ALJ/DUG/jyc Date of Issuance 6/1/2011

Decision 11-05-045 May 26, 2011

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ARCO Products Company, Mobil Oil Corporation, and Texaco Refining and Marketing Inc., Complainants, vs. Santa Fe Pacific Pipeline, L.P., Defendant.	Case 97-04-025 (Filed April 7, 1997)
And Related Matters.	Case 00-04-013 Case 06-12-031 Application 00-03-044 Application 03-02-027 Application 04-11-017 Application 06-01-015 Application 06-08-028

(See Appendix B for a List of Appearances)

DECISION RESOLVING CASE 97-04-025, DISMISSING
APPLICATION 00-03-044, AND RESOLVING IN PART OTHER CONSOLIDATED PROCEEDINGS

DECISION RESOLVING CASE 97-04-025, DISMISSING
APPLICATION 00-03-044, AND RESOLVING IN PART OTHER CONSOLIDATED PROCEEDINGS 1

1. Summary 2

2. Introduction 3

3. Scope of this Decision 4

4. Background 4

4.1. Procedural History 5

4.1.1. Introduction 5

4.1.2. Summary of Consolidated Proceedings 7

4.1.3. Evidentiary Hearings 8

4.2. Preliminary Settlement Discussion 8

4.3. Control of SFPP 9

4.3.1. Kinder Morgan Inc.'s (KMI) Prior Ownership & Control of SFPP 9

4.3.2. Recent Change in Control of SFPP 11

5. Standard of Review 12

6. Resolving the Outstanding Rehearing Issues 13

6.1. Background on Rehearing D.98-08-033 13

6.2. Sepulveda Line Dedication 13

6.3. Ratemaking Treatment of Partnership Tax Expenses 15

6.3.1. Background 15

6.3.2. Taxable Entities 15

6.3.3. Commission's Ratemaking Practice for Taxes 17

6.3.4. SFPP's Position 19

6.3.5. Complainants' Position 19

6.3.6. Analysis 20

6.3.6.1. Federal Policy 24

6.3.6.2. Appellate Review of FERC Policy 25

6.4. Environmental Costs 27

6.5. Watson Station & Sepulveda Market Rates 28

7. Dismissal of A.00-03-044 29

8. Resolving Ratemaking Issues in A.03-02-027 29

8.1. Cost of Capital and Rate of Return 30

8.1.1. Position of Parties 30

8.1.2. Discussion 32

8.2. Rate Base for 2003 and Beyond 34

8.2.1. Position of Parties 34

8.2.2. Discussion 35

9. Corrected Rates and Refunds 37

10. Closing Proceedings 37

11. Next Steps 37

12. Final Oral Argument 38

13. Comments on Proposed Decision 38

14. Assignment of Proceeding 39

Findings of Fact 39

Conclusions of Law 40

ORDER 42

APPENDIX A - SFPP Consolidated Proceedings Summary

APPENDIX B - Service List

APPENDIX C - Exhibits

DECISION RESOLVING CASE 97-04-025, DISMISSING
APPLICATION 00-03-044, AND RESOLVING IN PART OTHER CONSOLIDATED PROCEEDINGS

1. Summary

SFPP, L.P. (SFPP) is a regulated oil pipeline whose intra-state services are regulated by the Commission. This decision resolves and closes Case
(C.) 97-04-025 and C.00-04-013, dismisses Application (A.) 00-03-044, a request for market based rates, and partly resolves A.03-02-027, a general rate case. In doing these things, the decision addresses these specific outcomes: SFPP has dedicated its Sepulveda Line to public utility service; SFPP is not entitled to a ratemaking allowance for income taxes; SFPP has not correctly allocated environmental costs between its California pipeline operations, terminal operations, and non-jurisdictional operations; Watson Station and Sepulveda facilities must be recovered in cost-based and not market-based rates; SFPP's application for market-based rates is stale and must be dismissed without prejudice; adopts a 2003 capital structure and cost of capital for ratemaking purposes; requires a Tier 1 advice letter to implement rate refunds; and directs parties to pursue alternative dispute resolution of the remaining ratemaking issues in the consolidated proceedings.

The exact costs and refunds to ratepayers are not known at this time. These consolidated proceedings remain open.