Trailblazer Pipeline Company LLC Docket No. RP- -000
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Trailblazer Pipeline Company LLC ) ) ) Docket No. RP- -000 SUMMARY OF PREPARED DIRECT TESTIMONY OF MICHAEL J. RINEHART ON BEHALF OF TRAILBLAZER PIPELINE COMPANY LLC Michael J. Rinehart, who is the Manager of Rate Base for the Tallgrass family of regulated pipelines, presents Prepared Direct Testimony for Trailblazer Pipeline Company LLC ( Trailblazer ). Mr. Rinehart provides the basis of and explains the derivation of certain components underlying Trailblazer s rate base and depreciation. Mr. Rinehart also provides support for rate base items that have gone into the calculation of cost of service. Mr. Rinehart sponsors Statements and Schedules B through E, and H-, and explains those statements and schedules.
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Docket No. RP- -000 Page of Trailblazer Pipeline Company LLC ) ) ) Docket No. RP- -000 PREPARED DIRECT TESTIMONY OF MICHAEL J. RINEHART ON BEHALF OF TRAILBLAZER PIPELINE COMPANY LLC June, 0
Page of TABLE OF CONTENTS GLOSSARY OF TERMS... I. INTRODUCTION... II. RATE BASE... A. Rate Base and Return... B. Gas Plant Balance... C. Accumulated Reserve for Depreciation, Depletion and Amortization... D. Working Capital Allowance...
Page of GLOSSARY OF TERMS ACA Accumulated Depreciation ADIT Annual Charge Adjustment Accumulated reserve for depreciation, depletion and amortization Accumulated Deferred Income Taxes Base Period The twelve months ending March, 0. Commission FERC GMCS Federal Energy Regulatory Commission Federal Energy Regulatory Commission Gas Management Computer System IRS Massachusetts Formula SCADA Internal Revenue Service The Massachusetts Formula is used to allocate overhead costs (expenses that are incurred by, and charged from, parent companies and/or service companies to subsidiaries and affiliates) among corporate subsidiaries when the costs cannot be directly allocated to specific subsidiaries. See Distrigas of Massachusetts Corp., Opinion No., FERC,0 (), order on reh g, FERC,, reh g denied, FERC, (). Supervisory Control and Data Acquisition system Tariff Trailblazer Pipeline Company LLC, FERC Gas Tariff, Sixth Revised Volume No. Test Period The period from April, 0 through December, 0. Trailblazer Trailblazer Pipeline Company LLC
Page of 0 0 I. INTRODUCTION Q. Please state your name, business address, and occupation. A. My name is Michael J. Rinehart and my business address is 0 Van Gordon, Lakewood, Colorado. I am Manager of Rate Base for the Tallgrass family of regulated pipelines. Q. Please briefly state your professional experience and qualifications. A. I graduated from the University of Colorado at Denver in 00 with a Bachelor of Arts in Business Finance and Accounting. I was initially employed by Kinder Morgan Energy Partners from 00 until 0 as a Senior Accountant, working on various interstate gas pipelines, including Kinder Morgan Interstate Gas Transmission LLC, Natural Gas Pipeline Company of America LLC, and TransColorado Gas Transmission LLC. In 0, I joined Tallgrass as a Senior Financial Analyst and have been in my current position since October 0. Q. Have you previously testified before the Federal Energy Regulatory Commission ( Commission or FERC )? A. No. Q. On whose behalf are you submitting your prepared testimony in this proceeding? A. I am submitting testimony on behalf of Trailblazer Pipeline Company LLC ( Trailblazer ). Q. What is the purpose of your direct testimony? A. The purpose of my testimony in this proceeding is to provide the basis for, and explain the derivation of, certain components underlying Trailblazer s rate base
Page of and depreciation expense, as well as provide support for rate base items that have gone into the calculation of cost of service. Q. Have you provided any exhibits with your testimony? A. Yes. I have included the following exhibits with my testimony: Exhibit No. TPC-000 Statement B Rate Base and Return Summary Exhibit No. TPC-000 Schedule B- Exhibit No. TPC-000 Schedule B- Accumulated Deferred Income Taxes Summary Regulatory Asset and Liability Summary Exhibit No. TPC-000 Statement C Cost of Plant Summary Exhibit No. TPC-000 Schedule C- Exhibit No. TPC-000 Schedule C- Exhibit No. TPC-000 Schedule C- Gas Storage Exhibit No. TPC-000 Statement D Exhibit No. TPC-000 Schedule D- End of Base and Test Period Plant Functionalized Total Gas Plant Work Orders Claimed in Rate Base Accumulated Provisions for Depreciation, Depletion, and Amortization Depreciation Reserve Applicable to Depreciation Rate Not Yet Approved by the Commission Exhibit No. TPC-00 Statement E Working Capital Summary Exhibit No. TPC-00 Schedule E- Cash Working Capital Claimed as an Adjustment to the Rate Base Exhibit No. TPC-00 Schedule E- Working Capital Detail Exhibit No. TPC-00 Schedule E- Exhibit No. TPC-00 Statement H- Working Capital Cost of Natural Gas Stored Depreciation, Depletion, Amortization, and Negative Salvage Expenses Exhibit No. TPC-00 Schedule H-() Depreciable Plant
Page of 0 Q. Were all of the Statements and Schedules listed above prepared by you or under your direction and supervision? A. Yes. Q. Please define the Base and Test Periods, as presented in the Statements and Schedules. A. The Base Period is twelve months ending March, 0. The Test Period is the period from April, 0 through December, 0. Q. Do these Statements and Schedules reflect the information shown on Trailblazer s books and records for the Base Period? A. Yes. The Statements and Schedules contain actuals taken from the accounting books and records of Trailblazer for the Base Period maintained in accordance with the Uniform System of Accounts. The Base Period amounts were adjusted for known and measurable changes expected to occur during the nine-month period ending December, 0, to arrive at Test Period amounts. Q. Do the Statements and Schedules you are sponsoring contain only the amounts related to providing jurisdictional service? A. Yes. II. RATE BASE 0 Q. How did Trailblazer develop its Rate Base? A. Trailblazer s Test Period adjusted Rate Base includes Gas Plant in Service, reduced by accumulated depreciation reserves and Accumulated Deferred Income Taxes ( ADIT ), and increased by various regulatory assets and working capital
Page of 0 0 items. The resulting Trailblazer end of Test Period rate base is $0,0,, as more fully described below. A. Rate Base and Return Q. Please explain Statement B, Rate Base and Return Summary (Exhibit No. TPC-000). A. Statement B (Exhibit No. TPC-000) is a summary of the Trailblazer rate base. Trailblazer is proposing a total rate base of $0,0,. This amount reflects the facilities that Trailblazer expects to be in service as of the end of the Test Period. Statement B also shows Trailblazer s claimed overall return of $0,,0. The selected rate of return is discussed in the Prepared Direct Testimony of Trailblazer Witness David J. Haag (Exhibit No. TPC-00). Q. Please describe Schedule B-. A. Schedule B- (Exhibit No. TPC-000) reflects Trailblazer s ADIT included in rate base. Schedule B- provides monthly book balances for Trailblazer s Account 0 (Accumulated Deferred Income Taxes), (Accumulated Deferred Income Taxes Other Property) and (Accumulated Deferred Income Taxes Other) for the Base Period ending March, 0, and has an adjustment to reflect Test Period changes. The Test Period adjustment represents changes to ADIT primarily as a result of the Tallgrass re-organization, as explained by Trailblazer Witnesses Haag and Alan R. Lovinger (Exhibit No. TPC-00). The total adjustment made to ADIT of $,, reflects the extinguishment of ADIT as of June 0, 0, as discussed by Witness Lovinger, consistent with the Internal Revenue Service s ( IRS ) normalization rules, due to the Tallgrass re-
Page of 0 0 organization. The remaining ($,) in Account is the deferred income tax impact of the book and tax basis timing difference, forecast through the end of the Test Period. Q. Please describe Schedule B-. A. Schedule B- (Exhibit No. TPC-000) reflects Trailblazer s regulatory assets and liabilities that are included in rate base. Schedule B- provides monthly book balances for Trailblazer s Account No.. (Regulatory Assets) and Account No. (Regulatory Liabilities) and has been adjusted to include only amounts that have a relationship to cost-of-service items included in this rate filing. Test Period adjustments were made in Schedule B- to eliminate fuel and electric power cost tracker and regulatory commission expenses (i.e., Annual Charge Adjustment ( ACA )). Accordingly, Trailblazer has made an adjustment to Account. in the amount of ($,,0) to remove the fuel tracker balances of ($,0,) and ACA expenses of ($,) from rate base. An adjustment has also been made to Account to remove the fuel tracker liability of $,0, which is not included in this rate filing because it is tracked separately outside of this Natural Gas Act Section filing and is trued up regularly pursuant to Trailblazer s Tariff. In addition, an amount of $, related to Account 0 was removed, as this balance is not properly included in the cost of service. Account also has a remaining balance of ($,,), which represents the excess ADIT collected and moved out of Account, as discussed by Witness Lovinger.
Page of 0 0 B. Gas Plant Balance Q. How was Trailblazer s Gas Plant in Service balance determined? A. Statement C (Exhibit No. TPC-000) shows the total gas plant balance at the end of the Base Period (Column F), including additions and reductions made during the Base Period. In addition to the current end of Base Period gas plant balances, test period and corporate adjustments were made to arrive at the adjusted gas plant balance of $0,,. These adjustments are shown in Column G of Statement C and are detailed in Schedule C- (Exhibit TPC-000) by FERC Account No. and are further detailed by work order in Schedule C- (Exhibit No. TPC-000). Q. Please describe any adjustments made to the ending Base Period gas plant balance reflected on Statement C to arrive at Trailblazer s adjusted gas plant balance. A. The following adjustments were made to the end of Base Period balance to arrive at the end of Test Period gas plant balance on Schedule C-: () projected Test Period net plant additions of $,,, and () an adjustment to reflect Trailblazer s portion of investment in the corporate office facilities and equipment of $,,. Ex. No. TPC-000, Statement C, and the supporting Schedules C- and C- reflect these Test Period adjustments and are explained below. Q. Please describe the adjustments to plant, by FERC gas plant account, which are expected to occur during the Test Period. A. Schedule C- is a schedule that reflects the Test Period adjustments for additions and retirements by project and FERC gas plant account, including expected in-
Page 0 of 0 0 service dates. Total Test Period additions are $,,0 (Column D), which consist of $,,0 of pipe replacement, $,, pipe recoats, $,,0 for anomaly digs, $,00,000 for a compressor overhaul at Station 0, and $,0 for various projects. In addition, the balance of Account 0 at March, 0 is $,,0 (Column E) and is expected to be transferred to Gas Plant in Service within the Test Period as shown in Schedule C-. To calculate end of Test Period results, the Account 0 balance was transferred to the applicable Account 0 FERC gas plant accounts as shown in Schedule C- and reflected in footnote of Schedule C-. In total, there is an adjustment to gas plant of $,,, which is shown in Schedule C-, Line, Column D, to reflect Test Period additions to gas plant. Q. Please describe the basis for the additional Corporate Adjustments to general plant balances as shown in Schedule C-. A. The proposed Corporate Adjustments total $,,. Included in this amount is an adjustment to general plant of $,0,0 that was made to reflect Trailblazer s allocated portion of costs related to the Lakewood, Colorado office campus. The general plant balances recorded on Trailblazer s books and records reflect only the portions related to Trailblazer, which is included in Schedule C-, Line, Column D. The Lakewood campus corporate plant balance amount allocated to Trailblazer was determined by applying the Massachusetts Formula percentage for Trailblazer of.% to the total Corporate general plant balance of $,,0.
Page of 0 Q. Were there any other corporate plant balances allocated to Trailblazer? A. Yes, in addition to the Lakewood, Colorado corporate office, Tallgrass records other corporate-related assets consisting of shared computer systems (including hardware and software), and other shared general assets in its corporate books and records. The balance of these shared corporate general assets at March, 0 is $0,,0 and consists of the following assets: Gas Management Computer System $,, Measurement Computer System $,0 SCADA System $,,0 Other Various Systems and General Assets $,, Total Shared Corporate Assets $ 0,,0 Q. How were these shared corporate assets apportioned to Trailblazer? A. The Gas Management Computer System ( GMCS ) was apportioned based on the percentage of contract license subscription fees charged to Trailblazer to the total subscription fees for all Tallgrass gas pipelines that utilize the GMCS, which equals.0%. This reflects the portion of the GMCS costs that Trailblazer incurs. The Measurement Computer System and Supervisory Control and Data Acquisition system ( SCADA ) are apportioned in accordance with Trailblazer s Massachusetts Formula percentage of.% and the remaining corporate assets were apportioned to Trailblazer as follows: Description Corporate Allocated Amount Asset % GMCS.0% $,0, Measurement Computer System.% $, The GMCS performs services only related to Tallgrass s Interstate Natural Gas pipelines.
Page of 0 0 SCADA System.% $, Other Corporate Systems.% $ 0, Total Apportioned Corporate Assets $,,0 Trailblazer estimates that no material additions of corporate assets will be capitalized during the Test Period. As a result, total additions of $,,0 related to corporate assets were added to Trailblazer s general plant assets included in Column E of Schedule C-. Q. Please recap all the adjustments to gas plant as reflected in Schedule C- and Schedule C-. A. The total adjustments to gas plant of $,, is made up of the following adjustments: Test Period Additions and Retirements $,,0 Test Period Acct 0 transfers to plant $,,0 Corporate Office Lakewood Campus Adj. $,0,0 Corporate Office Tallgrass Energy Adj. $,,0 Q. Please describe Schedule C- (Exhibit No. TPC-000). A. Schedule C- correctly states that Trailblazer does not own or operate any gas storage. C. Accumulated Reserve for Depreciation, Depletion and Amortization Q. How was the accumulated reserve for depreciation, depletion and amortization ( Accumulated Depreciation ) determined? A. The following adjustments were made to arrive at the Test Period ending Accumulated Depreciation balance in Statement D (Exhibit No. TPC-000) of
Page of 0 0 ($,,0): () an adjustment to reflect Trailblazer s investment in the corporate office facilities and equipment of ($,) and an adjustment to reflect Trailblazer s portion of corporate assets of ($,,) for a total corporate adjustment of ($,,) (Line 0, Column G); and () a projected Test Period depreciation expense of ($,,). Q. Please describe the basis for adjustment to general Accumulated Depreciation balances as shown in Statement D. A. As described above, in Statement D, an adjustment was made to increase the general office gas plant for Trailblazer related to the Lakewood campus to include Trailblazer s allocated portion of costs. In conjunction with this gas plant adjustment, an adjustment of ($,) was made to the Accumulated Depreciation balance related to the Lakewood, Colorado general functional category. Q. Were there any other corporate office Accumulated Depreciation balances allocated to Trailblazer? A. Yes. As described above and as shown in Schedule C-, in addition to the Lakewood, Colorado Corporate Office, Tallgrass records other corporate-related assets for shared computer systems hardware and software and vehicles in the Tallgrass corporate books and records. Using the corporate book balance at March, 0 described above for Schedule C-, the percentage of allocated Trailblazer assets to total assets of.% ($,,0 / $0,,0) was applied to the related Accumulated Depreciation balance of ($,0,), which added ($,,) to Trailblazer s general asset Accumulated Depreciation
Page of 0 0 balance, for a total of ($,,). In addition, Trailblazer s depreciation expense for the Test Period in the amount of ($,,) was added to the general accumulated depreciation balance. The addition of these items equals ($,,) (Ex. No. TPC-000, Statement D, Line 0, Columns G and H). Q. Please describe Schedule D-. A. Schedule D- (Exhibit No. TPC-000) reflects that Trailblazer does not have a depreciation reserve balance on its books applicable to any depreciation rate change not yet approved by the Commission. D. Working Capital Allowance Q. Please describe Trailblazer s proposed working capital allowance included in rate base. A. Statement E (Exhibit No. TPC-00) reflects Trailblazer s -month average working capital account balances ending March, 0, which are included in Trailblazer s proposed rate base. Materials and supplies and other prepaid items were included in the development of Trailblazer s proposed working capital allowance. Q. Please describe Schedule E-. A. Schedule E- (Exhibit No. TPC-00) states that Trailblazer has not reflected a cash working capital allowance in the derivation of rate base. Q. Please describe Schedule E-. A. Schedule E- (Exhibit No. TPC-00) reflects the months of working capital balances by category.
Page of 0 Q. Please describe the calculations made to arrive at the -month average of working capital balances and any Test Period adjustments made. A. Schedule E-, Line, which reflects the sum of the months of balances, was divided by to determine the average monthly balance by category. This amount is reflected on Line, Column G. No other Test Period adjustments were made. Q. Please describe Schedule E-. A. Schedule E- (Exhibit No. TPC-00) describes storage inputs, outputs, and balances, which is not applicable as Trailblazer does not have storage on its system. Q. Please describe Statement H- and Schedule H-() (Exhibit Nos. TPC-00 and TPC-00, respectively). A. Statement H- and Schedule H-() reconcile the total Gas Plant in Service to the depreciable Gas Plant in Service from which the depreciation expense amounts were derived. Trailblazer will implement the new depreciation rates proposed in this case effective January, 0. Q. Does this conclude your Prepared Direct Testimony? A. Yes, it does.