[00:00:00] Speaker 00: Case number 23-1042, Edda, Fusky Marketing and Supply Company petitioner versus Federal Energy Regulatory Commission on United States of America. [00:00:10] Speaker 00: Mr. Wagner for the petitioner, Mr. Eddiger for the respondents, Ms. [00:00:14] Speaker 00: Kohlhausen for the intervener. [00:00:19] Speaker 02: Good morning. [00:00:21] Speaker 02: Good morning. [00:00:25] Speaker 04: Edda, may it please the court? [00:00:27] Speaker 04: FERC set the Ozark application for hearing to give Ozark an opportunity to demonstrate that it lacks the ability to exercise market power in an appropriately defined destination market. [00:00:40] Speaker 04: The ALJ assembled a substantial record and conducted a lengthy hearing. [00:00:44] Speaker 04: FERC's expert trial staff analyzed the options available to Ozark's shippers. [00:00:50] Speaker 04: They considered a competitive price for transportation to Wood River. [00:00:54] Speaker 04: the delivered prices of crude oil by various transportation routes, the identity of the shippers and where they consume crude oil, and the fact that Ozark's largest shipper by volume is its affiliate, and concluded that if Ozark attempted to exercise market power, its shippers would not shift their volumes to a location other than Wood River, and therefore that the destination market should be limited to the pipeline's terminus at Wood River. [00:01:20] Speaker 04: The ALJ agreed that Ozark had failed to meet its burden [00:01:24] Speaker 04: to establish a broader destination market than Wood River, found that Ozark had the ability to exercise market power in that Wood River destination market, and she recommended that FERC deny the application. [00:01:38] Speaker 04: FERC then put that evidence to the side, did a 180 degree turn, and said that no quantitative analysis is needed to identify the destination market in which Ozark faces competition. [00:01:50] Speaker 04: found that Ozark's burden of proof was satisfied by the observation that some of Ozark's volumes flow downstream to Patoka and beyond. [00:01:58] Speaker 04: And on that basis, FERC determined that Patoka must also be part of the destination market, and that every pipeline delivering to Patoka is necessarily a good competitive alternative to Ozark. [00:02:09] Speaker 04: And FERC ultimately found that Ozark does not have the ability to exercise market power over deliveries to the combined Wood River-Patoka market and granted the application. [00:02:20] Speaker 04: FERC precedent provides that when geographic markets are tested, the pipeline must justify its markets and competitive alternatives based on detailed cost analyses. [00:02:31] Speaker 04: By detailed cost analyses, FERC is referring to the costs of the pipeline's shippers. [00:02:36] Speaker 06: For example, in the TE products case where that... Since TE products, the commission has said on numerous occasions that other methodologies can be used. [00:02:45] Speaker 04: Well, it said that other methodologies than a hypothetical monopolist test may be used. [00:02:49] Speaker 04: But as far as whether a detailed cost analysis is required, I don't believe FERCA cited a single case, a contested case, in which they had found until now that such an analysis was not needed. [00:03:04] Speaker 04: The commission cites several cases. [00:03:06] Speaker 02: Does that make it wrong? [00:03:08] Speaker 04: I'm sorry? [00:03:08] Speaker 02: Does that make it wrong that this is the first time, as long as their analysis [00:03:12] Speaker 02: reasonably captures the relevant economic consideration. [00:03:16] Speaker 02: I'm sure you disagree with some of that. [00:03:17] Speaker 02: But if it does, then what would be wrong? [00:03:23] Speaker 02: And it follows a pattern of decision-making they have done in other cases, not contested ones. [00:03:29] Speaker 02: What would be arbitrary or capricious about them doing this thing here when you have their track record of what [00:03:40] Speaker 02: the businesses like between at Wood River and between Wood River and Pawtucka. [00:03:46] Speaker 02: And they made this sort of factual findings. [00:03:48] Speaker 04: Sure. [00:03:49] Speaker 04: Well, two things. [00:03:50] Speaker 04: First of all, just about the prior cases, said that it does not scrutinize uncontested applications. [00:03:57] Speaker 04: So any principles that it might establish in one of those cases or evidence that it accepts in one of those cases doesn't establish principles for contested cases. [00:04:06] Speaker 04: That's the one case to which you referred a moment ago. [00:04:09] Speaker 04: Te products. [00:04:11] Speaker 06: No. [00:04:11] Speaker 06: No, you said there's been one since then that When I mentioned the the focus had several times numerous different methodologies would be acceptable I think you said those were in uncontested cases save one. [00:04:26] Speaker 04: Oh, um, I Think it must have misspoken that I don't have a case in mind. [00:04:33] Speaker 06: All right Well, let me clarify for us, please if if [00:04:39] Speaker 06: Assuming for the moment anyway that FERC is correct with regards to the geographic market determination. [00:04:49] Speaker 06: Are you separately challenging FERC's determination that Ozark does not have market power within that expanded market? [00:05:02] Speaker 04: No. [00:05:02] Speaker 04: If the destination market includes Wood River and Patoka, the HHI does indicate [00:05:08] Speaker 04: indicate that. [00:05:09] Speaker 04: But to go back to judgment, let's question. [00:05:12] Speaker 04: Um, I think that the relevant commercial realities, which all parties agree that commercial realities are relevant. [00:05:20] Speaker 04: We don't agree on what those are. [00:05:22] Speaker 04: Any consideration of commercial realities must include the delivered price. [00:05:26] Speaker 04: This court has recognized in the mobile decision that delivered price is the real economic concern of shippers. [00:05:33] Speaker 04: Uh, one of the [00:05:34] Speaker 04: essential questions a shipper would ask when considering an alternative is how much will it cost? [00:05:40] Speaker 04: And without doing that, I just don't believe that there's a complete set of relevant commercial realities being examined. [00:05:46] Speaker 02: Given first finding that most of the oil that goes into Wood River continues on to Pataka, you don't dispute that fact. [00:06:01] Speaker 04: We don't dispute that fact that there's a very important context. [00:06:05] Speaker 04: There's very important context to that fact. [00:06:07] Speaker 02: Okay, but why doesn't that, given that most trials between the two of them, why isn't that a particularly salient fact in defining the relevant destination market as including both Wood River and Pawtucket would be rather artificial to treat it as just Wood River if most is just passing through? [00:06:31] Speaker 04: Most of it does go through. [00:06:33] Speaker 04: However, most of what goes through goes through for the pipeline's affiliate and the pipeline and its affiliate have aligned interests. [00:06:41] Speaker 04: They've put that in their SEC. [00:06:44] Speaker 02: That seems to go to the competitiveness issue that you are not contesting. [00:06:48] Speaker 02: You just told Judge Ginsburg. [00:06:49] Speaker 02: But as to the destination market, as to options that customers have, I'm not sure what the affiliation has to do with on that. [00:07:00] Speaker 02: I understand its relevance at the competitiveness analysis. [00:07:05] Speaker 04: Okay. [00:07:05] Speaker 04: It has to do with the rationality of using the TOCA to escape an exercise of market power. [00:07:11] Speaker 04: If we're not looking at the entire set of the volumes that go through [00:07:19] Speaker 04: to Patoka as the relevant shippers that react to an exercise of market power. [00:07:27] Speaker 04: The only shippers that continue through to Patoka that may or may not react to an exercise of market power are those that are not affiliated with the pipeline. [00:07:35] Speaker 06: So you're saying the affiliate would continue to pay a super competitive price because, I think you say in your brief, because its profitability is upstreamed to the partnership. [00:07:48] Speaker 04: That's correct. [00:07:49] Speaker 06: But the partnership, as far as we know, as far as I could tell, has an affiliate as the general partner, but there are limited partners, correct? [00:08:01] Speaker 06: Yes, that's correct. [00:08:02] Speaker 06: Are they affiliates? [00:08:04] Speaker 04: No. [00:08:04] Speaker 06: So the general partner has a fiduciary duty to the limited partners not to overpay for a self-serving reason. [00:08:12] Speaker 04: Yes, however, they have disclosed to those investors, to those non-affiliated investors, that our interests are aligned. [00:08:21] Speaker 04: And one arm of this combined enterprise is not going to act against an interest of another arm of the enterprise. [00:08:28] Speaker 02: Where did you say they have disclosed? [00:08:30] Speaker 04: MPLX, the owner of the pipeline. [00:08:34] Speaker 02: They said their interests are aligned. [00:08:38] Speaker 02: word alive. [00:08:39] Speaker 04: Their interests are aligned with those of the shipper who is the largest shipper by volume on the pipeline. [00:08:46] Speaker 06: That doesn't excuse them from or doesn't from their duty to the general partners to the limited partners. [00:08:55] Speaker 04: I think you also have to factor in the fact that there is a long term contract here that that's a completely different point. [00:09:02] Speaker 04: Correct. [00:09:03] Speaker 04: I don't believe so. [00:09:04] Speaker 04: I think that affects the motivations of the shipper. [00:09:07] Speaker 04: It has a contractual commitment to its affiliate to continue shipping on this pipeline. [00:09:16] Speaker 04: With regard to price? [00:09:19] Speaker 04: That's correct. [00:09:20] Speaker 04: Or else it will pay a deficiency fee. [00:09:25] Speaker 04: in order to switch. [00:09:26] Speaker 04: So not only do they have aligned interests because of their common ownership, which I recognize is not complete, but they also have a financial tie that has cemented that through that contractual commitment with the efficiency fee. [00:09:40] Speaker 04: I think this actually, the commission. [00:09:44] Speaker 02: How does that go to the question of what the proper destination market is? [00:09:51] Speaker 02: just to look at the reality of how this product is moving and the numerous other pie funds that come in to Pataka. [00:10:00] Speaker 02: Again, it just, it sounds to me like you're making an argument that Burke should have found a lack of sufficient competitiveness in the Wood River Pataka market, as opposed to that that's not sort of geographically the appropriate destination market. [00:10:17] Speaker 04: One of the issues here is that, and I recognize the different steps, there's the step in defining the market and the step in defining the competitors. [00:10:26] Speaker 04: FERC has basically eliminated the step of defining the competitors because it's found that the use of any alternative, regardless of availability, regardless of price, is going to, it shows that that is a good competitive alternative under circumstances of market power. [00:10:44] Speaker 04: I don't think you can make that leap from current use to what would happen if the pipeline attempted to exercise market power. [00:10:52] Speaker 04: That's the cellophane fallacy, that prices in a market are assumed to be competitive and the choices that customers in that market make are assumed to reflect that competition. [00:11:07] Speaker 04: I think if you only look at a map and you only look at the shipment patterns [00:11:12] Speaker 04: under current conditions that doesn't tell FERC what would happen, what would be rational in the exercise of market power. [00:11:21] Speaker 04: Briefly, there are the three groups of shippers. [00:11:24] Speaker 04: I think we could set aside the people that stop at Wood River. [00:11:27] Speaker 04: And we've got the affiliate, the lion's share of the capacity. [00:11:30] Speaker 04: It's not rational for them to shift. [00:11:33] Speaker 04: So Ozark is not going to lose volumes to someone delivering to Patoka. [00:11:39] Speaker 04: Yeah. [00:11:39] Speaker 02: Well, there's a significant minority that don't aren't so bound. [00:11:45] Speaker 02: Um, and, and by significant by that, they would care that if they were all to go packing and headed to another pipeline, that would have a huge economic impact on, uh, MPL X. I don't think that. [00:12:01] Speaker 04: FERC can make that assumption without looking at actual detailed costs. [00:12:07] Speaker 04: What it's saying is, and I can't say the number because it's under seal, but I would disagree that it's a substantial amount. [00:12:14] Speaker 04: Those shippers. [00:12:16] Speaker 02: But so is that, because FERC did undertake competitiveness analysis and it did address the affiliate status. [00:12:24] Speaker 02: and those implications. [00:12:26] Speaker 02: You may disagree with those determinations, but again, you focus solely here on what the destination market should be. [00:12:34] Speaker 02: And that seems to me a narrower question than the role of affiliates in affecting or not the competitiveness of the Pataka River. [00:12:45] Speaker 04: The destination market analysis is the only place to contest [00:12:52] Speaker 04: who is a competitor to this pipeline. [00:12:56] Speaker 04: And what we're supposed to be doing here is to find out, is it rational for shippers to move? [00:13:02] Speaker 04: And would it be effective for shippers to move? [00:13:05] Speaker 04: The vast majority of the volumes on this pipeline are not going to move. [00:13:10] Speaker 04: So what you've got is a testable proposition with this percentage, however we characterize it. [00:13:17] Speaker 02: You should argue to FERC that even as to the affiliates, they would not move. [00:13:22] Speaker 02: And what did FERC say? [00:13:23] Speaker 04: FERC said, most of the volumes go to Patoka. [00:13:28] Speaker 04: They're 70 miles apart, and they're both near St. [00:13:30] Speaker 04: Louis. [00:13:32] Speaker 04: That's all they said. [00:13:33] Speaker 02: It did talk about the affiliates, and a lot of that goes to competitiveness. [00:13:39] Speaker 02: But it felt like that there were checks there. [00:13:43] Speaker 04: I believe that it said that there were checks there. [00:13:47] Speaker 04: It just said that they would not [00:13:49] Speaker 02: They would not have the checks, I'm sorry, I may have mischaracterized it, but not have the capacity to cause this, to interfere with their ability. [00:14:00] Speaker 02: The affiliate status was not going to preclude them from affecting why this should be the destination. [00:14:07] Speaker 02: So again, it might have some impact over a competitiveness issue, but for purposes of having consumer choices, [00:14:17] Speaker 02: It rejected the notion that the affiliate status was going to prevent that from happening. [00:14:25] Speaker 02: And in any event, the significant minority would have sufficient weight. [00:14:29] Speaker 02: That's a factual determination in dispute. [00:14:34] Speaker 02: But I'm not sure what we're supposed to do with that. [00:14:36] Speaker 04: There's no substantial evidence for that. [00:14:38] Speaker 04: It's an assumption. [00:14:40] Speaker 04: It's just a statement that most of the volumes go this way. [00:14:44] Speaker 04: So that's part of the market. [00:14:47] Speaker 04: And what we've said is, but you have to look at, will these people move? [00:14:50] Speaker 04: Will they provide incremental price discipline if the pipeline attempts to exercise market power? [00:14:57] Speaker 04: And the answer to that, I believe is no, but I also don't have the burden of proof. [00:15:03] Speaker 04: Ozark needed to show someone is going to shift these volumes to Patoka, and it's going to hurt this pipeline. [00:15:09] Speaker 04: It's going to stop it from exercising market power. [00:15:13] Speaker 04: And our immediate response was, well, your affiliate won't do that. [00:15:17] Speaker 04: And that's, as I said, it's a quantitative issue. [00:15:19] Speaker 04: It's a testable issue and they didn't do it. [00:15:22] Speaker 04: There's no substantial evidence to support that this pipeline would suffer if it raised rates on its affiliate. [00:15:31] Speaker 04: And there's no substantial evidence that shows that this pipeline would lose any volumes if it raised rates on the small, the group of small shippers that continue to Patoka and aren't affiliated. [00:15:43] Speaker 04: That's, that's the crux of the case. [00:15:45] Speaker 04: That's what's missing. [00:15:46] Speaker 04: Substantial evidence. [00:15:47] Speaker 04: It's just an assertion. [00:15:49] Speaker 04: They could go over there. [00:15:51] Speaker 04: That's just a map. [00:15:52] Speaker 06: That's not repeatedly the commission says we looked at the market realities and the record contains some confidential business information that I presume is the market part of the market realities. [00:16:11] Speaker 06: Um, and just, [00:16:13] Speaker 06: Assuming that there's a significant flow of crude in both directions between Toca and Wood River. [00:16:27] Speaker 06: Why is that? [00:16:29] Speaker 06: I think you tried to explain this once. [00:16:31] Speaker 06: I ask you to try again. [00:16:33] Speaker 06: Why is that not indicative of being in one market? [00:16:37] Speaker 04: The back and forth flow? [00:16:39] Speaker 04: Sure. [00:16:41] Speaker 04: For one thing, [00:16:43] Speaker 04: The flow from Patoka to Wood River is actually quite small. [00:16:48] Speaker 04: If you look, it's actually quite small. [00:16:51] Speaker 04: It's, I believe. [00:16:52] Speaker 04: You'll know that I can say the numbers. [00:16:57] Speaker 04: It's a single digit percentage of the refineries capacity at Wood River. [00:17:01] Speaker 04: And if Wood River itself is the destination market, that pipeline, that capwood pipeline that comes from Patoka to Wood River would be one of the competitive alternatives. [00:17:16] Speaker 04: But what FERC has done is not only is capwood that comes in from Patoka a competitive alternative, but everything upstream of it is too. [00:17:23] Speaker 04: And that doesn't make any more sense than going to the source of any of the other pipelines that lead in to Wood River or to Patoka. [00:17:31] Speaker 04: We have Canada. [00:17:32] Speaker 06: So the upstream of Capwood were large capacities coming in from two or three other pipelines. [00:17:42] Speaker 06: And so a shipper could, I think the part of the shipper could route the throughput into Patoka through those carriers. [00:17:51] Speaker 06: Is that correct? [00:17:52] Speaker 04: That's the assertion. [00:17:53] Speaker 04: Yes. [00:17:53] Speaker 06: And you're saying that's not significant because they can't get to wood because there isn't enough capacity to take them to Wood River. [00:18:01] Speaker 04: I'm saying there is some capacity there. [00:18:04] Speaker 04: It's not very significant. [00:18:06] Speaker 04: And the way that should be treated is to treat the capwood pipeline from Patoka to Wood River as a competitive alternative, not to look upstream of it any more than you look upstream of the other competitive alternatives. [00:18:17] Speaker 04: We don't. [00:18:18] Speaker 06: Well, as you were suggesting, it's a bottleneck on the way to good Wood River. [00:18:25] Speaker 06: That's one way of putting it. [00:18:26] Speaker 06: Yes. [00:18:26] Speaker 06: And I don't remember, did the commission take account of the possibility of shipping beyond Patoka not to Wood River? [00:18:34] Speaker 04: Yes, I think so. [00:18:35] Speaker 04: In a narrative sense, they took account of that. [00:18:40] Speaker 04: They described it. [00:18:40] Speaker 04: They didn't do any quantitative analysis. [00:18:43] Speaker 04: But yes, those small shippers that continue on to Patoka [00:18:48] Speaker 04: As far as I'm aware, no one stops at Patoka. [00:18:50] Speaker 04: You continue on to Ohio and Illinois and other refineries in that direction. [00:18:56] Speaker 06: So they could get to Patoka and then beyond, assuming there's capacity on those carriers. [00:19:03] Speaker 04: And that is one of the assumptions of Frick made, assuming there's capacity. [00:19:07] Speaker 06: That's right. [00:19:08] Speaker 06: Am I correct in recalling that in a market that doesn't have a high HHI, [00:19:16] Speaker 06: They don't get to the question of capacity. [00:19:21] Speaker 04: They. [00:19:21] Speaker 04: There are a couple different ways to look at capacity. [00:19:26] Speaker 04: Yeah, they don't look at. [00:19:28] Speaker 04: You can look at capacity as a sort of secondary factor if it gets if it's a close case, but you should also look at availability lies that they don't look at it, then if it's not a close case, but they're supposed to. [00:19:42] Speaker 04: Because a competitive alternative is one which is readily available. [00:19:46] Speaker 04: So you're saying they should be chilling with it twice? [00:19:49] Speaker 04: They should consider whether there is available capacity in order to name something, to designate something as an alternative or a location as part of the market. [00:19:59] Speaker 04: And then if at the end of that, you do an HHI and it comes out on the knife's edge at $24.99, then you can look at it and FERC can make some sort of qualitative judgments and say, OK, this falls on this side of the line or that side of the line. [00:20:12] Speaker 04: is relevant to both inquiries. [00:20:14] Speaker 04: You're not a competitor unless you're readily available. [00:20:17] Speaker 04: And that sort of fact can be taken into account in the end as sort of a tiebreaker. [00:20:24] Speaker 06: They say they're looking to where a shipper could turn and ignoring that there may not be sufficient capacity to turn there. [00:20:36] Speaker 04: Not just ignoring, but [00:20:39] Speaker 04: The pipeline had the burden of proof to show that and let them off without doing so. [00:20:46] Speaker 06: We do have some data in the record about excess capacity. [00:20:55] Speaker 06: I don't remember. [00:20:56] Speaker 06: Is this confidential? [00:20:58] Speaker 04: Most likely it is. [00:20:59] Speaker 04: I would say, however, that there's plenty of data in the record, but there's no data in the decision. [00:21:06] Speaker 06: Well, I think what happened there, [00:21:09] Speaker 06: It looks pretty likely that the firm was omitting references to or trying to work around a lot of confidential business information by saying repeatedly, we've looked at the market realities, i.e. [00:21:25] Speaker 06: what's moving around where, some of which is now before us in the green brief. [00:21:32] Speaker 06: It's in the record. [00:21:34] Speaker 06: And the book says that's what we looked at. [00:21:36] Speaker 06: I don't know why we would doubt it. [00:21:38] Speaker 04: I think if they'd done that, there would be at least a citation to an exhibit or something in the record. [00:21:45] Speaker 04: I can understand that maybe we don't want to litter the brief or litter the decision with confidential markings and redactions and so on. [00:21:53] Speaker 04: They should at least say, we looked at this here, and we all know what that means. [00:21:57] Speaker 04: They didn't say that. [00:21:58] Speaker 04: All they said was, it's enough to know that the majority, including the affiliate, continue to Patoka. [00:22:06] Speaker 04: It's about 70 miles apart, and they're both near St. [00:22:08] Speaker 04: Louis. [00:22:09] Speaker 04: That's the justification for the decision. [00:22:11] Speaker 04: There may be plenty of evidence. [00:22:14] Speaker 02: Sorry, it's not just the affiliate. [00:22:15] Speaker 02: I mean, one of your clients. [00:22:18] Speaker 02: all of their oil moves. [00:22:20] Speaker 04: That's right. [00:22:21] Speaker 02: All of it. [00:22:22] Speaker 04: Yes. [00:22:23] Speaker 02: And I would point to... This isn't just an affiliate movement. [00:22:30] Speaker 04: That's right. [00:22:31] Speaker 04: And my client is an extremely small ship on this pipeline. [00:22:35] Speaker 02: I'm just saying, one of the moves all of their oil line at Pataka. [00:22:39] Speaker 02: That's right. [00:22:39] Speaker 02: As does this affiliate. [00:22:42] Speaker 04: But it's about... [00:22:43] Speaker 04: It's not about all of our oil. [00:22:45] Speaker 04: It's about how much oil on, how much business is the pipeline going to lose? [00:22:50] Speaker 06: So how much rough percentage, if you can, is carried by the non-affiliate that is your client? [00:22:58] Speaker 04: Pardon me, low single digits. [00:23:01] Speaker 04: And I have it in the record. [00:23:02] Speaker 02: What are you measuring with the low single digits? [00:23:05] Speaker 04: The capacity, the used capacity on the Ozark pipeline. [00:23:09] Speaker 02: From the beginning, from Oklahoma to Pawtucka? [00:23:11] Speaker 02: Or are you talking just from Wood River to Pawtucka? [00:23:13] Speaker 04: I'm talking, well, that's a different pipeline. [00:23:15] Speaker 04: I'm talking from Cushing, Oklahoma to Wood River, which is the Ozark pipeline, one on, one off. [00:23:21] Speaker 02: Okay, between Wood River and Pataco. [00:23:24] Speaker 04: I don't have that data. [00:23:26] Speaker 04: I'm sorry. [00:23:27] Speaker 04: I do have the data in the record. [00:23:28] Speaker 04: There it is. [00:23:30] Speaker 04: Joint appendix 1278, lines 12 to 16, that discusses Huskies share of the Ozark capacity. [00:23:36] Speaker 04: I'm sorry, but is it? [00:23:39] Speaker 04: What was the reference? [00:23:40] Speaker 04: Yes, Joint Appendix 1278. [00:23:42] Speaker 04: It should be in the sealed appendix. [00:23:45] Speaker 02: Sorry, and this is from on which segment? [00:23:48] Speaker 04: This is the Ozark segment, so this is Oklahoma to Wood River. [00:23:53] Speaker 02: Right, but I'm not so sure. [00:24:00] Speaker 04: It's a reference. [00:24:00] Speaker 02: We're trying to figure out whether the market includes not just Wood River. [00:24:04] Speaker 02: I need to know. [00:24:07] Speaker 02: percentage between, since all of that moves on, how much of not all of the affiliate stuff moves on, how its percentile is between Wood River and Pataka? [00:24:20] Speaker 02: I don't, but I, all your, all your, all not, I should not, but all non-affiliate shippers. [00:24:28] Speaker 04: I have that number in the brief as well. [00:24:30] Speaker 04: That one is, [00:24:34] Speaker 04: I wish I could say the number. [00:24:36] Speaker 06: Could you tell us when your rebuttal time? [00:24:40] Speaker 04: Yeah, it's in my brief. [00:24:41] Speaker 04: Let me find the number. [00:24:42] Speaker 02: Do whatever rebuttal you wish. [00:24:46] Speaker 04: I'd be happy to. [00:24:48] Speaker 04: Why don't I not take the time and I'll state that number rebuttal. [00:24:53] Speaker 04: Well, the last thing I would just say about our [00:24:56] Speaker 02: You just sum up then and we'll give you some time on rebuttal. [00:24:59] Speaker 04: I appreciate that. [00:25:00] Speaker 04: Yeah. [00:25:00] Speaker 04: The last thing I would say about Huskies volumes, all of Huskies volumes. [00:25:06] Speaker 04: I mean, that's like saying a grocery store doesn't have market power over its customers because the Jones family shops buys all their groceries there. [00:25:18] Speaker 04: It's a matter of what is the share of the pipelines capacity? [00:25:23] Speaker 04: What's it going to lose? [00:25:24] Speaker 04: What does it put at risk? [00:25:25] Speaker 04: By raising its prices to a super competitive level and what it puts at risk is very little. [00:25:31] Speaker 04: It puts at risk that small percentage of people that aren't affiliated with it that are going to go through. [00:25:36] Speaker 02: It's all sounds again like a competition argument, not a destination market. [00:25:41] Speaker 04: I understand that and that the destination market said. [00:25:44] Speaker 02: It did talk, actually, with some specificity in paragraph 27 of the initial decision about the constraints that it found would exist on MPXL's ability to [00:26:00] Speaker 02: unfairly raise or exercise market power and increasing rates. [00:26:04] Speaker 02: So it did address that issue. [00:26:06] Speaker 02: Before that, it said, we haven't before considered affiliation as part of identifying the destination market. [00:26:13] Speaker 02: Customers as customers, I guess is what they're saying there. [00:26:16] Speaker 02: And then we'll deal with affiliation and the competitiveness [00:26:20] Speaker 02: And I don't understand your briefs to be saying that was an error of law by FERC. [00:26:26] Speaker 02: You have lots of arguments about the substantiality of evidence supporting their ultimate determination of the destination market. [00:26:33] Speaker 02: But you haven't argued as a matter of law that FERC was wrong to say, we don't. [00:26:39] Speaker 02: We haven't in the past considered affiliation just at this question of what the destination market is. [00:26:46] Speaker 04: Sure. [00:26:46] Speaker 04: And it's ruled on a small handful. [00:26:50] Speaker 04: contested market based rate cases. [00:26:52] Speaker 04: It's not surprising that any particular. [00:26:54] Speaker 02: You're not saying they aired and say, no, I'm not saying no, there's not an affiliation in the competition, but right on the destination market. [00:26:59] Speaker 02: You agree that's not an error of law by FERC. [00:27:03] Speaker 04: Or you're not you're not contesting that I'm not contesting that what I'm contesting is that in order to have substantial evidence for their destination market, they needed to account for it. [00:27:12] Speaker 04: I well over my time. [00:27:13] Speaker 04: I appreciate it. [00:27:15] Speaker 04: It will be. [00:27:16] Speaker 02: We'll give you some time, everybody. [00:27:17] Speaker 04: Thanks so much. [00:27:19] Speaker 02: Maybe you'll have that information for Judge Ginsburg. [00:27:32] Speaker 03: May it please the court. [00:27:33] Speaker 03: I'm Scott Edgar for the Federal Energy Regulatory Commission. [00:27:36] Speaker 03: Thank you for hearing this case this morning. [00:27:39] Speaker 03: I want to go directly to the discussion, Judge Mollett, on some of the affiliated issues and some of the paragraphs that [00:27:47] Speaker 03: that the court was referring to and in particular the initial. [00:27:50] Speaker 03: the initial decision, paragraphs 25 through 27, where the commission in fact addressed affiliate issues when it comes to determining the geographic destination market. [00:28:04] Speaker 03: The commission's basic analysis is in the earlier paragraphs of the order, 18 to 22, where it relied heavily on the market behavior. [00:28:14] Speaker 03: And we can talk about that. [00:28:15] Speaker 03: But what I want to focus on now is what paragraphs 25 [00:28:19] Speaker 03: through 27 are doing. [00:28:21] Speaker 03: This is where the commission took a very careful look at the assertions by petitioners here, Husky and Phillips 66, that the affiliate would prevent acting as a discipline on [00:28:37] Speaker 03: potential exercise of market power by MPLX Ozark. [00:28:42] Speaker 03: What is the JA reference on that? [00:28:44] Speaker 03: Yes, Your Honor. [00:28:45] Speaker 03: I'm looking at paragraphs 25 that starts at JA779. [00:28:49] Speaker 03: And in particular, the following paragraph starts at JA780. [00:28:59] Speaker 03: What I want to highlight is the footnote to the first of those two paragraphs. [00:29:04] Speaker 03: And that's footnote 61, JA780. [00:29:09] Speaker 03: Here, the commission is citing to the rebuttal testimony of witness Dr. Webb. [00:29:15] Speaker 03: And using what he labeled as a conservative elasticity, determined that the non-affiliates would cause losses [00:29:26] Speaker 03: if there was an exercise of market power here. [00:29:30] Speaker 03: And I can point to the, there's a specific number, and I want to be careful not to discuss sealed material, but his exhibit that he was referring to is at JA 1391. [00:29:45] Speaker 03: The footnote I'm referring to is in the commission order, paragraph 25, note 61. [00:29:51] Speaker 03: This is the reference to Dr. Webb. [00:29:54] Speaker 03: And this is in support of the Commission's determination that the significant minority of non-affiliate shippers would help to discipline and exercise of market power. [00:30:11] Speaker 03: And I just want to point out two things about what Dr. Webb says at that the commission is referring to right there. [00:30:18] Speaker 03: He's making two. [00:30:20] Speaker 03: So I already mentioned the conservative elasticity. [00:30:23] Speaker 03: He also assumes in that analysis that Phillips 66. [00:30:27] Speaker 03: has no response, no discipline whatsoever. [00:30:31] Speaker 03: And he also assumes that the affiliate shippers have no discipline whatsoever. [00:30:37] Speaker 03: And that's an interesting point because if we look at the next footnote, the commission cites a cross-examination of Dr. Norman. [00:30:49] Speaker 03: where Dr. Norman says that, well, it's not that there would be no, it's not that the affiliate shipper would have no incentive. [00:30:56] Speaker 03: The affiliate shipper would have a reduced incentive. [00:31:01] Speaker 02: It just seems to me like these two paragraphs and the footnotes you're talking about are, are first saying why trial staff was wrong. [00:31:10] Speaker 02: Okay, but to have substantial evidence, they have to show what's right. [00:31:16] Speaker 03: Correct. [00:31:16] Speaker 02: They can't just say you're wrong. [00:31:17] Speaker 03: I agree. [00:31:18] Speaker 02: So where do they have substantial evidence that there's not going to be this affiliate problem, that there really will be customers with a choice in the Pataka market, which is their argument that it's [00:31:33] Speaker 02: They're really an apparition, given their affiliate status, that there's going to be any real choices made. [00:31:40] Speaker 02: And the analysis that I see in 27 is really more about the switch from, it reads to me at least from the MPLX line, I think I've been saying that wrong, but the MPLX line to the wood pat pipeline, changing between the two lines and charges there, which seems to be [00:32:02] Speaker 02: potentially different from the ability the price is actually charged then to everybody who's going to travel down these lines and in particular over the long term to be able to essentially make the affiliates not relevant customers for purposes of this destination market. [00:32:23] Speaker 03: I think what the so now backing up into the commission's [00:32:29] Speaker 03: primary analysis. [00:32:30] Speaker 03: So these are paragraphs 18 through 22. [00:32:33] Speaker 03: And what the commission there was saying that there are alternatives. [00:32:36] Speaker 03: So the alternatives available are the ones that [00:32:41] Speaker 02: available in Patoka so we don't have to assume they're not talking about the affiliates right I mean you were right they didn't talk about affiliates at least as I have it until a paragraph 25 that's correct okay so but before that they're saying there's customers there are other pipelines in Patoka but [00:33:02] Speaker 02: We don't know that there's a sufficient number of customers there from the Wood River to Pawtucka link that the people are going all the way through that are going to be able to actually exercise any kind of meaningful check. [00:33:19] Speaker 02: on Ozark slash Woodpat's ability to increase prices, exercise market power in a way that would really make this not a matter of customer choice. [00:33:33] Speaker 02: And I think that's what they're saying when they blend the competition in is that there really isn't going to be realistically customer choice in Pataka in the way that FERC found it. [00:33:44] Speaker 02: And so where is your evidence that customer choice will be there by [00:33:49] Speaker 02: a majority of shippers. [00:33:52] Speaker 03: I guess I would say two things. [00:33:54] Speaker 03: First of all, I would refer back to the footnote that's referring to Dr. Webb's rebuttal testimony. [00:34:00] Speaker 03: I think he is saying that the non-affiliates alone are sufficient to discipline this market. [00:34:07] Speaker 03: And the commission cites that in the footnote. [00:34:09] Speaker 03: But backing up. [00:34:10] Speaker 02: How can a minority have enough control? [00:34:14] Speaker 02: Again, and there's not a lot of options between Wood River and Pataka. [00:34:20] Speaker 02: There's lots of options in Pataka. [00:34:22] Speaker 02: There's not a lot between Wood River and Pataka. [00:34:24] Speaker 03: But they don't have to go to Wood River. [00:34:27] Speaker 03: These shippers can't. [00:34:29] Speaker 03: The problem here is that available options are being ignored by the analysis suggested by my friends on the other side. [00:34:37] Speaker 03: That's Dakota Access, Southern Access, and the Mustang. [00:34:41] Speaker 03: They don't go to Wood River. [00:34:44] Speaker 02: Those are not maybe I'm wrong. [00:34:46] Speaker 02: Correct me. [00:34:47] Speaker 02: I thought there was evidence in the record that those pipelines were either at or very close to capacity already. [00:34:55] Speaker 03: Those those are that's not it. [00:34:58] Speaker 03: I don't believe that's an issue. [00:34:59] Speaker 02: And I'd go back to the factually accurate description of the record or not. [00:35:05] Speaker 03: I am not sure. [00:35:07] Speaker 03: I would refer your honor to the initial. [00:35:09] Speaker 02: Assume and then we can verify the record citation. [00:35:14] Speaker 02: Maybe they'll have it or you can provide it later. [00:35:16] Speaker 02: But if they are at or near capacity, then they're not a real choice. [00:35:23] Speaker 02: Are they? [00:35:24] Speaker 02: Or tell me how FERC explained that they would still be in choice even if they don't have room to add stuff for. [00:35:31] Speaker 03: I think that's a question of whether there are competitive alternatives available. [00:35:36] Speaker 02: Oh, that's whether there are alternatives available full stop. [00:35:41] Speaker 02: The whole premise of picking Pataka, as you just said, is that that should be the destination market because not just because a large percentage of the oil [00:35:50] Speaker 02: majority is moving from Wood River, but because by the way, define a destination market. [00:35:56] Speaker 02: That's where customers are purchasing here oil and where they have choices about purchasing oil. [00:36:03] Speaker 02: And so I'm testing that part about they have, if they only had one choice of purchasing oil in Pataka, it would be a good destination market. [00:36:13] Speaker 02: And so they have to have choices. [00:36:16] Speaker 02: That's how FERC framed the analysis, anyhow, depending very heavily on these choices. [00:36:21] Speaker 02: But if those choices are fantastic, don't actually exist, then how can, and maybe just I'm wrong about the capacity, but if I'm right about capacity, how can this possibly be a relevant destination market under FERC's own test for what it takes to be a destination market? [00:36:40] Speaker 03: Your Honor, here, I would refer maybe to, [00:36:44] Speaker 03: We have extensive citations at page 56 of our brief, and I can go through some of those. [00:36:50] Speaker 03: And it starts with the [00:36:54] Speaker 03: with the, with the citation to witness, um, at, um, page 11 who talked about the highly, um, this is cited. [00:37:07] Speaker 03: I can tell you, um, his testimony is at JA five 11 and, um, and I can tell you where this is cited, um, in the commission orders, um, footnotes 42, 55 and 60. [00:37:22] Speaker 02: This is the original decision. [00:37:23] Speaker 03: Yes. [00:37:24] Speaker 03: And he talks about the highly desirable nature of the, of the Patoka hub and that there's infrastructure there for further transport. [00:37:33] Speaker 03: And he talks about, he talks about that the significant majority of the, of the volumes on MPLX, Ozark go to, go to Patoka. [00:37:43] Speaker 02: So where are, I get this significant, [00:37:46] Speaker 02: Sorry, significant majority said there's significant minority, but certainly the majority of oil is going off from Wood River to Pataka. [00:37:56] Speaker 02: The Commission found that. [00:37:58] Speaker 02: You just mentioned a couple other things this witness said. [00:38:00] Speaker 02: Where does FERC adopt say those same things? [00:38:05] Speaker 02: I would excite some witness doesn't mean that everything the witness says it's not part of first decision. [00:38:10] Speaker 03: Yeah, I would. [00:38:11] Speaker 03: Again, I would cite the footnotes 4255 and 60. [00:38:16] Speaker 02: I know we're in. [00:38:17] Speaker 02: We're in first decision itself. [00:38:20] Speaker 02: That is already says the majority of volumes are delivered to Wood River for transport. [00:38:26] Speaker 02: We said that. [00:38:27] Speaker 02: OK, and then you said 46. [00:38:28] Speaker 03: 4255 sorry 55. [00:38:34] Speaker 02: Okay, sorry, we'll just hop in here. [00:38:36] Speaker 06: This is in the order, right? [00:38:39] Speaker 02: Right. [00:38:39] Speaker 02: So, 55 is on JA779. [00:38:43] Speaker 02: So, that's saying the same thing. [00:38:47] Speaker 02: So, twice now we're saying that lots of stuff that goes into Wood River goes on to Patoka, but you were citing testimony for more things, but those things are not things that FERC said. [00:38:57] Speaker 03: The significant majority of the volumes go to Patoka. [00:39:01] Speaker 02: Right. [00:39:01] Speaker 02: That's all you're citing him for? [00:39:03] Speaker 03: Right. [00:39:03] Speaker 02: Is that got to do with whether there's actual real world competition in Pataka on these other pipelines if they're at capacity? [00:39:11] Speaker 03: I think we have actual shipper behavior. [00:39:14] Speaker 03: And for that, I would move to the next citation to the record, which here I would cite Dr. Webb. [00:39:21] Speaker 03: And I'm looking at pages 49 and 51, 56. [00:39:26] Speaker 03: And this is. [00:39:26] Speaker 02: Wait, wait, wait. [00:39:27] Speaker 02: Of the FERC decision? [00:39:28] Speaker 03: Of his testimony. [00:39:29] Speaker 02: I want to know where FERC said this. [00:39:31] Speaker 02: OK. [00:39:32] Speaker 02: Sometimes I'm not being clear. [00:39:34] Speaker 02: The fact that a witness says it isn't enough unless FERC adopted that rationale. [00:39:39] Speaker 02: So where did FERC say what you're about to say? [00:39:43] Speaker 03: Sure. [00:39:43] Speaker 03: Notes 42, 45. [00:39:46] Speaker 03: I don't want to go too fast here. [00:39:48] Speaker 03: I can read these into the. [00:39:50] Speaker 02: No, but 42. [00:39:50] Speaker 02: I mean, again, they're citing to web. [00:39:53] Speaker 02: But where are they saying what you're saying, website? [00:39:56] Speaker 03: I think the challenge here is that the, in my notes here, it's in red ink, meaning like the citation to web. [00:40:03] Speaker 03: is gonna be to the sealed version of the JA. [00:40:06] Speaker 03: And I'm glad to provide that citation to the court. [00:40:08] Speaker 03: The commission can't say some of these. [00:40:11] Speaker 02: No, but 42 is a footnote that says, comes after the sentence, the majority of volumes on MPLX go from Wood River to Pawtucka. [00:40:22] Speaker 02: If that's all they're citing for, then it's not helpful to you. [00:40:28] Speaker 02: And if they are citing it for additional [00:40:31] Speaker 02: legal proposition or factual finding, they need to make that somewhere. [00:40:37] Speaker 02: They can do a redacted decision. [00:40:40] Speaker 02: But I can't, if all that footnote, all that precedes that footnote is the same point that we've made four or five times about the movement and that they don't contest about the majority of movement of oil from Wood River on to Pataka, no one can test that. [00:40:55] Speaker 02: And as far as anyone can tell from FERC's decision itself, that's all they're citing. [00:41:00] Speaker 02: Specialty and Web 4. [00:41:04] Speaker 02: And I don't know how we can then look at all these other pages and bring them in and say FERC was adopting those things if they didn't play it. [00:41:12] Speaker 03: I do want to make sure I mentioned all the footnotes. [00:41:14] Speaker 03: And I take your point. [00:41:15] Speaker 03: I can't change the way the order is written. [00:41:18] Speaker 02: Do any of the other footnotes come with FERC making any of the substantive analysis that you're saying they're citing? [00:41:27] Speaker 03: I would say yes, Your Honor. [00:41:28] Speaker 02: Tell me where FERC said it. [00:41:31] Speaker 03: FERC is looking at the market, and FERC is saying that the behavior of the market participants indicate that the appropriate market includes Patoka. [00:41:45] Speaker 03: And if I could stick with Dr. Webb for a second, and he discusses at length [00:41:53] Speaker 03: what the behavior of Phillips 66 is here. [00:41:56] Speaker 03: And a lot of that information I can't disclose. [00:42:01] Speaker 03: But it's in the sealed version that the court has. [00:42:04] Speaker 03: And that's at JA. [00:42:06] Speaker 02: But what Kirk could say in his decision is, we find the behavior of what you just said here in court, of Phillips Petroleum supports our determination x. Did they say that? [00:42:21] Speaker 03: I would. [00:42:24] Speaker 03: I point to paragraph 20 at J776. [00:42:27] Speaker 03: And that's where the commission says that the market should include Patoka because it has alternatives available. [00:42:36] Speaker 03: The commission was right about that. [00:42:38] Speaker 03: And in support, I- Right in the sense that the pipelines are there. [00:42:43] Speaker 06: The pipelines are there and- But what if there is no capacity? [00:42:47] Speaker 02: We're not enough. [00:42:49] Speaker 03: Well, I think, again, I would point to Dr. Webb's testimony that I referred to. [00:42:55] Speaker 03: And that indicates, as a practical matter, the capacity is there. [00:43:02] Speaker 06: How much capacity does there have to be for switchers to exert to make a price increase on profit? [00:43:12] Speaker 03: I'm not sure. [00:43:13] Speaker 03: I'm not sure I know the answer to that. [00:43:17] Speaker 03: But again, I would cite what the commission cited here. [00:43:21] Speaker 03: I would refer to what the commission cited to support that proposition. [00:43:26] Speaker 03: And that's a footnote 61 that cited Dr. Webb's rebuttal testimony. [00:43:34] Speaker 06: How much throughput is there now beyond Wood River? [00:43:40] Speaker 06: Is that confidential? [00:43:41] Speaker 03: I think the number is confidential. [00:43:44] Speaker 03: It's a substantial majority that goes to Patoka from Wood River. [00:43:50] Speaker 03: And what the commission was saying in paragraph 25, is that a significant portion of that? [00:43:58] Speaker 06: Is it in the record and unredacted how much capacity Capwood has? [00:44:07] Speaker 06: Not excess, total. [00:44:11] Speaker 03: I don't have that in front of me. [00:44:14] Speaker 03: I think it must be in the record. [00:44:16] Speaker 06: Is Keystone one of the players? [00:44:18] Speaker 06: I'm sorry, Your Honor. [00:44:19] Speaker 06: Is Keystone one of the players that could take Pachecoil to Potokan? [00:44:25] Speaker 03: Yes, it is. [00:44:27] Speaker 06: All right, so it looks like there's, it looks like a great deal of uncommitted capacity there. [00:44:33] Speaker 06: And I would refer, Your Honor. [00:44:35] Speaker 06: However, if let's assume there is, what do we make of, [00:44:42] Speaker 06: That's the point that it's not really in play unless the price of crude there is competitive, right? [00:44:57] Speaker 06: The shippers aren't going to take advantage of a pipeline's alternative route if they're going to be selling at the other end where the price is not as high. [00:45:13] Speaker 03: Again, and I would refer to the photo 19 of the initial order the competitive alternatives aren't contested here. [00:45:19] Speaker 03: There's, there's no question that if we limit the geographic market. [00:45:25] Speaker 03: to Wood River, the competitors are Keystone and Platte and Capwood in addition to MPLX Ozark. [00:45:32] Speaker 03: But if we expand it, then Capwood falls out and Dakota Access, Southern Access and Mustang gets included. [00:45:43] Speaker 03: And that's why we see the change in H&M. [00:45:45] Speaker 02: I'm sorry, just, and I won't say it out loud because it's in the sealed appendix, but just on 1096 to 1098, we have question, answer, question, answer, question, answer, question, answer, and they're all at or near capacity. [00:46:01] Speaker 02: I mean, do you have your sealed appendix in front of me? [00:46:03] Speaker 02: Am I right? [00:46:05] Speaker 02: Starting with line 15 on 1096 through line seven on 1098, and they're going through, they're saying they're at or near capacity. [00:46:19] Speaker 03: I don't think the competitive alternatives are actually disputed here and that's what the commission is saying. [00:46:36] Speaker 03: in the footnote. [00:46:39] Speaker 02: So to back up then, so we're not talking about competition, but to say that we're picking Pataka as part of the market, not just because of the movement, because that's a place where customers are making choices. [00:46:54] Speaker 02: If they're not making choices, then how does that happen? [00:47:04] Speaker 03: Well, I think they are making choices. [00:47:05] Speaker 03: And again, that gets back to some choices if there's no capacity on the other pipelines where they're actually using it. [00:47:10] Speaker 03: I think the behavior of of the of the participants here in market and that's and there's some very confused. [00:47:19] Speaker 02: If they're out or near, you're saying they're out or near capacity because everyone's already using their things or that. [00:47:26] Speaker 03: That could be. [00:47:26] Speaker 03: I again, I would refer your we don't know. [00:47:31] Speaker 03: I don't think that was an issue here. [00:47:33] Speaker 03: The issue here, that's the second step, whether the competitive alternatives are good and available. [00:47:39] Speaker 03: I don't think that comes into play here. [00:47:40] Speaker 02: How does Farquhar define what the destination market, how it looks for what an destination market? [00:47:48] Speaker 03: It looks for where shippers can ship. [00:47:53] Speaker 03: The commission discussed that at [00:47:57] Speaker 02: It can't be just where shippers can ship. [00:47:59] Speaker 03: At paragraph 19. [00:48:01] Speaker 03: The destination market, this is JA 775, where the shipper may rationally look for transportation and where the shippers supply downstream needs and where alternatives may be available if the pipeline attempts to exercise market power. [00:48:19] Speaker 03: And the commission explained what the analysis here. [00:48:22] Speaker 02: You can't rationally look for transportation service if everybody else is already full. [00:48:26] Speaker 02: I think that's except for this pipeline that has for their arguments about the affiliate relationships and ability to exercise market power, their argument. [00:48:34] Speaker 03: I think that's a question of whether the alternatives are available. [00:48:39] Speaker 03: And that's the next step. [00:48:41] Speaker 03: And I think what the commission is saying here is that these. [00:48:45] Speaker 02: I mean, in the next page, the commission also considers whether the appropriate, this is the same paragraph on top of 776, the commission identifying the destination market, not the competition step, step one. [00:48:58] Speaker 02: The commission also considers whether the appropriate geographic market definition should be expanded based on where shippers may look for alternatives in the event of a price increase. [00:49:07] Speaker 02: So that's part of identifying the destination market, correct? [00:49:11] Speaker 02: That's what Ferck said. [00:49:12] Speaker 02: Yes. [00:49:13] Speaker 02: Okay. [00:49:13] Speaker 02: And so that's why I'm asking, and it clearly worked. [00:49:16] Speaker 02: It's in the record, testimony about capacities on other pipelines. [00:49:23] Speaker 02: And so if one were to assume that the record were to show that all those other pipelines at Pataka are already at or near capacity, how would they then [00:49:35] Speaker 02: How would their existence support FERC's determination that Pataka is a place where shippers may look for alternatives in the event of a price increase? [00:49:45] Speaker 02: That's where I'm hung up. [00:49:46] Speaker 02: That's what I'm not understanding. [00:49:47] Speaker 03: And again, and now we'll get back to Dr. Webb's testimony. [00:49:51] Speaker 03: I think he explains what, for example, what Phillips 66 could do. [00:49:56] Speaker 03: And I want to be careful not to use any of the information that's sealed. [00:50:00] Speaker 03: But this is it. [00:50:01] Speaker 02: OK, but we don't have FERC anywhere adopting that. [00:50:04] Speaker 03: But they I can show where they were for cited for a different point. [00:50:15] Speaker 02: I was just for the movement point. [00:50:21] Speaker 02: I think they cited... Even though the only sentence in the opinion says, before the footnote says, this is to show movement from Wood River to Pataka, a majority or most, I think they use different words, of oil moves from Wood River to Pataka. [00:50:43] Speaker 02: footnote and they cite the two experts. [00:50:47] Speaker 02: And you're saying when they did that, they were also endorsing everything that Webb said on the cited pages. [00:50:56] Speaker 02: That's how we're supposed to interpret that without them having said that. [00:50:59] Speaker 03: Sorry, Your Honor. [00:51:01] Speaker 03: I think what the conclusion here is that the behavior of the shippers demonstrates that this is one market. [00:51:07] Speaker 03: And they cited these pages and I can show you the footnotes where [00:51:11] Speaker 03: where Dr. Webb was cited for these propositions. [00:51:15] Speaker 02: Because they're moving back and forth. [00:51:17] Speaker 03: And they have alternatives. [00:51:19] Speaker 03: Yes, that's what Dr. Webb. [00:51:22] Speaker 02: Which pages? [00:51:23] Speaker 03: Yeah. [00:51:25] Speaker 03: And here I'm referring to pages 49 and 51 to 56, HA 1247. [00:51:39] Speaker 03: and 1249 to 1254. [00:51:41] Speaker 02: Sorry, I've had a lot of questions. [00:51:55] Speaker 03: And I'm sorry, Your Honor. [00:52:01] Speaker 02: I've asked a lot of questions, and my colleagues have some as well. [00:52:05] Speaker 02: Do you have any questions? [00:52:06] Speaker 02: No. [00:52:14] Speaker 05: Did you say at some point that FERC said the competitive alternative was uncontested? [00:52:21] Speaker 05: Am I hearing you correct? [00:52:23] Speaker 05: And if so, where did they say that? [00:52:28] Speaker 03: In footnote 19, the parties agree on what the competitive alternatives would be. [00:52:35] Speaker 03: If the geographic market, and JA 770, if the geographic markets confined to Wood River [00:52:42] Speaker 03: The competitive alternatives would be Keystone, Platt, Capwood. [00:52:47] Speaker 03: And if it's expanded, the competitive alternatives here, Pullen, Dakota Access, Southern Access, and Mustang. [00:52:57] Speaker 05: And Capwood would fall out because... Dakota Access, I thought that was contested. [00:53:04] Speaker 05: Southern Access, Mustang. [00:53:07] Speaker 05: Is there some finding somewhere where Burke says the parties do not contest the [00:53:12] Speaker 03: Yeah, I'm referring to footnote 19, JA 770. [00:53:16] Speaker 03: Okay. [00:53:20] Speaker 02: Do you have any questions? [00:53:31] Speaker 03: Sam, over time, is there? [00:53:35] Speaker 06: So the statement that the shipper could simply [00:53:41] Speaker 06: And that's the word used, I believe. [00:53:45] Speaker 06: Simply divert barrels to Patoka through another carrier is made without reference, again, to the availability of capacity, correct? [00:54:02] Speaker 06: That's at the bottom of 1249. [00:54:07] Speaker 03: That may be true. [00:54:17] Speaker 05: I don't understand. [00:54:18] Speaker 05: That's what I'm not understanding. [00:54:19] Speaker 05: How could there be agreement that competitive alternatives exist without the parties thinking about capacity when they made such an agreement? [00:54:29] Speaker 05: So I'm not sure how we're bringing together what we're talking about in the record. [00:54:34] Speaker 05: Have the parties agreed that there were, did FERC say the parties agreed that there were competitive alternatives available, which to me means capacity would be available? [00:54:45] Speaker 05: You can't have a competitive alternative. [00:54:47] Speaker 05: They don't have the capacity, at least not in my mind. [00:54:50] Speaker 05: That doesn't make sense. [00:54:51] Speaker 05: Is there such a finding here that there's no disagreement on the point that I asked and Judge Ginsburg just asked? [00:54:59] Speaker 05: In other words, was there some disagreement over capacity somewhere? [00:55:04] Speaker 03: Not that I'm aware of. [00:55:06] Speaker 03: I think that the way the commission's analysis here is to look at these markets and look at the market behavior. [00:55:13] Speaker 03: And I can go through the colloquium I had with Judge Mallette about some of that behavior of Phillips 66. [00:55:20] Speaker 03: And we can also talk about what Huskies, there's some testimony that we haven't got to that would talk about what Huskies options are in Patoka that don't go through Wood River. [00:55:33] Speaker 03: and that testimony, and I can cite that as well. [00:55:41] Speaker 03: That is the testimony of witness Chan at pages two and four, JA 267 and 269. [00:55:55] Speaker 02: That's not sealed. [00:55:58] Speaker 03: No. [00:56:01] Speaker 02: Where did they discuss capacity? [00:56:03] Speaker 03: And that's the testimony there is that all of Husky's volumes are shipped to Patoka and then to Lima. [00:56:13] Speaker 03: And that testimony is that Husky could purchase oil at Patoka or secure transportation on Dakota access, southern access or Mustang or Keystone Plat. [00:56:26] Speaker 02: And then money made with any reference to capacity or whether Husky had arrangements. [00:56:33] Speaker 03: I don't believe so. [00:56:33] Speaker 04: Not there. [00:56:34] Speaker 02: Any questions? [00:56:40] Speaker 02: No. [00:56:41] Speaker 02: Thank you very much. [00:56:42] Speaker 02: Thank you, Your Honor. [00:56:42] Speaker 02: Over time. [00:56:49] Speaker 02: Intervener. [00:56:51] Speaker 02: Miss Kohlhausen, I said that correctly. [00:57:01] Speaker 01: Good morning. [00:57:02] Speaker 01: May it please the court? [00:57:03] Speaker 01: I'm Elizabeth Kohlhausen on behalf of the intervener and PLX Ozark Pipeline. [00:57:09] Speaker 01: I want to start today by going back to a discussion that Judge Ginsburg had about whether the commission had ever defined the market in this way. [00:57:19] Speaker 01: And I would point you to the case Enterprise Products Company. [00:57:26] Speaker 01: It's often referred to as Seaway One. [00:57:28] Speaker 01: It's at 146 FERC 61115. [00:57:32] Speaker 01: And it's referenced in footnote 35 of the commission's ID, or the commission's decision. [00:57:45] Speaker 01: This is the case that underlied the court's decision in Mobile. [00:57:51] Speaker 01: Before this court, and I'm just reading from this decision, it was a contested market. [00:57:56] Speaker 01: And in that market, it said trial staff using actual operational data from the pipeline traced the crude oil that Pegasus received backwards to its injection point to identify all potential alternatives to Pegasus. [00:58:14] Speaker 01: That's paragraph 35 of this order. [00:58:16] Speaker 01: It's cited in footnote 41 of the commission's decision. [00:58:20] Speaker 01: So the commission has, in fact, undertaken exactly the same analysis to define the market. [00:58:27] Speaker 01: In this case, it undertook it previously in the Pegasus decision. [00:58:40] Speaker 01: And finally, I don't have much time, but I would like to discuss the fact that the issue that was presented to the commission on briefs and here regards the determination of the geographic destination market. [00:58:57] Speaker 01: There's been a lot of discussion about whether alternatives are good alternatives, whether they're used, [00:59:04] Speaker 01: There's not a lot of discussion about that in the court's decision. [00:59:08] Speaker 01: I mean, in the commission's decision, frankly, because it wasn't a topic that was contested as note 19 shows. [00:59:18] Speaker 01: I understand the question about how is an alternative a good alternative if it doesn't have any capacity. [00:59:25] Speaker 01: That's been discussed extensively by the commission before in other cases. [00:59:30] Speaker 01: It wasn't discussed here and unfortunately I don't have the site here. [00:59:33] Speaker 01: The idea is that someone could buy the crude after it shipped on one of those alternatives. [00:59:41] Speaker 06: So it doesn't have to... Is it possible that the current carriers have already provisional rights on other carriers? [00:59:49] Speaker 01: Yes, that's also the case. [00:59:51] Speaker 01: If you look at figures two and three in our brief, the intervener's brief, and I'll give you the joint appendix site, these show the significant... It's JA 1251 for figure three. [01:00:10] Speaker 01: and JA 1252 for figure two. [01:00:13] Speaker 01: These are highly confidential exhibits, but one shows the movements of the petitioner itself right now in the markets and which of the pipelines, this is figure three, which of the pipelines it already uses. [01:00:30] Speaker 01: So this is evidence that regardless, I think this is why this wasn't contested because there's actual use of these [01:00:40] Speaker 01: by petitioners right now. [01:00:41] Speaker 02: And the commission could see this as could everyone else. [01:00:49] Speaker 02: At least the majority, not all non-affiliate shippers will have access to these other pipelines if they have to take all their oil off of MPLX slash wood pat due to hypothesizes super competitive increase in prices. [01:01:12] Speaker 02: Not that in the past they've been doing it when there was already just a filed rate in place, so then they wouldn't be looking for capacity or using capacity as a protective measure against that filed rate. [01:01:27] Speaker 02: Well, the question is whether it's a protection against opening MPLX up to the ability to use market rates and then theoretically, and I'm not accusing anybody of anything, but theoretically, [01:01:42] Speaker 02: to using, imposing super competitive prices. [01:01:49] Speaker 02: We don't, is that here? [01:01:52] Speaker 02: And I take your point. [01:01:53] Speaker 02: I mean, Frick says they appear to agree. [01:01:56] Speaker 02: And so it's not, I'm not sure what it means when parties appear to agree to something. [01:02:01] Speaker 02: It seems to me they appear to agree that these are options they have right now. [01:02:07] Speaker 02: And I'm asking about a different world. [01:02:10] Speaker 02: They have capacity right now when there's no reason for them to jump off MPOs. [01:02:16] Speaker 01: I guess I would respond in two ways to your question. [01:02:20] Speaker 01: First, the analyses that the commission conducted to support its decision that these markets were competitive. [01:02:33] Speaker 01: it considers these alternatives. [01:02:36] Speaker 01: And I think that was, although you may not see it exactly in 2019, everyone included the same competitive alternative in those HHI analyses. [01:02:47] Speaker 01: This was not an issue. [01:02:48] Speaker 01: You didn't have petitioners arguing there's no capacity, so this one should be excluded. [01:02:53] Speaker 01: It just wasn't before the commission. [01:02:56] Speaker 01: Also, I do think it's important that it is not the way [01:03:01] Speaker 01: The way I think about it is not that it has to be an exact, that shipper can move, but it can buy the oil in Patoka, but another shipper moves down those lines. [01:03:13] Speaker 01: And I think if, again, it's not in the decision. [01:03:18] Speaker 02: The competition is here, we're shipping oil. [01:03:23] Speaker 02: They're not just purchaser. [01:03:26] Speaker 01: That's correct. [01:03:27] Speaker 01: If you look at the statement that Mr. Chan made, he has testified on behalf of the petitioners. [01:03:34] Speaker 01: It's in footnote 43. [01:03:44] Speaker 01: I don't have the JA right in front of me for it. [01:03:50] Speaker 01: Mr. Chan was asked in his testimony, what are your alternatives? [01:03:55] Speaker 01: They asked him. [01:03:56] Speaker 01: He said, buying crude oil in Patoka, which demonstrates the point I was making. [01:04:02] Speaker 01: Shipping crude oil to Patoka. [01:04:05] Speaker 01: meaning he recognizes there's other pipelines, he listed them, or shipping to Wood River on a different pipeline than Ozark, and then shipping to Patoka. [01:04:16] Speaker 02: And that question was asked, what are your options if super competitive price is imposed by MPLX slash Woodpeck? [01:04:23] Speaker 01: I believe the exact wording was, if you don't use the applicant pipeline, what would be your alternatives? [01:04:31] Speaker 01: And they listed buying in Patoka, shipping in Patoka, and shipping to Wood River and over. [01:04:38] Speaker 06: And that was petitioners. [01:04:41] Speaker 01: That's correct. [01:04:43] Speaker 01: And so I think I agree it is hard to point in here to some of these questions you're raising, but I think that's because that wasn't what was before the commission. [01:04:52] Speaker 01: I believe I'm over my time. [01:04:55] Speaker 02: Thank you very much. [01:04:59] Speaker 02: Thank you. [01:05:01] Speaker 02: Mr. Wagner will give you 3 minutes. [01:05:10] Speaker 06: Thank you. [01:05:11] Speaker 06: Thank you to look at page J81254, please. [01:05:29] Speaker 06: The answer at line nine, part of which is confidential, goes to one of the points we've been discussing. [01:05:40] Speaker 06: Is that statement accurate? [01:05:46] Speaker 06: One of your clients? [01:05:48] Speaker 04: This is a statement by Dr. Webb. [01:05:52] Speaker 04: This is the pipeline's witness testimony on JA-1254. [01:05:57] Speaker 04: Right. [01:05:58] Speaker 04: It's probably times witness. [01:05:59] Speaker 04: Oh, I'm sorry. [01:05:59] Speaker 06: Is it accurate? [01:06:01] Speaker 04: Is it accurate? [01:06:09] Speaker 04: No. [01:06:13] Speaker 04: Outside of the confidential material that says thereby defeating the coordinated price increase. [01:06:24] Speaker 04: And that is not accurate. [01:06:25] Speaker 04: That's not proven. [01:06:27] Speaker 04: And that's what's needed. [01:06:28] Speaker 06: Well, I'm asking you about the phrase that is confidential. [01:06:32] Speaker 06: Is it accurate? [01:06:37] Speaker 04: Regarding rights? [01:06:38] Speaker 04: Yeah. [01:06:42] Speaker 04: I believe it does have those long-term contracts. [01:06:44] Speaker 04: Yes. [01:06:45] Speaker 03: Thank you. [01:06:48] Speaker 04: One thing I'd like to very quickly go back to in respondents discussion, [01:06:55] Speaker 04: is the citation to Dr. Webb's testimony. [01:06:58] Speaker 04: At paragraph 25, note 61 of the commission's decision, on page 55 of FERC's brief, they expressly disavow relying on that. [01:07:10] Speaker 04: It states that they looked at commercial realities, not Dr. Webb's quantitative analysis. [01:07:18] Speaker 04: So to the extent that they're relying on that to sort of backfill missing substantial evidence that [01:07:25] Speaker 04: They've expressly disavowed relying, so. [01:07:28] Speaker 02: Are they missing substantial evidence? [01:07:29] Speaker 02: Did you raise this capacity issue? [01:07:31] Speaker 02: I mean, it's just, it's a very confusing record. [01:07:34] Speaker 04: It's not so much the capacity issue. [01:07:36] Speaker 02: You didn't argue that there's no real choices in Pawtucka because of capacity constraints, or at least for a lot of the shippers, maybe not one, but maybe for a lot of the shippers, non-affiliate shippers, there's capacity constraints. [01:07:47] Speaker 02: You haven't raised that. [01:07:49] Speaker 04: We raised that. [01:07:52] Speaker 04: There are not delivered price that the delivered prices are such that you would not shift to any option at the TOCA. [01:08:00] Speaker 06: Not because of lack of capacity, but because of the destination market price. [01:08:05] Speaker 04: That's correct. [01:08:06] Speaker 04: So that must be tested. [01:08:07] Speaker 04: You have to look at the delivered price. [01:08:10] Speaker 04: What FERC has said is, we assume that these are currently used. [01:08:15] Speaker 04: There's a map showing flows. [01:08:17] Speaker 04: And because these are currently used, they're assuming that the price would be such that shippers, enough shippers to move the needle [01:08:25] Speaker 04: would respond to a price [01:08:44] Speaker 04: The answer is no, and there's nothing in this decision that says that there is. [01:08:47] Speaker 02: Do you disagree with footnote 19 in Burke's original decision, page A771, about the existence of competitive alternatives? [01:08:59] Speaker 04: Oh, the footnote? [01:08:59] Speaker 04: 19. [01:09:02] Speaker 04: Kind of a nuanced answer. [01:09:03] Speaker 04: The ALJ required the parties to provide HHI analyses under various sets of assumptions. [01:09:13] Speaker 04: And if the destination market is Wood River and the capacity of X pipeline is this, what's the HHI and what results? [01:09:21] Speaker 04: And there's a table in the joint appendix showing that. [01:09:24] Speaker 04: We're not contesting that if the destination market includes Patoka, those are the pipelines that go to Patoka. [01:09:31] Speaker 02: That you have alternatives there. [01:09:35] Speaker 04: It's difficult to agree with that. [01:09:39] Speaker 04: We would not shift at all to Patoka. [01:09:44] Speaker 04: I don't know what you mean. [01:09:46] Speaker 04: No alternative at Patoka is competitively priced such that we would shift and actually discipline the market, discipline the Ozark pipeline. [01:09:56] Speaker 04: So that means that no alternative at Patoka, nothing should be looked at. [01:10:01] Speaker 04: Based on price. [01:10:03] Speaker 04: Based on price. [01:10:04] Speaker 04: And FERC makes a really significant error in that regard in all of it, going back to that Seaway decision where they say, [01:10:10] Speaker 04: all used alternatives are necessarily competitive. [01:10:13] Speaker 04: Again, that's the cellophane fallacy. [01:10:17] Speaker 04: And they've sort of forced the debate into what's the market then. [01:10:21] Speaker 04: If we're going to assume that everybody in a market is competitive, what's the debate there? [01:10:26] Speaker 02: Any other questions? [01:10:27] Speaker 02: No. [01:10:29] Speaker 02: Thank you very much. [01:10:30] Speaker 04: Thank you. [01:10:31] Speaker 02: Case is submitted.