7. Tariff Provisions
The parties have been unable to reach agreement on language for the tariff. Applicant prepared a proposed tariff; Independent Shippers responded with a mark-up of the proposed tariff that differed materially, particularly in regard to (a) the process of establishing and revising minimum flow requirements and (b) the process of nominating the types and quantities of crude oil that each shipper proposes to ship each day.
The Pipeline currently transports an average of 150,000 to 160,000 barrels per stream day (bpsd).49 Of this amount, approximately 50,000 bpsd is piped to Bay Area refineries operated by Chevron, Valero and Tesoro. The balance is piped to the Shell refinery in Martinez.50 Under the buy-sell arrangements that currently govern the operation of the Pipeline, shippers sell quantities of oil to the Pipeline's affiliate STUSCO at various delivery points on the Pipeline and buy it back from STUSCO in the Bay Area. The difference between the sell price and the buy price is the transportation cost. Under the proposed tariff, buy-sell agreements are replaced by tariffed rates as discussed earlier in this decision. Instead of selling oil to STUSCO, under the tariff shippers will "nominate" barrels for shipment. Nomination is a form of space reservation. So long as total nominations (Independent Shippers plus Shell Parties) equal or exceed the minimum volume required to operate the Pipeline, all similar crude will be shipped at the same price. According to the Pipeline, the minimum required volume at present is approximately 140,000 bpsd.
A principal concern of Independent Shippers is that under the tariff language proposed by Applicant, it would be possible for Applicant to shut down service on the Pipeline if nominations fell below 140,000 bpsd without giving Independent Shippers an opportunity to increase their nominations to avoid the shutdown. Independent Shippers are also concerned that the minimum throughput requirement is too high, particularly given the steadily declining output of the Central Valley fields. They introduced evidence to demonstrate that the throughput requirement could be dramatically reduced at relatively minor cost.51 And beyond an actual shutdown, which would cut off deliveries to the Shell refinery in Martinez as well as to the Independent Shippers' Bay Area refineries, Independent Shippers note that the Pipeline could use the threat of such a shutdown to their disadvantage.52
Independent Shippers also object to the proposed tariff's creation of a two-tier structure for the provision of transportation services. Under the Pipeline's proposed tariff, its affiliate STUSCO will receive uninterruptable blended service while the three Independent Shippers will receive heated service that is subject to interruption if the Pipeline's stated minimum volume requirements are not met.53 As Chevron's witness Lee testified, this arrangement provides STUSCO with little incentive to cooperate with Independent Shippers to assure that minimum volume requirements are always met.54
In addition to these disagreements regarding the nomination process, the Pipeline and Independent Shippers also disagree on the wording of other provisions. In each such case, the revisions proposed by Independent Shippers are aimed at eliminating or reducing the opportunity for the Pipeline to be operated in ways that favor the Pipeline's affiliates or disadvantage Independent Shippers. The history of the Pipeline's operation lends credence to Independent Shippers concerns regarding the possibility that the Pipeline's proposed tariff would permit such discriminatory operation. As recently as the fall of 2008, the Pipeline threatened to suspend heated service on short notice and was prevented from doing so only by an order of the assigned ALJ.55
Independent Shippers' proposed tariff language deals with the potential for discrimination and shut-down by providing that all shippers nominate for shipment the actual grades of crude petroleum (crudes) that enter the Pipeline.56 Once the Pipeline's minimum requirements have been met via this nomination process, any shipper may request that its heavy and light crudes be blended in whatever proportions it desires for shipment north from Coalinga and delivery to its facilities. In effect, the Independent Shippers tariff language requires that the crudes that comprise the SJV Blend delivered to the Shell refinery in Martinez are counted toward meeting the Pipeline's minimum operating requirements rather than being treated as a separate unheated stream that is offered uninterruptable service.
In evaluating the disagreement between the Pipeline and its shippers, we note that each party's version of the proposed tariff is internally consistent and its various provisions and definitions are related to one another such that changing any provision requires tracing the effect of the change through the entire document and carries the risk of unintended consequences. For that reason, we decline to combine features of the two proposals into a new third version and as between a version that favors the Pipeline and a version that favors Independent Shippers we conclude, in keeping with the balance of this decision, that a tariff that responds to the legitimate concerns of Independent Shippers is to be preferred to one that does not. For the reasons given, we adopt the Independent Shippers' proposed tariff, set out as Attachment A to this decision.
49 A "stream day" is a 24-hour period of continuous operation that may or may not coincide with a calendar day.
50 Transcript at 1399 (Miller).
51 Ibid., at 1398.
52 Exhibit Chevron 46 Direct Testimony of David Lee on behalf of Chevron Products Company, at 29-30.
53 Exhibit SP-20 Direct Testimony of Robbie Ralph, Attachment A, Rule 55 at 11-12.
54 Exhibit Chevron 46 Lee Direct at 5.
55 Administrative Law Judge's Ruling Granting Emergency Motion for Stay of Proceedings, November 8, 2008, Ordering Paragraph 2.
56 Exhibit IS-1, Attachment B, Rule 55A.
