2. Background

This application was filed in response to Commission Decision (D.) 07-07-040 which found that a heated crude oil pipeline between the San Joaquin Valley and the San Francisco Bay area (Pipeline) is a public pipeline subject to regulation by this Commission. The decision ordered the Pipeline's owner to apply for tariffs. The owner at the time we decided D.07-07-040 was Equilon Enterprises LLC (Equilon), an affiliate of Shell Oil Company (Shell Oil). Equilon, Shell Trading US Company (STUSCO) and the applicant, San Pablo Bay Pipeline Company LLC (SPBPC or Applicant) comprise the Shell parties.

The application asks us to approve transfer of the ownership of the Pipeline from Equilon to SPBPC and the proposed tariffs submitted by SPBPC in connection with the application. The application was protested by shippers of crude oil on the pipeline including Chevron Products Company (Chevron), Tesoro Refining and Marketing Company (Tesoro) and Valero Marketing and Supply Company (Valero). Each of Chevron, Tesoro and Valero has also filed claims for refunds of allegedly unreasonable charges for shipping crude oil on the Pipeline during the period from April 1, 2005 through the effective date of SPBPC's approved tariffs (Past Period).

Evidentiary hearings were held between May 10 and May 20, 2010. More than two dozen witnesses' testified and more than 200 exhibits were admitted into evidence. The parties submitted concurrent opening briefs on June 21, 2010 and concurrent reply briefs on July 19, 2010.

The Assigned Commissioner's Scoping Ruling identified the issues for resolution in this proceeding. Issue 3 is framed as follows:

3. Is SPBPC entitled to charge market-based rates for transporting crude oil on the Pipeline? More specifically,

a. Does SPBPC exercise significant market power over shippers by virtue of its control over the only heated crude oil pipeline between the San Joaquin Valley and the San Francisco Bay area?

b. In particular, is SPBPC able to damage competitors of its affiliates by denying them access to the Pipeline or charging them an exorbitant rate to use it?

c. Do shippers of crude oil from the San Joaquin Valley to the San Francisco Bay area have reasonable competitive alternatives to the Pipeline?

d. In particular, does Tesoro have reasonable competitive alternatives to supply the crude oil requirements of its refinery in Martinez?

For reasons discussed in the balance of this opinion, we conclude that SPBPC possesses significant market power and may not charge market rates for transporting undiluted heavy crude oil from the San Joaquin Valley to the San Francisco Bay area.