:40:41] Speaker 03:
no but your honor i'll read you the sentence that she's relying on.

[00:40:45] Speaker 03:
What it says is as the reduced phase two rates become effective, Kern River's competitive position should be enhanced and its equity risk will decline significantly.

[00:40:53] Speaker 04:
So if its competitive risk is enhanced, that's not an increased business risk.

[00:41:01] Speaker 03:
Right, the equity risk declining significantly goes to the financial risk.

[00:41:05] Speaker 04:
Council, just stop for a moment.

[00:41:07] Speaker 04:
If at one point Burke said

[00:41:11] Speaker 04:
Kern River's business risk would be less.

[00:41:14] Speaker 04:
And another point that says it would be greater, that's inconsistent, isn't it?

[00:41:19] Speaker 03:
No, Your Honor, because all they're saying here is that the rates will go down in period two, and that's a good thing for their competitive position.

[00:41:26] Speaker 03:
But that has nothing to do with... With business risk?

[00:41:30] Speaker 03:
For business risk, for the re-contracting risk, right.

[00:41:33] Speaker 04:
Wait, it has nothing to do with our rates are going to go down?

[00:41:36] Speaker 04:
So there'll be a reduced business risk?

[00:41:39] Speaker 03:
What I'm saying, Your Honor, is what the Commission was saying is the fact that the period two rates will go down is a good thing for their competitive position.

[00:41:48] Speaker 03:
But that doesn't mean that there won't be pipeline competition that will come in.

[00:41:54] Speaker 05:
An improved competitive position would seem to coexist with a reduction in business risk.

[00:42:05] Speaker 03:
But what they're talking about is the fact that the period two rates are going to go down.

[00:42:11] Speaker 03:
And certainly everybody would agree that for that purpose, that's a benefit.

[00:42:15] Speaker 05:
That's not ending our confusion.

[00:42:18] Speaker 05:
Whatever the cause, if your competitive position improves, does that not mean that you have had a reduction in business risk rather than an enhancement in business risk?

[00:42:29] Speaker 03:
No, Your Honor, what I'm trying to say is, what they were saying there is that the fact that the rates will go down is good for their competitive position, but that doesn't speak at all to the pipeline competition and what other options shippers might have.

[00:42:45] Speaker 05:
So this only was- That doesn't make any sense.

[00:42:48] Speaker 05:
An improvement in their competitive position doesn't speak to competition from other pipelines?

[00:42:55] Speaker 05:
That doesn't help my confusion very much, Your Honor.

[00:42:59] Speaker 03:
Well, it's it's clearly the lower rate makes it more likely that the shippers will roll over to the period two contracts, but it doesn't say anything about what other options they may have as a result of something about business.

[00:43:19] Speaker 05:
You keep telling us it doesn't say anything about what other options they might have.

[00:43:23] Speaker 05:
Maybe it doesn't.

[00:43:24] Speaker 05:
But it isn't designed to be viable for the entire business risk world.

[00:43:29] Speaker 05:
It is saying they're in a better competitive position.

[00:43:33] Speaker 05:
So why isn't that a reduction in business risk?

[00:43:38] Speaker 03:
It is a reduction in business risk insofar as the lower rates is a benefit to them.

[00:43:44] Speaker 03:
But I would also point out, Your Honor, that again, we are talking about 486B.

[00:43:49] Speaker 03:
This was the analysis that the Commission was doing of the return on equity for the period one rates.

[00:43:55] Speaker 03:
Now, the parts that I have been citing to you, 486E and 486F, that was the Commission's analysis of the return on equity for the period two rates.

[00:44:06] Speaker 03:
The analysis that was undertaken was different.

[00:44:08] Speaker 03:
The return on equity for the period one rates only had to do with investor perception of risk of Kern River in 2004, whereas the period two rates, it was investor perception of risk much further into the future.

[00:44:22] Speaker 03:
And it was a different analysis that the commission was undertaking.

[00:44:25] Speaker 03:
So I wouldn't, the analysis of the return on equity in period two is what the commission undertook in 486E and 486F, in which it consistently found

[00:44:37] Speaker 03:
that, given the high basis differentials in 2004, an investor in 2004 would have anticipated pipeline competition that would have caused competitive issues for Kern River.

[00:44:49] Speaker 04:
What about her second point, before you ever get to the third point?

[00:44:53] Speaker 04:
You remember what the second point was, where she claimed you were inconsistent?

[00:44:58] Speaker 03:
I don't, Your Honor.

[00:44:59] Speaker 04:
What was it, Counsel?

[00:45:05] Speaker 02:
the relationship between 100% equity and capital structure and the impact that that would have on producing businesses.

[00:45:17] Speaker 02:
And I cited this very same paragraph in 436B.

[00:45:19] Speaker 04:
Isn't that your third point?

[00:45:21] Speaker 02:
No, my third point was, if this case is affirmed.

[00:45:25] Speaker 05:
Then you'd be writing out the original.

[00:45:27] Speaker 04:
Okay, now what about the second point?

[00:45:31] Speaker 03:
The 100% equity certainly lowers financial risk, and so it's overall a benefit to the pipeline, but I don't know that the commission made a connection between lowering, I mean, you know, lowering its financial risk in general increases its position.

[00:45:52] Speaker 04:
Let me ask this question.

[00:45:53] Speaker 04:
If Perk found there was a lowering of the financial risk in period two,

[00:46:00] Speaker 04:
and didn't discuss at all competitive position, wouldn't that necessarily require a reduction in return on equity?

[00:46:10] Speaker 04:
it's it's certainly would come much closer to that your honor i mean you know i had to wait a minute council what do you mean co i i i i'm afraid you're that this is a box is is it not you eliminate competitive risk entirely and the only thing you have is a hundred percent equity situation under you the president counsel argues you would have to reduce the roe

[00:46:40] Speaker 03:
Your Honor, I explained, I hope, why the precedent doesn't apply to this levelized rate.

[00:46:48] Speaker 03:
The Commission has already explained why their precedent, that they lower our means because of the unaccepted.

[00:46:55] Speaker 04:
So in other words, your position, you win even if there's no competitive factor at all.

[00:47:01] Speaker 03:
Not necessarily, Your Honor.

[00:47:02] Speaker 04:
Wait, wait, wait, wait.

[00:47:03] Speaker 04:
Wait a minute.

[00:47:04] Speaker 04:
You can't do that.

[00:47:05] Speaker 04:
I'm isolating the competitive factor, taking it out, right?

[00:47:09] Speaker 04:
Now, the question is, if in fact, the evidence is that Kern River's competitive position is even better in period two, do you not have to, in accordance with your precedent, reduce the ROE?

[00:47:28] Speaker 04:
Because you're dealing with 100% equity.

[00:47:32] Speaker 04:
Yeah or nay?

[00:47:35] Speaker 03:
I know that you want me to say that you might have to be standing.

[00:47:38] Speaker 03:
No, I don't want you to say anything but the truth.

[00:47:40] Speaker 03:
But the thing is you have to bear in mind is this isn't an inquiry.

[00:47:46] Speaker 03:
You don't make gradations of whether in the range of reasonableness.

[00:47:54] Speaker 03:
It's a broad range of reasonableness.

[00:47:56] Speaker 03:
And it's only in very anomalous circumstances that you go either up or down from the median.

[00:48:02] Speaker 03:
And I'm simply not prepared to say that because of this special structure, because this isn't your typical 100% equity case, I'm just not prepared to say that it would be such an anomalous circumstance that it would justify deviating from the median, even under those circumstances.

[00:48:20] Speaker 03:
Because this isn't your usual 100% equity case.

[00:48:24] Speaker 05:
Is there a usual 100% equity case?

[00:48:27] Speaker 03:
It's all the cases that Council cited too.

[00:48:31] Speaker 03:
The cases where under traditional rate making somebody comes in with a very high equity structure and the Commission imposes a hypothetical structure in its place.

[00:48:40] Speaker 05:
So it's not the case that we, that this is unique by having a 100% equity structure?

[00:48:46] Speaker 03:
No, Your Honor, there are certainly pipelines that have extremely high equity structures.

[00:48:51] Speaker 05:
That's not exactly what I asked.

[00:48:54] Speaker 05:
I was told a while ago that it was unique in having a hundred percent equity structure.

[00:49:00] Speaker 05:
You are now saying that there are other companies that have a high equity structure.

[00:49:04] Speaker 05:
Is it unique in evidence and equity structure?

[00:49:07] Speaker 05:
Or not, or I don't know.

[00:49:08] Speaker 05:
We'll take I don't know for an answer.

[00:49:10] Speaker 03:
I don't know about 100 percent.

[00:49:12] Speaker 03:
Certainly a number of the cases that were cited by Petitioners' Council was 90 percent.

[00:49:16] Speaker 05:
That's not what I asked you.

[00:49:17] Speaker 05:
I asked you a yes or no question.

[00:49:19] Speaker 05:
To your knowledge, is it unique in evidence and equity structure?

[00:49:22] Speaker 05:
That yes, no, or I don't know.

[00:49:24] Speaker 05:
Don't tell me anything else.

[00:49:25] Speaker 05:
You can explain after you say that.

[00:49:27] Speaker 05:
But say one of those answers first.

[00:49:30] Speaker 03:
The only 100% equity structures I'm aware of are other pipelines that had levelized rates.

[00:49:37] Speaker 05:
Is that a yes or a no to my question?

[00:49:40] Speaker 05:
Does that mean that yes, there are others that have 100% equity structures?

[00:49:44] Speaker 03:
Yes, I believe so, Your Honor.

[00:49:45] Speaker 03:
I mean, I believe that behind the pipeline, which was approved at the same time, had the same structure, they ultimately went over to traditional rates, but they started out with this same levelized rate structure.

[00:50:00] Speaker 03:
Anything further?

[00:50:01] Speaker 01:
Thank you.