Trailblazer Pipeline Company LLC Docket No. RP Exhibit No. TPC-0087

Transcription

1 Trailblazer Pipeline Company LLC Docket No. RP- -000

2 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Trailblazer Pipeline Company LLC ) ) ) Docket No. RP SUMMARY OF PREPARED DIRECT TESTIMONY OF BARRY E. SULLIVAN ON BEHALF OF TRAILBLAZER PIPELINE COMPANY LLC Barry E. Sullivan is employed by Brown, Williams, Moorhead & Quinn, Inc., and provides Prepared Direct Testimony in this proceeding on behalf of Trailblazer Pipeline Company LLC ( Trailblazer ). In his Prepared Direct Testimony, Mr. Sullivan determines the appropriate natural gas companies to be included in the Proxy Group used in the return on equity ( ROE ) calculations of Trailblazer Witness Paul R. Moul. Mr. Sullivan explains and supports why the Proxy Group used in the recommendation of Witness Moul meet the Federal Energy Regulatory Commission s ( FERC ) Proxy Group guidelines and constitute an appropriate Proxy Group. Mr. Sullivan provides detailed information regarding each of the Proxy Group companies, the unique business risks of Trailblazer, and compares the business risk of Trailblazer to the business risk of the pipeline companies included in the Proxy Group entities. Mr. Sullivan supports his testimony by sponsoring Exhibit No. TPC-00 (his curriculum vitae, a list of his prior testimony before FERC, and a list of cases which he supervised while at the Commission), and Exhibit Nos. TPC-00, Proxy Group Segment Analysis Exhibit and TPC-000 Proxy Group Comparative Exhibit.

3 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Docket No. RP Page of Trailblazer Pipeline Company LLC ) ) ) Docket No. RP PREPARED DIRECT TESTIMONY OF BARRY E. SULLIVAN ON BEHALF OF TRAILBLAZER PIPELINE COMPANY LLC June, 0

4 Docket No. RP Page of TABLE OF CONTENTS GLOSSARY OF TERMS... I. INTRODUCTION... II. PURPOSE OF TESTIMONY... III. COMMISSION POLICY REGARDING PROXY GROUP... IV. THE PROXY GROUP... V. BUSINESS RISK... VI. TRAILBLAZER S BUSINESS RISKS... VII. COMPARISON OF THE BUSINESS RISK OF THE PIPELINES INCLUDED IN THE PROXY GROUP ENTITIES TO THE BUSINESS RISK OF TRAILBLAZER... VIII. CONCLUSION...

5 Docket No. RP Page of GLOSSARY OF TERMS ADIT Algonquin Bcf Bison Boardwalk Boardwalk Petrochemical BWMQ Commission Company Dominion Cove Point DCF DECG DEQP DMP DOE Dth/d East Tennessee EIA EGT EMH ENBL Midstream EOIT Equitrans Midstream Accumulated Deferred Income Tax Algonquin Gas Transmission Billion cubic feet Bison Pipeline, LLC Boardwalk Pipeline Partners, LP Boardwalk Petrochemical Pipeline, LLC Brown, Williams, Moorhead & Quinn, Inc. Federal Energy Regulatory Commission Trailblazer Pipeline Company LLC Dominion Cove Point LNG, LP and its related pipeline Discounted Cash Flow Dominion Energy Carolina Gas Transmission, LLC Dominion Energy Questar Pipeline Dominion Midstream Partners, LP U.S. Department of Energy Dekatherms per day East Tennessee Natural Gas, LLC Energy Information Administration Enable Gas Transmission Efficient Market Hypothesis Enable Midstream Partners, LP Enable Oklahoma Intrastate Transmission Equitrans Midstream Partners, LP

6 Docket No. RP Page of Equitrans Transmission FERC Great Lakes GTN Gulf Crossing Gulfstream Iroquois Kinder Morgan LDC LNG MLP MMcf/d MRT MVP National Fuel NGPL North Baja Northern Border Northern Natural Overthrust PHMSA Portland Natural Equitrans Transmission and Storage Company Federal Energy Regulatory Commission Great Lakes Gas Transmission Limited Partnership Co. Gas Transmission Northwest LLC Gulf Crossing Pipeline Company LLC Gulfstream Natural Gas System, L.L.C. Iroquois Gas Transmission System, L.P. Kinder Morgan Inc. Local distribution company Liquefied natural gas Master Limited Partnership Million cubic feet per day Mississippi River Transmission Mountain Valley Pipeline National Fuel Gas Company Natural Gas Pipeline Company of America, LLC North Baja Pipeline, LLC Northern Border Pipeline Co. Northern Natural Gas Company Dominion Energy Overthrust Pipeline, LLC U.S. Pipeline and Hazardous Materials Safety Administration Portland Natural Gas Transmission System

7 Docket No. RP Page of Proxy Group Policy Statement Revised Policy Statement REX ROE SEC SEP SESH Tcf TEP Texas Eastern Texas Gas TGP Trailblazer Trailblazer Proxy Group TransCanada Transco Tuscarora WCSB Wells Fargo Presentation WIC Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, FERC,0, reh g dismissed, FERC, (00). Inquiry Regarding the Commissions Policy for Recovery of Income Tax Costs, FERC, (0). Rockies Express Pipeline LLC Return on Equity Securities and Exchange Commission Spectra Energy Partners, LP Southeast Supply Header Trillion cubic feet Tallgrass Energy Partners LP Texas Eastern Transmission Corporation Texas Gas Transmission, LLC Tennessee Gas Pipeline Trailblazer Pipeline Company LLC Boardwalk Pipeline Partners, LP; Dominion Midstream Partners, LP; Enable Midstream Partners, LP; Equitrans Midstream Partners, LP; Spectra Energy Partners, L.P.; Kinder Morgan Inc.; and TC PipeLines, LP. TC PipeLines, LP Transcontinental Gas Pipeline Corporation Tuscarora Gas Transmission Co. Western Canadian Sedimentary Basin Boardwalk, Wells Fargo Pipeline, MLP, and Utility Symposium (Dec. 0). Wyoming Interstate Company, L.L.C.

8 Docket No. RP Page of 0 I. INTRODUCTION Please state your name, job title, and business address. My name is Barry E. Sullivan and my business address is th Street, N.W., Suite 0, Washington, D.C I am the Chief Executive Officer of Brown, Williams, Moorhead & Quinn, Inc. ( BWMQ ), an energy consulting firm in Washington, D.C. What is the nature of the work performed by your firm? We offer technical, economic, and policy assistance to the various segments of the natural gas pipeline industry, oil pipeline industry, and electric utility industry on business and regulatory matters. Please briefly state your professional experience and qualifications. My curriculum vitae, included in my Exhibit No. TPC-00, details my work experience since my employment at the Federal Energy Regulatory Commission ( FERC or Commission ) in. I left the Commission in September 00 to join BWM I was elected President of BWMQ in April 00 and the Chief Executive Officer of BWMQ in March 0. During my employment at BWMQ, I have participated in a number of litigated proceedings at the Commission, representing numerous clients in the natural gas pipeline and oil pipeline industries. I have testified as an expert witness on rate design, return on equity ( ROE ), and the selection of Proxy Group companies, cost classification, cost allocation, billing determinants, discount adjustments, market power and marketbased rates, depreciation and negative salvage, and other rate-related issues in

9 Docket No. RP Page of 0 numerous natural gas pipeline proceedings, oil pipeline proceedings, and electric proceedings. Before joining BWMQ, I was employed at the Commission as a Supervisor in the Office of Administrative Litigation. As a Supervisor in the Office of Administrative Litigation, I supervised and directed a significant number of the natural gas pipeline, oil pipeline, and electric utility proceedings that were set for formal hearing proceedings at the Commission. I also supervised and directed the preparation and presentation of the Commission s technical Trial Staff s settlement and testimony positions on a wide range of issues in these formal proceedings. These issues included: the Enron and the Western Market investigation; formal market power studies; market-based rates; cost classification; cost allocation; rate design; seasonal rates; distance-based rates; separation of services (unbundling); discounting; capacity release; capacity assignments; interruptible transportation rates; storage rate design; refunctionalization studies; stranded costs; restructuring issues; incremental versus rolled-in rates; depreciation and negative salvage costs; cost of service and rate base issues; oil pipeline rates; tariffs and operational issues; and the resolution of contract disputes. A list of the cases in which I have provided testimony and/or testified during my career as well as a list of the cases that I supervised while at the Commission is included in my Exhibit No. TPC-00.

10 Would you briefly state your educational background? Docket No. RP Page of I graduated from the University of Massachusetts at Boston with a Bachelor of Arts degree in economics. I also completed a one-year program in graduate economics at the University of York, England. II. PURPOSE OF TESTIMONY On whose behalf are you presenting testimony in this proceeding? I am presenting testimony at the request of Trailblazer Pipeline Company LLC ( Trailblazer or Company ). Please provide a brief overview of the purpose of your testimony. The purpose of my testimony is to provide an independent analysis covering the following issues in this proceeding: 0 In Section III, I review the Commission s policy regarding the composition of Proxy Groups. I explain the guidance the Commission has provided in opinions and policy statements regarding Proxy Group candidates and why the selected Proxy Group should be representative of the risk of the entity whose return the Commission is attempting to set. In Section IV, I discuss the seven entities that I selected to compose the Proxy Group, which are collectively referred to as the Trailblazer Proxy Group throughout the remainder of my testimony, and which I recommend for Trailblazer Witness Paul R. Moul, Exhibit No. TPC-00, to use in the return on equity ( ROE ) recommendation of Trailblazer. For each Proxy Group member, I provide detailed information regarding that pipeline s operations, assets, and income.

11 Docket No. RP Page of In Section V, I address the framework for assessing the business risk for FERC-regulated interstate natural gas pipelines. In Section VI, I provide my assessment of Trailblazer s business risk. In Section VII, I explain whether the pipeline companies in the Proxy Group have more, less, or equal business risk as compared to the business risk of Trailblazer. What exhibits are you sponsoring and were they prepared by you or under your direction? I am sponsoring the following exhibits: Exhibit Nos. TPC-00, TPC-00, and TPC-000. Exhibit No. TPC-00 includes my curriculum vitae and contains a list of prior testimony I have submitted before the Commission as well as a list of the cases that I supervised while at the Commission; Exhibit No. TPC-00, Proxy Group Segment Analysis Exhibit, contains Securities and Exchange Commission ( SEC ) Form -K data for the Proxy Group companies; and TPC- 000, Proxy Group Comparative Exhibit. All three of these exhibits were prepared by me or under my direction. 0 Please provide a brief description of the Trailblazer pipeline facilities. Trailblazer is a single-barrel -inch diameter pipeline that is approximately - miles in length. The pipeline originates at an interconnection with Wyoming Interstate Company, L.L.C. ( WIC ) near Rockport in Weld County, Colorado and terminates at interconnections with Natural Gas Pipeline Company of America, LLC ( NGPL ) and Northern Natural Gas Company ( Northern Natural ) near Beatrice in Gage County, Nebraska. Trailblazer owns and operates

12 Docket No. RP Page of compressor stations in Logan County, Colorado; Lincoln County, Nebraska; and Kearney County, Nebraska. In addition to WIC, NGPL, and Northern Natural, Trailblazer is also interconnected with Tallgrass Interstate Gas Transmission, LLC, Colorado Interstate Gas Company, Rockies Express Pipeline LLC ( REX ), East Cheyenne Gas Storage, LLC, as well as various other producers, utilities, and end-users along its system. The system also includes two laterals, the Redtail Lateral, an approximately -mile, -inch lateral with a capacity of 0,000 Dth/d, and the Fortigen Lateral, an approximately -mile, -inch lateral with a capacity of, dekatherms per day ( Dth/d ). III. COMMISSION POLICY REGARDING PROXY GROUP 0 What guidance has the Commission provided regarding the selection of a Proxy Group? In Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, FERC,0, at P ( Proxy Group Policy Statement ), reh g dismissed, FERC, (00), the Commission explained that it will determine in each individual rate case which particular entities should be included in the Proxy Group used to determine the allowed ROE for the subject company. The Commission requested that for a proposed Proxy Group, the company include as much information as possible regarding the business activities of each [proposed company]. Id. In this way, the Commission can determine whether a Proxy Group is risk-appropriate given the subject company. Although the Commission recognizes criteria or guidelines for Proxy Group inclusion, the Commission also observed that there may be circumstances where a company

13 Docket No. RP Page of 0 could be included even if it did not meet these criteria or guidelines. In Kern River Gas Transmission Co., Opinion No. -B, FERC,0, reh g denied, Opinion No. -C, FERC,0 (00), reh g denied, Opinion No. -D, FERC, (0), the Commission reiterated that the selection and justification of the appropriate Proxy Group companies would be done on a case-by-case basis. Also in Kern River, the Commission stated that it preferred a Proxy Group of at least five members whenever possible, explaining that a larger Proxy Group could result in greater statistical accuracy. Opinion No. -B at P. Please describe the criteria which you used to develop a Proxy Group for Trailblazer. In Portland Natural Gas Transmission System, Opinion No., FERC, (0), order on reh g, Opinion No. -A, FERC, (0), order on reh g, Opinion No. -B, FERC, (0), the Commission explained that its policy requires that each proxy company must satisfy three standards: () the company s stock must be publicly traded; () the company must be recognized as a natural gas company and its stock must be recognized and tracked by an investment information service, such as the Value Line Investment Survey; and () pipeline operations must constitute a high proportion of the company s business. Historically, [and as approved by the Commission in Opinion No.,] this last standard could only be satisfied if a company s gas pipeline business accounted for, on average, at least 0 percent of a company s assets or operating income over the most recent threeyear period. Opinion No. at P (internal citation omitted).

14 0 Docket No. RP Page of Has the Commission allowed companies that do not meet the 0 percent criteria to be included in a Proxy Group? Yes. The Commission has demonstrated a flexible approach to the 0 percent natural gas pipeline business criteria. Many of today s natural gas companies are parts of broader entities that have business operations which include interstate and intrastate natural gas pipelines, and interstate and intrastate natural gas liquid pipelines. Interstate natural gas liquid pipelines, interstate petroleum product pipelines, and interstate crude oil pipelines are regulated by FERC under the Interstate Commerce Act. For these reasons, the Commission has permitted inclusion of these entities in a Proxy Group even if they do not strictly conform to the previously articulated 0 percent guideline. Are there any recent examples of the Commission using this flexible approach to the 0 percent natural gas pipeline business criteria? Yes. In Kern River, the Commission included two companies in its Proxy Group, Kinder Morgan Inc. ( Kinder Morgan ) and National Fuel Gas Company ( National Fuel ), which did not meet the 0 percent criteria. According to the Commission, Kinder Morgan s natural gas pipelines accounted for percent of its total assets at the time. Opinion No. -B at P. [Kinder Morgan] also owned oil and product pipelines which accounted for another percent of its assets, CO pipelines which accounted for percent of its assets, and terminal facilities which accounted for the remaining percent. Id. at P. In allowing Kinder Morgan to be included in that Proxy Group, the Commission explained that when Kinder Morgan s oil pipeline transmission component was counted, its

15 Docket No. RP Page of 0 combined transmission function was 0 percent and that a diversified firm having components in natural gas and liquids transportation should not be precluded from inclusion in a Proxy Group. Id. at P. The Commission also included National Fuel which had a net income profile of approximately percent distribution, percent natural gas transportation, percent exploration and production, percent trading and marketing, and percent other. Id. at. Thus, consistent with Kern River, entities that do not meet the 0 percent guideline should be considered for Proxy Group inclusion when such entities invest in business assets that are interwoven with and derivative of their natural gas transmission business, such as natural gas liquid pipelines and natural gas processing facilities. As explained below, while Enable Midstream Partners, LP ( ENBL Midstream ) does not currently meet the 0 percent threshold, the Commission s flexible approach to this guideline permits its inclusion in the Proxy Group because the vast majority of its assets and income are dedicated to the natural gas transportation business, including gathering and processing. Does the Commission require a Master Limited Partnership ( MLP ) to have been in existence for five years in order to be included in a Proxy Group? No. In the Proxy Group Policy Statement, the Commission stated that when developing a proxy group, a pipeline should select MLPs that are well established, but declined to issue a bright-line rule of what constituted wellestablished. Proxy Group Policy Statement, FERC,0 at P. The

16 Docket No. RP Page of 0 Commission specifically noted that there may be particular MLPs that have not been in existence for five years but are still appropriate for inclusion in a Proxy Group. Id. Thus, five years of existence is a guideline, not a rule. The Commission explained this in Opinion No., finding that the five-year guideline for MLPs is not a bright-line rule and that the Policy Statement allows for flexibility. Opinion No., FERC, at P (footnote omitted). There, the Commission found that Boardwalk Pipeline Partners, LP ( Boardwalk ), an MLP which at the time had been in existence for less than five years, had earned more than it paid in distributions each year and ha[d] demonstrated a sustainable growth rate since its inception. Id. Boardwalk s underlying assets are well-established interstate natural gas pipelines that have been in existence for decades and the earnings and distributions of the underlying assets have been stable for years. By including Boardwalk, the Commission demonstrated its flexible approach to the five-year guideline for MLPs. The Commission s flexible approach is especially appropriate in order to achieve the Commission s stated preference for Proxy Groups to contain five or more entities. As explained below, while neither Dominion Midstream Partners, LP ( DMP ) or ENBL Midstream have been in operation for five years, the Commission s flexible approach to this guideline permits inclusion of both in the Proxy Group since the underlying assets of each have been in existence for more than five years.

17 0 0 Docket No. RP Page of What companies did you consider for inclusion in the Proxy Group? I reviewed a number of entities, with specific attention to entities recently included by the Commission in Proxy Groups and entities that owned FERC- regulated pipeline and storage assets. Listed below are the candidates that I considered for inclusion in the Proxy Group. American Midstream Partners, LP Boardwalk Pipeline Partners, LP Crestwood Equity Partners, LP Dominion Midstream Partners, LP Enable Midstream Partners, LP Enbridge Energy Partners, LP Energy Transfer Equity, LP Energy Transfer Partners, LP Enterprise Products Partners, LP EQT Midstream Partners, LP EQT Corporation Kinder Morgan Inc. National Fuel Corporation NiSource Incorporated Niska Gas Storage Partners, LLC ONEOK Partners, LP Plains All American Pipeline, LP Spectra Energy Partners, L.P. Tallgrass Energy Partners, LP TC PipeLines, LP Williams Companies Williams Partners, LP I discuss these entities in detail in Section IV of my testimony and identify whether such entities qualified for inclusion in the Proxy Group based upon the Commission s guidelines. Does the Commission generally allow ROE calculations for a Proxy Group to be updated through the evidentiary phase of a natural gas pipeline rate case proceeding?

18 Docket No. RP Page of Yes. The Commission historically updates a Proxy Group with the most recent data available. Given that the Commission prefers to use up-to-date information, it is essential to continue to monitor all the Proxy Group candidates for changes which could affect the makeup of the Proxy Group. Companies that currently qualify for inclusion may undergo changes including acquisitions and mergers in the near future which could then disqualify them from inclusion. Similarly, companies in the list above that do not currently qualify may qualify in the near future. Thus, I will monitor all of the companies listed above for potential inclusion in the Proxy Group as this case moves forward and for possible inclusion in my reply testimony. For purposes of this testimony, my analysis included SEC Form -K s for the period 0 to 0. Is the need to provide for possible updates especially important in the current environment? 0 Yes. On March, 0, the Commission revised its long-standing policy on the recovery of income taxes to now prohibit MLP s from recovering an income tax allowance. Inquiry Regarding the Commissions Policy for Recovery of Income Tax Costs, FERC, (0) ( Revised Policy Statement ). Notwithstanding that the Revised Policy Statement is currently subject to numerous rehearing requests, as a result of this announcement, a number of pipelines are exploring or have committed to abandoning the MLP structure and are engaging in transactions that will result in their conversion into entities entitled to a tax allowance under the Commission s new policy. Based on the timing of these transactions, the companies which are eligible for inclusion in the

19 Docket No. RP Page of 0 Proxy Group may change between now and the dates for any reply testimony, evidentiary hearing and Commission decision. Please identify the Proxy Group adopted by the Commission in the last litigated natural gas pipeline rate case. In El Paso Natural Gas Co., Opinion No., issued October, 0, the Commission s five-member Proxy Group consisted of Boardwalk; Spectra Energy Partners, LP ( SEP ); Spectra Energy Corp.; TC Pipelines, LP ( TransCanada ); and Williams Partners, LP. FERC,00, at PP 0-0 (0), order on initial decision and reh g, Opinion No. -A, FERC, (0). Is the Proxy Group used by the Commission in Opinion No. appropriate today? No. Spectra Energy Corp. is no longer a publicly traded company because of its acquisition by Enbridge, Inc. As such Spectra Energy Corp. must be replaced with an alternative entity. I also believe that Williams Partners should be excluded as a Proxy Group member due to the anomalous growth rate currently forecasted by the Institutional Brokers Estimate System. Are the remaining three entities from the Opinion No. Proxy Group appropriate proxies for Trailblazer? Based on the time period of the data utilized for analysis (i.e., the six months ended March, 0), Boardwalk, SEP, and TransCanada are appropriate Proxy Group entities. However, subsequent to this period, SEP s parent has recently announced that it will acquire the MLP in the near future. In addition, TransCanada has recently announced a cut to its distribution, which would

20 Docket No. RP Page of normally disqualify them from inclusion in the Proxy Group. These 0 announcements were made in response to the Commission s recent Revised Policy Statement, which remains pending before the Commission. Due to the limited number of currently qualifying Proxy Group members, I continue to support their inclusion in the Trailblazer Proxy Group. It is also possible that these, or other Proxy Group entities, will engage in transactions that will require them to be removed from the Proxy Group and replaced with another suitable company during the course of this proceeding. Are you proposing to include additional entities in the Proxy Group for Trailblazer? Yes, I am supporting the inclusion of four additional entities to the Trailblazer Proxy Group: DMP, ENBL Midstream, Equitrans Midstream Partners, LP ( Equitrans Midstream ), and Kinder Morgan. Because the Commission requires at least four entities in a Proxy Group and prefers five or more entities, and for other reasons discussed below, DMP, Equitrans Midstream, ENBL Midstream and Kinder Morgan should be included in the Trailblazer Proxy Group. Please identify the Proxy Group used by Witness Moul in his direct testimony. Witness Moul s direct testimony utilizes a seven-company Proxy Group: () Boardwalk Pipeline Partners, LP ( Boardwalk ); () Dominion Midstream Partners, LP ( DMP ); () Enable Midstream Partners, LP ( ENBL Midstream ); () Equitrans Midstream Partners, LP ( Equitrans Midstream );

21 Docket No. RP Page of () Spectra Energy Partners, L.P. ( SEP ); () Kinder Morgan Inc. ( Kinder Morgan ); and () TC PipeLines, LP ( TransCanada ). IV. THE PROXY GROUP 0 Please describe the purpose of the next section of your testimony. The next section of my direct testimony provides information regarding the business activities of each member of the currently proposed Proxy Group. I also support the selected Proxy Group by providing the information requested by the Commission in the Proxy Group Policy Statement, FERC,0. How does your direct testimony relate to Witness Moul s direct testimony? Witness Moul provides a financial rate of return analysis of each company I have recommended for the proposed Proxy Group. My testimony complements Witness Moul s presentation by providing additional business and operational information regarding each entity in the Proxy Group. Please describe each entity in your recommended Proxy Group. I will address each Proxy Group entity in alphabetical order below. In addition, Exhibit No. TPC-00, Proxy Group Segment Analysis Exhibit, provides a breakout of the assets and income derived from the FERC-regulated and related natural gas pipeline business for each member of the Proxy Group. Please describe the first entity in your recommended Proxy Group. Boardwalk is an MLP engaged through its subsidiaries in the interstate natural gas storage and transportation business. Boardwalk has subsidiaries: () Gulf South Pipeline Company, L.P., which collects gas from basins between Texas and

22 Docket No. RP Page 0 of 0 Alabama and delivers it to on-system markets within its footprint and to various off-system markets in the Northeast and Southeast through interconnections with third-party pipelines; () Texas Gas Transmission, LLC ( Texas Gas ), which primarily moves gas from Gulf Coast supply areas to more distant on-system markets in the Midwest and to off-system markets in the Northeast via interconnections with third-party pipelines, as well as moving gas from north to south; () Gulf Crossing Pipeline Company LLC ( Gulf Crossing ), which operates the Gulf Crossing interstate pipeline that went into service in 00; () Boardwalk Louisiana Midstream, LLC and Boardwalk Petrochemical Pipeline, LLC ( Boardwalk Petrochemical ) which provide transportation and storage services for natural gas, natural gas liquids, and brine supply services across two hubs in Southern Louisiana the Choctaw Hub in the Mississippi River corridor and the Sulphur Hub in the Lake Charles, Louisiana area. These assets include. MMbbls of salt dome storage capacity,. billion cubic feet ( Bcf ) of natural gas working storage capacity and 0 miles of pipeline assets. Boardwalk Petrochemical includes the Evangeline Pipeline, a -mile interstate pipeline that transports ethylene between Port Neches, Texas and Baton Rouge, Louisiana; and () Boardwalk Texas Intrastate, LLC which operates natural gas gathering, compression, treating and processing infrastructure in South Texas. Boardwalk s interstate natural gas pipeline systems consist of,0 miles of interconnected pipelines, directly serving customers in thirteen states and indirectly serving customers throughout the northeastern and southeastern United States through numerous interconnections with unaffiliated pipelines. In 0,

23 Docket No. RP Page of 0 Boardwalk s pipeline systems transported approximately. trillion cubic feet ( Tcf ) of natural gas with average daily throughput of. Bcf. Boardwalk s natural gas storage facilities are comprised of fourteen storage facilities located in four states with working gas capacity of 0 Bcf. Boardwalk is one of the largest FERC-regulated natural gas storage providers. Boardwalk s principal sources of natural gas supply are the regional supply hubs and market centers located in the Gulf Coast region, including offshore Louisiana, the Perryville, Louisiana area, the Henry Hub in Louisiana, and Agua Dulce and Carthage, Texas. Boardwalk s pipelines in the Carthage, Texas area provide access to natural gas supplies from the Bossier Sands, Barnett Shale, Haynesville Shale, Eagle Ford Shale and other gas producing regions in South Texas, East Texas, and Northern Louisiana. The Henry Hub serves as the designated delivery point for natural gas futures contracts traded on the New York Mercantile Exchange. In addition, Boardwalk transports unconventional Mid- Continent supplies such as the Caney Woodford Shale in southeastern Oklahoma and the Fayetteville Shale in Arkansas. Boardwalk also accesses wellhead supplies in northern and southern Louisiana and Mississippi, and liquefied natural gas ( LNG ) through several Gulf Coast LNG terminals. Boardwalk was one of the first Gulf Coast pipelines that provided access to Gulf Coast markets for Marcellus and Utica Shale gas supplies through its Texas Gas pipeline facilities at Lebanon, Ohio.

24 0 How does Boardwalk describe its business strategy? Docket No. RP Page of Boardwalk describes its business strategy to: () leverage and strengthen existing natural gas pipeline transportation and storage assets by attaching to new end-use markets and supply sources; () optimize asset base by identifying and implementing optimal uses for assets, including changing natural gas flow patterns; and () identify strategic growth opportunities by exploring acquisitions and other opportunities that expand natural gas and liquids transportation and storage assets. See Boardwalk, Wells Fargo Pipeline, MLP, and Utility Symposium, at (Dec. 0) ( Wells Fargo Presentation ). Boardwalk does not provide a separate breakout of its assets and income according to its five business subsidiaries or between its transportation and storage businesses. Boardwalk s SEC Form -K reports one business segment, natural gas pipelines, and its operational risks as described in the Form -K are all related to the operation of natural gas pipelines. In 0, Boardwalk reported that 0 percent of its revenues and 0 percent of its assets were related to the natural gas pipeline, natural gas storage, and natural gas liquids pipeline business. Does Boardwalk emphasize to investors that it is committed to the interstate natural gas pipeline and storage business? Yes. Boardwalk s Wells Fargo investor presentation of December 0 emphasized its $. billion investment in Gulf Coast growth projects with the vast majority of expansions on Boardwalk s FERC-regulated natural gas pipeline businesses. See Wells Fargo Presentation at (presentation excerpt below).

25 Docket No. RP Page of Please provide examples of Boardwalk s natural gas pipeline investments over the past three years? Boardwalk has invested significant capital in its Northern Supply Access Project ($ million), Coastal Bend Project ($0 million), Ohio to Louisiana Access Project ($ million), Western Kentucky Lateral Project ($0 million), and Southern Indiana Lateral Project ($ million). See Excerpt from Presentation at Morgan Stanley MLP Conference, March 0:

26 Docket No. RP Page of Please explain why it is appropriate to include Boardwalk as a member of the Proxy Group. The majority of Boardwalk s assets consist of interstate natural gas transmission and storage assets and its other assets are related to and directly serve the interests of its interstate natural gas pipeline and storage operations. As such, Boardwalk is one of the most risk-appropriate publicly traded entities available for Trailblazer s Proxy Group. In addition, Boardwalk s major subsidiaries are primarily interstate natural gas pipeline companies regulated by FERC. Boardwalk s pipeline facilities in the Gulf Coast are highly integrated with other

27 Docket No. RP Page of natural gas pipeline companies, and it has direct access to the most important natural gas trading hubs in the Gulf Coast area. Does Boardwalk report the revenues, income, and assets related to the natural gas pipeline industry? Yes. Boardwalk s Form -K information shows the revenues, income, and assets that Boardwalk identifies as related to the natural gas industry. The table below shows the business segment income and assets as reported by Boardwalk for the three-year period 0 to 0. Boardwalk s Form -K provides one reportable segment, Interstate Pipelines & Storage, even though Boardwalk owns a small amount of gathering pipeline (0 miles). Has the Commission included Boardwalk in the Proxy Group in previous natural gas pipeline decisions?

28 0 Docket No. RP Page of Yes. The Commission has consistently utilized Boardwalk in Proxy Groups since the issuance of Opinion No. in Docket No. RP Please describe the second entity in your recommended Proxy Group. DMP directly or indirectly owns interest in four FERC-jurisdictional interstate natural gas pipeline and LNG facilities. Specifically, DMP owns: () 0 percent of Dominion Cove Point LNG, LP and its related pipeline ( Dominion Cove Point ), () 0 percent of Dominion Energy Carolina Gas Transmission, LLC ( DECG ), () 0 percent of Dominion Energy Questar Pipeline ( DEQP ), and () a. percent interest in Iroquois Gas Transmission System, L.P. ( Iroquois ). Dominion Cove Point is a FERC-regulated interstate LNG and natural gas pipeline. Dominion Cove Point s LNG operations currently consist of LNG import, export, and storage services at the Cove Point LNG facility and the transportation of domestic natural gas and regasified LNG to Mid-Atlantic markets via the Cove Point Pipeline. The firm contracted capacity for LNG loading onto ships will be approximately 0. Bcf/day. Dominion Cove Point has authorization from the U.S. Department of Energy ( DOE ) to export up to 0. Bcf/day should the liquefaction facilities perform better than expected once in service. The Cove Point Liquefaction Project enables Dominion Cove Point to liquefy domestically produced natural gas and export it as LNG. Dominion Cove Point exported its first shipment of LNG on March, 0. Dominion Cove Point s pipeline is a -inch, bi-directional FERC- regulated interstate natural gas pipeline that extends approximately miles from

29 Docket No. RP Page of 0 the LNG facility to interconnections with pipelines owned by Transcontinental Gas Pipeline Corporation ( Transco ) in Fairfax County, Virginia, and with Columbia Gas Transmission LLC and Dominion Transmission Inc. DECG operates a FERC-regulated interstate natural gas pipeline company in South Carolina and southeastern Georgia. As of December, 0, DECG s natural gas system consisted of nearly,00 miles of transmission pipeline of up to inches in diameter and five compressor stations. DECG s system transports gas to its customers from the transmission systems of Southern Natural Gas Company at Port Wentworth, Georgia and Aiken County, South Carolina; Southern LNG, Inc. at Elba Island, near Savannah, Georgia; and Transco in Cherokee and Spartanburg counties in South Carolina. DECG s Charleston Project went into service on March, 0, after receiving authorization from FERC. The pipeline expansion provides capacity of 0,000 Dth/d. The Charleston Project is supported by long-term contracts with terms ranging from to 0 years. DEQP is a FERC-regulated interstate natural gas pipeline and storage provider operating across a wide area of Utah, Wyoming, and Colorado. DEQP operates approximately,00 miles of natural gas transportation pipeline. DEQP also operates and owns four storage facilities totaling. Bcf of working gas storage capacity. Dominion Energy Overthrust Pipeline, LLC ( Overthrust ) is a FERCregulated, -mile, -inch pipeline originating in southwestern Wyoming with a total daily capacity of. Bcf/d. It connects natural gas production in the Green

30 Docket No. RP Page of River, Overthrust, Wamsutter, and other Rockies producing basins with interconnects to several major interstate pipeline systems including Ruby Pipeline, REX, DEQP, Kern River Gas Transmission, and WIC. Iroquois is a FERC-regulated, -mile, -inch pipeline originating at the U.S./Canadian border at Waddington, New York and extending through the State of Connecticut to Long Island, New York and continuing to Hunts Point, Bronx, New York. As of December, 0, DMP holds a. percent partnership interest in Iroquois. Does DMP describe its primary business activity as the natural gas pipeline industry? Yes. Have you calculated DMP s revenue, income and asset percentages based on the Form -K data? Yes. DMP s Form -K shows DMP s revenues and asset percentages by single business segment for 0 to 0. As shown below, all of DMP s assets are natural gas transmission and storage (LNG) facilities.

31 Docket No. RP Page of Dominion Midstream Partners, LP Category: MLP Assets Average Regulated Natural Gas Transportation & Storage $,0. $,. $,. % of Total 0% 0% 0% 0% Total Assets (Total Property, Plant and Equipment) $,0. $,. $,. FERC-REGULATED AND RELATED 0% 0% 0% 0% Revenue 0 0 Average Regulated Natural Gas Transportation & Storage $ 0. $. $. % of Total 0% 0% 0% 0% Total Revenue $ 0. $. $. FERC-REGULATED AND RELATED 0% 0% 0% 0% Why is it appropriate to include DMP in the Proxy Group? DMP derives 0 percent of its income from, and 0 percent of its assets are engaged in, FERC-regulated and related natural gas transmission, storage and LNG businesses. DMP is one of the most risk-appropriate publicly traded entities available for inclusion in Trailblazer s Proxy Group. Has DMP been in existence for five years? No, it has been in existence only since 0. However, it is publicly traded and owns and operates well-established FERC-regulated and related natural gas assets. All of these assets were previously owned by DMP s sponsoring corporation, Dominion Energy, Inc.

32 Docket No. RP Page 0 of 0 Is DMP s regulated business expanding? Yes. DMP s Cove Point LNG facility is currently exporting LNG and those exports are expected to increase in the future. In addition, DMP s recent purchase of the Questar and Overthrust interstate pipeline facilities increased DMP s wellestablished FERC-regulated natural gas assets. Please describe the third entity in the Proxy Group. ENBL Midstream is a natural gas pipeline company operating interstate and intrastate transportation and storage markets across nine states. ENBL Midstream operates approximately,00 miles of interstate natural gas pipelines, including the Southeast Supply Header ( SESH ), and eight natural gas storage facilities with Bcf of working storage capacity for the year ended December, 0. ENBL Midstream also operates approximately,00 miles of intrastate transportation pipelines, natural gas processing plants with. Bcf/d of processing capacity, and approximately,00 miles of gathering pipelines. ENBL Midstream s interstate pipeline facilities consist of Enable Gas Transmission ( EGT ), a,00-mile interstate pipeline that provides natural gas transportation and storage services to shippers principally in the Anadarko, Arkoma, and Ark-La-Tex basins in Oklahoma, Texas, Arkansas, Louisiana, and Kansas. EGT s pipeline capacity is. Bcf/d. The EGT pipeline consists of two -inch pipelines with compressor stations. EGT has 0. Bcf of natural gas storage capacity. ENBL Midstream s Mississippi River Transmission ( MRT ) is a,00- mile interstate pipeline that provides natural gas transportation and storage

33 Docket No. RP Page of 0 services principally in Texas, Arkansas, Louisiana, Missouri, and Illinois. The MRT pipeline system provides market access for producers from the Haynesville and Fayetteville Shale plays and other Oklahoma and Gulf Coast production through pipeline interconnects. MRT s pipeline capacity is. Bcf/d. MRT has pipeline diameters ranging from to inches and has compressor stations. MRT has. Bcf of working natural gas storage capacity and 0 million cubic feet per day ( MMcf/d ) of maximum withdrawal capacity. ENBL Midstream owns the Enable Oklahoma Intrastate Transmission ( EOIT ) pipeline facilities. EOIT is a FERC-regulated Section pipeline. EOIT is a,00-mile pipeline system with. TBtu/d of average daily throughput in 0 and Bcf of working gas storage capacity. EOIT delivers natural gas supplies from the Arkoma and Anadarko basins and the Cana Woodford, Granite Wash, Cleveland, Tonkawa, SCOOP, STACK, and Mississippi Lime Shale plays in Oklahoma and Texas. EOIT is directly connected to EGT and ten interstate pipelines and two intrastate pipelines with interconnect points. The third-party pipeline connections include the following interstate natural gas pipeline companies: ANR Pipeline Company, El Paso Natural Gas Pipeline Company, Gulf Crossing, Midcontinent Express Pipeline, NGPL, Northern Natural, ONEOK Gas Transmission, Ozark Gas Transmission LLC, Panhandle Eastern Pipe Line Company, and Southern Star Central Gas Pipeline, Inc. Clearly a significant amount of the natural gas supplies transported on EOIT find their way into interstate markets on these interconnecting interstate pipelines.

34 Docket No. RP Page of ENBL Midstream also has an ownership interest in SESH, a 0-mile interstate pipeline that provides natural gas transportation services. ENBL Midstream owns a 0 percent interest in SESH and operates the pipeline. The SESH pipeline has capacity to transport. Bcf/d of natural gas from Perryville to Gwinville, Mississippi, and.0 Bcf/d of natural gas to the pipeline s end point in Alabama. The SESH pipeline has 0 interconnections with existing natural gas pipelines and access to three high deliverability storage facilities: Mississippi Hub Storage, Petal Gas Storage, and Southern Pines Energy Center. The chart below summarizes operational data for ENBL Midstream s EGT, MRT, EOIT, and SESH natural gas pipeline systems:

35 Docket No. RP Page of Please describe ENBL Midstream s storage assets and services. ENBL Midstream s eight natural gas storage facilities have a working capacity of approximately.0 Bcf and. Bcf/d of aggregate daily deliverability as of December, 0. ENBL Midstream s Form -K explains that ENBL Midstream s storage facilities provide a benefit to its customers by providing a full suite of storage services including no-notice, load-following storage services, and pipeline balancing. ENBL Midstream s storage revenues are primarily feebased and are derived from both firm and interruptible contracts. These contracts are often combined with transportation agreements to provide one stop shopping for ENBL Midstream s customers. ENBL Midstream states that its intrastate storage services are provided at market-based rates under Section of the Natural Gas Policy Act of. Does ENBL Midstream emphasize to the investment community the importance of its natural gas assets and its planned growth in the transportation business? Yes. ENBL Midstream emphasizes the integrated nature of its natural gas pipeline businesses. ENBL Midstream s Fourth Quarter 0 investor 0 presentation stressed the integration and interconnectivity of its interstate natural gas transmission, storage, gathering and processing assets and the markets served. EGT receives gas from ENBL Midstream s Arkoma, Ark-La-Tex, and Anadarko systems. EGT also receives significant gas supplies from its interconnections with its pipeline affiliate EOIT. As shown in ENBL Midstream s latest investor

36 Docket No. RP Page of presentation, ENBL Midstream has a full integration of pipeline and storage assets serving natural gas markets. See below: ENBL Midstream, Fourth Quarter Investor Presentation, at m/files/event/additional/0-q_ir_presentation_vf_rev.pdf (last visited June, 0). ENBL Midstream s investor presentation also stressed that significant portions of its gathering and processing facilities directly feed its interconnected interstate natural gas pipeline assets, EGT and MRT. The EGT pipeline facilities were originally constructed as the ArkLa pipeline system.

37 Docket No. RP Page of Have you calculated the revenues, income and assets of ENBL that are related to the natural gas pipeline industry? Yes. ENBL s Form -K information shows that its revenues are from the interstate natural gas transportation business and its gathering and processing business. The table below shows the business segment income and assets as reported by ENBL for the three-year period 0 to 0. Enable Midstream Partners, LP Category: MLP Assets 0 0 Average Gathering & Processing $,0 $, $, % of Total % 0% 0% % Transportation & Storage $, $, $, % of Total % 0% 0% % Total Assets $, $, $, 0% FERC-REGULATED AND RELATED % 0% 0% % Revenue 0 0 Average Gathering & Processing $, $,0 $, % of Total % % % % Transportation & Storage $, $,0 $, % of Total % % % % Total Operating Income $, $, $, 0% FERC-REGULATED AND RELATED % % % % Please explain why ENBL should be included as a representative Proxy Group company even though it currently does not have at least 0 percent of its income and assets devoted to the interstate natural gas pipeline industry.

38 0 Docket No. RP Page of The Commission traditionally allows some companies to be included in the Proxy Group when their income/assets do not attain the 0 percent guideline that the Commission-prefers. As discussed previously, Kinder Morgan and National Fuel were included in Commission-approved Proxy Groups in the past when their income/assets were below the 0 percent guideline. ENBL Midstream should be included in the Proxy Group companies because it is representative of the business risk of natural gas pipelines that have dedicated significant assets to the movement of natural gas supplies from production areas to market areas. ENBL Midstream currently has the vast majority of its assets dedicated to the movement of natural gas supplies, either by its significant transmission facilities or its gathering facilities that serve its transmission facilities. As such, ENBL Midstream is very representative of the trend in the natural gas pipeline MLP industry which melds together complimentary natural gas infrastructure assets that can unlock hidden value, extract additional revenues and provide future synergies. ENBL Midstream s investor presentations tout its interconnected, diverse and strategically located natural gas infrastructure pipelines and the integration of its interstate pipeline facilities (EGT and MRT) and EOIT pipeline facilities and its super-header gathering facilities. Both EGT and EOIT serve significant interstate natural gas delivery markets and connect to other interstate pipeline facilities. EOIT alone serves the SCOOP, Cana, Woodford, Mississippi Lime and Greater Granite Wash natural gas production areas. EOIT has connections to other major pipelines at pipeline interconnect points providing access to Oklahoma and its adjoining

39 Docket No. RP Page of 0 0 states, as well as to markets in the western United States, the Midwest, Northeast and Gulf Coast. ENBL Midstream s investor presentation from the Fourth Quarter 0 shows that percent of its 0 gross margin profile is expected to be from fee-based (reservation) and hedged agreements. Clearly, ENBL Midstream is a natural gas transportation company serving significant interstate markets regulated by FERC. Its pipeline infrastructure facilities form an extensive interstate natural gas pipeline system across the states of Texas, Louisiana, Oklahoma, Arkansas, Missouri, Illinois, Mississippi, and Alabama. Based on the data presented, ENBL Midstream should be included in the Proxy Group. Does ENBL Midstream emphasize the strategic location of its natural gas pipelines? Yes. ENBL Midstream s SEC Form S- filed on November, 0 described ENBL Midstream s competitive strengths as including: Strategically Located Assets that Provide a Strong Platform for Growth and Operational Flexibility to Our Customers. Our assets are strategically configured in and around four of the most prominent natural gas and crude oil producing basins in the country and support a diversified midstream business that we believe will deliver reliable distributions and steady growth to our unitholders. Our assets transport natural gas to delivery points across the United States through interconnects as of September 0, 0. A portion of our system also serves local natural gas demand at LDCs, natural gas-fired power plants and industrial load in the regions in which we operate. We believe that our assets provide operational flexibility and delivery options for producers transporting natural gas from a mix of rich and lean natural gas plays to multiple market hubs within our region. Our assets also provide outlets for suppliers from other regions seeking to provide natural gas to on-system markets that we serve. We believe that our competitors would require significant capital

40 Docket No. RP Page of expenditures to provide comparable services to these customers, providing us with a significant competitive advantage as demand for natural gas grows over time. ENBL Midstream, Registration Statement (Form S-), at, (Nov., 0). ENBL Midstream s pipelines clearly serve major multi-state supply areas and its transportation markets extend through third-party pipelines across the United States. The map below shows the integrated ENBL Midstream assets.

41 0 Docket No. RP Page of Please describe the fourth entity in the recommended Proxy Group. Equitrans Midstream is an MLP operating in the Marcellus and Utica Shale basin in Pennsylvania and West Virginia. It is one of the most important interstate natural gas pipeline transportation and storage MLPs in the critical Marcellus/Utica Shale basin. Equitrans Midstream owns and operates Equitrans Transmission and Storage Company ( Equitrans Transmission ), a FERC- regulated pipeline company. Equitrans Transmission is a 0-mile,. Bcf/d pipeline, with Bcf of storage capacity at natural gas storage reservoirs. Equitrans Transmission connects to six interstate natural gas pipelines and multiple distribution companies. Equitrans Midstream provides important operational flexibility and delivery capacity to the six interstate pipelines it is connected to as well as existing local distribution company ( LDC ) markets and Marcellus/Utica producers. Equitrans Midstream s pipeline facilities were originally constructed to provide a bundled sales and transportation service to affiliated LDC facilities in Southeast Pennsylvania, including the Pittsburgh metro area. How does Equitrans Midstream describe its business operations to investors? Equitrans Midstream emphasizes to investors that its existing infrastructure and expansion plans provide strategic growth opportunities to its shippers for transporting rapidly increasing Marcellus/Utica Shale production. Equitrans Midstream highlights its organic growth opportunities on its existing pipeline and through nearby pipeline acquisitions. Equitrans Midstream has expanded its existing pipeline facilities through east- and west-side expansions to connect

42 Docket No. RP Page 0 of 0 growing Marcellus and Utica supplies to new markets. Equitrans Midstream s 0 Form -K explains that it acquired the Allegheny Valley Connector, a 00- mile FERC-regulated facility with Bcf of storage capacity that is fully contracted through 0. Equitrans Midstream placed the Ohio Valley Connector facilities in service in the Fourth Quarter of 0 which connects Equitrans Midstream s interstate pipeline facilities to REX at Clarington, Ohio. Equitrans Midstream s investor presentations emphasize the multiple opportunities it has pursued to extend its pipeline network beyond its existing footprint. These pipeline extension projects included the Ohio Valley Connector Project (.0 Bcf/d capacity) and the Mountain Valley Pipeline ( MVP ) Project ( Bcf/d capacity). The MVP Project is a.0 Bcf/d -inch interstate pipeline project spanning 00 miles from Wetzel County, West Virginia to Pittsylvania County, Virginia. Equitrans Midstream hopes to place the MVP Project into service at the end of 0. Equitrans Midstream has secured a total of.0 Bcf/d of firm capacity commitments under 0-year terms for the project. MVP will transport natural gas from the Marcellus/Utica basins to attractive demand markets in the Mid-Atlantic and South Atlantic markets by interconnecting with Transco s Station on the Virginia/North Carolina border. Does Equitrans Midstream emphasize to the investment community the importance of its natural gas assets and its planned growth in the transportation business? Yes. Equitrans Midstream states that its strategically located natural gas pipeline infrastructure within the Marcellus basin provides it with tremendous growth

43 Docket No. RP Page of opportunities to capitalize on the fastest growing natural gas supply basin in the United States. Equitrans Midstream provides numerous independent estimates of how fast Marcellus supplies will grow in the future and how vital Equitrans Midstream s current pipeline and planned pipeline facilities will be in transporting growing Marcellus gas supplies to market. See the May 0 investor presentations slide below that shows the potential growth in Marcellus/Utica production to over Bcf/d by 0.

44 Docket No. RP Page of Why should Equitrans Midstream be included in the Proxy Group? Equitrans Midstream s pipeline facilities transport significant and growing Marcellus/Utica natural gas production that has rapidly transformed natural gas markets across a wide area of North America. Equitrans Midstream should be included in the Proxy Group for all the reasons cited above, coupled with the fact that its Form -Ks show that all of its income and assets are related to the natural gas industry. The table below shows the business segment operating income and assets as reported by Equitrans Midstream for the period 0 to 0. EQT Midstream Partners, LP Category: MLP Assets Average EQM Transmission & Storage $,,0 $,, $,, % of Total 0% % % % EQM FERC Regulated Gathering $,, $,, $,0, % of Total 0% % % % Total Assets $,0, $,0, $,, 0% FERC-REGULATED AND RELATED 0% 0% 0% 0% Operating Income 0 0 Average EQM Transmission & Storage $, $, $ 0, % of Total % % % % EQM FERC Regulated Gathering $, $,0 $, % of Total % % % % Total Operating Income $ 0,0 $, $,0 0% FERC-REGULATED AND RELATED 0% 0% 0% 0%

45 0 Please describe the fifth member of the Proxy Group. Docket No. RP Page of Kinder Morgan is one of the largest hydrocarbon transportation and storage companies in North America. Kinder Morgan completed the purchase of the outstanding equity securities of Kinder Morgan Energy Partners, L.P., Kinder Morgan Management and El Paso Pipeline Partners, L.P. in November 0. Kinder Morgan originally acquired the El Paso Corporation in May 0. Kinder Morgan operates a diverse set of assets, including,000 miles of natural gas pipelines, and transports approximately 0 percent of the natural gas consumed in the United States. Kinder Morgan s 0 Form -K reports five business segments, and the largest business segment is its natural gas pipeline segment. Kinder Morgan also has a petroleum products pipeline segment, a terminals business, a CO pipeline segment, a Canadian pipeline segment and a terminals segment. How does Kinder Morgan describe its business operations to investors? Kinder Morgan s December, 0 investor presentation summarized its business as the one of the largest energy infrastructure companies in North America. Kinder Morgan has the largest natural gas pipeline network in the United States and it owns an interest in and operates over,000 miles of natural gas pipelines that are connected to every important U.S. natural gas resource play, including: the Eagle Ford, Marcellus, Utica, Uinta, Haynesville, Fayetteville, and Barnett Shales. Does Kinder Morgan emphasize to the investment community the importance of its natural gas assets and its planned growth in its business?

46 Docket No. RP Page of 0 Yes. Kinder Morgan s December, 0 presentation discusses its focused business strategy based on its FERC-regulated, fee-based (e.g., reservation charges), long-haul, interstate pipeline assets that constitute the largest portion of Kinder Morgan s cash flow. Kinder Morgan s presentation discusses its wideranging nationwide natural gas pipeline infrastructure system that connects with the majority of the interstate natural gas pipelines in the United States and serves most of the major U.S. end-use markets. Kinder Morgan s presentation emphasizes that its existing North American energy infrastructure provides it with additional leverage for both future acquisitions and greenfield/expansion projects. Kinder Morgan s presentation shows that it is well-positioned to connect key natural gas resources with major demand centers. The presentation cites to longterm growth drivers including: LNG Exports, Mexico Exports, Growing Power Generation Markets, Industrial Demand Growth, Shale-Driven Expansions/Extensions, and Acquisitions. Kinder Morgan shows a project backlog of $. billion of identified natural gas pipeline growth projects over the next five years. Kinder Morgan emphasizes that its interstate natural gas pipeline subsidiaries have highly stable, fee-based cash flows, and the average contract life is approximately. years, with minimal throughput and commodity exposure. Kinder Morgan emphasized growth opportunities in its natural gas transportation and storage markets.

47 Docket No. RP Page of Why is this important? Kinder Morgan s Form -Ks show that the majority of the income and assets of Kinder Morgan are related to the natural gas industry. The table below shows the business segment assets and earnings before interest, taxes, depreciation and amortization as reported by Kinder Morgan for the period 0 to 0. Kinder Morgan, Inc. Category: Corporation Assets Average Natural Gas Pipelines $, $ 0, $,0 % of Total % % % % CO Business $, $,0 $,0 % of Total % % % % Terminals $, $, $,0 % of Total % % % % Products Pipelines $, $, $, % of Total % % % % Kinder Morgan Canada $,00 $, $, % of Total % % % % Total Assets $, $, $, 0% FERC-REGULATED AND RELATED % % % % Revenues Average Natural Gas Pipelines $, $,00 $, % of Total % % % % CO Business $, $, $, % of Total % % % % Terminals $, $, $, % of Total % % % % Products Pipelines $, $, $, % of Total % % % % Kinder Morgan Canada $ $ $ 0 % of Total % % % % Revenues $, $,00 $, 0% FERC-REGULATED AND RELATED % % % %

48 0 Why should Kinder Morgan be included in the Proxy Group? Docket No. RP Page of The Commission should include Kinder Morgan in the Proxy Group because it is one of the most important natural gas pipeline and energy infrastructure companies in the United States and its risks are a good barometer of general natural gas pipeline industry risks. Kinder Morgan owns and operates some of the largest and most important natural gas pipeline systems across a wide area of the United States. Kinder Morgan s interstate natural gas pipelines include: Cheyenne Plains Gas Pipeline Colorado Interstate Gas El Paso Natural Gas Pipeline Co. Elba Express Fayetteville Express Pipeline Florida Gas Transmission Kinder Morgan Louisiana Pipeline Midcontinent Express Pipeline Mojave Pipeline Co. Natural Gas Pipeline Company of America, LLC Ruby Pipeline Sierrita Gas Pipeline Southern LNG Southern Natural Gas Tennessee Gas Pipeline TransColorado Gas Transmission Wyoming Interstate Co. Further, given its extensive interstate pipeline portfolio, Kinder Morgan should qualify for inclusion in the Proxy Group.

49 Docket No. RP Page of Please describe the sixth entity in your recommended Proxy Group. 0 SEP reports two business segments: () natural gas transmission and storage and () crude oil pipelines. SEP s natural gas transmission and storage business is primarily in the U.S. Northeast and Southeast, consisting of,000 miles of pipelines with nine primary transmission systems. SEP s FERC-regulated interstate natural gas and storage facilities include: Texas Eastern Transmission Corporation ( Texas Eastern ) with,00 miles of pipeline facilities with significant storage assets; Algonquin Gas Transmission ( Algonquin ) with, miles of pipeline facilities that is an extension of the Texas Eastern pipeline system; Gulfstream Natural Gas System, L.L.C. ( Gulfstream ), with miles of pipeline facilities (0 percent ownership); East Tennessee Natural Gas, LLC ( East Tennessee ), with,00 miles of pipeline facilities; Maritimes & Northeast Pipeline LP, with 0 miles of pipeline facilities ( percent ownership); Ozark Gas Transmission, with miles of pipeline facilities; Big Sandy Pipeline, LLC with 0 miles of pipeline facilities; SESH with 0 miles of pipeline facilities (0 percent ownership) and Sabal Trails Transmission, LLC (0 percent ownership). SEP owns storage interests in: Bobcat Gas Storage with Bcf of working gas capacity; Leidy Storage with. Bcf of working gas capacity; Market Hub Partners Holding, LLC owns the Moss Bluff and Egan storage facilities with approximately Bcf of working gas capacity; Saltville Gas Storage Company, L.L.C. with Bcf of working gas capacity; and Steckman Ridge, LP (0 percent ownership) with Bcf of working gas capacity. SEP is one of the largest publicly traded owners of FERC-regulated storage.

50 0 Docket No. RP Page of Has SEP described its primary business activity as the natural gas pipeline and storage industry? Yes. SEP presents itself to investors as a premier natural gas infrastructure company, serving growth markets for natural gas in the Northeast and Southeast United States. SEP s Third Quarter 0 investor presentation summarized its high-quality pipeline assets, focusing on its natural gas pipeline assets and its $. billion of infrastructure development projects during the period 0 through 0. SEP emphasized the stable cash flow associated with their long-term, contract-based businesses. SEP touts its stable natural gas-focused business model that will provide opportunities for growth through leveraging their existing pipeline footprint across the Marcellus to expand pipeline facilities and delivery capacity to markets in New England, Ontario, and the Midwest, Southeast, and Mid-Atlantic. Have you determined SEP s revenue and asset percentages based on the Form -K data? Yes. SEP s Form -K s show SEP s assets and revenue percentages by business segment. SEP s assets and revenue from 0 to 0 are heavily weighted in natural gas transportation and storage assets, averaging percent of assets and percent of revenue over the three-year period. The vast majority of SEP s assets are FERC-regulated pipeline and storage facilities.

51 Docket No. RP Page of Spectra Energy Partners, LP Category: MLP Assets Average U.S. Transmission $ 0, $, $,00 % of Total % % % % Liquids $, $, $, % of Total % % % % Total Assets $,0 $, $, 0% FERC-REGULATED AND RELATED % % % % Revenues Average U.S. Transmission $, $, $,0 % of Total % % % % Liquids $ 0 $ $ % of Total % % % % Revenues $,0 $, $, 0% FERC-REGULATED AND RELATED % % % % Why is it appropriate to include SEP as a Proxy Group member? SEP derives percent of its revenues from, and percent of its assets are engaged in, the natural gas transmission and storage business. Although they report two business segments, U.S. natural gas transmission and liquid (oil) pipelines, both are FERC-regulated. Since Canada s National Energy Board also regulates some of SEP s crude oil assets (Express Pipeline LLC) in Canada, the Liquid segment has not been included in the FERC-regulated total. SEP is one of the most risk-appropriate publicly traded entities available for inclusion in the Trailblazer Proxy Group. Has the Commission included SEP in Proxy Groups in recent natural gas pipeline cases?

52 0 Docket No. RP Page 0 of Yes. The Commission has consistently utilized SEP in Proxy Groups since the issuance of Opinion No. in Docket No. RP Please describe the last member of the Proxy Group. TC PipeLines, LP ( TransCanada ) is a publicly traded limited partnership that owns a portion of the U.S. pipeline and storage assets of TransCanada Corporation. TransCanada s primary business is to provide natural gas pipeline transportation and storage services in U.S. markets. TransCanada has investments in eight FERC-regulated interstate natural gas pipelines with capacity of. Bcf/d. TransCanada owns 0 percent of Tuscarora Gas Transmission Co. ( Tuscarora ),. percent of Great Lakes Gas Transmission Limited Partnership Co. ( Great Lakes ), 0 percent of Northern Border Pipeline Co. ( Northern Border ), 0 percent of North Baja Pipeline, LLC ( North Baja ), 0 percent of Gas Transmission Northwest LLC ( GTN ) pipeline, 0 percent of Bison Pipeline, LLC ( Bison ), and,. percent of Portland Natural Gas Transmission System ( Portland Natural ). On June, 0 TransCanada acquired a. percent interest in Iroquois. Tuscarora is a 0-mile pipeline system that originates at a pipeline interconnect with GTN in Oregon, proceeds through Northeastern California and terminates near Wadsworth, Nevada. Tuscarora has a design capacity of 0 MMcf/d. Great Lakes consists of, miles of pipeline traversing Minnesota, Wisconsin, and Michigan and terminating at Sault Ste. Marie, Michigan at the Canadian border. Great Lakes has a maximum design capacity of,00 MMcf/d. TransCanada s Northern Border pipeline has a maximum design capacity of,00

53 Docket No. RP Page of 0 MMcf/d and extends from the Saskatchewan/Montana border southeast across the Midwest with a total of,0 miles of pipeline to Indiana. North Baja is an - mile pipeline system extending from southwestern Arizona to a point on the California/Mexico border, with a maximum design capacity of 00 MMcf/d. The Bison pipeline extends from Wyoming to an interconnect with Northern Border in North Dakota. The system consists of 0 miles of pipeline with a design capacity of 0 MMcf/d. GTN consists of, miles of pipeline extending from British Columbia to Malin, Oregon with a maximum design capacity of. Bcf/d. The Portland Natural system consists of miles of pipeline extending from the Canadian Border to Dracut, Massachusetts. The Iroquois system is a -mile pipeline extending from the New York/Canadian border to Connecticut and the New York City area. Has TransCanada publicly described its primary business activity as being in the natural gas pipeline and storage industry? Yes. In its latest annual report, TransCanada identifies its interstate natural gas pipeline assets as consisting of approximately,00 miles of Commissionregulated pipeline with. Bcf/d of pipeline capacity. GTN is a critical supplier of Western Canadian Sedimentary Basin ( WCSB ) gas supplies to the Pacific Northwest and California; Northern Border transports WCSB, Rockies, and Bakken gas supplies to markets in the Upper Midwest (Minneapolis and Chicago); and Great Lakes provides access to storage fields across Michigan and Ontario for volumes that are transported on Great Lakes pipeline infrastructure.

54 Docket No. RP Page of Why is it appropriate to include TransCanada as a member of the Proxy Group? All of TransCanada s current assets and current income are associated with its natural gas transmission and storage facilities. TransCanada is considered by industry financial analysts as a pure pipeline play. Clearly, TransCanada s only business is the jurisdictional natural gas transmission and storage business. TransCanada is one of the most risk-appropriate publicly traded entities available for inclusion in the Trailblazer Proxy Group. Have you determined TransCanada s revenue, income and asset percentages based on the Form -K data? Yes. The 0 to 0 TransCanada Form -K s show TransCanada s asset and revenues. All of TransCanada s assets are FERC-regulated pipeline and storage facilities. Therefore, its assets and revenues are 0 percent FERC-regulated over the period 0 to 0.

55 Docket No. RP Page of TC Pipelines, LP Category: MLP Assets Average Natural Gas Pipelines $, $, $, % of Total 0% 0% 0% 0% Total Assets $, $, $, FERC-REGULATED AND RELATED 0% 0% 0% 0% Revenues Average Natural Gas Pipelines $ $ $ % of Total 0% 0% 0% 0% Total Revenues $ $ $ FERC-REGULATED AND RELATED 0% 0% 0% 0% Has the Commission included TransCanada in Proxy Groups in recent natural gas pipeline cases? Yes. The Commission has consistently utilized TransCanada in Proxy Groups since the issuance of Opinion No. in Docket No. RP Are the seven Proxy Group entities that you describe above representative of the risks of the interstate natural gas pipeline business? Yes. I believe the seven Proxy Group entities that I have described above are currently representative of the business risk of the interstate natural gas pipeline industry and that each of these entities meets the guidelines that the Commission has addressed in previous Commission orders on Proxy Group composition. As indicated above, the pendency of various possible transactions may require modifications to this group while this case is in litigation.

56 Docket No. RP Page of V. BUSINESS RISK What specific factors do you believe should be reviewed in determining a FERC-regulated pipeline s business risk? 0 Currently, I believe at least six major factors should be reviewed in determining a FERC-regulated pipeline s business risk. The first factor is the demand for natural gas transportation service from the contracting shippers on the pipeline. An assessment of future demand for pipeline transportation service should consider: (i) what is the remaining life of the shipper s contractual commitment to the pipeline; (ii) what competitive alternatives exist for current shippers and future shippers in the markets served by the existing pipeline; (iii) what is the level of discounted and negotiated rates below the maximum cost-based recourse rate that the pipeline had to grant because of competition; and (iv) what is the total number of shippers on the pipeline and the amount of capacity that is contracted by the shippers (a pipeline with only a small number of shippers that contract for all or most of the capacity may be affected by the monopsony power of a small number of shippers). The second business risk factor is the supply source of the natural gas shipped on the pipeline. Pipelines that are connected to growing natural gas production areas with low production costs have a competitive advantage over pipelines that transport gas supplies from areas with declining natural gas production and higher production costs. Shippers have an economic incentive to source gas supplies on pipelines that access growing natural gas production areas.

57 Docket No. RP Page of 0 The third business risk factor is the geographic location of the pipeline and the number and location of interconnecting pipelines and the level of unsubscribed capacity on these interconnecting pipelines. Pipelines that are connected to numerous other natural gas pipelines offer their shippers multiple supply sources and multiple destination markets. Access to multiple natural gas pricing points allows shippers to capture basis differentials for natural gas commodity sales and lowers the business risk of pipelines that access numerous markets and pricing hubs. Pipelines that offer fewer destination markets and fewer pipeline interconnects have higher business risk because shippers will have less opportunity to capture basis differentials in different natural gas commodity markets. The fourth business risk factor is the age and condition of specific pipeline facilities. Older pipelines can have higher operating and maintenance costs than newer pipeline facilities and are often less fuel efficient with higher fuel losses because of numerous parallel lines and looping caused by incremental expansions of capacity over their operating history. High-capacity, large-diameter, newer pipelines can operate more efficiently, with lower fuel and losses per unit transported and generally have lower business risk than older pipeline systems. The fifth business risk factor is associated with compliance costs due to environmental regulations and U.S. Pipeline and Hazardous Materials Safety Administration ( PHMSA ) regulations. Older pipelines have a higher business risk than newly constructed pipelines because newer pipelines generally were

58 Docket No. RP Page of constructed to meet emission standards and anticipated PHMSA requirements, such as smart pigging requirements. The final major business risk factor is associated with regulatory risk. Decisions by regulatory agencies may limit a pipeline s ability to earn its authorized rate of return. Pipeline investment decisions may be disputed by parties over prudency, or the pipeline may be placed at risk of recovery for capacity that was once fully contracted but is now undersubscribed because of gas supply or transportation demand decisions by shippers. Pipelines may have deferred recovery of certain costs in one period of time to be recovered at a later time based on regulatory approval, only to find that markets no longer allow for the recovery of the deferred cost or the regulator no longer approves of the deferred cost recovery. Of course, not all of these factors will impact each pipeline in the same way, and some will be more applicable to a given pipeline than others. For example, a pipeline may face relatively low risk associated with regulatory compliance costs, while facing very high risk associated with demand for its services and available supply for transportation on its facilities. Does a pipeline s cost-based recourse rate guarantee interstate natural gas pipelines full cost recovery? 0 No. Numerous newly constructed interstate natural gas pipelines and many of the existing natural gas pipelines rely primarily on negotiated rates and discounted rates to recover their costs, not the FERC-approved cost-based recourse rate. In order for new pipelines to be built and acquire contract commitments they must

59 Docket No. RP Page of 0 meet the market. In order to address the market reality that the value of natural gas transportation is often capped or set based on basis differential pricing points, pipelines often must agree to negotiated rates and discounted rates. Negotiated rates may be higher or lower than the calculated recourse rate and often defer cost recovery to later periods. As new pipelines adopted negotiated rates as their primary pricing mechanism and as low commodity prices for natural gas continued to pressure basis differentials and therefore the value and price of natural gas transportation, existing pipelines have more frequently utilized negotiated and discounted pricing to retain contractual commitments on their pipelines. When a pipeline does not increase its contractual load utilizing negotiated and discounted pricing, it often fails to recover the cost of service underlying its cost-based recourse rates thus increasing the pipeline s business risk and financial risk. As competitive pricing of interstate natural gas capacity continues to mount and competitive pricing between pipelines increases, existing pipelines experience greater risk to their recovery of their cost of service through cost-based recourse rates. An interstate natural gas pipeline s recourse rate is designed to recover the capital and operating costs of offering long-term pipeline capacity through the recovery of operating and maintenance costs, depreciation, taxes, and a just and reasonable return on capital. When a pipeline faces competitive pressures that do not allow it to assess a full cost-based rate and has unsubscribed capacity, these circumstances impact the pipeline s cash flow and raises the uncertainty and business risk of the pipeline. An evaluation of a pipeline s business risk reviews

60 Docket No. RP Page of all the factors above, including evolving market conditions and ever changing natural gas supply patterns that have reduced the value to the pipeline s shippers of holding long-term, short-term and daily pipeline capacity. How does the Commission assess the relative business risk of a regulated natural gas pipeline in determining its allowed ROE? 0 The Commission considers evidence on business risk as part of its determination of a pipeline s allowed ROE. Specifically, the Commission examines the ROE range of a group of publicly traded Proxy Group companies, and then assigns the subject pipeline a return within this range based on its risk position relative to the Proxy Group. In practice, the Commission s existing policy regarding placement of a pipeline within the Proxy Group range is to assume that pipelines fall into a broad range of average risk, absent highly unusual circumstances that indicate anomalously high or low risk as compared to the Proxy Group. See Opinion No. -B at P. Although the Commission has indicated that it will consider factors specific to the pipeline s markets in determining a pipeline s placement within the ROE range, the Commission has not articulated a specific standard set of criteria for evaluating the business risk of a pipeline. Therefore, I discuss below the factors that I believe should be considered in performing such an evaluation. I note, however, that the Commission has indicated that its assessment of a pipeline s relative risk for purposes of setting the pipeline s ROE will focus on circumstances beyond the pipeline s control. Specifically, the Commission has explained:

61 Docket No. RP Page of 0 0 [T]he Commission will focus on risks faced by the pipeline that are attributable to circumstances outside the control of the pipeline s management, such as factors specific to the pipeline s markets, which would include the degree and effectiveness of competition in the markets. Transcon. Gas Pipe Line Corp., FERC,0, at p.,, reh g denied, FERC, (). In addition, in its March, 0 Portland decision, the Commission recognized that Portland Natural had significant business risk that required Portland Natural to be placed at the top of the range for return purposes. The Commission stated: The Commission s traditional assumption with regard to relative risk is that natural gas pipelines generally fall into a broad range of average risk absent highly unusual circumstances that indicate an anomalously high or low risk as compared to other pipelines. Thus, unless a pipeline makes a very persuasive case in support of the need for an adjustment and the level of the adjustment proposed, the Commission will set the pipeline s return at the median of the range of reasonable returns. However, the Commission permits parties to present evidence to support any return on equity that is within the zone of reasonableness, and the Commission has recognized that an examination of the risk factors specific to a particular pipeline may warrant setting its ROE either higher or lower than the middle of the zone of reasonableness established by the proxy group. In this case, for the first time since Opinion No. -A established our current policies concerning the assessment of a pipeline s risk as compared to the proxy group, we must determine the ROE for a pipeline with a below investment grade credit rating. We find that Portland s below investment grade credit rating, combined with its inability to reflect its unsubscribed capacity in its rate design, present highly unusual circumstances justifying setting Portland s ROE at the top of the range of reasonable returns. Portland Nat. Gas Transp. Sys., Opinion No., FERC,, at P (0), reh g refused, FERC, (0) (internal citations omitted). Therefore, the Commission s focus on events beyond the control of the pipeline is

62 Docket No. RP Page 0 of consistent with the factors I discussed above. As I explain in Section V, Trailblazer s business risk has been impacted by factors in its markets that are largely outside of its control. Does Trailblazer have an investment grade credit rating? Trailblazer itself is not a rated entity on a stand-alone basis. Debt issued by Trailblazer s ultimate parent company is not currently investment grade rated. The Tallgrass corporate family is rated BB+ by Standard and Poor s, and Ba by Moody s. Please explain how gas has historically been transported on the Trailblazer pipeline system. Historically, Trailblazer has received Rocky Mountain-area gas supplies from its pipeline interconnects with Colorado Interstate Gas and WIC and in the more recent period, REX. Trailblazer delivers natural gas supplies primarily at Beatrice, Nebraska to its interconnects with NGPL and Northern Natural. Trailblazer s interconnects with Tallgrass Interstate Gas Transmission are also well-utilized delivery points. 0 Please explain why Trailblazer s historical primary markets are under pressure. Trailblazer s primary historical delivery markets are under pressure because NGPL and Northern Natural s market areas can be served by deliveries of gas supplies from the Gulf Coast, Mid-Continent, Canadian, and Appalachian areas. Gulf Coast, Mid-Continent, and Canadian supplies are competing fiercely to retain their markets in the Upper Midwest from an onslaught of new supply from

63 Docket No. RP Page of 0 the prolific Marcellus and Utica production in the Appalachian area. Marcellus and Utica gas supplies are increasing their market share in the Upper Midwest because of the delivery of these gas supplies via new pipeline capacity on Rover, Nexus, Columbia, and the REX pipeline systems. Canadian producers utilizing the Northern Border, Great Lakes, Viking, and Alliance pipelines are all fighting to retain their upper Midwest/Chicago markets. The lowest cost supplier to these markets will be the first gas supplies dispatched to those markets, and additional incremental supplies will be dispatched to those markets based on their relative basis differentials. It will be increasingly difficult for Rocky Mountain producers to successfully compete for upper Midwest/Chicago markets in the future. Marcellus/Utica gas supplies are expected to continue to increase dramatically. For example, the Equitrans Midstream investor presentation shows Marcellus- Utica production over Bcf/d by 0. Marcellus/Utica gas production is expected to continue as the lowest cost gas supply in the United States with favorable economics for export to additional markets like the upper Midwest. In addition, Canadian producers are fighting to retain upper Midwest markets in the United States after already losing Northeast markets to Marcellus/Utica gas supplies and continued loss of Ontario market share to Marcellus/Utica gas supplies. Rocky Mountain gas supplies will be strongly challenged to retain their upper Midwest markets. Trailblazer witness Mr. Gary Sanchez describes Trailblazer s existing off-system markets, Exhibit No. TPC-000. Please summarize the reasons you believe that Trailblazer s off-system markets are at risk.

64 0 Docket No. RP Page of Natural gas supply from the Marcellus/Utica is growing at a much faster rate than demand in the U.S. Northeast. Marcellus/Utica gas supplies are now penetrating new markets in the Upper Midwest. Marcellus and Utica gas supplies are advantaged by their relatively low cost of production and abundance. As Marcellus/Utica gas supplies continue to increase there is a significant potential for additional pipeline construction to transport these supplies to new markets. Existing suppliers to the Midwest/Chicago markets will fight to retain these loads often at discounted transportation rates and lower producer netbacks. Trailblazer s off-system markets are directly at risk because of these developments. What factors suggest that Trailblazer may have some gas supply risk? Trailblazer Witness Mr. Alexander J. Kirk provides a natural gas supply analysis based on DOE Energy Information Administration ( EIA ) data that shows that Rocky Mountain natural gas supplies are flat or declining depending on the different EIA scenarios. Ex. No. TPC-0. Flat or declining Rocky Mountain natural gas production presents a potential risk to Trailblazer competing successfully for its existing off-system markets because the remaining gas supplies in the Rockies may seek higher netbacks in alternative destination markets like California or other destinations in the western United States. Generally, a supply basin with declining reserves has difficulty competing with a supply basin like the Marcellus/Utica where additional growth in production competes at a lower commodity price with existing production. Marcellus/Utica producers have to discount their commodity prices to capture new markets like

65 Docket No. RP Page of the Upper Midwest markets that are dominated by NGPL and Northern Natural. Witness Kirk s seven Rocky Mountain natural gas supply production scenarios are reproduced below: Does Trailblazer s relatively limited geographic footprint increase its business risk? Yes. Trailblazer is not directly connected to any gas supply basins and, as explained in Witness Sanchez s testimony, the demand for Trailblazer s pipeline transportation service is generally dependent upon natural gas basis differentials between the Cheyenne Hub and delivered prices on Northern Natural and NGPL. When basis differentials narrow Trailblazer loses demand and when basis differentials widen Trailblazer gains demand for its transportation services.

66 Docket No. RP Page of 0 Trailblazer faces supply risk from competing pipelines accessing supply from different areas of North America and from the construction of new pipeline capacity to access alternative gas supplies. In addition, Rocky Mountain gas supplies can be diverted to other markets where basis differentials may be higher. Trailblazer s current deliveries into NGPL and Northern Natural are also under pricing pressure because those pipelines can be served by a variety of other gas supply sources including Gulf Coast, Mid-Continent, Canadian, and Appalachian supplies. A comparison of Trailblazer s risk with the risk of the interstate pipelines included in the Proxy Group entities is provided in Section VII below. Does Trailblazer have greater business risk because of PHMSA regulations? Yes. Trailblazer has business risk associated with compliance costs with environmental regulations and new PHMSA regulations. A number of pipelines are experiencing significant compliance costs associated with deterioration in pipeline welds/seam and integrity issues, which often require expensive rehabilitation measures. Trailblazer, like many U.S. pipelines, has business risk caused by the age of their pipeline systems and making sure their pipeline facilities are compliant with new PHMSA requirements. Trailblazer has recently experienced significant expenditures associated with pipeline remediation. Has regulatory risk recently increased for FERC-regulated interstate natural gas pipelines like Trailblazer? Yes. Regulatory risk has recently become a significant business risk factor for FERC-regulated pipelines. One reason that regulatory risk has recently increased is that on March, 0, FERC issued its Revised Policy Statement on

67 Docket No. RP Page of 0 Treatment of Income Taxes in PL--000 stating that it would no longer allow MLP-owned pipelines to recover an income tax allowance. FERC s income tax allowance policy for pass through entities is still being determined, as well as how accumulated deferred income tax ( ADIT ) balances will be treated by FERC in future pipeline cost-of-service calculations. Although the Revised Policy Statement is subject to numerous requests for rehearing, including a request by Trailblazer, the potential elimination of an income tax allowance for MLP-owned pipelines and other pass through entities and the demand by shippers for the accelerated flow through of what they assert is excess ADIT to ratepayers has significantly raised regulatory risk for all interstate natural gas pipelines. Denying an income tax allowance for pipelines structured as pass through entities would significantly reduce the cash flow of FERC-regulated interstate pipelines and negatively impact financial metrics. An analysis of a pipeline s business risk must include an analysis of the impact of a reduction in a pipeline s income tax allowance in its cost of service and how excess ADIT will be amortized in the future. At the moment, these issues are indeterminate for cost-of-service calculations and the impact on a pipeline s financial metrics. The financial data that Witness Moul has utilized in calculating the ROE using the Discounted Cash Flow ( DCF ) methodology is for the six-month period ending February, 0. If the Commission determines that MLP-owned pipelines will not be permitted an income tax allowance in their cost of service, the impact on the MLP industry and the MLP entities included in our Proxy Group will be significant. On June, 0, in the PL--000 proceeding, OFI SteelPath, an

68 Docket No. RP Page of MLP investment vehicle and a subsidiary of Oppenheimer Funds, Inc., filed comments stating that immediately after the Commission issued its Revised Policy Statement on March, 0, the energy-focused MLP industry lost an estimated $.0 billion in market capitalization. OFI SteelPath argue in their comments that the greater cost of MLP pipelines must be reflected in higher ROEs or a Partners cost adder in the calculation of a cost of service if an income tax allowance is denied by the Commission. Similarly, if the Commission denies an income tax allowance to MLP-owned pipelines, the increased business risk will have to be calculated and reflected in the Proxy Group calculations and the recommended DCF ROE for Trailblazer. Did the Commission demonstrate in the Revised Policy Statement that there was a double recovery or over recovery of income taxes for MLP owned pipelines? 0 No. The Commission simply accepted that the Court had determined that there was a double recovery of income taxes, which as I discuss below, was not determined by the Court. In the PL- proceeding, the parties on either side of the issue filed a significant amount of data and analyses. The Commission s decision simply deferred to the Court s language and did not make any effort to address the Court s direction that it consider mechanisms to demonstrate that there is no double recovery of income taxes.

69 Docket No. RP Page of What did the Court actually find in remanding the income tax issue to the Commission? The Court found that the Commission had not provided sufficient justification for its conclusion that there is no double recovery of taxes for partnership pipelines receiving a tax allowance in addition to a perceived implicit tax component embedded in the discounted cash flow return on equity. The Court complained that the record was inundated with competing mathematical analyses of whether a double recovery of taxes for partnership pipelines exists. The Court was particularly concerned that on the one hand, the DCF return on equity determines the pre-tax investor return required to attract investment, irrespective of whether the regulated entity is a partnership or a corporate pipeline, while on the other hand, with a tax allowance, a partner in a partnership pipeline receives a higher after-tax return than a shareholder in a corporate pipeline, at least in the short term before adjustments occur in the investment market. What is the theoretical basis of the DCF model. 0 The theoretical underpinning of the DCF model is the Efficient Market Hypothesis ( EMH ), Eugene Fama s theory that security prices: () are determined in markets that are inherently efficient, () reflect rational expectations, and () reflect all available knowledge. Central to the argument on the MLP tax issue is the idea that security prices reflect all available knowledge. The hypothesis requires that investors purchasing corporate shares include in their decision-making process all available knowledge about a stock s value, including that they will have to pay dividend taxes. The parties in PL- agreed that the

70 Docket No. RP Page of DCF ROE does not specifically take into account dividend taxes in the calculation of the DCF ROE and that is why it is generally referred to as a pre-tax ROE. However, the price of the stock will reflect a lower value by investors to account for the fact that they will have to pay dividend taxes for owning the C-corporation shares. Regarding MLPs, the parties in PL- generally agreed that MLP unit holders pay taxes on the portion of income allocated to them and do not pay a second dividend tax for owning MLP units Do MLP owned pipelines incur a tax liability? Yes. Trailblazer Witness Alan R. Lovinger (Exhibit No. TPC-00) explains why MLP unitholders incur a tax liability and this tax liability is likely higher than the equivalent C-corporation tax liability when the depreciation recapture is calculated at the time the unitholder sells their units. While the tax payment may be deferred, a number of commentators, in particular OFI SteelPath, explain that MLP unitholders pay income taxes that can be considerably greater than the taxes incurred by C-corporation shareholders. In the PL- proceeding, did parties demonstrate how difficult it is to establish the actual tax burden that an MLP unitholder will incur? 0 Yes. There were several mathematical presentations and expert affidavits based on assumptions of investor behavior and assumptions about future tax brackets. In reality, the tax liabilities and timing for C-corporations and MLP s is so different that comparisons merely confuse the issue. The difficulty of understanding the issue was compounded by dragging the DCF ROE into the argument. The parties opposing the Commission s income tax allowance policy

71 Docket No. RP Page of applied an unrealistic level of mathematical precision to the DCF ROE sought by pipeline investors by claiming that investors determine the dividend taxes they will incur from ownership of a C-corporation stock in the calculation of the value they will pay for a C-corporation share. For example, in the PL- proceeding, PGC, AFPA, and APGA presented complex mathematical explanations based upon the Efficient Market Hypothesis; the Brattle Group, on behalf of the UAL Petitioners, presented an extensive theoretical hypothesis; and Ms. Crowe, on behalf of the Natural Gas Indicated Shippers, presented evidence, each addressing the Commission s DCF model. Each of these flawed analyses attempt to divine the after-tax returns sought by individual investors within the DCF model. The EMH theory has somehow been accepted by the Court and Commission as determinative that income taxes are collected in the DCF. These theoretical hypotheses are inconsistent with the data actually utilized by investors and impose a level of precision on the returns generated by the DCF model that was never contemplated and is certainly unneeded. Is the Efficient Market Hypothesis wholly accepted by the investor community? 0 No. The Efficient Market Hypothesis and its assumptions about rational investor behavior and perfect knowledge has been soundly criticized over the years. As an example, see NASDAQ: Investing Basics: What Is The Efficient Market Hypothesis, And What Are Its Shortcomings (October, 0). In addition, Investopedia states:

72 Docket No. RP Page 0 of 0 Although it is a cornerstone of modern financial theory, the EMH is highly controversial and often disputed. Believers argue it is pointless to search for undervalued stocks or to try to predict trends in the market through either fundamental or technical analysis. While academics point to a large body of evidence in support of EMH, an equal amount of dissension also exists. For example, investors such as Warren Buffett have consistently beaten the market over long periods of time, which by definition is impossible according to the EMH. Detractors of the EMH also point to events such as the stock market crash, when the Dow Jones Industrial Average (DJIA) fell by over 0% in a single day, as evidence that stock prices can seriously deviate from their fair values. Available at The idea that investors bid up a share price or bid down a share price based on a calculation that they perform that includes a derivation of the dividend tax they will pay associated with ownership of a C-corporation share in addition to all of the other rational computations they perform to determine the share price and their required DCF ROE stretches credulity. In reality, share prices are influenced by both rational and irrational behavior - otherwise we would never experience market panics, speculative bubbles, flash crashes, or excess volatility. The implicit assumption in the EMH is that each investor calculates the future cash flow of a particular stock based on all information available, including each investor s expected dividend tax rate, and incorporates all that information into the value of a stock. An observer of how stock markets behave would agree that this kind of calculus is not the behavior of the average investor and implies a level of analysis in stock selection that is absent from how the real market works.

73 Docket No. RP Page of Why does this matter? The Commission was asked by the Court to demonstrate that there is no over recovery or double recovery of income taxes associated with the MLP form of ownership. The comments filed by INGAA, AOPL, OFI SteelPath, and numerous individual pipeline entities have demonstrated that the MLP income tax liability over the life of the investment is comparable to if not greater than the C- corporation income tax liability. The forecasted ultimate tax liability depends on current and future assumptions that are built into mathematical models. Various assumptions create a moving target for MLP tax calculations that are difficult for the Commission and courts to reconcile in a cost of service world, where the cost of service consists of quantifiable base period and/or test period numbers. The Efficient Market Hypothesis is simply a theory about how investors value a stock. There is no evidence in the record in the PL- proceeding that shareholder investors actually calculate the dividend taxes they will incur in owning a stock. Yet the EMH theory has somehow been accepted by the Court and Commission as determinative that income taxes are collected in the DCF. I believe the EMH does not demonstrate that there is an over collection of income taxes associated with the DCF. 0 Witness Lovinger s testimony explains that the original equity founders of Tallgrass (Sponsoring Entities) did not acquire the Tallgrass assets through a public share purchase and therefore the Sponsoring Entities did not perform a DCF ROE calculation at the time they secured the assets - a portion of that ownership was eventually dropped into the Tallgrass MLP. Please comment

74 Docket No. RP Page of on Witness Lovinger s position as it applies to the current Sponsoring Entities ownership of Trailblazer/Tallgrass. Witness Lovinger s testimony refers to the original equity owners of the Tallgrass assets as the Sponsoring Entities. Witness Lovinger s testimony explains that each of the Sponsoring Entities pay income taxes, at their applicable rate, on their allocated share of Trailblazer s earnings. The Sponsoring Entities did not purchase these assets through a public stock or unit trade, which distinguishes them from the investors the Commission focused on in the Revised Policy Statement. The Sponsoring Entities did not analyze their investment in the Tallgrass assets utilizing the DCF ROE methodology. Thus, even if the Commission s concern that the DCF ROE could allow for an over recovery for MLP investors as opposed to C-corporation shareholders, the Sponsoring Entities were not investors guided by the DCF. The DCF ROE analysis could not be applied by the Sponsoring Entities because the Tallgrass assets were not publicly traded and a DCF analysis could not be calculated. Do you believe that the Commission should continue its previous policy that pipelines should file testimony providing empirical support for an income tax allowance for MLP owned pipelines? 0 Yes. As Trailblazer has done in the current rate proceeding, a pipeline that is owned in whole or in part by unitholders should justify the income tax allowance claimed on behalf of its unitholders and / or shareholders. The proposed income tax allowance is a blended rate reflecting the actual income tax liability of the Tallgrass shareholders and unitholders. Pipelines should continue to have the

75 Docket No. RP Page of opportunity to support with the corresponding burden an income tax allowance in their rate case proceedings. Does the evidence provided by Trailblazer demonstrate that there is an income tax liability for its partnership owners? Yes. Witness Lovinger s testimony in the current proceeding demonstrates that Tallgrass unitholders have a tax liability and that the calculated tax for Tallgrass unitholders is actually higher than the tax liability for the portion of Tallgrass that is corporately owned. What about the Court s concern that different owners of the pipeline will receive differing returns? The Commission s function is to set just and reasonable rates for the regulated entity. How the regulated company treats its earnings, such as paying dividends, making cash distribution to partners, or retaining the earnings need not be addressed by the Commission in the context of an income tax allowance. Is the Commission s recent announcement that it is conducting a review of its policy statement on the certification of new natural gas facilities an additional example of increased regulatory risk for pipelines like Trailblazer? 0 Yes. An additional regulatory risk factor is the Commission s pending review of its certificate policy in Docket No. PL On April, 0, the Commission issued a Notice of Inquiry seeking information to explore whether, and if so how, it should revise the currently effective Certificate Policy Statement which is used to determine whether a proposed natural gas project is or will be

76 Docket No. RP Page of required by the present or future public convenience and necessity, Under Section of the Natural Gas Act. Certification of New Interstate Natural Gas Facilities, FERC,0 (0). Specifically, the Commission is seeking input in four areas: () the methodology for determining the need for a project, including the consideration of precedent agreements and contract as evidence of such; () the consideration of the potential exercise of eminent domain and landowner interests in a proposed project; () the evaluation of the environmental impact of a proposed project, particularly the consideration of alternatives and greenhouse gas emissions; and () the implementation of changes to improve the efficiency and effectiveness of the certificate process. Id. at. The Commission has requested such input in the form of comments that should answer specific questions raised by the Commission addressing each of the four areas outlined above. Initial comments on these important issues are due by July, 0. Potential changes in the Commission s certificate policy could make the construction of new facilities more difficult, more expensive, require longer construction time, thus raising the business risk of Trailblazer.

77 0 Docket No. RP Page of Will these regulatory risk factors impact each pipeline in the same way? No. Not all of these factors will impact each pipeline in the same way, and some will be more applicable to a given pipeline than others. For example, a pipeline may face relatively low risk associated with regulatory compliance costs, while facing very high risk associated with demand for its services and available supply for transportation on its facilities. Does Trailblazer face any other regulatory risk from government agencies? Yes. Witness Kirk explains that demand for natural gas supplies are characterized by growing uncertainty in the future, caused by: () energy and environmental legislation/regulation to reduce greenhouse gas emissions; () technological development of alternative energies and energy storage; and () growing consumer demand for energy produced by non-fossil fuels. Demand uncertainty raises the business risk to Trailblazer because pipeline capacity serving these markets will compete for a stagnant or declining load. Trailblazer s transportation rates and revenue recovery will be under continuing pressure to successfully compete for these markets in the future. Witness Kirk s testimony explains that the demand for natural gas is being impacted by energy and environmental legislation/regulation on renewable energy standards and greenhouse gas emissions. An example of this significant risk is Southern Trails Pipeline which reached the end of its economic life because the State of California adopted renewable energy standards that significantly lowered the demand for natural gas in California. As explained by Witness Kirk, local and state policies are likely to

78 Docket No. RP Page of 0 reduce the demand for natural gas in Trailblazer s service area. These policies raise the business risk of Trailblazer. Please provide your assessment of the business risk that Trailblazer faces based on the six risk factors that you discussed earlier in your testimony. As I explained earlier, I believe there are at least six major risk factors that should be reviewed in determining a FERC-regulated pipeline s business risk. First, the demand for future pipeline transportation services of Trailblazer will be under significant pressure from existing and new Marcellus/Utica gas supplies trying to capture additional load in Trailblazer s traditional off-system markets. Trailblazer also has business risk because of the transformational changes in U.S. natural gas supplies. Traditional natural gas supply areas in the Gulf Coast, Mid-Continent, Canada, and Rocky Mountains are being supplanted by Marcellus/Utica gas supplies. Marcellus/Utica origin pipelines and pipelines that are one transportation haul away from Marcellus/Utica gas supplies may be geographically advantaged versus Trailblazer. Pipelines that are connected to growing natural gas production areas with low production costs have a competitive advantage over pipelines that transport gas supplies from areas with declining natural gas production or flat production with higher production costs. Economic bypass of existing pipelines like Trailblazer become a real possibility when low-cost gas supplies and higher net back prices provide an economic incentive to connect these new gas supplies to Trailblazer s traditional off-system markets.

79 Docket No. RP Page of Trailblazer s physical location, areal extent, and geographic footprint are also business risk factors for Trailblazer. Trailblazer serves a relatively limited geographic area with limited demand for additional loads directly off of its pipeline facilities. Trailblazer does not connect to numerous other natural gas pipelines that offer their shippers multiple supply sources and multiple destination markets, both on-system and off-system. Access to multiple natural gas pricing points allows shippers to capture basis differentials for natural gas commodity sales and lowers the business risk of pipelines that access numerous on-system markets and off-system markets with numerous pricing hubs, unlike Trailblazer. These factors make Trailblazer a unique pipeline which contributes to its business risk. You have described that a number of MLP entities included in your recommended Proxy Group have recently announced that they are considering or actively planning to absorb their MLP units into their parent corporation, or planning other transactions. How will these events impact the selection of your recommended Proxy Group entities? 0 As explained above, the Commission has created an unprecedented level of uncertainty regarding the composition of Proxy Groups. The Commission may determine that some relaxation of its criteria for Proxy Group selection is warranted during this period of uncertainty. In addition, rate cases can take a significant period of time to litigate as discussed earlier, so a Proxy Group candidate identified above but rejected in June 0 may be acceptable at a later point in the litigation after the impact of any transaction on its stock/unit value

80 Docket No. RP Page of and dividend/distribution yield is absorbed by the market. The increased business risk and costs to the industry of converting MLP units to C-Corporation shares could be significant and these increased costs and business risks will need to be properly reflected in the calculated DCF ROE recommendation as this case proceeds. What is your assessment of the overall business risk faced by Trailblazer? In summary, Trailblazer faces significant business risks, given all the factors discussed above. Trailblazer has considerable risk compared to the interstate natural gas pipeline companies in the Proxy Group as I will show in the next section of my testimony. VI. TRAILBLAZER S BUSINESS RISKS RELATIVE TO THE PROXY GROUP COMPANIES Please provide a summary table showing the individual interstate natural gas pipelines owned by the Proxy Group companies. Schedule No. below shows the parent entities included in the Trailblazer Proxy Group and the individual interstate natural gas pipeline companies that are affiliates of the respective parent companies.

81 Docket No. RP Page of SCHEDULE NO. Trailblazer Pipeline Company LLC Proxy Group Analysis Interstate Natural Gas Pipelines by Proxy Entity Proxy Entity () Interstate Natural Gas Pipelines () Boardwalk Pipeline Partners LP (BWP) Gulf Crossing Pipeline Gulf South Pipeline Company Texas Gas Transmission Dominion Midstream Partners Dominion Cove Point Dominion Carolina Gas Transmission, LLC Iroquois Gas Transmission System, LP Dominion Questar Corporation Enable Midstream Partners, LP (ENBL) Enable Gas Transmission Mississippi River Transmission Southeast Supply Header System EQT Midstream Partners, L.P. (EQM) Equitrans Transmission & Storage Kinder Morgan Inc. (KMI) Cheyenne Plains Gas Pipeline Colorado Interstate Gas El Paso Natural Gas Pipeline Co. Elba Express Fayetteville Express Pipeline Florida Gas Transmission Horizon Pipeline Company Kinder Morgan Illinois Pipeline Kinder Morgan Louisiana Pipeline Midcontinent Express Pipeline Mojave Pipeline Co. Natural Gas Pipeline Company of America Ruby Pipeline Sierrita Gas Pipeline Southern LNG Southern Natural Gas Tennessee Gas Pipeline Transcolorado Gas Transmission Wyoming Interstate Co. Spectra Energy Partners, L.P. (SEP) Algonquin Gas Transmission Big Sandy Pipeline East Tennessee Natural Gas Gulfstream Natural Gas Maritimes & Northeast Pipeline Ozark Gas Transmission Southeast Supply Header System Texas Eastern Transmission TC Pipelines, LP (TCP) Bison Pipeline Gas Transmission Northwest Great Lakes Gas Transmission Iroquois Gas Transmission System, LP North Baja Pipeline Northern Border Pipeline Company Portland Natural Gas Transmission System Tuscarora Gas Transmission () Some pipelines are owned by more than one company and are shown under both owners.

82 Docket No. RP Page 0 of Please compare the business risk of Trailblazer to the business risks of the Proxy Group members. Compared to Proxy Group members, Trailblazer has a limited geographic footprint with minimal on-system markets and challenged off-system markets, and will be challenged by flat or declining natural gas supply available for transportation from the Rockies to its off-system markets. The pipelines in the Proxy Group generally face either lower supply risk or lower market risk (or both). Trailblazer faces demand risks for its future transportation services because of new supply from low-cost natural gas supplies and existing gas supplies fighting to gain/retain upper Midwest natural gas markets. These upper Midwest natural gas markets also have limited growth potential because of low population growth. Unlike Trailblazer, most of the pipelines in the Proxy Group are expanding their pipeline capacity and are connected to growing markets. Have you reviewed the interstate natural gas pipelines owned by the Proxy Group companies for additional operational/business risk factors as compared to Trailblazer? 0 Yes. Exhibit No. TPC-000, Schedule Nos., show a comparison of the Proxy Group pipeline companies versus Trailblazer for weighted average remaining contract life, customer concentration, recent throughput statistics, and discounting and negotiated rate risk factors. This data was extracted from FERC s website for each pipeline and reflects the most recent data available.

83 Docket No. RP Page of Please explain Schedule No. of Exhibit No. TPC-000. Schedule No. provides an additional metric for the business risk of the Proxy Group pipelines. Schedule No. shows the average remaining contract life for the pipelines in the Proxy Group entities. Trailblazer has a shorter contract life of approximately.0 years versus the six-year average for the Proxy Group pipelines. Trailblazer s relatively short average remaining shipper contract life of.0 years adds to its business risk. The average remaining shipper contract life for all of the Proxy Group pipelines is.0 years more than 0% higher than the remaining contract life for Trailblazer. See below:

84 Docket No. RP Page of Trailblazer Pipeline Company LLC Schedule No. Proxy Group Analysis Average Remaining Contract Life Average Remaining Contact Life Proxy Entity () Interstate Natural Gas Pipelines () (in years) Boardwalk Pipeline Partners LP (BWP) Dominion Midstream Partners Enable Midstream Partners, LP (EMP) EQT Midstream Partners, L.P. (EQM) Kinder Morgan Inc. (KMI) Spectra Energy Partners, L.P. (SEP) TC Pipelines, LP (TCP) Gulf Crossing Pipeline.0 Gulf South Pipeline Company.0 Texas Gas Transmission. Dominion Cove Point. Dominion Carolina Gas Transmission, LLC.0 Iroquois Gas Transmission System, LP. Dominion Questar Corporation.0 Enable Gas Transmission. Mississippi River Transmission. Southeast Supply Header System. Equitrans Transmission & Storage.00 Cheyenne Plains Gas Pipeline. Colorado Interstate Gas. El Paso Natural Gas Pipeline Co..0 Elba Express. Fayetteville Express Pipeline. Florida Gas Transmission. Horizon Pipeline Company. Kinder Morgan Illinois Pipeline.00 Kinder Morgan Louisiana Pipeline 0.00 Midcontinent Express Pipeline. Mojave Pipeline Co..0 Natural Gas Pipeline Company of America.0 Ruby Pipeline. Sierrita Gas Pipeline. Southern LNG. Southern Natural Gas. Tennessee Gas Pipeline. Transcolorado Gas Transmission. Wyoming Interstate Co.. Algonquin Gas Transmission. Big Sandy Pipeline.0 East Tennessee Natural Gas.0 Gulfstream Natural Gas. Maritimes & Northeast Pipeline. Ozark Gas Transmission. Southeast Supply Header System. Texas Eastern Transmission. Bison Pipeline.0 Gas Transmission Northwest. Great Lakes Gas Transmission. Iroquois Gas Transmission System, LP. North Baja Pipeline. Northern Border Pipeline Company. Portland Natural Gas Transmission System. Tuscarora Gas Transmission. Average of Proxy Group Pipelines.0 Trailblazer Pipeline Company LLC.00

85 0 Docket No. RP Page of Why is an interstate natural gas pipeline company s weighted average remaining contract life an important business risk metric? Interstate natural gas pipeline companies have to recover the fixed investment costs of their pipeline systems over long service lives, and when the length of contractual commitments by shippers decreases significantly it raises the business risk of the pipeline. Witness Kirk explains how quickly Southern Trails Pipeline reached the end of its economic life when firm contract commitments ended. A declining contract life for a pipeline is the canary in the coal mine, an early indicator of significant problems. An example of what happens to interstate pipelines when they have declining contractual commitments, unsubscribed capacity, poor prospects for future demand or growth, and declining throughput, is in the offshore Gulf Coast transportation market. Sea Robin Pipeline Company and High Island Offshore System are examples of interstate pipelines that operate below capacity and with significant rate discounts because of declining demand for transportation service on their pipeline systems. When producers and marketers recognize that a pipeline is underutilized and capacity is available every day of the year, these shippers know they are in a buyer s market. Declining throughput on a pipeline informs the market that there may be an over-supply of pipeline capacity/numerous good alternatives/or significant demand displacement. In such conditions, shippers do not have to sign up for long-term firm service and pay a monthly demand charge, but rather they can rely on daily firm service or interruptible service, often at a significant discount. This makes the business risk of an underutilized pipeline much greater because the recovery of fixed plant

86 Docket No. RP Page of investment and full recovery of the cost of service and return allowance is often impossible. Trailblazer is currently exposed to business risk on its interstate natural gas pipeline facilities caused by limited off-system markets and ongoing gas supply challenges in the natural gas industry. Please explain Schedule No. of Exhibit No. TPC-000. Schedule No. measures the percentage of total contract demand composed of the top two customers of the pipeline and the top five customers of the pipeline. The higher the concentration of top two or top five customers, the higher the business risk of the entity because the loss of any one or two customers may mean that the pipeline will not be able to sell all of the resulting unsubscribed capacity to new customers. Trailblazer has relatively low risk in this category when compared to the other interstate pipelines in the Proxy Group companies. Only percent of Trailblazer s capacity is contracted by just two customers while approximately percent is contracted by five customers. The metrics show that Trailblazer has lower business risk than the pipeline companies in the Proxy Group that average. percent for two customers and. percent for five customers. See below.

87 Docket No. RP Page of Trailblazer Pipeline Company LLC Schedule No. Proxy Group Analysis Customer Concentration Analysis Proxy Entity () Interstate Natural Gas Pipelines () % of Total MDQ From Top Customers % of Total MDQ From Top Customers Boardwalk Pipeline Partners LP (BWP) Gulf Crossing Pipeline.%.% Gulf South Pipeline Company.%.% Texas Gas Transmission 0.% 0.% Dominion Midstream Partners Dominion Cove Point.%.% Dominion Carolina Gas Transmission, LLC.%.% Iroquois Gas Transmission System, LP.0%.% Dominion Questar Corporation.%.0% Enable Midstream Partners, LP (EMP) Enable Gas Transmission.%.% Mississippi River Transmission.% 0.0% Southeast Supply Header System.%.% EQT Midstream Partners, L.P. (EQM) Equitrans Transmission & Storage.%.% Kinder Morgan Inc. (KMI) Cheyenne Plains Gas Pipeline.% 0.% Colorado Interstate Gas.%.% El Paso Natural Gas Pipeline Co..%.% Elba Express.0% 0.0% Fayetteville Express Pipeline.% 0.0% Florida Gas Transmission.%.% Horizon Pipeline Company 0.0% 0.0% Kinder Morgan Illinois Pipeline 0.0% 0.0% Kinder Morgan Louisiana Pipeline No Firm Contracts No Firm Contracts Midcontinent Express Pipeline 0.%.% Mojave Pipeline Co..% 0.0% Natural Gas Pipeline Company of America.%.% Ruby Pipeline 0.% 0.% Sierrita Gas Pipeline 0.0% 0.0% Southern LNG 0.0% 0.0% Southern Natural Gas.%.% Tennessee Gas Pipeline.%.0% Transcolorado Gas Transmission.%.% Wyoming Interstate Co..%.% Spectra Energy Partners, L.P. (SEP) Algonquin Gas Transmission.% 0.% Big Sandy Pipeline 0.%.% East Tennessee Natural Gas.%.0% Gulfstream Natural Gas.%.% Maritimes & Northeast Pipeline.0%.% Ozark Gas Transmission.% 0.0% Southeast Supply Header System.%.% Texas Eastern Transmission.%.% TC Pipelines, LP (TCP) Bison Pipeline.% 0.0% Gas Transmission Northwest.%.% Great Lakes Gas Transmission.%.% Iroquois Gas Transmission System, LP.0%.% North Baja Pipeline 0.% 0.% Northern Border Pipeline Company.%.% Portland Natural Gas Transmission System.%.% Tuscarora Gas Transmission.%.% Average of Proxy Group Pipelines.%.% Trailblazer Pipeline Company LLC.%.%

88 What is the purpose of Schedule No. of Exhibit No. TPC-000? Docket No. RP Page of Schedule No. provides a comparison of the throughput volumes on Trailblazer s interstate natural gas pipeline facilities compared to the throughput volumes on the interstate pipelines in the Proxy Group. Trailblazer s throughput increased from,00, Dth in 0 to 0,,0 Dth in 0, an increase of nine percent, after being flat from 0 to 0. Most of the pipelines owned by the Proxy Group entities have experienced increases in system throughput as well. Schedule No. shows that the average for the pipeline Proxy Group experienced an increase of one percent in their overall throughput from 0 to 0. Trailblazer s actual increase in throughput percentage was greater than that of the Proxy Group entities and shows that Trailblazer had less risk in 0 than the Proxy Group entities. This throughput comparison is show below:

89 Docket No. RP Page of Trailblazer Pipeline Company LLC Schedule No. Proxy Group Analysis Throughput Comparison Proxy Entity () Interstate Natural Gas Pipelines () Boardwalk Pipeline Partners LP (BWP) Gulf Crossing Pipeline,,,,,,0 Gulf South Pipeline Company,,,,,,,,, Texas Gas Transmission,0,,,0,,,,, Dominion Midstream Partners Dominion Cove Point,,0,,,,0 Dominion Carolina Gas Transmission, LLC,,0,000,,, Iroquois Gas Transmission System, LP,0,,,,, Dominion Questar Corporation,0,,,,00, Enable Midstream Partners, LP (EMP) Enable Gas Transmission,,0,,,, Mississippi River Transmission,0,,,0,,0 Southeast Supply Header System,,0,0,0,, EQT Midstream Partners, L.P. (EQM) Equitrans Transmission & Storage,,,,,, Kinder Morgan Inc. (KMI) Cheyenne Plains Gas Pipeline,,,0,,, Colorado Interstate Gas,, 0,,0 0,, El Paso Natural Gas Pipeline Co.,,,,,,,,0, Elba Express,,0,,,,0 Fayetteville Express Pipeline 0,0,,0,,, Florida Gas Transmission,,,,,, Horizon Pipeline Company,,,,,00, Kinder Morgan Illinois Pipeline,,,,,0,0 Kinder Morgan Louisiana Pipeline,,,,, Midcontinent Express Pipeline,0, 0,,,0,00 Mojave Pipeline Co.,,,,,0, Natural Gas Pipeline Company of America,0,,0,,0,,,, Ruby Pipeline,,0,,,0, Sierrita Gas Pipeline,,,,,, Southern LNG,,0,,0,, Southern Natural Gas,,,000,,0,, Tennessee Gas Pipeline,00,,,,,,0,,0 Transcolorado Gas Transmission,0,,,0,0, Wyoming Interstate Co.,,,,,, Spectra Energy Partners, L.P. (SEP) Algonquin Gas Transmission,,,,,,0 Big Sandy Pipeline,,0,,,,0 East Tennessee Natural Gas,0,,, 0,, Gulfstream Natural Gas,,,,,,0 Maritimes & Northeast Pipeline,,,,,0, Ozark Gas Transmission,0,,,,, Southeast Supply Header System,,0,0,0,, Texas Eastern Transmission,,0,,,,00,,, TC Pipelines, LP (TCP) Bison Pipeline 0,,0, Gas Transmission Northwest,, 0,,,0,0 Great Lakes Gas Transmission,,,,,, Iroquois Gas Transmission System, LP,0,,,,, North Baja Pipeline,0,,,,0, Northern Border Pipeline Company,0,,,00,,,0,, Portland Natural Gas Transmission System,,,,0,, Tuscarora Gas Transmission,0,00,,0,, Average of Proxy Group Pipelines,,,,,, Trailblazer Pipeline Company LLC 0,,0,00, 0,,0 Why do you expect that Trailblazer s throughput will decline in the future? Trailblazer s off-system markets will have shrinking basis differentials as other gas supplies compete with Rocky Mountain gas supplies to capture these markets in the future. Lower basis values for Rocky Mountain gas supply deliveries to the

90 Docket No. RP Page of upper Midwest markets will provide lower incentives for natural gas drilling and future supplies and Rocky Mountain supplies may be diverted to West Coast markets with stronger basis differentials. In addition, there is relatively little growth in Trailblazer s natural gas off-system markets. As demonstrated by Witness Kirk, use of renewable energy is expected to increase, thus further reducing future demand on Trailblazer. VII. COMPARISON OF THE BUSINESS RISK OF THE PIPELINES INCLUDED IN THE PROXY GROUP ENTITIES TO THE BUSINESS RISK OF TRAILBLAZER Please compare Trailblazer s business risk and its growth potential to Boardwalk s business risk and growth potential. Boardwalk has stronger growth potential and lower business risk than Trailblazer. Boardwalk is adding $. billion of new plant investment from February 0 through 00 to increase its natural gas transportation capacity by. Bcf/d. Boardwalk expects the major growth projects listed below to provide it with significant new market opportunities in the short-term and near-term. See Boardwalk, Barclays Select Series: MLP Corporate Access Days, Investor Presentation, at (Feb. 0).

91 Docket No. RP Page of Does Boardwalk represent that its pipelines are positioned to capitalize on changing supply and market dynamics? Yes. Boardwalk emphasizes that its access to Marcellus and Utica supplies will give it a competitive advantage in marketing theses gas supplies in growing demand markets, particularly in the Gulf Coast region, where Boardwalk has. Bcf/d of long-term firm contractual commitments to serve new LNG export facilities. Boardwalk has much lower business risk than the geographically

92 Docket No. RP Page 0 of isolated transmission facilities of Trailblazer because of the numerous growth opportunities Boardwalk expects to capitalize on. The slide below shows Boardwalk s expected supply growth over the near-term period 0 to 00. See Boardwalk, Presentation for Morgan Stanley MLP/Diversified Natural Gas, Utilities & Clean Tech Conference, at (Mar. 0). Please compare Trailblazer s business risk to DMP. DMP owns and operates significant interstate natural gas pipeline and storage facilities operating across a wide area of the United States and provides a key transportation link between Marcellus/Utica production and other natural gas

93 Docket No. RP Page of demand markets. DMP s $ billion Cove Point LNG export project has been completed and on March, 0, DMP shipped its first LNG export cargo. See DMP, Investor Presentation, at (Jan., 0). Please compare Trailblazer s business risk to ENBL Midstream. Unlike Trailblazer, the ENBL Midstream interstate pipelines operate across numerous supply basins and destination markets in the Gulf Coast, Southeast, and Mid-Continent. Also, unlike Trailblazer, ENBL Midstream s pipelines have a strategic advantage in directly accessing supply basins such as the Stack and SCOOP natural gas plays in Oklahoma and the growing demand for gas from

94 Docket No. RP Page of these regions. The slide below is from ENBL Midstream s First Quarter 0 Investor Presentation: ENBL Midstream, First Quarter 0 Investor Presentation, at, wire.com/files/event/additional/0-q_ir_presentation_vf_rev.pdf (last visited June, 0). Please compare Trailblazer s business risks to Equitrans Midstream. Equitrans Midstream operates in the heart of the Marcellus/Utica footprint and accesses the lowest cost gas supply in North America. Equitrans Midstream emphasizes its commitment to growth of its pipeline investment and the demand for additional transportation service as production grows in the future for

95 Docket No. RP Page of Marcellus/Utica gas supplies. Equitrans Midstream s May 0 Investor Presentation contains the slide below which shows Equitrans Midstream s. Bcf/d of pipeline capacity and Bcf of storage capacity. Equitrans Midstream has grown significantly by adding the Ohio Valley Connector and the Alleghany Valley Connector projects. Equitrans Midstream s ideal geographic location in the heart of the Marcellus and easy access to growing and low-cost Marcellus/Utica gas supplies provides it with a business advantage over Trailblazer. EQT Midstream Partners EQT GP Holdings May 0 Investor Relations Presentation at, m/files/doc_library/file/eqm- EQGP_Investor_Presentation_May_0_FINAL.pdf (last visited June, 0).

96 Does Kinder Morgan have lower business risk than Trailblazer? Docket No. RP Page of Yes. The pipelines owned by Kinder Morgan generally have lower business risk than Trailblazer. Kinder Morgan s Tennessee Gas Pipeline ( TGP ) has expanded significantly over the past eight years because of its direct access to growing Marcellus production within its pipeline footprint and now TGP can deliver those gas supplies to its markets in the Northeast and the Gulf Coast. Kinder Morgan describes TGP as uniquely positioned in the growing Marcellus/Utica region to provide shippers with beneficial market access via both forward hauls to Northeast and backhauls to Gulf Coast. Kinder Morgan describes its network on natural gas pipelines as the largest network in North America with over 0,000 mile of natural gas pipelines connected to every important U.S. natural gas resource play. Kinder Morgan s Investor Presentation slide below shows the breadth of Kinder Morgan s natural gas pipelines across U.S. natural gas supply and demand markets. See Kinder Morgan, Barclays Investment Grade Energy and Pipeline Conference, at (Feb., 0).

97 Docket No. RP Page of Kinder Morgan lists eight active pipeline transportation projects that total more than $ billion with. Bcf/d of contracted transportation capacity. Kinder Morgan expects its natural gas pipeline business to grow significantly in the future in part because of LNG exports from the United States to the rest of the world. Trailblazer has no similar growth prospects. Kinder Morgan s investor presentation slide on LNG growth markets is below (id. at ):

98 Docket No. RP Page of Please compare Trailblazer s business risks to SEP. The SEP pipelines are generally highly subscribed pipelines with substantial growth opportunities. Texas Eastern is percent subscribed under long-term contracts that average nine years. Algonquin, SESH, and Gulfstream are both percent subscribed under long-term contracts (eight, twelve, and five years, respectively) and have lower market risk than Trailblazer. SESH delivers to Gulfstream, which has lower market risk than Trailblazer as a result of its longterm contracts and service to the growing Florida markets. Maritimes & Northeast Pipeline (which has a design capacity of, Dth/d) is currently

99 Docket No. RP Page of fully subscribed with the vast majority of the capacity ( percent) subscribed under a long-term contract ( years remaining). East Tennessee is percent subscribed and has recently expanded its mainline system to serve a new gas-fired power plant in northeastern Tennessee. The table below shows the financial and contract strength of SEP s pipeline businesses: SEP Presentation at, /0/SEP%0Marketing%0Presentation.pdf (last visited June, 0). Has SEP capitalized on the geographic location of its pipeline facilities within the Marcellus/Utica Shale basins to expand its pipeline facilities? Yes. SEP s Texas Eastern pipeline is one of the pipelines that has taken full advantage of its position across the Marcellus/Utica basins to reverse the flow on

100 Docket No. RP Page of its pipeline facilities to be able to flow gas south to the Gulf Coast. The Texas Eastern Appalachia to Market Project and the Gulf Coast Market Expansion Projects were designed to efficiently and cost-effectively expand the Texas Eastern system to transport increased natural gas production from the Marcellus/Utica to the Gulf Coast. Texas Eastern is now fully bi-directional and expects to increase deliveries from the Marcellus to the Gulf Coast while retaining its full capacity to deliver to its traditional markets in the Northeast. The slide below shows SEP s expansion plans for its other transmission system assets, a total of over $. billion of plant investment. Id. at.

101 Docket No. RP Page of Does SEP tout its premier pipeline asset footprint? Yes. The map below is also from SEP s latest investor presentation and clearly shows the geographic location of SEP s pipeline assets and in particular its East Coast dominant interstate natural gas pipelines. See footprint slide below (id. at ): Please compare Trailblazer s business risks to TransCanada. GTN and Northern Border are characterized by less risk than Trailblazer. GTN and Northern Border are competitive pipelines that access multiple supply areas. TransCanada s Northern Border and Great Lakes pipeline will face competitive markets in their upper Midwest destination markets similar to Trailblazer. Bison s throughput and markets have never developed as originally expected when the project was constructed. Bison has business risks that are similar to Trailblazer because both pipelines operate in areas characterized by pipeline

102 Docket No. RP Page 0 of capacity that exceeds demand with limited opportunities in their geographic destination markets. TransCanada s remaining pipelines, Iroquois, Portland Natural, Tuscarora, and North Baja, generally operate in discrete smaller markets with less business risk. TransCanada s latest investor presentation shows that it emphasizes its limited risk because of long-term demand contracts with little commodity risk exposure. Overall, the business risk of Trailblazer is significantly greater than TransCanada. See TC PipeLines, LP, Partnership Profile, at (Feb. 0).