presumed double recovery of tax on that presumption is not supported by the record and is contradicted by for us approach to driving the equity return of the so called  d cash flow or d c is based on the theory that efficient markets will price into a pipelines equity return all public information including tax status x or  the commission refused to reopen that rate case record assured such opportunities to all and yes pipelines yet afforded no such opportunity to as it were over as it stands it's important to recognize that the underlying west line raised its record actually contradicts the full recovery presumption reflected in the revised policy and applied administrative law judge below reviewed that record and and issued an initial decision rejected the schippers claims found that there was not a double recovery whereas if he was afforded an d that's the record below as it stands it hasn't been modified by the commission and hasn't been reopened and i would say that record supports remain practice thats been in place for some time and was upheld this court and b p west coast products before as as revised here in the orders under review for its approach limits as a p p s rate that over the period that is subject to the rate case to no more than the level of lation even when s f tepees cost may in any given time period support higher rate levels but on the flip side the commissions revised approach opens the door to us at p p s rates being set lower even than inflation would starting with the tax allowance area earth has acknowledged on free that its outcome in this area has to have adequate support in the record yet whatever one thinks of the global recovery assumption for it is contradicted by the record both over in the revised policy statement pocket and and that in this situation warrants remain an having been remanded by the court united for failure to justify its previous policy  of facts that we found to be undisputed and can rule that they supported the conclusion that there was a double recovery in gay for an has concluded if they are not seeking to guess that presumed conclusion that we had in united it doesn't seem like here we have the situation where obligation for either action or explanation the one reading may end is the same as it would have been prior to the united airlines case wise why is that not the correct way to look at yes your honor well i'll take those as best in order i would i hesitate as i think naturally to tell the judges of of course what is meant in a previous opinion but from my reading to the best of my ability of the united opinion i would i would say it's a fair characterization of it that it didn't so to speak render on this issue what it found by my reading is that the commission failed to provide sufficient justification for its asst its position at that time under the two thousand and five policy that providing a tax allowance to a partnership pipeline such as the p p did not result in a double recovery and that's different i would say from a holding by the court that in fact it  id and i can i can parse the united indian further in that regard if that would that would be at all helpful but i think there's a number of instances that that evidence that but that's that's obviously my interpretation to the question of the the various as you noted and i see in the opinion various points the court took as an contested i would i read those as being because at that point the argument was between the commission and the was the reasonable and correct approach to resolve that issue and my last point that i would offer is that upon remain and unless the courts rendered i believe it's the duty of the commission to fully evaluate and whatever outcome is arrives that under the clickable review standards it has to support what it's doing with substantial evidence and in this instance based on the matters noted on briefing that which apply lighted i don't believe the commission has that support the underlying record which the commission refused to reopen in light and look at that rate case record which the commission also indicated that it had reviewed in the process of the re man from united it went back and looked at that record in the commission's characterized so as we are satisfied that supports changing our policy and removing the tax wow for s s and everybody else who's a partnership pipeline and i would just submit that's not consistent with the record below the record below up through the initial decision of the administrative law judge where we litigated as the commission has noted supported a finding that ordering a tax allowance as it did not generate a double recovery so the commission may have flown back has changed its mind about what its policy is but it didn't change the fact alone in direct order to address use of the discounted cash flow methodology so to me expand on remission the commission explains how you feel the effect of the discounted cash flow commission explains how it is particular methodology and the effect of that and i understand you disagree with that  case and that record is inconsistent with what the commission says is its outcome so that's that's one thing and as to what it says is its position as that the working of the discounted cash flow model for determining if we return takes cognizance of the market basically which is reflected through the pricing of securities that plug into that model that the market indicates and recognizes the tax circumstances around any investment in whatever companies involved and that because of that it would affect and recognize whether or not it was afforded the tax allowance or not and the commission says that's not correct that the output of the commission is stating something that conflicts with the working of this efficient market eery that it espouses because the d c s output is in fact it's not a mechanical process it's not as if the commission goes in and puts the tax cost recovery into the c f that is the result of the market inputs into it how much cash flow is there what is the pricing of the security what's the growth factor those produce the rate of return on equity it's then applied to the rate base and generates the d c s equity returns and if the pricing is reflective of whether or not the end to be gets a tax allowance that should as a matter of math change the rate of return that's that's the formula and adjust the equity return to recognize that so there wouldn't be a double recovery i mean i can give a simplistic example but i don't want to relive the talk for a while and i don't want to i don't want to that's how i would respond to your talking about but there are other issues one of them which was noted on a brief was noted to the commission the commission has chosen to do nothing about it is that there is a there are other problems one of which is based on the prior period it was based on the circumstance in which the companies that are reflected in the proxy group which used to derive the tech we return were and no peas were partnership phone pipeline companies that were which it has in its compliance filing has however saddle it with a return that was calculated from proxy group that assumed the tax allowance would be provided to these types of vanity and therefore the rate of understanding of the latest on sions there is a double recovery when there is an income tax allowance because return on equity takes account of the tax allowance of the pretax matter and then and i understand the point about yes there's there's more than one thing moving in the c f formula what i would say is that st this is an this is the question you and you have gone to which is a central one is something upon which expert testimony was taken in the underlying rate case it was also provided a commission in the public inquiry process that led the revised policy by saying well it looks like this could be this case it could be the other way there are rational minds to have value eight of them different in different ways and no and that is precisely the type of question th commission could have reopened the rate case record and taken cognizance so yes i've i emphasise the record as it stands i think it's relevant to why remit necessary not because i'm asking you to render determination the commission has it wrong and do a client things but rather that's the reason why because there are clear strong differing views on this exact question that is appropriate because the commission and should have reopened the record because this is the type of question upon which factual evidence can be induced which people can be put on the stand evaluations can be done and then rather then these types of arguments if the matter comes back to the court it will be with a fully developed record as it is the commission has parts of a record and it's largely resigned relying on choosing one rather ignored factual disputes that were propped up in the public inquiry process and is ignoring the fact that the underlying record goes the opposite way after one of the commission's administrative law judges heard everything went through exactly an analysis around the same point the shippers attempt to just show that there was an excessive return for partnership pipelines that cause a double recovery i also suspect i'm running away and i time this point  and i apologize for that but that's how i would respond to your honor's question is that rather than asking the court to determine the merits point the point we're making is that there are a man who is appropriate good morning and may i please the court i'm scott editor i'm with the federal energy regulatory commission the discounted cash flow methodology determines a pretax return that covers the investors tax cost nothing more is needed and anything more than that is a double double recovery and there are multiple flaws with the pipeline theory in this case that investors somehow do not demand a pretax return when the entity receives and come tax allowance and its cost of service the commission's analysis in this case reasoning is set forth in the remake and order in paragraph twenty two which is that j a eight hundred and eighty four the commission here largely with the undisputed point that a master limited partnerships itself as an entity has no tax liability the commission move on to the observation that the discounted cash flow methodology provides a return that is necessary to attract capital the rd bullet in that paragraph becomes more critical and this is an important part and this is critical to the commission's re that as i've just said the model must provide a return to attract capital the rd bullet point makes refines out of bed and says to attract that capital that return must be sufficient to cover the investors tax responsibility liability the this is largely a finding made by the court and united airlines as well and in support four this hypothetical your honor was critical to the to the court and united airlines and it was a critical piece of the commission's resigning here it demonstrates that as distributions go up or distributions go down there is in tandem a change in the price of the unit indeed we have seen that happen in this case when the commission issued its orders resolving this issue we have certainly seen a market response but the point the commission is making in these paragraphs is that irrespective of the use increases or decreases in the distributions the return on equity remains stable in other words it remains pretax with or without an income tax allowing immediately before this one commission certainly didn't prevail in united airline if the commission had the took the position that before united airlines the reasoning and that i'm not here to defend those orders again that the commission clearly didn't prevail in that case united airlines remanded the case and the commission has taken what i believe to be a very thoughtful and careful re evaluation of this issue and has looked at some of the fundamental principles of the discounted cash flow and this gets back to the paragraphs two hundred and forty three thousand two hundred and forty four of opinion and eleven and has reached the conclusion that the model determines a pretax component of the return that is sufficient to cover the investors tax since we are talking about an entity that itself doesn't have a tax liability it is a pass through entity if we add anything before it the discounted cash flow observe return then that result in a double recovery in kind of how would you respond to the argument on the other side that whatever one might think of this is a conceptual matter fighting this battle for twelve years to retain its income tax allowance and it is made a adequate record throughout this time in addition a motion to reopen the record which attached substantial materials that had filed in the policy statement case in addition to a new affidavit by its expert mr webb i want to make the very important point here your honor that the with regard to the motion to reopen the commission in ny that motion by the commission found that the commission considered the information attached to the motion for all intents and purposes the commission did open this real record and did in any way been denied the ability to advance it to make make a record it just isn't true i also would like to make a few observations about the exxon mobile case that s f p p relies on to justify the in the income tax allowance here the court in that case found that a pass through entity may recover its income tax expenses that are right related to regulated asset then the commission doesn't dispute that year the moreover if the commission has a reason basis for including the income tax allowance that's that's permissible and importantly the court there explicitly left open the possibility that it would be permissible to disallow the income tax allowance and set returns on a pretax basis and i'd submit your honour's that that is exactly what the commission has done here and when united airlines was decided following that it took those points and essentially said yes we agree with that but we didn't say that you that the commission could allow recovery twice and and in the context of united airlines in the context of th flow methodology that's where the double recovery issue arose it did not come up in exxon mobil and finally i would like to emphasize a couple points about the the  percent income tax allowance whereas the commission had only allowed a partial allowance the court in that case found these arguments quote not well taken and quote and they found the shippers arguments against them the commission did in its order on remand is to deny s f p p s request to retroactively change its indexing request that it had filed in each of those in the opinion number five hundred and twenty two dollars b and it gave five reasons why the retroactive indexing increases shouldn't be permitted and  the st of those is that the rate case determinations that are made in this case that we're talking about in this case for example the income tax allowance and whatnot that that decision didn't affect the questions that arise in an indexing proceeding i see it didn't change the industry wide cost change or the end of r s f p p's particular change in cost for that particular given indexing year the commission also found and and this is in five dollars number five hundred and twenty two b that the allowing us f p p to make these retroactive indexing changes would an ocular s f p p from its indexing choices the commission also found that the retroactive indexing changes would warrant the simplified and streamlined system of the indexing regime and particular on this point your honor the  shippers for example would have to it if the shippers were to protest any given and taxing year they would have to do so in the indexing proceeding and they would have to turn around and relate it to a refight that battle here and the commission is basically making the observation that that is contrary to the indexing regime that the commission designed following the passage of the and two act and the commission also found that the retroactive indexing changes would violate the rules of indexing that the commission has would undermine predictability and rate certainty if your honour's don't have any additional questions i would respectfully conclude they're noted as to as to the comment and here we're talking about excellence your comment about the length of litigation that went on for years and years and years and as if he's had full opportunity the litigation has been pending for very long time but the commission's position on the tax allowance did not was clearly that there was that the tax allowance was warranted press up up until the moment and in march two thousand and eight just a scant twenty two years ago that the commission decided to go the other way and change policy and simultaneously and without any opportunity for as a v p to build any record on this and its case applied that ok so it's ironic to be chastised for having litigated so issue was very settled for a very long time the other direction and also as to the observation that oh well as if b p had all chance to address this and all that litigation ok we'll take that at face value and back to my point your honour's that in that that will all litigation a record was made it was tenaciously litigated between the shippers nested over this very question of double recovery look beyond comments filed in a proceeding in which there's no adversarial process there's no testing there's no putting experts on the stand it instead that fully litigated in front of a trier of fact process is now trumped a series of rounds of comments not disparaging the comments but the comments themselves in the public inquiry process were disputed dealt with different factual analyses the commission didn't attempt to give a proffer of what it would attempt to show among the things that would attempt show if given the opportunity i would once submit it's it's it's it would be a doubtful outcome to say that because the litigant has attempted in good faith to trying to defy areas that it would further seek to a developed by providing materials that mean that wasn't the only those were not the only things noted among things noted were that you've got to reopen the record at a minimum in the rate case because of the mismatch are we are we yes that you have been saddled with was based on an assumption that there would be a tax allowance and that inherently arguably again a point of issues that could have been developed if the commission chosen to reopen to attempt to say well you made a proper and we're going to turn around and trying to snatch that rather than give you an opportunity to make that showing have the opposing parties and on rehearing and yes the tax allowance issue has been litigated there as well i would say the difficulty is your honor that have i would just pose that i believe it may be challenging if the case is finally resolved how can if in a later rape case this gets resolved the other way and if the c p s paid all of its refunds it's been charging rates that are ultimately now found to have been set too low because we west line rates refunds and the harm that's already been done to the carrier and i believe i'm out of time and i appreciate the courts in belgium i have a question this is your tool comes before us for you in your rebuttal y into it because the shippers and the commission brought up the commission brought up that they had looked at the record below and they concluded that supported the double recovery finding that's simply inconsistent with the record for the shipper petitioners and i'd like to use my time to address the deferred tax issues as a consistent policy of requiring pipelines to reconcile overfunded ated in rates but it exempt p from that policy on the grounds that applying the policy in this case would be retroactive rate making and therefore unlawful but the real relief we're seeking is no more retroactive than any other reconciliation of overfunded data and if what we're seeking is unlawful until is every other instance a tax normalization an aid to reconciliation now there is only one exception to the requirement to reconcile overfunded aid and that's where for his last jurisdiction over the rates that gave rise to that balance that the c p s the case that this issue of deferred taxes arose because for allows pipelines to collect the tax allowance to pay its current taxes and also to reserve an amount for future taxes that reserve is set aside it's deducted from the rate base so that the pipeline doesn't earn a return on cost free capital that was not contributed by the pipelines investors and that's a critical element the tax normalization policy the balance it's not just an amount that you're marked for future tax liabilities it's also an accounting of funds that the pipeline is prohibited from herning a return on so when pipelines that new rates they reconcile the balance of that reserve to ensure that it's calibrated to recover the amount of the projected future taxes if the balance is over funded the pipeline amortizes a portion of that balance each year as a reduction in the cost of service and concurrently with that it adds that amount back into the rate base so it can gradually begin earning a return on those funds this is not controversial it's not retroactive rate making it's a staple of high flying till it a great making for going on for decades as a p p s a good balance in this case is fully over funded because it no longer anticipates requiring any revenues to pay future if you take the language in that decision as operative is there is there a distinction between what was covered in that language and what you're arguing here yes there's absolutely assuming that a language that addresses now this issue there would be binding on us and i'm just asking you to address that like thank you understood understand so in that case it arose under a unique circumstances that are present here so the pipeline hasn't overfunded a good balance that was related to gas sales service but because congress had stepped in by passing the natural gas policy act no longer had jurisdiction to reg to regulate the gas sales rate so it had sales service in which to reconcile the overfunded balance the only other rates that were left under st jurisdiction or the pipelines transportation rates in the court held that it would be appropriate for transportation customers to receive a credit that was related to a different service in the language that we're discussing that we're assuming for purposes of the question is operative it says that if for them to provide a remedy based on a finding that the rates were too high in the past that would be unlawful retroactive rate making that's not really a unique holding that that is the law if you are if the agency is trying to provide around that he's saying that the rates are too high after two further consideration then that's unlawful but what the court didn't hold in that case is anything was binding and that is under the facts of this case it didn't hold that it's unlawful retroactive rate making prefer to reconcile overfunded  provides or has provided in the periods after the switch to d and g p a ceiling pricing so the fundamental difficulty is that there is no regulated sales service to hook it to it's as if the radio paso is passing on to customers as a lawful right under the n g p a the commission is powerless to reduce it again for has to be hands off in that unique case on regulating the the service that gave rise to the balance it says that drive to go in to the transportation rates it's the commission cannot simply lop money out of the commission's i'm sorry out of a company's jurisdictional rate base in order to do a lot of credit intended to solve some problem extraneous to the rapists our problem is not arose prior to the effective date of the rates in the case that's being litigated so if i could just make an analogy to something that st recently did in light of the twenty seven thousand tax cuts and why i think that focus treating these situations differently and two thousand and seventeen congress cut corporate tax rate from thirty five percent to twenty one percent and pipelines had previously collected a tax allowance in anticipation of incurring that thirty five percent tax rate in perpetuity but once there was a change and those rates were still collected and that money was banked in the ated balance prior to prior to the present period it became over funded and another way to think of that is that those pipelines had a head start on collecting for now it turns out to be twenty one percent taxes in the future so there's been a change in the circumstances not as as an error that needs to be fixed but a change in the circumstances so the way for example that is it accounts for that head start and that change in circumstances by requiring the pipelines to effectively collect less than the twenty one percent going forward the if if what  was has ordered in our case were applied in the case of the tax cut way they would do is say up until the tax cut was effective five lines collect thirty five percent after the tax cut is effective pipelines collect twenty one percent that would do away with the normal on entirely which is exactly what what for it has done here it did away with a normalization pretended it didn't it was an operative no tax allowance the upshot is that it allowed us f t p to earn a return on about twenty eight million dollars of what's supposed to be cost free capital there's no justification for why something that is always been set aside as cost free capital is not raised to investors but for of just said well in this case they're allowed to keep it and that's had an effect a retroactive rate making effect for refused to deal with other than that then to say that it you know summarily rejected in paragraph one hundred and one dollars of its order it we explained in detail how s s p p increased what's called the deferred equity return account that leads to higher rates than would have been in place if it had properly reconciled the balance or if the numbers on line eight shows the the math behind all that so i believe i made my points about the retroactive rate making one actual last thing that i wanted to say on retroactive rate making is that in st brief on page fifty two dollars they state that the shippers did not explicitly if you were to prevail on this issue how do you envision the remedy working out that you've got your you've got a to taunts that are in reserve and then they would be distributed to yes to shipper why this is not retroactive rainmaking why it's not a claim of ownership on the balance either the shippers in the past that paid about their paid the rates that gave rise to the over funded balance would not receive a one for one credit if i am a shipper who shipped on the s s p p pipeline in the year two thousand and five and never again i would see no relief from this this is not a claim of right for damages in the past in the past what we would do is institut negative surcharge as what we called it it would mimic the ever to zation of the over funded balance by amortizing it over the period of this rape case which now as we've all discussed has been well over a decade it would simultaneously fold back and every time the pipelines cost of services is reduced by an amount it would go back into the rate base because at that point now the pipelines assets are to that extent funded by investment there would be a negative surcharge imposed on rates for a period of i want to say about twelve years that would cover this rate case and again it's it's laid out in great detail from our economists it would mimic if you've seen in the records the reverse itself georgia method it would mimic that and provide simply a reduction in forward looking rates rather than any sort of  welcome thank you thank you scott editor for the for the federal energy regulatory commission i i would like to pick up right where were mr wagner left off and i met that we address the issue of the mechanism that the shippers request page forty eight of the commission's brief and we believe that contrary to the shippers view in this case that the elaborate mechanism and proposal of the shipper is more situation here to the change in tax rate that is set out as as the commission explained in regulation and there is therefore notice of this mechanism when there is a the commission found that while that's not directly applicable to the oil pipeline here that the same principles apply to that p p the commission described that point it's been made but it is needs to be clear that rates go into effect in this case in august two thousand and eight subsequent to that time there are there will be no income tax allowance  was done prior to two thousand aug two thousand and eight was also problematic i would submit that the commission can't order refunds of pre to one thousand a rate without making a retroactive determination that those rates were not just and reasonable the commission in this case made three findings in support of its benefit and without the income tax allowance it doesn't make sense to there there is no matching function and it doesn't make make sense to have at it reduced rate or ownership interest in the pre two thousand and eight rate in other words add it and deferred taxes and normalization is a process of matching cost and benefit with the shippers paid prior to two thousand and eight the shippers paid their properly allocated share of the cost and they paid their properly and they received their properly allocated share of the benefit dollars commission also these principles also support the idea that deferred taxes aren't a loan from the ratepayers to the to s f p p this money is always to the federal government in which there's a pool of money that's retained in the expectation that if we did the be disbursed for a future of that and then other considerations come into play to tell us that we don't have to worry about the future event well then it's just a retention of money that was never expected to be retained to begin with submit your honor st that and on some level this is no different this that added here isn't unique that this case could be about anything that the that that united airlines had found an error and remanded the commission to re evaluate and we can all look at that situation and you know make arguments on whether the commission should be able to retroactively fix prior to two thousand and eight that the point is that the law doesn't allow that and again it gets back to the point that that this isn't a windfall because these shippers from the shippers perspective they paid their properly allocated cost and receive the thirteen the problem with the argument as i see it your honor is that the refunding of previously collected deferred taxes can't occur without a finding that regulates words had no other alternative that's correct your honor under retroactive right making principles the right this is the right answer and the commission did not have an alternative that the commission can't do what shippers ask it to do can't refine the previously incurred income tax allowance or the different portion at least based on a finding that that's just an unreasonable case supports the commission's analysis and i think in our brief that we submitted to the court we admitted conceded that there are differences in that case but the but the discussion of the principals and the discussion importantly the discussion in that case of the nature of the deferred taxes and the idea that the state commission in that case had argued ratepayers were could could get those funds back because the entity was just a custodian of the funds for the rate payers and that it would therefore be a  windfall to the past so to hold on to that those deferred taxes the court in that case rejected those arguments and i think that's a that's a powerful argument here in support of what the what the commission that making refunds of deferred taxes and not making refunds of deferred taxes those are mutually exclusive concepts and the commission what the commission is saying here is that it made a very good powerful case for why ordering the refunds would be retroactive rate making and it can't be the case that consistent accounting as a commission has ordered here results and a violation of the of retroactive rate making i think it was your honour's have any additional questions that it has no authority to order relief here i would point to the standard of review section in our initial brief that says that the court owes no deference to the commission's erroneous view of the law says this is not a situation of arbitrary a or anything of that nature this is the commission misinterpreting this this court's law nd i want to go back to the concept of cost three capital for a moment and and one of the important purposes central purposes of of ated and to preclude a return on cost free capital and once that term a lot but what i mean by cost free capital is this is a pipeline or utility incurs a cost of capital to attract investment it didn't have to attract investment to get this money so the return that it's now getting is actually nonexistent cost so what firkins done here is just allow them to return on twenty eight million dollars  which is an entirely fictitious cost i'd also like to go back to the point about money owed to the federal government and who has a loan yes the money is owed to the federal government and then when it's not paid as in the case of say this situation or an asset sale in which the the a that remains over funded after the taxes are accelerated that as to the regulation that the commission counsel cited that doesn't apply that oil pipelines i think that's an important difference the commission is free to develop policy and president however it chooses to regulations or through judicial or through acquires a judicial precedent the policy that we're talking about here is developing case law and we're entitled to a consistent application of it as for the idea that we're arguing that the pipeline is just a custody of the money and needs to refunded to us now that's not  arguing we're arguing that there are two dollars things that can be done with that money one dollar it can be used to pay taxes to it can be used to reduce rates that's what we have noticed so what we don't have notice of is what actually happened which is that the pipeline kept the money and beg earning a return on it when it didn't need to raise that money from investors and lastly i just want to say that all the analogies between us f p p and a pipeline has tax rates are cut there's no material difference here what matters is that the reason for reconciliation applies only as any other pipeline it collected deferred taxes like any other pipeline and in anticipation of spending the funds later it had to sa is any other pipeline that the balance was subject to reconciliation it was subject to the same prohibition on collecting a return on cost free capital and just like any other pipeline with an overfunded balance for canisters diction over those rates a