[00:00:00] Speaker 02:
Case number 24-1076, Antero Resources Preparation and MU Marketing LLC Petitioners versus Federal Energy Regulatory Commission.

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Ms.

[00:00:11] Speaker 02:
Taylor for the petitioners, Ms.

[00:00:13] Speaker 02:
Gall for the respondents, Mr. Corman for the interveners.

[00:00:18] Speaker 06:
Good morning.

[00:00:22] Speaker 04:
Good morning, Your Honors.

[00:00:23] Speaker 04:
Charlotte Taylor for Petitioner and Antero Natural Resources.

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The principle that a party that causes costs should pay its share of them is fundamental to adjust and reasonable rate under FERC's and this court's precedence.

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But in a decision under review, FERC departed flagrantly from cost causation.

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Petitioner Antero Resources pays fuel rates based on the assumption that the gas it ships is always the last most expensive gas on the fuel curve, no matter what the operating conditions on the pipeline are.

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Even if the pipeline is operating well below maximum pre-expansion capacity, Ontario is still assigned the most expensive flows.

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Even if Ontario's usage stays level and other shippers increase their usage, Ontario's rates go up.

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That has led to Ontario paying a fuel rate that is triple what all other shippers pay.

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FERC has never explained why that is just and reasonable.

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To be sure, rates that could depart from cost causation can be just and reasonable if they are supported by a valid policy consideration.

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But no policy ever articulated by FERC supports this rate structure.

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In fact, FERC has taken a wildly inconsistent approach to fuel rates on compression-only expansion projects.

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The first policy justification that FERC has offered, preventing overbuilding, is plainly inapplicable to fuel rates that pay for the ongoing operation of the pipeline.

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The second policy justification FERC has offered is protecting the reliance interests of pre-existing shippers.

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But this justification is inadequate multiple times over.

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Pre-existing shippers have no reliance interest in forcing Antero to pay for the most expensive gas, even at throughputs that are below the maximum capacity of the pre-expansion system.

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Pre-existing shippers are also sufficiently protected if they pay no more than the maximum possible rate under the pre-existing

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system.

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That's what this court indicated.

[00:02:19] Speaker 03:
So why did Antero not dispute the methodology when it was first proposed in the first, you know, the first time the fuel rate methodology was proposed?

[00:02:30] Speaker 04:
The fuel rate methodology was proposed with the curve, but it was not clarified that Antero was always going to be assigned the last fuel, the flows on that curve, no matter what the operating position conditions were.

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And

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What would have led you to think otherwise?

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The certificate order said this is the formula that's going to be used for your pricing.

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I don't understand why you think you weren't sure that other people would increase the amount of fuel they ship.

[00:03:00] Speaker 04:
Because it didn't clarify.

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So the fuel curve was in that filing and it showed that the fuel rates went up exponentially.

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but it didn't clarify that Antero was always going to be assigned the most expensive flows.

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Is it not clear by the way the rates were calculated that Antero was being charged the last most expensive rates?

[00:03:22] Speaker 04:
So there weren't actual usage to go by.

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So the fuel curve was presented, but it wasn't.

[00:03:30] Speaker 07:
There were two more years with the same methodology after it had actually been in operation.

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were applied and there was no objection from Ontario.

[00:03:42] Speaker 04:
So 2018 was when the fuel curve, that was the filing that we were just discussing where the fuel curve was put in, but it wasn't clarified that under all operating conditions, not just sort of when we're over pre-expansion capacity, Ontario would be assigned the last flows.

[00:03:57] Speaker 04:
Then in 2019, there was no proposed change because there hadn't been any sufficient data.

[00:04:04] Speaker 07:
Hang on, hang on, hang on.

[00:04:06] Speaker 07:
So in 2019, are you saying that we had 2018, 2019, 2020?

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In that whole time period, are you saying the system never went over pre-expansion capacity?

[00:04:18] Speaker 04:
I'm saying there wasn't a... So I'm not saying that.

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What I was saying there is that there was no fuel filing to sort of showing the application of the system in practice in 2019.

[00:04:31] Speaker 07:
So in 2018, we have the... What do you mean filing showing?

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You were getting charged.

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you were getting charged rates for three years.

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So you didn't understand how they were being calculated till 2021.

[00:04:43] Speaker 04:
Oh, in 2020, we understood how they were.

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That was when we first realized how they were being calculated.

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So just so 2018, there's the vague, there's the fuel curve, but it's not clarified that we're always going to be assigned the most expensive flows.

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And again, we're not just if it's operating at 25% of pre expansion capacity, whatever our section of that is the most expensive, right?

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So that's the it's not just

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post expansion, you know, when we're using that extra additional capacity, we're always charged the most expensive flows.

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And that's what we was not clear.

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We couldn't figure that out until 2021.

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So I'll finish going through the chronology there.

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So in 2018, that was the proposal that was not sufficiently clear on that.

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Then in 2019, the field filing didn't propose any changes or show any, you know, the applicable methodology because there was only every year the filing works with the previous year's data.

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But because the project only went online in October 2018, there was no attempt to make that adjustment for 2019.

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Then in 2020, there was a 43% increase in our rates.

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And we did protest at that point.

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So that was the first time that we had a full year of data to see how this was actually going into operation.

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We filed a protest.

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And that was the point at which TGP made a filing that explained this last flows methodology.

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And FERC did approve, but they told TGP to Tennessee to try to work out a solution.

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So we went into that process of trying to work out a solution.

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We thought that we had an understanding that this last flows methodology was not going to be

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was inequitable.

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But then what Tennessee came out with was this minor fuel credit, instead of a fundamental adjustment of this overall last year's methodology.

[00:06:28] Speaker 03:
So I mean, you know, one of the arguments that FERC raises here is that, you know, Antero slept on its rights in terms of not objecting to the methodology, you know, at the at the outset.

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But I'm wondering, I mean, with section four, I mean, there are annual filings of rates.

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So

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it does seem that it's permissible to challenge the rates at the point at which it seems that they are unjust and unreasonable.

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So I'm wondering if you could just speak to the relationship between the methodology and the rates themselves in terms of petitioning or challenging.

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So just to be clear, I don't think that the commission has argued that we're it's like an impermissible collateral attack.

[00:07:12] Speaker 03:
Yeah, right.

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It's sort of an optical like you waited.

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And I think I've just tried to explain, you know, chronologically at the first moment in which we were on notice of just how

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punitive this rate was and fully understood the methodology.

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We then did file a protest and engaged in this back and forth with Tennessee.

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But I also, you know, another important fact is that we had never argued for rolled in rates, right?

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We were always willing to accept that as expensing shippers, it might be appropriate and just and reasonable to assign us a slightly higher rate, even though if you look at pure cost causation principles, we should be rolled in.

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And so it was when that rate got to triple

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Um, that we, you know, at that point did, uh, you know, have, have litigated this entire case all the way up to this court, right?

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You know, saying like this is just no longer, you know, approximating in any defensible or reasonable way, actual cost causation or, and it's not tethered to the, I mean, to be clear, the decision affirming, uh, the ALJ's order

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seems to treat this as if it is consistent with cost causation, and that's just patently not true.

[00:08:19] Speaker 04:
But even if we go a step beyond and look at the 1999 policy statement and the clarification of that statement and the rationales for treating incremental shippers or expansion shippers as needing to pay higher rates, none of those rationales justify what's happening here.

[00:08:37] Speaker 07:
Can I just follow up on that question because

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Often under FERC, nowadays they don't adopt dollar amount rates, they adopt methodologies for calculating rates.

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And if methodology is deemed just and reasonable and people bypass the time limit for challenging that methodology,

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Is it your position that you can say, well, the methodology is fine, but the way the math comes out for me is an individual entity is unjust and unreasonable?

[00:09:12] Speaker 07:
Because I had thought the whole point of using methodological ways of calculating rates, everything from fair market pricing to what we have here meant that the resulting numbers are just and reasonable.

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In case where we said a methodology is just and reasonable,

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but the output for one individual company under that methodology is not?

[00:09:36] Speaker 04:
So I can't cite you a case there, but I would also just reiterate that we did challenge this methodology as soon as it became clear what it was.

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So if you read the 2018 fuel filing and look at what was submitted there, there is no place there that indicates that we're always gonna be assigned the last pose on the curve.

[00:09:55] Speaker 07:
You're not challenging the numbers, you are challenging the methodology.

[00:09:58] Speaker 04:
We're challenging the methodology and the numbers.

[00:10:00] Speaker 04:
But yes, to be clear.

[00:10:01] Speaker 04:
And that's my question to you, as I'm not sure.

[00:10:03] Speaker 04:
OK, well, if I have to pick one, I'll pick one.

[00:10:07] Speaker 04:
We are challenging the methodology.

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And FERC has not argued that it's an improper collateral attack or that we actually forfeited this.

[00:10:14] Speaker 07:
I'm trying to understand what's going on here.

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Because it's a little odd to say this methodology was fine for the first three years.

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And then now is suddenly not fine since the only change has been to give us a credit.

[00:10:27] Speaker 07:
But no, the only change is to give you a credit in the methodology.

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I know the numbers have gone up.

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But the only change in the methodology is this credit system.

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Right.

[00:10:39] Speaker 04:
We never thought that the methodology was OK once we understood what it was, once it was clarified what it was.

[00:10:44] Speaker 07:
I mean, surely these were questions

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reasonable company could have asked early on and filed reconsideration motions, requests for clarification, but that didn't happen for three years either.

[00:10:56] Speaker 04:
Again, in the initial 2018 fuel filing, it was not, the fuel curve, they did the fuel studies and that showed this exponential use.

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And our rate at that time was approximately double what pre-existing shippers were paying.

[00:11:12] Speaker 04:
And we didn't run through, run to litigation because we,

[00:11:18] Speaker 04:
were effectively not on, I mean, we weren't on notice of what the methodology was, and we accepted.

[00:11:24] Speaker 07:
You were on full notice of what the methodology was.

[00:11:26] Speaker 07:
Nothing's changed in the methodology, again, other than this.

[00:11:30] Speaker 04:
Tennessee had not explained.

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There's no, in the 2018 fuel filing, there is no explanation of the fact that we're always going to be paying the last flows on the curve, no matter what.

[00:11:38] Speaker 06:
Is the operative thing that was missing there always?

[00:11:41] Speaker 04:
Yes, because if you look at the, let's say, assume that the pipeline previously had a capacity of 10 deca-therms.

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And we're paying for an additional two decatherms to be added.

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We're paying the most expensive gas on the pipeline, even if total throughput is four decatherms.

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If our throughput is one decatherm on that day, we're paying for the third to fourth.

[00:12:03] Speaker 07:
That sounds like a methodology challenge, not an always challenge.

[00:12:06] Speaker 07:
Pardon?

[00:12:07] Speaker 07:
That sounds just like you're challenging the method.

[00:12:09] Speaker 07:
The methodology didn't say what in the methodology led you to think

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But it would be any different than any other time.

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It would be any different than what the curve showed.

[00:12:23] Speaker 04:
Because it had a fuel curve.

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It assigned us a higher absolute number rate.

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It was 4. something as the incremental shipper.

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And then it didn't explain exactly how that number was derived.

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And so we accepted that rate.

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And then once we saw the next year that there were

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was an adjustment to the methodology.

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So that's 2020.

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Our rate suddenly went up by 43%.

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And that's when we protested.

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We asked Tennessee what happened.

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Because our usage had been projected to be 89% of the capacity.

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And they said, oh, but ours was actually less.

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And they said, the reason why your rate went up was because other shippers shipped more.

[00:13:08] Speaker 04:
And that was the first time that we were placed on notice that other shippers increased usage of the pipeline.

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could cause our rate to go up even if our usage had gone down or stayed the same.

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And so at that point, we did file that protest.

[00:13:24] Speaker 04:
We conferred with Tennessee.

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And then they revised the methodology.

[00:13:28] Speaker 04:
And we thought that they would come out with something more meaningful than this fuel credit, which doesn't begin mathematically to offset the imbalance.

[00:13:36] Speaker 03:
That's a question.

[00:13:37] Speaker 03:
Pardon?

[00:13:38] Speaker 03:
Oh, sorry.

[00:13:40] Speaker 05:
So when you discovered this,

[00:13:44] Speaker 05:
What were your options?

[00:13:48] Speaker 04:
So we filed a protest, and I think that was our main option.

[00:13:54] Speaker 05:
And then we didn't get satisfaction from that.

[00:13:59] Speaker 05:
Now what options do you have?

[00:14:02] Speaker 05:
So this has all been under section four.

[00:14:06] Speaker 05:
I'm focusing on options under section five.

[00:14:10] Speaker 04:
So we brought both a section four and a section five challenge, but the commission never reached the second step of the section five challenge because it found that the rates were just and reasonable.

[00:14:22] Speaker 05:
So section four, that was it.

[00:14:27] Speaker 05:
Yes.

[00:14:27] Speaker 05:
Correct.

[00:14:28] Speaker 05:
So that's my point from your client's point of view.

[00:14:33] Speaker 05:
Why didn't you pursue section five?

[00:14:36] Speaker 04:
We did in this proceeding.

[00:14:38] Speaker 05:
So we still.

[00:14:39] Speaker 05:
Here's what I'm getting at.

[00:14:41] Speaker 05:
And maybe the FERC attorney can explain to me.

[00:14:44] Speaker 05:
If you're proceeding under both section four and five, if the commission finds pursuant to the automatic provisions of section four that the rate is just and reasonable,

[00:14:59] Speaker 05:
The statute allows it to stop there.

[00:15:02] Speaker 05:
It doesn't have to go on and consider, well, what other options may be out there, because there may be some other just and reasonable rates.

[00:15:11] Speaker 05:
So your client, knowing that, I'm just trying to understand.

[00:15:15] Speaker 05:
You say you didn't know all this until 2020.

[00:15:18] Speaker 05:
It's now 2025.

[00:15:22] Speaker 05:
Has there been no opportunity for Section 5 filing

[00:15:29] Speaker 05:
where you could get the responses, maybe not the result ultimately that you might prefer in total, but you could get some of the responses you say FERC has refused to provide.

[00:15:46] Speaker 04:
So we did this, the challenge that's under review now has both the section four and a section five challenge.

[00:15:54] Speaker 04:
Because the commission didn't found it,

[00:15:58] Speaker 04:
at the first step that this is just and reasonable on the theory that it does follow cost causation, it didn't reach the second step whether what alternative methodology would be appropriate.

[00:16:08] Speaker 04:
Every year since this 2021 challenge, we have been challenging the new fuel filing every year and those have been held in abeyance largely.

[00:16:19] Speaker 05:
Under what section have you been proceeding?

[00:16:23] Speaker 05:
The statute makes a very distinct difference.

[00:16:29] Speaker 05:
And you or your client has in one sense more control in terms of forcing the commission to respond to certain things under section five than it does under section four.

[00:16:45] Speaker 05:
And you say, well, you brought both, but that doesn't help you under the statutory scheme because the commission is entitled to stop at section four.

[00:16:55] Speaker 05:
It doesn't have to go on to section five.

[00:16:59] Speaker 04:
Well, to be clear, it did reach the section for I mean it did say, because we have found this just and reasonable under section for the first step in the section five analysis is is this just and reasonable.

[00:17:09] Speaker 04:
And so it's holding on the section for it's a termination on the section for also disposed of the section five it reached that but then it said we aren't going to consider the alternative methodology that entero had advanced.

[00:17:21] Speaker 04:
because we have determined at the first step of section five that this is just unreasonable right.

[00:17:27] Speaker 03:
I had some of this.

[00:17:28] Speaker 03:
I had some related questions to judge Rogers about the remedy here in terms of section four and section five because you are seeking.

[00:17:34] Speaker 03:
I think the remedy that Ontario is seeking is to remand to for

[00:17:39] Speaker 03:
to do the second part of the section five.

[00:17:42] Speaker 03:
Yes.

[00:17:43] Speaker 03:
Is that right?

[00:17:44] Speaker 03:
So, so I just, I mean, walk me through that because they've made a section four determination as Judge Rogers mentioned, they've found that this rate is just unreasonable.

[00:17:53] Speaker 03:
So it seems one remedy could be if we reverse that binding, it goes back to FERC and then I guess Tennessee would have to propose a new rate.

[00:18:05] Speaker 03:
So that could be a section four remedy.

[00:18:07] Speaker 03:
We were unable to find any cases where the court reverses a section four just in reasonable determination and then remands to FERC.

[00:18:19] Speaker 03:
to do the second step of section five.

[00:18:21] Speaker 03:
I'm not sure that that's impermissible because as you say, they do reach, FERC does address the first step of the section five proceeding here.

[00:18:28] Speaker 03:
But if you could just walk us through how you think the remedy would work here, if we were to agree with you that the rate was not just reasonable.

[00:18:36] Speaker 04:
Well, I mean, I think that it, so we would be satisfied also with a new, you know, go around under section four, because if this court holds that this is an unjust and unreasonable methodology, then Tennessee is gonna have to come up with something else that doesn't allocate to us the last most expensive gas on the fuel curve under all operating conditions.

[00:19:00] Speaker 04:
And so, you know, if we go, I'm not sure that there's a,

[00:19:05] Speaker 04:
a very like if we go back to the commission.

[00:19:08] Speaker 04:
Because you found that this is that it was incorrect at section or that this is just unreasonable.

[00:19:16] Speaker 04:
Then you know I suppose we could the commission could hold further proceedings on the section 5 challenge or we could you know

[00:19:25] Speaker 04:
What do you take one of the next fuel filings out of its abated protests and are you suggesting that in terror doesn't have a preference between those two remedies?

[00:19:36] Speaker 03:
I mean, because the briefs ask for further section five proceedings.

[00:19:40] Speaker 04:
Well, our preference is what we asked for.

[00:19:43] Speaker 04:
But if you are concerned that the section four challenge is logically or is antecedent, I think we would accept that as a remedy.

[00:19:51] Speaker 03:
I guess I'm just wondering what your theory is of the fact that FERC can reach the section five question.

[00:19:59] Speaker 03:
If you have a case or some example where that has occurred.

[00:20:04] Speaker 04:
of a case on remand to the commission.

[00:20:07] Speaker 03:
Where you have a similar situation like this, where there's a section four determination, and then it's sent back for FERC to decide what the just and reasonable rate is under section five.

[00:20:20] Speaker 04:
I don't have a case.

[00:20:23] Speaker 04:
But again, if this court is concerned that that is not permissible, then we would also accept just a finding that this is unjust and unreasonable, that the commission was, that its reasoning was arbitrary and capricious, and that there needs to be a do-over with Tennessee at that point, proposing a new methodology.

[00:20:42] Speaker 07:
Why would it be within the wheelhouse of this court to dictate which approach the commission would take on a remand?

[00:20:48] Speaker 07:
I mean, our job, were you to prevail, would be to say,

[00:20:52] Speaker 07:
the finding that this was just and reasonable was erroneous.

[00:20:57] Speaker 07:
And since they've self-described it as a section four ruling to vacate that or remit a vacatur depending on the case and send it back to the agency, why isn't it the agency's choice in the first instance what to do in a situation like that?

[00:21:15] Speaker 04:
I mean, I think, again, I would agree with that insofar as I don't think it's impermissible for the commission to take either route once this court has remanded.

[00:21:25] Speaker 07:
I'm asking about what our role as a matter of administrative law would be in this circumstance, not what FERC could decide.

[00:21:35] Speaker 07:
Are we even allowed to make that decision to even grant what you asked for in your brief?

[00:21:45] Speaker 04:
Again, I think this goes to, I don't have a case of this that I can cite of this court directing to conduct a section five proceeding in analogous circumstances.

[00:21:57] Speaker 04:
I can certainly, you know, I think it's reasonably common

[00:22:01] Speaker 04:
for parties to advance parallel section four and section five challenges.

[00:22:06] Speaker 04:
And then depending how things shake out, whether the commission reaches the second step of section five or not, this court can vacate and remand for appropriate proceedings for the commission to determine.

[00:22:21] Speaker 03:
I was also asking about the 1999 policy statement.

[00:22:25] Speaker 03:
So that statement focuses a lot on construction costs and making sure that where a party is responsible for the expansion, they pay the construction costs.

[00:22:36] Speaker 03:
And then in our transcontinental case, we suggested that that can also be extended to fuel costs.

[00:22:47] Speaker 03:
And it seems, I mean, or at least we said that it was not unreasonable to extend the policy statement.

[00:22:53] Speaker 03:
But so are we bound by that decision?

[00:22:57] Speaker 03:
I mean, maybe also it might be reasonable to do so, but is it required for fuel costs to be allocated in an incremental way?

[00:23:08] Speaker 03:
Or perhaps ANTERA has already conceded that.

[00:23:11] Speaker 04:
We haven't conceded that it is required to allocate fuel costs in an incremental way.

[00:23:16] Speaker 04:
As we point out, the commission has taken inconsistent approaches in different.

[00:23:20] Speaker 03:
You're not asking for rolled in rates.

[00:23:23] Speaker 04:
We are not asking for rolled in rates.

[00:23:25] Speaker 03:
So you're conceding that incrementalism for fuel costs, even when Antero has already paid all of the construction costs or will be paying all of the construction costs, that incremental fuel cost rates are appropriate.

[00:23:40] Speaker 03:
So we have always... It seems like a big concession.

[00:23:44] Speaker 03:
I mean, after BNP Paribas, I'm not, you know, but if that's your position then.

[00:23:49] Speaker 04:
Well, I mean, because the commission does commonly require an incremental rate to be assigned to the expanse and shipper and we were... For fuel costs?

[00:23:59] Speaker 04:
For fuel costs.

[00:24:00] Speaker 03:
In an integrated system?

[00:24:01] Speaker 04:
I mean, we agree that that is inconsistent with cost causation and that the commission should articulate a policy justification for departing from that.

[00:24:10] Speaker 04:
We don't think that the transcontinental case controls on the facts here.

[00:24:15] Speaker 04:
There's a very important, I think, you know, distinction because in that case, the

[00:24:21] Speaker 04:
The expansion shipper was paying their pro rata share of sort of general system rates, and then they were paying all of the electrical costs of running the new compressors.

[00:24:32] Speaker 04:
So an analogy here would have been if the methodology tried to assign us some pro rata share of sort of ordinary operating condition rates,

[00:24:41] Speaker 04:
and then assigned us the fuel costs for running the expansion system when it was required.

[00:24:49] Speaker 04:
But instead, what's happened here is that we're paying for the most expensive gas no matter what.

[00:24:53] Speaker 04:
So even if this system was operating at 80% of pre-expansion capacity around the clock, we would still be paying the most expensive gas that's being used to run the compressors.

[00:25:06] Speaker 04:
And so transcontinental.

[00:25:07] Speaker 07:
Just to clarify, you have nowhere here argued

[00:25:11] Speaker 07:
That imposition of incremental cost methodology is itself error.

[00:25:22] Speaker 07:
As I understood your point to be, it's the application of the highest point on the curve as the measurement of your incremental costs.

[00:25:33] Speaker 07:
I think in your terms, as you said this morning, under all operating conditions.

[00:25:37] Speaker 07:
Yes, that's right.

[00:25:38] Speaker 07:
That issue's just not before us.

[00:25:40] Speaker 07:
whether it should have been incremental or rolled in, as to fuel costs.

[00:25:50] Speaker 04:
We never proposed rolled in rates, I guess is the appropriate way to say it.

[00:25:54] Speaker 07:
It's not just that you didn't do that, it's that you have not protested.

[00:26:00] Speaker 07:
since 2018 first conclusion that incremental costs is the appropriate way of dealing with fuel costs as well as construction costs.

[00:26:11] Speaker 07:
Right.

[00:26:12] Speaker 07:
And I think you've said in your brief many times, both briefs many times, we're not asking for world rates.

[00:26:19] Speaker 07:
We're not disputing that.

[00:26:21] Speaker 07:
It's simply how incremental costs

[00:26:25] Speaker 07:
are formulated.

[00:26:26] Speaker 07:
That is your projection.

[00:26:28] Speaker 03:
And I think the tough thing is once you've conceded that incremental rates are appropriate, it becomes harder to argue that the level of incrementalism is unjust and unreasonable.

[00:26:38] Speaker 04:
Well, I would disagree with that.

[00:26:40] Speaker 04:
So one, I mean, one important point, for example, about BNP Paribas is even in that case, after it was remanded to the commission,

[00:26:48] Speaker 04:
The commission didn't just say, OK, we're rolling everything in because cost causation is equal.

[00:26:52] Speaker 04:
It went through this two step analysis of analyzing what burden the newly arriving shippers were imposing on the gas storage and what burden the historic shippers were imposing.

[00:27:04] Speaker 04:
And then because it turned out that it was going to, you know, because it was going to be sort of

[00:27:10] Speaker 04:
You could apply a rolled in rate without imposing a subsidy.

[00:27:16] Speaker 04:
They did end up going with rolled in rates.

[00:27:19] Speaker 04:
So BNP Paribas, I think, is very clear that you can't just say cost causation and talk about proximate causation, which I think is what the commission has said in the decision under review and has been saying in its briefs is that we actually cause the increased

[00:27:35] Speaker 04:
the increased use of fuel because we asked for this expansion project to be built.

[00:27:40] Speaker 04:
And BNP Paribas says, no, that's not what cost causation means.

[00:27:43] Speaker 04:
You need a policy rationale.

[00:27:45] Speaker 04:
Now that may lead to rolled in rates after you go through the analysis, or it may not.

[00:27:53] Speaker 04:
And so, again, we haven't seen what that math would add up to here and it may be that we would end up with rolled in rates, but we would what we would concede is that there has to be you know that there's an analysis and it's appropriate to conduct an analysis to see.

[00:28:07] Speaker 04:
What are the burdens that the expansion shipper is imposing and let's make sure that the pre existing shippers.

[00:28:13] Speaker 04:
that their contractual expectations are reasonably protected.

[00:28:17] Speaker 04:
And we may go through that entire process and come up with a number that looks like rolled in, but it wouldn't be the sort of, and in BNP Paribot, indeed, it was not sort of like, well, cost causation means rolled in.

[00:28:28] Speaker 04:
And so that's what is just and reasonable.

[00:28:32] Speaker 07:
And you're under all operating conditions.

[00:28:35] Speaker 07:
I'm trying not to parse that out and understand what you mean by that.

[00:28:40] Speaker 07:
You've talked about new shippers.

[00:28:42] Speaker 07:
But that's an argument you didn't raise before the commission.

[00:28:46] Speaker 07:
The commission has told you did not exhaust before the commission.

[00:28:53] Speaker 04:
I would disagree with the statement that we didn't raise the later arriving shippers at the commission.

[00:28:58] Speaker 04:
I can read from our rehearing petition.

[00:29:02] Speaker 04:
The current methodology would increase enteros fuel rate even if an interruptible shipper begins using the pipeline.

[00:29:09] Speaker 04:
the interruptible shipper would enjoy a fuel rate lower than in tarot, even though the interruptible shipper would come later.

[00:29:15] Speaker 07:
Pardon?

[00:29:16] Speaker 07:
Is an interruptible shipper necessarily a new shipper or were there already existing interruptible shifters shippers on this system?

[00:29:23] Speaker 04:
Not all interruptible shippers are necessarily later arriving, but what we're saying there is

[00:29:29] Speaker 04:
even though the interruptible shipper would come later and be the reason for the higher fuel usage.

[00:29:34] Speaker 07:
That's pretty vague as to an argument about new shippers making this, this method methodology is structurally unjust and unreasonable because of new shippers, because interruptible shippers always come in late.

[00:29:46] Speaker 07:
They're kind of the standby passengers, right?

[00:29:49] Speaker 07:
And so it's hard to tell from that sentence that you're making this whole structural argument that as to new shippers,

[00:29:58] Speaker 07:
not necessarily the same thing as interruptible.

[00:30:00] Speaker 07:
I suppose they could have a new firm shipper for whatever small amount they had on their original system.

[00:30:06] Speaker 04:
Well, if there were a new firm shipper who paid for an expansion project and got lower rates, then we would, you know.

[00:30:11] Speaker 07:
No, no, that's not what I'm talking about.

[00:30:13] Speaker 07:
I mean, my understanding, maybe I'm just actually wrong here, is that at the time your client, Tara, wanted to start shipping gas, it wasn't that there was no

[00:30:27] Speaker 07:
extra capacity or even no firm capacity on the pre-existing system.

[00:30:31] Speaker 07:
It's just that it was not remotely enough for what Ontario wanted to ship.

[00:30:37] Speaker 07:
Right.

[00:30:37] Speaker 07:
Large amounts, right.

[00:30:39] Speaker 07:
My question is, but someone could come along and say, I'd like firm capacity, but it is only for that a much, much smaller amount that would have worked just fine under the pre-existing system, correct?

[00:30:53] Speaker 04:
I suppose, if somebody wanted... Well, we're all hypers.

[00:30:55] Speaker 07:
We're just coming up with made-up shippers here.

[00:30:57] Speaker 07:
You are too, and I am.

[00:30:59] Speaker 07:
So that's the point, is that just saying that there's someone else who comes later changes everything isn't quite accurate, because the question fundamentally is, are they something that the pre-existing system could have accommodated or not?

[00:31:18] Speaker 07:
And that was the issue with Ontario.

[00:31:19] Speaker 07:
I mean, Ontario has a much higher production than Ontario said.

[00:31:22] Speaker 07:
And we want firm capacity.

[00:31:24] Speaker 07:
And we have such a volume here, we're going to add this new compression capacity and take 100% of it.

[00:31:32] Speaker 07:
But you have to divorce that from what was remaining on the pre-existing system.

[00:31:36] Speaker 07:
So it's hard to see how that argument put clearly on notice.

[00:31:40] Speaker 07:
that you were saying, new shippers who would exceed, who need our new compression, who would otherwise exceed the pre-existing capacity are getting to jump ahead of the price rate line ahead of us.

[00:31:55] Speaker 07:
That's simply not what you argue.

[00:32:00] Speaker 04:
I mean, I would submit that we did, in the rehearing petition, raise the argument with the language that I just read.

[00:32:08] Speaker 04:
But I would also, taking a step back.

[00:32:09] Speaker 07:
If the commission says we don't understand that, then?

[00:32:12] Speaker 04:
Well, the commission didn't issue an order on rehearing, a reasoned order.

[00:32:16] Speaker 04:
So we don't know what it would have understood or not understood from that.

[00:32:19] Speaker 04:
And I think also, we were, so what the commission said in its order that we were challenging was,

[00:32:28] Speaker 04:
this is cost causation, which I think BNP Paribas and the commission's own decisions on remand from that just flatly contradict.

[00:32:35] Speaker 07:
Cost causation would be... You've admitted, everyone admits that the treatment and cost allocations for new capacity, whether it's new pipeline construction or new compressor constructions or the many different forms it can take,

[00:32:53] Speaker 07:
are whether you want to call it an exception to cost causation or the real costs of your operation causation analysis.

[00:33:03] Speaker 07:
So I just sort of invoking cost causation doesn't seem to advance the ball.

[00:33:08] Speaker 07:
I mean, we're just talking past each other.

[00:33:11] Speaker 07:
What the commission says is we're

[00:33:13] Speaker 07:
making you responsible for the costs you cause, which is we're running these compressors.

[00:33:19] Speaker 07:
They cost three times as much to operate as the old compressors and the old system.

[00:33:27] Speaker 07:
And you are the last one in.

[00:33:32] Speaker 07:
You've changed the whole thing.

[00:33:34] Speaker 07:
You've taken 100% of this new capacity, and that's what you're using.

[00:33:38] Speaker 07:
But we recognize there'll be some benefits for everybody, and that's what we're crediting back to you.

[00:33:43] Speaker 07:
But that's not a cost causation problem.

[00:33:46] Speaker 07:
It seems to me like it's almost more a factual problem with understanding what has caused your rates to come up.

[00:33:55] Speaker 07:
Is it, in fact, new shippers who couldn't be there but for your increased compression?

[00:34:04] Speaker 07:
Or is it all either new shippers or pre-existing shippers adding on to their load, all of which would be within the capacity of the pre-existing system?

[00:34:14] Speaker 07:
Is there an answer to that fact in the record?

[00:34:19] Speaker 04:
So I think the short answer is no, because usage fluctuates seasonally.

[00:34:29] Speaker 04:
And so there are times where the system is very close to maximum capacity.

[00:34:34] Speaker 04:
And then there are times when the system is

[00:34:37] Speaker 04:
is lower.

[00:34:37] Speaker 04:
On average, the system usage is around, let's say, in the 21 filing, it was, sorry, in the 2018 filing, for example, it was 59% on average for the year.

[00:34:56] Speaker 07:
But I don't want to- Can you help me clarify one thing?

[00:34:59] Speaker 07:
And maybe the 2018 is not the right way to answer that because you weren't coming online yet.

[00:35:04] Speaker 07:
But say by 2021, if there was some sort of average running capacity, when you give me a number like 59% or 80%, are you talking about of the pre-existing system or of the new system with your compressors?

[00:35:22] Speaker 04:
So I can come up with a number and try to, if there is, so their expert on Recross at JA616 in this 2021 dispute stated that Tennessee is generally operating below 100% of its pre-expansion capacity.

[00:35:39] Speaker 04:
So on average for the year, total usage is lower.

[00:35:42] Speaker 07:
So maybe the error here was that you even needed to add new compressors.

[00:35:47] Speaker 04:
Well, no, because there are times where we are, you know,

[00:35:52] Speaker 04:
the fuel usage is such that we did need this capacity.

[00:35:57] Speaker 04:
So there have been times historically where we didn't use it because the 7% markup was so punitive that we were, I mean, this is a commodity.

[00:36:05] Speaker 04:
So we're taking a 5% hit compared to our competitors at the other end.

[00:36:08] Speaker 04:
And there have been times where that just doesn't make economic sense.

[00:36:10] Speaker 04:
But there are also plenty of times in the record that it is operating at full capacity.

[00:36:16] Speaker 04:
And we're using, you know,

[00:36:18] Speaker 04:
close to all of our 200 deca-therms.

[00:36:20] Speaker 07:
I just, I wanna, I think that- When you say there's times, I'm sorry, I'm just trying to, not my field, and math is definitely not my field.

[00:36:31] Speaker 07:
When you're using close to 100% of your own capacity, then that would necessarily mean that either new shippers or increased capacity by existing shippers are all staying with the range of the pre-existing system,

[00:36:46] Speaker 07:
you're not leaving any room in your new added compression.

[00:36:49] Speaker 07:
I mean, I know it's all integrated sort of hard.

[00:36:52] Speaker 07:
The gas doesn't come out with a name tag on it.

[00:36:53] Speaker 07:
But I mean, conceptually, that means that these folks that you're worried about are all just using the pre-existing system.

[00:37:06] Speaker 07:
And so when we look at the language of some of our cases that there wasn't a need for, maybe they're happy to have it there, but there just wasn't a need for

[00:37:15] Speaker 07:
the capacity for anybody, increased compression capacity for anybody except Ontario.

[00:37:23] Speaker 04:
So I think that if the system were operating every month in that manner, then we might not be here because that's where they're getting this number that the incremental fuel usage is triple and so forth.

[00:37:37] Speaker 04:
If you get to 100% of the pre-existing capacity,

[00:37:41] Speaker 04:
and then also we're using 100% of our capacity, then the maximum fuel for the expansion is triple.

[00:37:47] Speaker 04:
But the fact is that that is not in the aggregate.

[00:37:50] Speaker 07:
Some months the methodology is up.

[00:37:52] Speaker 04:
Some months, and we in fact propose.

[00:37:54] Speaker 07:
In a perfectly fair way.

[00:37:55] Speaker 07:
Right, but the- In some months it's not working.

[00:37:58] Speaker 04:
And the problem is that the methodology isn't capturing even remotely fairly the months where that's not the case.

[00:38:06] Speaker 07:
Because even- We're missing the record about how many months are

[00:38:11] Speaker 07:
And it doesn't have to be precise.

[00:38:12] Speaker 07:
So how many months is there enough usage, whether it's close to 100% or 90% of your own usage, where it's close enough that this methodology is fair?

[00:38:24] Speaker 07:
And how many months per year is it what you would call unfair?

[00:38:29] Speaker 04:
So if you want to look at some of the fuel filings, I can point you to around page 60 of the joint appendix.

[00:38:35] Speaker 04:
I think it might be like 58 to 62.

[00:38:37] Speaker 04:
But you can see the month by month usage overall.

[00:38:40] Speaker 04:
But I do want to just return to what is.

[00:38:45] Speaker 07:
Pardon?

[00:38:45] Speaker 07:
Having to try to figure those charts out.

[00:38:47] Speaker 07:
Can you tell me?

[00:38:49] Speaker 07:
Is it half the year that it's okay and half the year it's not?

[00:38:52] Speaker 04:
It's generally winter months where it is close to maximum capacity and then for the rest of the year.

[00:38:57] Speaker 07:
What are you counting as less winter?

[00:38:59] Speaker 07:
Well, I mean, what's that mean?

[00:39:02] Speaker 07:
Are you talking sort of meteorological winter here, three months out of the year?

[00:39:06] Speaker 07:
Are you talking to get cold November and go into March, April and get cold in October?

[00:39:12] Speaker 04:
I mean, I would say three to four months out of the year, but I can also reconfirm and look.

[00:39:18] Speaker 07:
But I think the important point that I... Three to four months might be when you're near max, but I think there's certainly a margin in just and reasonable or when you're not near max, but you're using a heck of a lot of your own capacity.

[00:39:32] Speaker 07:
It'll be just and reasonable.

[00:39:34] Speaker 07:
Is there any precedent you're aware of where

[00:39:37] Speaker 07:
for a material portion where we've broken down the just and reasonableness of a methodology, which is all you're challenging, that's on a month-by-month basis?

[00:39:51] Speaker 04:
Well, I think we would love it if this methodology were designed to capture

[00:40:00] Speaker 04:
you know, assigning fuel costs to us when it's actually necessary to be using the- Yeah, that wasn't my question.

[00:40:05] Speaker 07:
My question is, is there any situation where we have said a methodology to be just and reasonable has to operate with this type of precision month by month, or can the commission say that sort of, look, over the course of the year, and they might disagree with you on how many months are in there,

[00:40:27] Speaker 07:
um that it's it's just unreasonable on that basis and we can't yeah because this is always true for energy things will make it go up things will make it go down summer will make it be more intense winter will be more intense fall and spring maybe not depends on which you know what's going on with weather in different parts of of the area covered by the system so i'm just not sure of this sort of granular analysis and if there if it is to be that granular

[00:40:55] Speaker 07:
then did you argue to the commission that the problem here is that three quarters of the year, two thirds of the year, it's unjust and unreasonable, but the other months it's fine?

[00:41:06] Speaker 04:
Well, let me take, no, I don't think that this court is in the habit of saying like certain months of the year, it would be okay.

[00:41:12] Speaker 04:
And therefore, you know, this is just unreasonable because that would be a major chennery problem, right?

[00:41:17] Speaker 04:
We asked the commission.

[00:41:18] Speaker 07:
No, no, that's what I'm asking you.

[00:41:18] Speaker 07:
So to be crystal clear, my question is, is that what we demand of the commission for it to be justified?

[00:41:25] Speaker 04:
We demand of the commission that it articulate a reasoned basis for the rate that it is approving.

[00:41:32] Speaker 04:
And what the commission said here is that this approximates cost causation, which is just manifestly incorrect.

[00:41:38] Speaker 05:
If we go the next step and say, there is a true up, is there not?

[00:41:44] Speaker 05:
These are prospective rates.

[00:41:49] Speaker 04:
So there is, I guess there is a true up in the sense that- Exactly.

[00:41:53] Speaker 05:
So that the month to month is taken into account in effect in the year end true up.

[00:42:03] Speaker 05:
As I understand your argument, you're not fighting that.

[00:42:08] Speaker 05:
You're simply fighting the fact that Burke has not been willing to retroactively

[00:42:19] Speaker 05:
apply it so that you don't have to pay upfront and then, in effect, get some money back at the end of the year.

[00:42:29] Speaker 05:
You don't want to pay it upfront because you say the rate is unjust and unreasonable.

[00:42:38] Speaker 05:
And FERC has come up with this other methodology.

[00:42:44] Speaker 05:
And that's why the fact that you didn't object early on

[00:42:51] Speaker 05:
where you have experts or your client has experts is so concerning here.

[00:43:02] Speaker 04:
So the true up is there, I think maybe two separate mechanisms that we could be talking about there.

[00:43:09] Speaker 04:
One would be that at the end of the year, they just correct, like it was a prospective rate and they do some correcting, but that's all based on this same fundamentally flawed methodology that we object to.

[00:43:18] Speaker 04:
And so nobody is arguing that that true up rectifies this imbalance.

[00:43:24] Speaker 05:
What I'm trying to focus on is your objection to the commission wasn't what you're arguing to us today when you originally were confronted with this methodology.

[00:43:41] Speaker 05:
Rather, as I understand it, and tell me if I'm wrong, your concern or your client's concern was,

[00:43:48] Speaker 05:
It was paying too much.

[00:43:49] Speaker 05:
Its rates were too high.

[00:43:52] Speaker 05:
So the commission said, well, let's see if Tennessee, if we can become more efficient.

[00:43:59] Speaker 05:
And now your point is that, well, the credit and the efficiencies that Tennessee has implemented don't solve the problem.

[00:44:10] Speaker 05:
We're still paying too much.

[00:44:14] Speaker 05:
And somehow you presented to the court

[00:44:18] Speaker 05:
this theory that because everything is computerized, everything can be done not only month to month, but day to day, hour to hour, so that there would be a floating rate for everybody.

[00:44:41] Speaker 05:
And sometimes

[00:44:43] Speaker 05:
you know, capacity, as you point out, would be at 59%.

[00:44:46] Speaker 05:
Other times it would be higher at 70 or 80% or 90%.

[00:44:52] Speaker 05:
And so that's the way the system should work.

[00:44:55] Speaker 05:
And as I understand it, FERC has rejected that approach and adopted this other approach.

[00:45:05] Speaker 05:
And it's given a lot of reasons.

[00:45:07] Speaker 05:
And it really hasn't ever argued that this is the only just and reasonable.

[00:45:13] Speaker 05:
approach.

[00:45:14] Speaker 05:
And that's why I asked you about Section 5.

[00:45:18] Speaker 05:
And I know you don't want to pursue that, but at any rate, that gives you, you have the burden, and I realize it's expensive to do so, but at least then you get to get the agency to address the alternative system that you're proposing.

[00:45:38] Speaker 04:
So a couple of points there.

[00:45:40] Speaker 04:
One, we're not arguing that there needs to be a daily sort of a different rate applied on a day by day basis.

[00:45:49] Speaker 04:
But what we are arguing is that the overall rate, which is based on these annual fuel filings, cannot be

[00:45:58] Speaker 04:
just and reasonable if we are always assigned the most expensive gas on the curve, no matter what the operating conditions, no matter if we're in a world where

[00:46:10] Speaker 04:
none of the incremental capacity that we paid for is even remotely necessary.

[00:46:14] Speaker 04:
Everybody, it's summer, it's quiet, where the pre-existing system is running at 40%.

[00:46:21] Speaker 04:
Our gas is still the most expensive there.

[00:46:25] Speaker 04:
And so that, I think, is the fundamental problem that we've been trying to get at.

[00:46:31] Speaker 04:
And so to go back to this, there are months where it

[00:46:35] Speaker 07:
Would make sense.

[00:46:37] Speaker 07:
And there are months where it's not.

[00:46:38] Speaker 04:
Right.

[00:46:38] Speaker 04:
But our point is that the overall overall.

[00:46:41] Speaker 04:
This is not just unreasonable because it's not trying.

[00:46:44] Speaker 04:
It's not even remotely attempting to disaggregate when our incremental usage or our expansion usage is posing an imposing additional costs on the system and when it's not.

[00:46:54] Speaker 04:
And I think transcontinental is a really helpful counter example there.

[00:46:58] Speaker 04:
because what this court approved was that the commission had said, these electric field engines are the compression engines, and so the expansion shipper should pay those costs.

[00:47:11] Speaker 04:
But for the rest of the costs, everybody's going to pay their share.

[00:47:15] Speaker 04:
We're paying more than our share of even the fuel to ship gas when the expansion

[00:47:24] Speaker 04:
you know, compression engines are not necessary.

[00:47:27] Speaker 04:
And that's the fundamental problem that it's not about.

[00:47:29] Speaker 07:
I'm trying to totally clear me from the record.

[00:47:34] Speaker 07:
So there are certainly at least times that this pipeline is operating when it's operating within capacity that existed before, and Heroa came along with its additions.

[00:47:49] Speaker 07:
At those times, is it just using

[00:47:54] Speaker 07:
the old compressors or is it always using the new ones now because they're more efficient?

[00:48:00] Speaker 04:
It's integrated.

[00:48:01] Speaker 04:
And so it generally does use the compression, the new compression.

[00:48:04] Speaker 04:
So it doesn't sort of reserve those and only use them when we get to a hundred percent of pre-expansion capacity.

[00:48:11] Speaker 07:
So all the time, the new compressors are running.

[00:48:14] Speaker 04:
I mean, I don't, it's not in the record whether the new compressors run if we're at 10% of, you know, pre-expansion capacity, but they're always online.

[00:48:21] Speaker 04:
And so the pipeline operates in a manner to,

[00:48:24] Speaker 04:
most efficiently ship gas.

[00:48:26] Speaker 04:
So whenever the new compression engines would be contributing to efficiency, they're going to be used.

[00:48:33] Speaker 07:
Actually, I quite know what that means.

[00:48:34] Speaker 07:
Do they only contribute to efficiency if there's a certain volume?

[00:48:38] Speaker 04:
That's not in the record to my awareness.

[00:48:40] Speaker 04:
But again, that's up to the engineers and the folks who are actually running the pipeline.

[00:48:44] Speaker 04:
But there's no sort of separating out of the compression engines and waiting to use them.

[00:48:50] Speaker 07:
And then this refund

[00:48:55] Speaker 07:
The fuel credit, yes.

[00:48:57] Speaker 07:
The fuel credit, thank you.

[00:48:59] Speaker 07:
Sorry.

[00:49:01] Speaker 07:
Thank you, I appreciate that.

[00:49:03] Speaker 07:
For when your new compression benefits everybody else, when does that apply?

[00:49:16] Speaker 07:
Does it apply any time that they are at or below pre-existing capacity?

[00:49:23] Speaker 04:
So there's a helpful, I can find it.

[00:49:28] Speaker 04:
So the fuel credit kicks in at 80% of pre-expansion capacity.

[00:49:33] Speaker 04:
And it starts out at about 5.4% and then goes up to 11.5%.

[00:49:38] Speaker 04:
So that's sort of the range.

[00:49:40] Speaker 04:
And that is capturing, is designed to try to capture the fact that these new engines are more efficient.

[00:49:47] Speaker 04:
And so at every single point along the fuel curve,

[00:49:52] Speaker 04:
this segment of pipeline is more efficient than it was pre-expansion.

[00:49:56] Speaker 04:
So there's no up to the maximum pre-expansion capacity.

[00:50:02] Speaker 04:
The reason why the field curve isn't adequate, though, is that it's being applied to that baseline where we're already paying the triple rates that are based on the assumption that no matter what, our gas is the most expensive.

[00:50:15] Speaker 04:
So if you just look at, let's just say a day where it's 80% of pre-expansion capacity,

[00:50:22] Speaker 04:
you know, there's that 5.4% fuel credit that's applied, but that's applied to a rate that assumes that we're shipping the most expensive gas.

[00:50:29] Speaker 04:
And that rate is based on, you know, not just that day, but all other days, lower, higher, et cetera.

[00:50:34] Speaker 04:
And so in the year under, you know, consideration before the fuel credit, our rate would have been 8.4%, I believe of, and other shippers would have been in the two.

[00:50:45] Speaker 04:
So we're looking at almost quadruple.

[00:50:47] Speaker 04:
The fuel credit is, it's helping a little bit, but it's not getting at that fundamental,

[00:50:52] Speaker 04:
problem because of the way that, you know, exponential math works, right?

[00:50:55] Speaker 04:
You're subtracting an absolute quantity, but our rate is going to always be assigning us the exponentially most expensive gas.

[00:51:04] Speaker 07:
Any questions?

[00:51:05] Speaker 07:
Mr. Rogers, do you have any more questions?

[00:51:07] Speaker 07:
Okay.

[00:51:08] Speaker 07:
Thank you very much.

[00:51:09] Speaker 07:
We kept you up a little bit for your time.

[00:51:10] Speaker 07:
Thank you.

[00:51:11] Speaker 07:
We will give you some rebuttal time.

[00:51:45] Speaker 01:
Good morning.

[00:51:46] Speaker 01:
May it please the court?

[00:51:48] Speaker 01:
I want to start with a point that the panel has reached earlier during petitioners topside.

[00:51:57] Speaker 01:
Interro didn't just pick up spare capacity that was available on the pre-existent system.

[00:52:03] Speaker 01:
Instead, it demanded firm service, and that caused a new compression-only expansion project that was designed and specifically built for Interro to be constructed.

[00:52:15] Speaker 01:
General system shippers, they didn't need or ask for this project.

[00:52:20] Speaker 01:
Their transportation needs were fully satisfied by the pre-expansion system, and they would have continued shipping on that system had this project never been built.

[00:52:29] Speaker 01:
This project was added solely to satisfy Ontario's demand for firm service, which otherwise could not have been accommodated on the pre-expansion system.

[00:52:39] Speaker 01:
Therefore, Ontario's project and its throughput, they are incremental to the pre-expansion system and the general system.

[00:52:47] Speaker 03:
I understand why in a situation like this, Ontario is on the hook for construction costs.

[00:52:54] Speaker 03:
But what is the theory behind why they have to pay incrementally more fuel costs?

[00:53:02] Speaker 03:
Because all the fuel in the system causes fuel costs and everybody who ships on the pipeline sort of drives the cost up the curve.

[00:53:14] Speaker 03:
So a lot of FERC's arguments in its briefs seem to me more generally about something like construction costs.

[00:53:22] Speaker 03:
But I guess I don't see the rationale for why fuel costs should be treated this way.

[00:53:29] Speaker 01:
Well, as this Court and also the Commission have recognized,

[00:53:34] Speaker 01:
The no subsidy requirement that general system shippers' rates not increase as a result of a project that wasn't designed for them, that extends both to the construction costs and the fuel costs that the project consumes.

[00:53:50] Speaker 01:
And as to the point that all shippers along this pipeline contribute to the fuel costs,

[00:54:00] Speaker 01:
In a technical sense, yes, that is true.

[00:54:03] Speaker 01:
But from the perspective of the pre expansion shippers, they had subscribed to a system with a certain set amount of capacity and their expectation was that on average, the fuel costs would be at a certain level.

[00:54:17] Speaker 01:
They didn't anticipate that an expansion project will be built to add 200,000 deca-therms per day of firm service and then incrementally exponentially increase fuel costs across the board.

[00:54:31] Speaker 01:
Therefore, under the no subsidy requirement,

[00:54:34] Speaker 01:
their fuel costs have to remain what they would have been had this project never been built and had in terrorist throughput never been allowed onto the system.

[00:54:42] Speaker 03:
How is that just and reasonable even when new shippers are now shipping on the pipeline or the existing shippers ship a much greater volume on the pipeline?

[00:54:53] Speaker 03:
I mean it seems that circumstances have changed and

[00:54:57] Speaker 03:
I mean, Section 4 filings, you know, they're annual rate filings, right, which assumes that changes in circumstances may change what is a just and reasonable rate.

[00:55:08] Speaker 03:
You know, you don't just sort of put a rate in place and let it go.

[00:55:10] Speaker 03:
It has to be filed every year.

[00:55:11] Speaker 03:
And at this point, where Antero's playing roughly, what, triple or something, the rates that other people are paying, how, you know, how is that consistent with cost causation?

[00:55:24] Speaker 01:
Well, as an initial matter, this is a compression-only expansion, which is rather unique.

[00:55:31] Speaker 01:
Typically, expansions are some mixture of compression and pipeline work that expands the diameter or builds looping.

[00:55:38] Speaker 01:
And so this kind of expansion tends to be very fuel intensive.

[00:55:45] Speaker 03:
I understand that, but that doesn't

[00:55:47] Speaker 03:
Yeah, I mean, I understand how this system works.

[00:55:50] Speaker 01:
Right, right.

[00:55:50] Speaker 01:
And so far as the project facilities are three times more fuel intensive than their pre expansion system, it's honestly not unusual on an expansion, a compression based expansion.

[00:56:04] Speaker 01:
for the incremental fuel rates to be several times higher than the system fuel rates.

[00:56:10] Speaker 01:
It's simply the result of being the incremental shipper on an exponential fuel curve.

[00:56:17] Speaker 03:
And Tennessee, for example, in perpetuity, the incremental shipper.

[00:56:22] Speaker 01:
Because its need for firm service is what caused the project to be constructed and its additional throughput to be accommodated on Tennessee's pipeline.

[00:56:35] Speaker 01:
Without Interro's throughput, the general system shippers' fuel rates, if they're averaged across all shippers, would be exponentially lower.

[00:56:45] Speaker 01:
And so in order to keep them in the same ex-ante position that they were in before this project was built, that exponential increase in fuel rates has to be allocated to Antero.

[00:56:54] Speaker 03:
Forever.

[00:56:56] Speaker 01:
Not forever.

[00:56:57] Speaker 01:
There could come a point in which Antero is able to demonstrate under the commission's test that its project creates greater fuel efficiencies than its fuel costs.

[00:57:09] Speaker 01:
And at that point, Antero could roll in its rates.

[00:57:11] Speaker 03:
And relatedly, again, it's not even I mean, they're very modestly here, not even asking for rolled in fuel cost rates.

[00:57:20] Speaker 03:
They're saying that they are willing.

[00:57:21] Speaker 03:
You know, they understand the need to pay some incremental rates, but that this level of incrementalism is.

[00:57:28] Speaker 01:
The three times difference in fuel rates is, again, not unusual for compression-based expansions and also reflects the much greater fuel intensity of their facilities.

[00:57:42] Speaker 03:
It's not just their facilities.

[00:57:43] Speaker 03:
Everyone is using these facilities.

[00:57:45] Speaker 01:
That's where the crediting mechanism comes in.

[00:57:48] Speaker 03:
The crediting is like a tiny haircut.

[00:57:51] Speaker 01:
But that is what the fuel studies demonstrated.

[00:57:53] Speaker 01:
It mapped out the difference in the fuel consumption

[00:57:57] Speaker 01:
between what the pre-expansion system would have consumed at each throughput level and what the post-expansion, i.e.

[00:58:04] Speaker 01:
the project plus the pre-expansion system, consumes at each throughput level.

[00:58:08] Speaker 01:
And the difference is what is credited back to Ontario.

[00:58:12] Speaker 01:
Therefore, pre-expansion shippers, the general system shippers, they're paying exactly what they would have paid had this project never been built.

[00:58:21] Speaker 01:
You know, Antero is complaining that the crediting mechanism is small.

[00:58:25] Speaker 01:
That's because the fuel efficiency is provided by its project is just not that great.

[00:58:31] Speaker 01:
If the fuel efficiencies were greater, then perhaps those costs could be rolled in.

[00:58:36] Speaker 01:
But because it does not provide an overall benefit, its costs are overall greater than the fuel benefits that it provides, those costs cannot be rolled into general system shippers rates.

[00:58:51] Speaker 07:
To your point that pre-existing customers had sort of an expected fuel cost, a pre-Ontario expected fuel cost pipeline.

[00:59:06] Speaker 07:
But I assume that was not a static expected fuel cost.

[00:59:10] Speaker 07:
That is that to the extent they wanted to increase their own shipments, everyone's rates would go up.

[00:59:19] Speaker 07:
or if new people came in, but unlike Ontario, they could fit within the pre-existing system, that would increase their rates too, right?

[00:59:27] Speaker 07:
It's just there was sort of a cap on how much they would go up given the capacity of the pipeline.

[00:59:33] Speaker 07:
That's correct.

[00:59:34] Speaker 07:
That's correct, but I do wanna- Let me just finish the question.

[00:59:38] Speaker 07:
I do wanna hear your answer.

[00:59:41] Speaker 07:
So why isn't Ontario correct that at least to the extent

[00:59:46] Speaker 07:
that it's unjust and unreasonable to have them pay the higher cost.

[00:59:55] Speaker 07:
That's occasioned by, it may be that Entero's amount even stays stable, but that the increase is actually coming from increases from the pre-existing shippers or new shippers.

[01:00:07] Speaker 07:
So, in that situation, nobody had a reasonable expectation.

[01:00:12] Speaker 07:
No pre-existing shipper had a reasonable expectation that their rate was going to remain.

[01:00:18] Speaker 07:
There's going to be a solid number, and it would be that number every day for 365 days of that year.

[01:00:24] Speaker 07:
they knew going in that there's a capacity for the pipeline.

[01:00:28] Speaker 07:
And at least as long as we stay within that original capacity of the pipeline, their rates could go up based on other people coming in or other people who are already in there increasing the amount of gas that they are transporting, right?

[01:00:45] Speaker 07:
Is that right?

[01:00:46] Speaker 07:
I just like an answer to my question.

[01:00:48] Speaker 07:
They certainly had to reasonably expect

[01:00:52] Speaker 07:
that their rates could go up and down based on what other shippers do, as long as it's within the capacity of the original pipeline.

[01:00:59] Speaker 07:
Is that correct?

[01:01:00] Speaker 01:
Pre-expansion shippers could expect their rates to increase based on other shippers' usage.

[01:01:05] Speaker 01:
But the pipeline, though, it's designed to accommodate peak day capacity.

[01:01:13] Speaker 01:
Peak day is when the demand for natural gas is the greatest.

[01:01:17] Speaker 01:
It's the coldest days of the year, where the throughput is at its highest and it's near or at the maximum capacity.

[01:01:22] Speaker 01:
The thing about peak days is that they are rare.

[01:01:24] Speaker 01:
They are not the average day on a pipeline.

[01:01:28] Speaker 01:
On average, the pipeline's throughput is significantly below peak day capacity.

[01:01:32] Speaker 01:
If it were otherwise, then that pipeline would be in serious trouble.

[01:01:36] Speaker 01:
And so the expectation pre-expansion shippers had was that on average, their throughput would be at a certain level.

[01:01:43] Speaker 01:
And yes, that throughput could increase all the way up to the pre-expansion maximum

[01:01:48] Speaker 01:
But that is on a rare peak day.

[01:01:50] Speaker 01:
If, however, you have an incremental shipper come in and they routinely exponentially increase fuel rates, that's not within the expectations of pre-expansion shippers.

[01:01:59] Speaker 01:
And that's why, because Antero exponentially increases fuel costs for everyone.

[01:02:04] Speaker 07:
Why is that?

[01:02:05] Speaker 07:
Why is it that, so they couldn't, you're saying that they couldn't have contracted to have, I forget what it was, what the capacity was.

[01:02:15] Speaker 07:
Was it like 80%?

[01:02:17] Speaker 07:
Generally operating at 80% for.

[01:02:20] Speaker 01:
I forget what the number is before I don't remember quite, but perhaps you know average capacities somewhere around 70%.

[01:02:32] Speaker 07:
But you know, is there a average capacity cap?

[01:02:37] Speaker 07:
on a pipeline that it has to have so that it always has room for the peak days?

[01:02:42] Speaker 01:
Not that I'm aware of, but if a pipeline is hitting its maximum capacity so frequently that on average it's near that capacity, then it needs another expansion.

[01:02:52] Speaker 01:
So the maximum capacity is an understanding to pre-expansion shippers.

[01:02:57] Speaker 01:
I will sometimes hit this on peak days where it's really cold and a lot of people need natural gas.

[01:03:03] Speaker 01:
Yes, we'll hit this and we'll hit those maximum fuel rates.

[01:03:06] Speaker 01:
But on average, my costs are going to be significantly below that.

[01:03:09] Speaker 01:
And if someone else comes in and pushes those costs routinely day to day higher exponentially, that's not within their expectations.

[01:03:17] Speaker 07:
Okay, but I mean, the point is that there's, I don't think there's any dispute, maybe I misunderstood on Tiro, that it makes sense for them to get the sort of last exponential rate on those peak times, or even the heavy times, I'm not even saying days, but times when things are really going

[01:03:39] Speaker 07:
full bore, but I still don't understand why for all those days when pipeline is operating at a capacity that's even below the pre-existing capacity, even Ontario isn't pushing it up beyond the pre-existing capacity, that they should still have to pay.

[01:04:00] Speaker 07:
Because as long as you're within pre-existing capacity, that would have been with people's expectations, or at least some part of that would have.

[01:04:08] Speaker 01:
Ontario is asking to pay the general system rate at any point at which it is below that pre-expansion maximum.

[01:04:17] Speaker 07:
And so, if you'll think of it... Right, so everybody wouldn't have expected to pay pre-expansion maximum every day.

[01:04:24] Speaker 01:
Right.

[01:04:25] Speaker 01:
It's an asymmetric comparison, very similar to the kind that the commission rejected in that 2016 certificate order.

[01:04:31] Speaker 01:
They're trying to compare the peak day conditions pre-expansion versus current or average day operating conditions under the current system.

[01:04:42] Speaker 01:
And because it wants to have its rates rolled in for every point up until that pre-expansion maximum,

[01:04:50] Speaker 01:
That would be quite a lot, really.

[01:04:52] Speaker 01:
It's asking, I only want to pay incremental rates on those rare days in which the system's throughput is near its maximum.

[01:05:03] Speaker 01:
But on average, it's increasing exponentially fuel costs for everyone most days and not just on those days.

[01:05:12] Speaker 07:
I get that point.

[01:05:12] Speaker 07:
What I'm trying to understand is,

[01:05:14] Speaker 07:
The numbers here, so 70% is sort of, let's just assume that's sort of the normal average.

[01:05:20] Speaker 07:
Obviously 100% will say it's sort of your peak day, but most people would have thought they'd have to pay on peak days.

[01:05:26] Speaker 07:
They're going to have rates some days are going to be close to 100% capacity.

[01:05:31] Speaker 07:
Is there, did the commission grapple with whether there's any room

[01:05:36] Speaker 07:
between that 70 and 100, just to simplify things, the 70 and 100% for some increase.

[01:05:43] Speaker 07:
It has to be that there was some room in there for increase on non-peak but more demanding days.

[01:05:51] Speaker 07:
And so up to 80%, maybe to 90%.

[01:05:54] Speaker 07:
Are you telling me that other than peak days, it never goes above the 70%?

[01:06:00] Speaker 01:
I'm saying on average, because what Ontario is asking for is they only want to pay incremental rates when the average system throughput exceeds the pre-expansion maximum.

[01:06:13] Speaker 01:
And so on average, that's very rarely if ever going to happen.

[01:06:16] Speaker 07:
I understand that.

[01:06:17] Speaker 07:
I completely understand your argument is that because everybody didn't expect that they would be paying sort of the equivalent of running flat out, highest rates all year round.

[01:06:28] Speaker 07:
But the question is, did they expect that there wouldn't be any increase in rates?

[01:06:33] Speaker 07:
No, I don't think that's true.

[01:06:37] Speaker 07:
But does the methodology sort of keep them at that pre-existing average rate as opposed to recognizing that

[01:06:47] Speaker 07:
The pipeline could have admitted another shipper, maybe either another firm shipper, if they just didn't need very much on the pre-existing system.

[01:06:57] Speaker 07:
Or was it not allowed?

[01:06:58] Speaker 07:
Was the pre-existing pipeline at a point where it couldn't let anyone in for a firm shipment commitment?

[01:07:07] Speaker 07:
It could only do interruptible service?

[01:07:09] Speaker 01:
I believe there was some small amount of capacity left over on the pipeline.

[01:07:14] Speaker 01:
Well, then everybody had to expect, at a minimum,

[01:07:19] Speaker 07:
that their rates could have gone up to that increased amount of extra capacity.

[01:07:24] Speaker 01:
But that level isn't defined.

[01:07:27] Speaker 01:
And it's a level of precision that isn't.

[01:07:29] Speaker 07:
Well, you're assuming here that I'm talking one or two points.

[01:07:32] Speaker 07:
But I don't know that.

[01:07:34] Speaker 07:
How do I know from that that, in fact, because new shippers have been allowed to come in.

[01:07:40] Speaker 07:
And existing shippers have been allowed to increase rates.

[01:07:44] Speaker 07:
And how do we know when, in doing that,

[01:07:48] Speaker 07:
they are staying within the, what would have been allowed under the pre-existing system, or they are taking advantage of, and tarot is improved.

[01:07:59] Speaker 07:
How do we know when that line is crossed?

[01:08:02] Speaker 01:
That's on this record.

[01:08:04] Speaker 01:
To address that in two parts, as to new shippers, the record has no evidence that there have been new shippers coming onto the pipeline that have been raising rates beyond what pre-expansion shippers could have expected.

[01:08:19] Speaker 01:
These 100 new contracts that Interim never presented to the Commission

[01:08:25] Speaker 01:
It's just completely unknown.

[01:08:27] Speaker 01:
Are they for service along the same pathway as the project?

[01:08:31] Speaker 01:
The project is only one small portion of Tennessee's overall pipeline, which is 11,800 miles long.

[01:08:38] Speaker 01:
And so it could be contracts for an entirely different part of this pipeline.

[01:08:42] Speaker 01:
It's also not known whether these are contracts for firm or interruptible shippers or if these are extensions or rollovers or if these

[01:08:49] Speaker 01:
But because this is all so, you know, it's it's it's it's it's it's it's it's it's it's it's it's it's it's it's it's it's it's it's

[01:09:04] Speaker 01:
subject to extensive speculation is kind of the point.

[01:09:08] Speaker 01:
Antwerp's failure to raise these arguments earlier and put forth these contracts that it alleged exist in front of the Commission so that all the parties could examine them, they could brief on them, their experts could testify about these contracts, just makes it very inappropriate for us to be trying to delve into the concrete details

[01:09:28] Speaker 01:
for the first time on appeal.

[01:09:31] Speaker 07:
I completely get that point.

[01:09:32] Speaker 07:
That's well taken.

[01:09:33] Speaker 07:
But what I'm trying to understand is what was the range of reasonable expectations on increased fuel costs for the pre-existing shippers?

[01:09:44] Speaker 07:
And it seems like the commission just sort of assumed stasis.

[01:09:48] Speaker 07:
whatever the average was.

[01:09:50] Speaker 07:
But if in fact that was an unrealistic assumption because, and it seems to me it could have been, because pipelines always want to take in as much as they possibly can, making sure they'll still have room to deal with peak days, that some new stuff, some of the increase that has come in, some new shipments that have come in,

[01:10:14] Speaker 07:
are sort of freeloading on Entero's rates because they are, some of them may be within that pre-existing capacity, but then pre-existing shippers had to assume their rates would go up for that amount.

[01:10:31] Speaker 07:
And then if there's others that come in after that, then those folks shouldn't, they have no reliance interest.

[01:10:40] Speaker 07:
And when I say after, it could be pre-existing shippers who increase even more than they otherwise would have.

[01:10:45] Speaker 07:
And so why doesn't the methodology need to allow for

[01:10:51] Speaker 07:
to be reasonable to allow for the fact that people didn't think the average capacity was going to stay exactly as it was.

[01:10:58] Speaker 07:
That's not how this business operates.

[01:11:00] Speaker 07:
And that, in fact, there would be at least increased shipments by some or some new shippers allowed in.

[01:11:08] Speaker 07:
And that's going to increase their rates.

[01:11:15] Speaker 01:
Right, but I think the methodology does allow that by always assigning enter the last curves in every other shipper being assigned what's left over on the field curve.

[01:11:26] Speaker 01:
It means that those general system shippers, their rates are allowing for everything that every throughput on the system that's not enter as to those.

[01:11:37] Speaker 07:
I get that it's allowed to function that way.

[01:11:41] Speaker 07:
But as to those increases, those increases that would have happened, Antero or not, under the pre-existing system, why should Antero get the highest rate as to those?

[01:11:55] Speaker 07:
Why should it have any higher rate than everybody else in the

[01:11:58] Speaker 07:
Because they're incremental to the overall system.

[01:12:01] Speaker 07:
If there is any increase.

[01:12:02] Speaker 07:
They're no more incremental than a new shipper that comes in or an increase by a pre-existing shipper that didn't exist in 2018 when this all started.

[01:12:12] Speaker 07:
They're not incremental as to increases that are beyond the baseline when they joined, but were well within the capacity of the pre-existing pipeline.

[01:12:23] Speaker 07:
That's a margin there.

[01:12:25] Speaker 07:
that that they that that they are not responsible for and that those folks shouldn't there's no reason that those folks should get to pay less than a tarot well i i'm not really sure that these new shippers even exist on this pipeline um but or pre-existing shippers i mean has any pre-existing shipper increased their amount in the last seven years i have to think someone has

[01:12:51] Speaker 01:
But I'll take your point that it's true.

[01:12:55] Speaker 01:
And Tero's fuel costs can increase when general system shippers increase their own throughput on the pipeline.

[01:13:02] Speaker 01:
But Tero's rates are still nonetheless calculated based on its own actual billable volumes that Tero itself ships through.

[01:13:10] Speaker 07:
They're calculated at a different rate.

[01:13:12] Speaker 07:
I'm asking why there should be any difference in the rate

[01:13:16] Speaker 07:
I get that they are paying for their own volume.

[01:13:19] Speaker 07:
It's the rate at which they're paying for those volumes.

[01:13:22] Speaker 07:
And I don't know why they should have a different rate when there are pre-existing shippers or new ones or intermittent ones.

[01:13:31] Speaker 07:
Is that what you call them?

[01:13:32] Speaker 07:
The stand-by folks.

[01:13:35] Speaker 07:
Everyone knows this is going to be coming in, that the pipeline's in the business of wanting to get more customers in.

[01:13:42] Speaker 07:
That's how it makes more money.

[01:13:45] Speaker 07:
And so I'm repeating myself, as to that change, at a minimum, as to that amount of change, there's no reason Ontario should pay a different rate than everyone else.

[01:13:56] Speaker 07:
It's only when

[01:13:57] Speaker 07:
The volumes come in are volumes that couldn't have come in under the pre-existing system.

[01:14:04] Speaker 07:
Could not have come in under the pre-existing system.

[01:14:07] Speaker 07:
Well then, they made it possible.

[01:14:10] Speaker 07:
And we'll put brand new shippers to the side because of the record issues.

[01:14:14] Speaker 01:
Right, right.

[01:14:16] Speaker 01:
Hopefully this can help clarify.

[01:14:17] Speaker 01:
Interior subscribed to 100% of the capacity of this expansion project.

[01:14:22] Speaker 01:
That means that if these other shippers are increasing their throughputs, that's necessarily pre-expansion capacity, because they're not sharing in any of the incremental capacity created by this project.

[01:14:33] Speaker 07:
But it might be more than they could do if you didn't have this increased capacity, because

[01:14:39] Speaker 07:
there would be no, they can now go up to sort of 100% of pre-existing capacity and have no worries that peak days could still be met because you have this increased capacity thanks to Ontario.

[01:14:53] Speaker 07:
And so that margin, so we talked about start at 70%, but let's say they could go up to 80, 85% and still be good to have room for what they need on peak days.

[01:15:03] Speaker 07:
Now they can go up to 100% of pre-existing capacity and still know that they're good for peak days because they've got the antero additional capacity.

[01:15:14] Speaker 01:
But there's no evidence that that is, in fact, what is occurring.

[01:15:20] Speaker 01:
And shippers aren't going to transport their gas for no reason.

[01:15:23] Speaker 01:
They're only going to transport when the demand is there.

[01:15:25] Speaker 01:
And the number of peak days per year, as far as I know, those aren't really changing at all.

[01:15:30] Speaker 01:
And so there's no reason.

[01:15:31] Speaker 07:
That's the problem.

[01:15:33] Speaker 07:
All the rest of the year have shippers increased what they shipped beyond what they were shipping on the pre-existing system.

[01:15:42] Speaker 07:
And why doesn't the methodology need to allow for that?

[01:15:48] Speaker 07:
Because those are times when it's got nothing to do with what Antero has added to the system.

[01:15:54] Speaker 07:
And Antero's fuel is there just like anybody else's.

[01:15:58] Speaker 01:
I take your point that from year to year, if general system shippers increase their throughput, then interiors rate could increase even if it's not changing anything about what it's shipping.

[01:16:08] Speaker 01:
But that cuts both ways.

[01:16:10] Speaker 07:
Anything about what could have been shipped had it not created its new increased compression.

[01:16:17] Speaker 01:
I don't believe so, but I do want to reiterate that this range, what I believe to be a reasonable range of precision, cuts both ways.

[01:16:27] Speaker 01:
So from year to year, if the general system shippers decide to ship less, then Ontario's fuel rates would also decrease by no virtue of its own actions.

[01:16:36] Speaker 01:
It could be shipping the same amount of gas or even perhaps more, and it could be paying a lower fuel rate.

[01:16:42] Speaker 03:
By no virtue of its own actions.

[01:16:44] Speaker 03:
So how is that consistent with cost causation?

[01:16:47] Speaker 01:
It's the reasonable range of accuracy that this methodology presents.

[01:16:52] Speaker 01:
We can't precisely track each ounce of fuel as to who caused the need for that fuel.

[01:16:58] Speaker 01:
Necessarily, there's going to have to be some administrative line drawing.

[01:17:02] Speaker 01:
And what the commission found is that what Tennessee proposed is reasonable within that range.

[01:17:07] Speaker 01:
There's no way to become incredibly precise in tracking each iota of fuel and tracking each shippers.

[01:17:15] Speaker 03:
I was asking for a

[01:17:16] Speaker 03:
precise point, just something that is more reasonable than the current rate.

[01:17:23] Speaker 01:
But the current rate, as a commission found, is reasonable.

[01:17:27] Speaker 01:
It is, granted, not the most precise out there, but that's not what section four requires.

[01:17:33] Speaker 03:
To some of Judge Mallett's questions, I mean, wasn't FERC required to think about these questions of how the other shippers affect where we are in the fuel curve in terms of setting the rates?

[01:17:45] Speaker 01:
It did think about that.

[01:17:46] Speaker 01:
In the initial decision, the ALJ recognized that other shippers could, in fact, increase Ontario's rates if they shipped more.

[01:17:55] Speaker 01:
But again, that was within a reasonable range based on a, again, a reasonable approximation

[01:18:02] Speaker 01:
of these fuel cost allocations by Tennessee's methodology.

[01:18:06] Speaker 01:
It's not going to be precise in tracking every ounce of fuel and every difference in shippers usage patterns, but the commission doesn't require that in its cost allocation methodologies and especially for fuel cost causation because

[01:18:18] Speaker 01:
It's not really simple to determine who's causing what amount of fuel to be burned.

[01:18:23] Speaker 01:
It's first of all, not a linear relationship, but it's also impacted by several different physical and engineering technical factors.

[01:18:31] Speaker 01:
And so even if we were able to accommodate some increase

[01:18:37] Speaker 01:
in shipper usage up to an expected average line, it's also possible that the fuel usage would not actually reach that due to differences in how that fuel is flowing through the system, the environment, altitude, temperature.

[01:18:56] Speaker 01:
There's just so much that goes into this.

[01:18:58] Speaker 03:
I wonder if that is related to the basic question about whether this assigning Antero the last incremental cost is just and reasonable.

[01:19:09] Speaker 03:
Yes, of course, there are lots of factors that affect where you are on the fuel cost curve.

[01:19:15] Speaker 03:
But that has nothing to do with the basic rationale that Antero's always assigned the last fuel cost, like the last and most expensive fuel cost.

[01:19:24] Speaker 03:
I don't think those things, I mean, how are those things related?

[01:19:27] Speaker 03:
I guess I should ask.

[01:19:28] Speaker 01:
Because it's the commission's balancing of two somewhat related but at times competing interests of the no subsidy requirement and cost causation.

[01:19:40] Speaker 01:
Because the commission recognized that Ontario is the one whose throughput is incremental to the system who caused the need for this project that allowed Tennessee's fuel consumption to reach the top of the curve.

[01:19:52] Speaker 01:
But it's a sign that difference between what the fuel consumption would have been with Antero's throughput and without.

[01:20:01] Speaker 01:
And so that is the commission's best and reasonable approximation of this fuel consumption pattern.

[01:20:09] Speaker 01:
To ask for something more precise than that, I don't believe is required by cost causation.

[01:20:16] Speaker 07:
Begging the question of what their costs would have been without Antero.

[01:20:20] Speaker 07:
And if their costs, I mean, I don't, I mean, shippers have to assume that other people might ship more.

[01:20:27] Speaker 07:
That you can't assume for a year that nobody's gonna change, that everything's gonna remain exactly the same as last year's average.

[01:20:37] Speaker 07:
And so what they would have expected to pay or recognize was a range of changes that could happen

[01:20:48] Speaker 07:
We're not talking about 1% and 2% here.

[01:20:50] Speaker 07:
We're talking about 10% to 15%.

[01:20:54] Speaker 07:
Maybe it's even 20%.

[01:20:55] Speaker 07:
I don't know how much they need for the peak days.

[01:20:58] Speaker 07:
But if they could have gone up to general operating on 85% instead of 70%.

[01:21:04] Speaker 07:
And most of the days, everything's in that 70% to 85% range.

[01:21:12] Speaker 07:
then I still don't understand why it was reasonable to make Antero on those 70 to 85% days pay as though it's at max capacity on its new system.

[01:21:31] Speaker 07:
I just don't understand that.

[01:21:33] Speaker 07:
I don't know why its fuel costs should be any different and why, and yes, maybe they're the ones that happen to be, maybe their fuel is the one that is pushing people from 70 to 85% or maybe not.

[01:21:48] Speaker 07:
Maybe they're responsible for 3% and some pre-existing shippers who are increasing their amounts are responsible for a 5% and there's a new,

[01:21:58] Speaker 07:
a shipper coming in, either firm or bystander, and they're increasing it, but that's all within the normal expectations of shippers.

[01:22:08] Speaker 07:
And so it seems to me that Perk had to know about, has to know how these things operate.

[01:22:15] Speaker 07:
And so when you're concerned about protecting reliance interests, it can't be a freeze everything in time approach.

[01:22:24] Speaker 07:
And if there's only certain times when in fact,

[01:22:28] Speaker 07:
The presence of Antero's fuel is going to be made possible because of Antero's project.

[01:22:34] Speaker 07:
Those are the times when Antero should be paying its costs, the costs, the increased costs as a result of its presence on the system.

[01:22:45] Speaker 07:
But if it turns out a third of the year, a half of the year, its presence isn't doing that,

[01:22:53] Speaker 07:
then I don't understand why it's fair to assign them the higher costs.

[01:23:00] Speaker 01:
Well, the Tennessee's methodology does accommodate that flexibility that you mentioned.

[01:23:06] Speaker 01:
General system shippers ship more, they increase their own throughput.

[01:23:10] Speaker 01:
They're assigned a larger portion of the fuel curve too.

[01:23:13] Speaker 07:
It's just that- It's completely different.

[01:23:15] Speaker 07:
This is about the rate, right?

[01:23:18] Speaker 07:
They'll be at a completely different rate though.

[01:23:20] Speaker 07:
To have more at 2.8% is very different than having more fuel at 7.8%.

[01:23:28] Speaker 01:
But their rates will also increase because of their increased throughput.

[01:23:32] Speaker 07:
So will land tariffs.

[01:23:34] Speaker 01:
Ontario's rates will increase too, but the rate at which the rates increase.

[01:23:39] Speaker 07:
Why should the rate be the same for everybody who's in that, and I'm making these numbers up because I just didn't see for analyzing, in the 70 to 85% range, why should Ontario's rates be different than anybody else's?

[01:23:50] Speaker 07:
Everyone's rates will go up, but they'll all go up the same amount.

[01:23:56] Speaker 07:
Because at that point, the increase in cost has nothing to do

[01:24:01] Speaker 07:
with an antero's new project it may have to do with the fact that antero is shipping fuel but they don't care if it's antero shipping fuel or company x that's shipping fuel they all know our price rates can go up

[01:24:18] Speaker 07:
X percentage any given day based on what other people ship.

[01:24:22] Speaker 07:
So it's only when the increase in volume, which means the increase in their costs, is because we're doing more than we could have without Antero's system.

[01:24:34] Speaker 07:
It's not just Antero's presence, it's fuel.

[01:24:37] Speaker 07:
It's that it's system that it has created.

[01:24:41] Speaker 07:
It's new project, it's new capacity.

[01:24:43] Speaker 07:
It's only when that kicks in

[01:24:46] Speaker 07:
and say, all right, well, then you're going to pick up the tap.

[01:24:50] Speaker 01:
But at no point are pre-expansion shippers shipping more than they could have without the project.

[01:24:57] Speaker 01:
Their throughput is not going to exceed the pre-expansion maximum capacity.

[01:25:04] Speaker 01:
And so if they're shipping more.

[01:25:07] Speaker 01:
That's the point.

[01:25:08] Speaker 07:
Without NTRO being there, they couldn't go up to max capacity.

[01:25:13] Speaker 07:
They had to leave room for peak days.

[01:25:16] Speaker 01:
No, they could go up to maximum capacity.

[01:25:20] Speaker 07:
I thought you had begun this whole argument by saying, no pipeline runs at max capacity all the time.

[01:25:25] Speaker 07:
They'd be in real trouble, because then they wouldn't have room for peak days.

[01:25:28] Speaker 01:
But now you're saying- No, they can reach the same capacity.

[01:25:32] Speaker 01:
It's just that if you're constantly at max capacity, that seems like there's a lot of- If a pre-existing shipper is increasing amount, now if they're just doing it for a short time, that's fine.

[01:25:45] Speaker 07:
But if they say, hey,

[01:25:47] Speaker 07:
We've got a new customer, so we're going to increase our capacity 10%, and we're going to do that on a sustained basis.

[01:25:56] Speaker 07:
Could they have done that under the pre-existing system?

[01:25:59] Speaker 01:
only if there was that firm capacity already available.

[01:26:03] Speaker 07:
And if that capacity was available, then there's no reason that their 10% increase should be at one rate.

[01:26:11] Speaker 07:
And if Antero shows up that day and says, look, for the next six months or year, we've got a contract where we're going to increase capacity 10%.

[01:26:21] Speaker 07:
We're going to use that unused capacity on the pre-existing system.

[01:26:26] Speaker 07:
There's no reason that entero versus pre-existing shipper versus new company acts should have any different rate.

[01:26:35] Speaker 01:
They're only acting within the limits of their own contract.

[01:26:38] Speaker 01:
They're not exceeding the capacity that they agreed to with the pipeline.

[01:26:44] Speaker 01:
And so I understand your concern is if Interro's not changing anything and these other shippers are increasing their throughput, then it shouldn't.

[01:26:53] Speaker 01:
It concerns you that Interro's rate might increase by virtue of being the last flows on the curve.

[01:27:00] Speaker 01:
But again, it just.

[01:27:03] Speaker 01:
Without any usage.

[01:27:04] Speaker 07:
of its system than it created.

[01:27:08] Speaker 01:
Right.

[01:27:08] Speaker 01:
But that still falls within a reasonable range of precision because, like I mentioned, it cuts both ways.

[01:27:14] Speaker 01:
The opposite is true as well.

[01:27:16] Speaker 07:
And within that... That's the problem is when other shippers go down, their rate, I mean, their bottom line dollar may go down, but they're going to go down a heck of a lot slower than everyone else because they've got such a higher rate.

[01:27:31] Speaker 01:
interest rate is going to go down if general system shippers decrease their uh their throughput and but not at the same rate as others i mean it would actually decrease at this same rate as it increases it's just the reverse paying a 50 tax and judge rao is paying a 35 tax and they go well next year we're going to reduce everyone's rates by

[01:27:54] Speaker 07:
3%, like mine goes down, but it's still way higher than hers.

[01:27:58] Speaker 07:
And if there's no rational reason for us to have a different rate, I still feel quite put out.

[01:28:06] Speaker 01:
But the rational reason is that you were the but for cause for the project.

[01:28:10] Speaker 07:
In the range that I'm talking about, we're dealing with pre-existing capacity.

[01:28:15] Speaker 01:
Right?

[01:28:15] Speaker 07:
Right.

[01:28:16] Speaker 07:
They aren't causing anything there.

[01:28:17] Speaker 07:
Right.

[01:28:19] Speaker 07:
And I think maybe if I frame it.

[01:28:20] Speaker 07:
So there needs to be a connection between their usage and the need for the new capacity to justify the increased rate.

[01:28:30] Speaker 07:
And that's the argument in this case, that there's been a break.

[01:28:34] Speaker 07:
That the new capacity, we have those frigging generators turned off for the day, for the month.

[01:28:41] Speaker 07:
And we're still going to get charged more.

[01:28:46] Speaker 01:
I mean, it'll only get charged if it actually uses its capacity, but, you know.

[01:28:52] Speaker 07:
It wants to use the pre-existing capacity.

[01:28:54] Speaker 01:
Right.

[01:28:55] Speaker 01:
But I think, just to go back a little bit, when I say it cuts both ways, it does to the same extent as well.

[01:29:02] Speaker 01:
So, say, you know, Antero doesn't change its throughput and it

[01:29:07] Speaker 01:
its rate increases by 10% because other shippers ship more.

[01:29:10] Speaker 01:
The reverse is also true that if other shippers ship less by the same amount, then its rate's going to decrease by 10% by virtue of, you know,

[01:29:19] Speaker 01:
just other shippers changing their behavior patterns.

[01:29:23] Speaker 01:
And it's, you know, it's not going to be a precise relationship, but the act of trying to track these shipper usage patterns and delineate, you know, how in terrorist rates should increase or not increase based on who's causing increased throughput, that's

[01:29:41] Speaker 01:
That would be a very, um, a very unduly intricate in burdensome mechanism.

[01:29:47] Speaker 01:
I'm not really even sure how that would particularly happen.

[01:29:51] Speaker 07:
Uh, but the alternative on remand, if it were sent back to say, look, you don't seem to be grappling with the preexisting capacity on this pipeline and why, and Tara should pay a different rate as long as everyone's still using preexisting capacity.

[01:30:12] Speaker 07:
And so this differential may make sense when to get their gas onto the system, they have to use the new system they constructed, new compression is needed.

[01:30:30] Speaker 07:
That's fine.

[01:30:31] Speaker 07:
But until I hit that point, and somebody can figure out that, some expert, I'm sure there are experts you could pay to figure out what that point is and say, once the pipeline's operating at X capacity,

[01:30:43] Speaker 07:
That's it, because no reasonable pipeline would subscribe to any more gas at that point.

[01:30:51] Speaker 07:
And so any capacity operations over that.

[01:30:54] Speaker 07:
So it's just a mathematical formula based on the amount of capacity that's being used.

[01:31:04] Speaker 07:
And someone else can figure out whether you do that daily, monthly, or you go and do the true up at the end of the year, however you do that.

[01:31:09] Speaker 07:
But it seems to me at that point,

[01:31:13] Speaker 07:
If it's untenable, I'm sure experts will weigh in on that, but otherwise it's hard to know why their gas costs more than pre-existing shipper X's decision to increase and do 10% more.

[01:31:31] Speaker 07:
On its part, right?

[01:31:33] Speaker 01:
Maybe if I frame it this way, this might help a little.

[01:31:36] Speaker 01:
Anteros expansion was built under the assumption that the pre expansion system was completely maxed out.

[01:31:45] Speaker 01:
Their capacity was already fully subscribed and so.

[01:31:49] Speaker 07:
No, I thought.

[01:31:50] Speaker 01:
No, under the assumption.

[01:31:51] Speaker 01:
That's how the facilities are designed.

[01:31:54] Speaker 01:
And so one approach Tennessee could have taken was to say, you know, we're just going to always keep you on this spot on the fuel curve at the 100% pre maximum expansion and, you know, and have your fuel

[01:32:11] Speaker 01:
kind of start there on the curve, you know, set you here.

[01:32:14] Speaker 01:
And if you ship more, we'll calculate your rates starting from this minimum level.

[01:32:19] Speaker 01:
And if you ship less, your rates will also decrease.

[01:32:22] Speaker 01:
But again, using this same minimum level.

[01:32:26] Speaker 01:
But

[01:32:26] Speaker 01:
Tennessee instead decided not to hold Ontario to this assumption that the pre-expansion system was going to be maxed out and would let its rates sort of decrease and rise with changes in shipper behavior by other shippers.

[01:32:43] Speaker 01:
That results in lower fuel rates for Ontario.

[01:32:48] Speaker 01:
If

[01:32:49] Speaker 01:
Tennessee had stuck with the original assumption under which these facilities were designed, which is that the pre-expansion facilities are completely maxed out, then Antero would be paying higher rates.

[01:33:01] Speaker 01:
It's just because that it allows Antero's rates to sort of rise and fall on that curve along with everyone else's that it feels, I think,

[01:33:10] Speaker 01:
um to to go against cost causation but you know a rate in which was the pre-existence as a matter of fact maxed out that was not my understanding

[01:33:21] Speaker 01:
I don't believe that capacity was fully subscribed.

[01:33:23] Speaker 01:
I don't know what was left over.

[01:33:25] Speaker 07:
Maybe artificial to create, but that's how ideology based on that assumption that I don't know how that would solve the problem.

[01:33:32] Speaker 07:
That would probably make it worse.

[01:33:34] Speaker 01:
That's how the project was designed.

[01:33:35] Speaker 01:
However, that, you know, the horsepower associated with it was under the assumption to be readied because on some days they're because sometimes it may well be.

[01:33:45] Speaker 07:
at or near max capacity, and they still want to be able to get their gas in.

[01:33:49] Speaker 07:
So that makes sense for them as an engineering matter to design it that way, but as an engineering matter is very different from a methodological matter of charging rates when, if it's true, that the majority of the year, it's not maxed out.

[01:34:04] Speaker 01:
But Itero didn't subscribe to a mixture of pre-expansion capacity and its project capacity.

[01:34:09] Speaker 01:
Its precedent agreement is just for the expansion projects capacity.

[01:34:14] Speaker 01:
And so what Tennessee is effectively doing is treating them as if they had some part of this pre-expansion capacity, thus letting them pay lower rates than they otherwise would have if it just assumed.

[01:34:24] Speaker 01:
Are they using their times part of the pre-expansion capacity?

[01:34:26] Speaker 07:
I mean, I don't know how we can sort of differentiate this, but again, just assume their compressors are off.

[01:34:30] Speaker 07:
There are days when they can get whatever gas they want to get in and still be within pre-expansion capacity.

[01:34:36] Speaker 01:
Yes, there are days in which that's possible.

[01:34:40] Speaker 01:
I don't know as to the frequency, but there are days where that does happen.

[01:34:44] Speaker 07:
But let's assume now if it were freakishly uncommon, that would be important to know.

[01:34:50] Speaker 07:
But if, in fact, it's not uncommon, then it seems artificial to calculate a rate on the assumption that they are never using

[01:34:59] Speaker 07:
the pre-existing capacity and instead must always be treated as using their own creative capacity.

[01:35:07] Speaker 01:
I don't believe that's artificial, because if they had subscribed to some of the pre-expansion capacity, the project would have been smaller.

[01:35:15] Speaker 01:
It wouldn't have been 200,000 decathermis per day of firm capacity.

[01:35:19] Speaker 01:
And so by allowing them to have their weight treated as if they are sharing in some of that pre-expansion capacity, that actually puts them in a better position than they otherwise would have based on how this project was designed.

[01:35:33] Speaker 05:
I'm going to ask a question about

[01:35:36] Speaker 05:
the nature of enteros use.

[01:35:43] Speaker 05:
In other words, we don't know the details of the existing shippers contracts, but it could well be that there are provisions in those contracts that not only protect them, but make it clear that their rates can go up and down and either in a section four, section five proceeding and on other grounds.

[01:36:06] Speaker 05:
These shippers always want to be sure that they have whatever firm capacity they may need, whether it's in July or December.

[01:36:23] Speaker 05:
And that could vary, obviously.

[01:36:28] Speaker 05:
But they're paying in part for that reserved firm capacity

[01:36:35] Speaker 05:
that may not be used 365 days a year.

[01:36:41] Speaker 05:
All right, so that's their guarantee when they enter into this contract.

[01:36:47] Speaker 05:
So, and Taro comes along and says, it wants firm capacity.

[01:36:54] Speaker 05:
And in my hypothetical, the pipeline says all of our firm capacity is under contract.

[01:37:03] Speaker 05:
It may not be

[01:37:04] Speaker 05:
being used 365 days a year, but other shippers have already paid for it, or we have contracts with them where they're going to pay through their annual rates.

[01:37:20] Speaker 05:
I get that, but I want to be clear what it means when we say, unlike existing shippers, and maybe I've misunderstood this,

[01:37:34] Speaker 05:
And Tarot's compression use is three times greater than what existing shippers use is.

[01:37:51] Speaker 05:
And please correct me if I'm wrong, but I understood that was something, just the different nature of the operations.

[01:38:02] Speaker 05:
that causes and terrors rates to be so much higher because of this three times compression use.

[01:38:13] Speaker 05:
And so their rates increase exponentially.

[01:38:18] Speaker 05:
So conceptually, it's not as though the pre-existing pipeline had any capacity that was available

[01:38:31] Speaker 05:
for and terror.

[01:38:35] Speaker 05:
So the commission agreed it could build this new.

[01:38:39] Speaker 05:
And some of our questions, it seems to me, are pushing back against our notion that, well, you pay for construction, but isn't fuel different, because we all pay the same for fuel.

[01:38:51] Speaker 05:
My understanding was that was not quite the situation, at least, that was presented to the commission.

[01:39:00] Speaker 05:
I don't know what else might have been presented, but at least what I understood it was, and Taro wasn't contesting any of what I just said, other than the fact that its rates were too high.

[01:39:18] Speaker 05:
And so the response of the commission was to Tennessee, let's work on this.

[01:39:23] Speaker 05:
And so you had competing experts and they came up with this credit system.

[01:39:30] Speaker 05:
And that's just not good enough, says NTERA.

[01:39:36] Speaker 05:
But I need to be clear that you say there are two policies.

[01:39:43] Speaker 05:
There's a 1990 policy.

[01:39:45] Speaker 05:
And I understand that in the sense that the existing shippers have already contracted for 100% of Tennessee's firm capacity.

[01:39:58] Speaker 05:
But I want to understand

[01:40:03] Speaker 05:
Is it because of the nature of Antero's use of its part of the system, namely the expansion system, is just different so that that's why its rates increase exponentially?

[01:40:19] Speaker 05:
I'm just not clearing my own mind conceptually about I understand why it pays for the construction.

[01:40:28] Speaker 05:
I understand why it pays for the fuel it uses.

[01:40:32] Speaker 05:
But I'm not clear why it's three times greater than an existing shipper.

[01:40:38] Speaker 01:
It's due to the exponential nature of the fuel curve.

[01:40:42] Speaker 01:
So if we had a linear fuel curve, then none of this would matter.

[01:40:47] Speaker 05:
My understanding is that's not unique to Antero.

[01:40:56] Speaker 01:
That's correct.

[01:40:57] Speaker 01:
The exponential nature of the fuel curve is not necessarily unique to this pipeline.

[01:41:04] Speaker 01:
It's perhaps possible that the curve is more

[01:41:09] Speaker 01:
intensely sharply curved upwards than other exponential pipelines.

[01:41:15] Speaker 01:
But the general exponential nature of a fuel curve is seen on other pipelines as well.

[01:41:21] Speaker 01:
But it also explains why its fuel rates are three times higher.

[01:41:26] Speaker 01:
Because, for example, if Ontario, you know, if its throughput adds 11% to the system, it potentially can cause

[01:41:36] Speaker 01:
something like a 23% increase for fuel usage.

[01:41:41] Speaker 01:
So it's not a commensurate 11% throughput, 11% increase in fuel usage.

[01:41:47] Speaker 01:
It's just so much higher.

[01:41:49] Speaker 01:
And to account for that exponential nature of the increase, that's all factored into Antero's fuel rate to keep the pre-expansion shippers at the rate that they would have been

[01:42:01] Speaker 01:
had Antero not join the system.

[01:42:04] Speaker 01:
And to your second question about the project facilities, there are three times more fuel intensive than the pre-expansion system because they're compression only.

[01:42:14] Speaker 01:
The pre-expansion system is this mixture of pipeline and compressors.

[01:42:19] Speaker 01:
And so when you have

[01:42:22] Speaker 01:
that sort of combination of structures, it's not just entirely compressors that are consuming huge amounts of fuel.

[01:42:33] Speaker 01:
And the nature of Ontario's use, you know, it's that

[01:42:39] Speaker 01:
It was added to the system.

[01:42:42] Speaker 01:
I'm only by virtue of this project that was built specifically for Ontario.

[01:42:48] Speaker 01:
And so it could never have joined this system.

[01:42:51] Speaker 01:
Otherwise, and because the pipeline has expanded overall

[01:42:57] Speaker 01:
the exponential increase in fuel usage that Antero's throughput causes, that is reasonably allocated to Antero so that the rates of pre-expansion shippers don't increase.

[01:43:10] Speaker 01:
If we had assigned Antero some point lower on this exponential fuel curve, then pre-expansion shippers would be paying higher rates than they would have absent this project.

[01:43:21] Speaker 01:
And that goes against the commission's no subsidy requirement.

[01:43:25] Speaker 07:
be absent this project or would be absent antero's gas being present in the system it's both because antero's gas was only added to the system there's times when it could just be a higher rate due to the presence of antero's gas in the system here it's both because antero couldn't have joined if this project wasn't built when you say um

[01:43:47] Speaker 07:
I just want to clarify one fact thing when you say, is it true that 100% of firm capacity was already taken at the time Antero showed up, or was a problem that there was some firm capacity left, but not remotely enough for what Antero needed?

[01:44:09] Speaker 01:
I believe there was some small amount of firm capacity left nowhere near the amount that Ontario needed.

[01:44:15] Speaker 01:
But I think Tennessee could probably speak more specifically to the extent of that.

[01:44:21] Speaker 01:
But that just feeds into the fact that Ontario couldn't have joined otherwise.

[01:44:27] Speaker 07:
I understand.

[01:44:28] Speaker 06:
Any other questions, Judge Rogers?

[01:44:30] Speaker 01:
No, thank you.

[01:44:31] Speaker 06:
All right.

[01:44:32] Speaker 06:
Thank you very much for your help.

[01:44:33] Speaker 06:
Thank you.

[01:44:50] Speaker 00:
Good morning.

[01:44:51] Speaker 00:
May it please the court, Paul Corman for the interveners.

[01:44:53] Speaker 00:
I apologize in advance for the cough.

[01:44:56] Speaker 00:
I want to go back to something from an hour ago, and then I'm going to go right back to the capacity question.

[01:45:00] Speaker 00:
There's no surprises here.

[01:45:02] Speaker 00:
In the 2018 filing, which is in the joint appendix, the fuel rate for Ontario was double.

[01:45:10] Speaker 00:
That's on JA 1176.

[01:45:12] Speaker 00:
Now, not all of the old filings are in the record, but the 2020 filing is in the record, JA 1044.

[01:45:18] Speaker 00:
and the fuel rate filing there was triple.

[01:45:20] Speaker 00:
So again, there's no surprise.

[01:45:21] Speaker 00:
The commission told them, and Tennessee frankly, in the certificate proceeding, the fuel rate has to be incrementally priced to avoid the no subsidy rule.

[01:45:30] Speaker 00:
Now on the capacity question, this case is actually governed by a joint stipulation of facts entered into before the hearing with the presiding administrative law judge.

[01:45:41] Speaker 00:
And you can find the joint stipulation on roughly page 504 of the joint appendix.

[01:45:47] Speaker 00:
It is a stipulated fact that this project created the 200,000 deca-therms of capacity that Entero is using.

[01:45:56] Speaker 00:
It allows Tennessee to transport the Entero gas.

[01:46:00] Speaker 00:
So without the project, there is no Entero.

[01:46:05] Speaker 07:
Put that back in terms of my question, and that is at the time, on the pre-existing system,

[01:46:14] Speaker 07:
Was firm capacity maxed out or it just wasn't going?

[01:46:18] Speaker 07:
I mean, they have a high volume they need firm capacity for.

[01:46:21] Speaker 07:
Was it that it was too small to accommodate what they needed?

[01:46:25] Speaker 00:
I believe it was maxed out, Your Honor, and I was scrambling to try to find the exact answer.

[01:46:30] Speaker 00:
But actually, based on the stipulation, I don't think it matters because without the project, they don't exist.

[01:46:36] Speaker 07:
Okay, but if it does matter, is that information you can provide the court after argument?

[01:46:41] Speaker 00:
I will double check, Your Honor.

[01:46:42] Speaker 00:
I can check this afternoon.

[01:46:44] Speaker 07:
Assuming if it's somewhere in a record somewhere.

[01:46:46] Speaker 00:
I will check the record.

[01:46:47] Speaker 07:
I believe it is, but... In one of these 2018 to 2021 years?

[01:46:53] Speaker 00:
Yes.

[01:46:56] Speaker 00:
So, the pre-existing shippers, everybody knows fuel rates go up, fuel rates go down.

[01:47:03] Speaker 00:
As you pointed out, at different times a year, it's going to have different intensities.

[01:47:07] Speaker 00:
And it's an annual average.

[01:47:09] Speaker 00:
The tariff number doesn't float.

[01:47:12] Speaker 00:
It stays there for the year.

[01:47:13] Speaker 00:
And then at the end of the year, we true up, we true down.

[01:47:17] Speaker 00:
Everybody understands that.

[01:47:19] Speaker 00:
The pre-existing shippers rates go up and go down based on what is going on on the pre-existing system.

[01:47:27] Speaker 00:
Because Interro could not ship on the pre-existing system because we created this capacity for

[01:47:33] Speaker 00:
So their volume... Couldn't ship firm.

[01:47:36] Speaker 00:
Could not ship firm.

[01:47:37] Speaker 07:
But they could have shipped, I keep calling it by and standard.

[01:47:40] Speaker 00:
Interruptible.

[01:47:41] Speaker 00:
Absolutely, they could have shipped interruptible, your honor, but they chose firm service.

[01:47:48] Speaker 00:
Okay.

[01:47:48] Speaker 00:
So that's true.

[01:47:50] Speaker 07:
So that means that for all the pre-existing customers, where I assume some of which had firm capacity commitments, they couldn't have gotten any.

[01:47:59] Speaker 00:
Correct.

[01:48:02] Speaker 00:
As you know, some days you're full, some days you're not.

[01:48:06] Speaker 00:
But on the days that fall on firm capacity, the interruptible shippers don't ship.

[01:48:09] Speaker 00:
They chose firm capacity.

[01:48:12] Speaker 00:
They chose to execute a precedent agreement knowing they were signing up for a compression-only project.

[01:48:19] Speaker 00:
They understood that.

[01:48:21] Speaker 00:
Now, we talk about this rate being triple.

[01:48:24] Speaker 00:
There are cases cited in our brief.

[01:48:27] Speaker 00:
where I think it's an Algonquin case, where the fuel rate on one path is seven times the rate, the general system rate, another one where it's nine times.

[01:48:36] Speaker 00:
The incremental fuel rate is just a function of math.

[01:48:39] Speaker 00:
If you look at the fuel curves, they're in the record, that the further out you go,

[01:48:46] Speaker 00:
fuel and use increases exponentially.

[01:48:48] Speaker 00:
That's not a Tennessee issue.

[01:48:50] Speaker 00:
That's just a hydraulic fact.

[01:48:52] Speaker 00:
It's been explained to me by engineers many times.

[01:48:55] Speaker 03:
Mr. Corbin, why does the Tennessee pipeline have standing here as an intervener?

[01:49:01] Speaker 00:
Because it's our rate, Your Honor.

[01:49:02] Speaker 03:
Well, it's your rate.

[01:49:04] Speaker 03:
But I mean, the pipeline is indifferent as to whether Ontario pays part of the rate or the existing... I'm not sure we... What's the injury?

[01:49:14] Speaker 00:
We're not...

[01:49:16] Speaker 00:
At the moment, we're not injured.

[01:49:17] Speaker 00:
We're not an opponent.

[01:49:19] Speaker 00:
We're just an intervener on the side of the commission.

[01:49:21] Speaker 03:
But under our precedence, you have to have standing to intervene on either side.

[01:49:25] Speaker 00:
Well, I think there is a risk.

[01:49:28] Speaker 00:
There's a potential risk to Tennessee that this shakes out in a way in which Tennessee ultimately might not fully collect its fuel costs.

[01:49:35] Speaker 00:
Remember, the commission's policy is Tennessee should be fuel neutral.

[01:49:40] Speaker 00:
And we also have an interest here.

[01:49:42] Speaker 00:
And I'm also here, by the way, Your Honor, for National Fuel Gas Distribution, who is one of the other customers on the system who would have to pay.

[01:49:50] Speaker 03:
So National Fuel Gas Distribution Corporation is another distributor.

[01:49:55] Speaker 00:
Yes.

[01:49:55] Speaker 03:
So they would have to pay more.

[01:49:56] Speaker 00:
They'd pick up the check.

[01:49:57] Speaker 03:
OK, so their injuries are a little more self-evident than people see.

[01:50:02] Speaker 00:
And we are here to protect the interest in adjusting reasonable rate and also, as I said, not run the risk.

[01:50:10] Speaker 07:
I'm not quite sure how you can be here as Tennessee, who is neutral as to what the rates are, as long as the fuel costs are covered, but also representing someone who has an interest in keeping their prices lower, even if that's at the expense of Ontario.

[01:50:30] Speaker 00:
The Court encourages single briefs from interveners, Your Honor, and we're both interveners in support of the Commission.

[01:50:35] Speaker 00:
And I would point out that National Fuel and the others who, many of whom participated below, have not objected to the new fuel crediting mechanism, which is designed to make sure that there's no subsidy either way.

[01:50:47] Speaker 00:
So that the existing shippers don't have to pay for Interro service, and Interro doesn't have, and in turn Interro is not subsidizing them.

[01:50:57] Speaker 00:
I also want to, for a minute, go on this wildly inconsistent point about the commission's policy.

[01:51:03] Speaker 00:
The commission's policy on incremental fuel

[01:51:05] Speaker 00:
and extremely consistent.

[01:51:09] Speaker 00:
If there is even a de minimis increase in the fuel rate, it's incrementally priced because the Commission's policy is a project has to stand without a subsidy from an existing ship.

[01:51:22] Speaker 00:
The subsidy is a rate subsidy.

[01:51:24] Speaker 00:
construction costs subsidy may be bigger, but a fuel rate subsidy is just as much of a subsidy.

[01:51:32] Speaker 07:
If there's times when there's times on the system when you get to your indifference, the costs to the system are exactly the same, whether it's anterogas coming in or national gas increasing its own capacity by 10%.

[01:51:52] Speaker 07:
Why?

[01:51:53] Speaker 07:
in that situation, all of which is within the pre-existing capacity system, why does it make any sense for their rate to be different?

[01:52:01] Speaker 00:
They have no rights to the pre-existing capacity system.

[01:52:04] Speaker 00:
Their rights are only above.

[01:52:06] Speaker 00:
So they're not paying 7.62%.

[01:52:11] Speaker 00:
The base rate plus no rights.

[01:52:13] Speaker 07:
I mean, they certainly would come in and use the by standing space, right?

[01:52:18] Speaker 00:
Oh, they could buy under the situation where now, yes, they have no, but they could come in.

[01:52:22] Speaker 00:
They could have come in to buy if there had been capacity.

[01:52:25] Speaker 07:
How do we know at any particular day?

[01:52:28] Speaker 07:
It's May and they say, I want to transport this much and there's room on the system to do it.

[01:52:32] Speaker 00:
They could come in as an interruptible shipper on the pre-existing system.

[01:52:36] Speaker 00:
if they wanted to.

[01:52:36] Speaker 07:
When they put fuel in, it doesn't have a name tag that's interruptible.

[01:52:43] Speaker 07:
It's like there's capacity to put it in, we're putting it in.

[01:52:46] Speaker 00:
But they're paying for a firm service.

[01:52:48] Speaker 00:
So Tennessee has to provide that service each and every day, regardless of operating conditions, for an interruptible shipper

[01:52:56] Speaker 00:
If they had chosen to do that and paid the lower rate, lower fuel rate, they would have run the risk of being interrupted.

[01:53:05] Speaker 00:
But here they wanted firm service, so there's this increment of compression that was built to satisfy them.

[01:53:12] Speaker 00:
The record's clear that it takes three times as much as three times the energy to move the entero increment as it does the average system gas.

[01:53:25] Speaker 00:
The system, Your Honor, the system always is, every annually, it's a roughly, let's say 75% lower.

[01:53:34] Speaker 00:
Sometimes it's higher, sometimes it's lower.

[01:53:37] Speaker 00:
But the capacity that they want to use was created precisely for them.

[01:53:43] Speaker 00:
I want to go back and finish one thing that I was going to say about the inconsistency on the fuel.

[01:53:47] Speaker 00:
They talk about the Gulf South case and the Columbia Gulf case where the Commission said no incremental fuel.

[01:53:54] Speaker 00:
There they had two studies, one from each company that said there would not be an increase in fuel rates.

[01:54:00] Speaker 00:
The Commission specifically talked about that in those orders.

[01:54:05] Speaker 00:
the Commission was just clear that that's the way it was on those systems.

[01:54:09] Speaker 00:
Now they now post hoc they say well those people did studies differently than Tennessee did and maybe that way under those studies something would have come out differently.

[01:54:19] Speaker 00:
We had a hearing in this case.

[01:54:22] Speaker 00:
We had experts on both sides.

[01:54:24] Speaker 00:
They could have put anything in they wanted.

[01:54:26] Speaker 00:
They didn't.

[01:54:27] Speaker 00:
They accepted the validity of Tennessee's fuel curve.

[01:54:30] Speaker 00:
So there's no real argument about where the curve goes.

[01:54:33] Speaker 00:
Mr. Sexton testified that he reviewed the Tennessee curves and they correlated with his work, so we're just using the Tennessee's curves.

[01:54:41] Speaker 00:
Further out you go with throughput, the more, the higher the fuel burn is going to be, the fuel use is going to be.

[01:54:49] Speaker 00:
And Interro is over and above the existing system because they could not have transported gas on a firm basis, which is the service they wanted.

[01:54:59] Speaker 00:
Could not do it on a firm basis on the existing system

[01:55:03] Speaker 00:
It's a stipulated fact from before the hearing.

[01:55:06] Speaker 07:
I guess if my colleagues have any questions, Judge Rogers, any questions?

[01:55:11] Speaker 07:
Nope.

[01:55:12] Speaker 07:
All right.

[01:55:12] Speaker 07:
Thank you very much.

[01:55:13] Speaker 00:
Thank you, Your Honor.

[01:55:18] Speaker 06:
All right.

[01:55:18] Speaker 06:
Ms.

[01:55:19] Speaker 06:
Taylor, we'll give you three minutes for rebuttal.

[01:55:26] Speaker 04:
So first, I think that

[01:55:30] Speaker 04:
The advocate for the commission was talking a lot about the reasonable expectations of the existing shippers.

[01:55:35] Speaker 04:
None of that reasoning was set forth in the decision under review.

[01:55:38] Speaker 04:
So even to the extent that there was a connection articulated between those expectations and the rate that is under review, that is

[01:55:49] Speaker 04:
simply not.

[01:55:50] Speaker 04:
I'm not sure that's accurate.

[01:55:51] Speaker 07:
I mean, they talked about the whole principle of how they've allocated costs here is to protect.

[01:55:57] Speaker 07:
And they say it multiple times.

[01:55:59] Speaker 07:
And so that the costs of the presence of your gas on the system doesn't increase the costs of pre-existing shippers.

[01:56:06] Speaker 07:
I mean, they do say that.

[01:56:07] Speaker 07:
They don't identify them by name.

[01:56:09] Speaker 07:
Maybe they don't have an affidavit from them.

[01:56:11] Speaker 07:
But they say,

[01:56:13] Speaker 07:
The whole point of this is to ensure that pre-existing shippers aren't putting the bill for Ontario's presence on the system.

[01:56:22] Speaker 04:
I think in the decision under review, what they said was that this actually tracks cost causation.

[01:56:27] Speaker 04:
And they didn't discuss in any detail.

[01:56:30] Speaker 07:
That's part of, you know, they do that in the sense of it's cost causation because you're responsible for the cost of your increased shipment.

[01:56:41] Speaker 07:
They're quite clear that they were applying their principles here, that you were the but cause, but for cause of increased costs to have your capacity here, right?

[01:56:57] Speaker 04:
Right.

[01:56:57] Speaker 04:
And that's inconsistent with cost causation principles and BNP Paribas, which holds that, you know, you don't

[01:57:06] Speaker 04:
ask who came earlier and who came later if you're just looking at cost causation it's the actual shipments on any given day everybody is equally contributing and that you know the the sort of more basic point is that there might be ways to capture the reliance interests of the pre-existing shippers we did propose one that was at step two of the section five uh challenge that we brought and the commission didn't reach it but that was effectively

[01:57:30] Speaker 04:
everybody should pay the same up until we reach that maximum that they could have expected under their contracts.

[01:57:35] Speaker 04:
And then if the rate that they're going to be charged is more than that maximum, then Entero would pay that increment.

[01:57:42] Speaker 04:
There might be other ways to approach a methodology that actually captures reliance interest.

[01:57:48] Speaker 07:
Is there any firm capacity left on the system when Entero showed up?

[01:57:52] Speaker 07:
I get that it wasn't enough for the volumes you wanted to do, but was there any firm capacity left?

[01:57:57] Speaker 04:
My understanding is that there could have been

[01:58:00] Speaker 04:
potentially some firm capacity to subscribe to, but not nearly enough.

[01:58:04] Speaker 04:
Was it potentially then or that there was, I mean, either there was space or there wasn't?

[01:58:08] Speaker 04:
I don't have a number for how much firm capacity.

[01:58:10] Speaker 04:
I'm not asking how much, but was there some?

[01:58:13] Speaker 04:
My understanding is that, well, again, I don't...

[01:58:16] Speaker 04:
Yes, I believe that if Antero had wanted a much, much smaller amount of firm capacity.

[01:58:20] Speaker 06:
I guess you wanted more, for sure.

[01:58:22] Speaker 04:
That's why you all did this.

[01:58:24] Speaker 04:
Yes, exactly.

[01:58:24] Speaker 04:
And if we had subscribed to that lower number, as your honor pointed out, and then no compression engines were added, then I don't know.

[01:58:33] Speaker 04:
We might have a different record and different reasoning about how the commission approached that.

[01:58:39] Speaker 05:
Well, the project was built on the basis that you needed firm capacity.

[01:58:45] Speaker 05:
and that you are going to subscribe to 100% of the expansion capacity, correct?

[01:58:54] Speaker 04:
Yes, that's correct.

[01:58:55] Speaker 07:
All right.

[01:58:58] Speaker 07:
So I'll let you sum up in one sentence here.

[01:59:01] Speaker 07:
Pardon.

[01:59:01] Speaker 07:
We'll let you sum up here in one sentence because we're over.

[01:59:04] Speaker 04:
One sentence.

[01:59:08] Speaker 04:
My one sentence is that this methodology doesn't even attempt to capture the reliance interests of the existing shippers.

[01:59:16] Speaker 04:
We can set aside the later arriving shippers, whether you consider that argument preserved or not preserved.

[01:59:22] Speaker 04:
But there is no effort whatsoever to capture the reasonable expectations of those pre-existing shippers based on what they knew would be fluctuating usage, even of the pre-existing capacity.

[01:59:35] Speaker 04:
And that is what fundamentally makes this unjust and unreasonable.

[01:59:39] Speaker 07:
Thank you very much to all councilmen.

[01:59:41] Speaker 07:
Case is submitted.