8. Comments on Proposed Decision

The proposed decision of ALJ Bemesderfer in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code, and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Comments were received from all parties. In addition, a final oral argument was held on Wednesday, May 4, 2011, at which each of the parties presented a version of its comments directly to the Commissioners.

A. Independent Shipper Comments.

Independent Shippers broadly supported the PD while suggesting certain corrections and changes to the Findings of Fact, Conclusions of Law, and Ordering Paragraphs of this proposed decision.

Chevron's suggested corrections include, among others, the start date of the refund period and the amount of the Pipeline Loss Allowance during the refund period. Their suggested changes include (a) specifying the corporate relationships among Equilon, STUSCO and SPBPC (b) making Equilon and STUSCO responsible for payment of refunds (c) specifically identifying the assets which Equilon proposes to exclude from the sale to SPBPC and (d) conditioning approval of the sale of the pipeline's assets to SPBPC upon adoption by the direct and indirect parents of SPBPC of a so-called "first priority" corporate resolution.

Tesoro's suggested changes include (a) ordering SPBPC to provide invoices to Independent Shippers on the basis of which refund claims may be calculated (b) specifying that refunds are to be paid to the customer to whom the transportation was actually provided (c) ordering the immediate implementation of the form of tariff proposed by Independent Shippers and (d) clarifying that the tariff rate of $1.34 per barrel applies to both heated and unheated service.

Valero urged adoption of the PD without changes.

B. San Joaquin Refinery Comments

San Joaquin Refinery suggested (a) revising the definition of "shipper" in the proposed tariff to include "stakeholders" such as San Joaquin (b) finding that Shell entities supply crude oil to San Joaquin Refinery via a specified gathering line and (c) scheduling a second phase of this proceeding to determine whether the gathering line providing service to San Joaquin Refinery has been dedicated to public service.

C. SPBPC and STUSCO comments

The Shell parties broadly criticized the PD and urged many specific changes.

SPBPC's proposed changes include (a) placing the burden of proof on the issue of whether the assets excluded from the proposed sale are jurisdictional property of the pipeline on Independent Shippers (b) finding that Independent Shippers have failed to carry their burden of proof (c) adding additional data points to FOF 3 and revising FOFs 4 and 5 to reflect those additional data points (d) adding additional findings regarding line fill costs and additional costs of transporting heated crude oil to FOF 6 (e) increasing the test year rate base to $239 million (f) beginning the refund period as of August 2007 (g) setting the just and reasonable rate for the refund period at $1.73 per barrel (h) adopting SPBPC's proposed form of tariff rather than the Independent Shippers' proposed form of tariff and (i) deleting some COLs and adding others consistent with the findings detailed above.

STUSCO's proposed changes include (a) a finding that truck racks and proprietary storage tanks are not necessary for public utility service (b) rejecting the Independent Shippers' proposed tariff in favor of the form of tariff proposed by SPBPC and STUSCO or, in the alternative, (c) modifying specific provisions of the Independent Shippers' proposed tariff so that it conforms in substance to the tariff proposed by SPBPC and STUSCO.

For the reasons set out below, (a) we adopt the suggested changes and corrections proposed by Chevron and Tesoro other than the requirement that the direct and indirect parents of SPBPC adopt a "first priority" corporate resolution (b) we reject the proposed changes of San Joaquin Refinery (c) we reject the proposed changes of SPBPC and STUSCO and (d) we modify the Findings of Fact, Conclusions of Law and Ordering Paragraphs to conform to these changes.

Discussion

As pointed out in the Chevron comments, the PD contained factual errors relating to the dates of events, the amount of the pipeline loss allowance, and the related calculations of the refunds. We adopt those corrections. The PD also fails to state that the responsibility for the payment of refunds falls upon the parties to whom the past period overcharges were paid, namely, Equilon and/or STUSCO. We modify it to correct those oversights.

We reject the proposal that we condition the sale of the pipeline on the adoption by the direct and indirect parents of SPBPC of a "first priority" corporate resolution. The domestic upstream parents (Shell Petroleum Inc. and Shell Oil Company) are not subject to our jurisdiction. Equilon will no longer be subject to our jurisdiction once it has transferred the assets to SPBPC. Beyond the jurisdictional point, the record establishes that approximately 60% of the oil moving in the pipeline is owned by a Shell entity and bound for delivery to the Shell refinery in Martinez. Under those circumstances, it hardly seems necessary to require a corporate resolution that aims to insure adequate capital for the pipeline. If the pipeline's parents fail to supply adequate capital, it is their own business that will suffer the greatest harm. Should Shell determine, in the future, to shut the Martinez refinery or convert it to a facility that no longer relies upon crude oil from the San Joaquin Valley, we can revisit the question of adequate capital at that time.

We reject the proposal of San Joaquin Refinery to modify the definition of "shipper" in the tariff and order a second phase of this proceeding to determine if a certain gathering line has been dedicated to public service. San Joaquin Refinery is simply an arm's length purchaser of crude oil that is delivered to it via a Shell-owned private pipeline. Nothing in this decision changes those facts. At the oral argument it was represented to us by counsel for the pipeline that discussions are currently underway between the pipeline and the refinery to address the refinery's concerns. Under the circumstances, we see no basis for expanding the class of shippers to include non-shippers nor is there any evidence in the record that the gathering lines in question have been dedicated to public service.

The Shell comments largely replicate arguments that were considered and rejected in the PD.

1. The refund period price is too low. Independent Shippers introduced evidence suggesting a significantly lower refund period price but the ALJ chose to use the higher internal transfer price as a proxy to set the floor under the refunds. We find that he acted within his discretion in doing so.

2. The decision should use multiple price points in the refund period to establish an average internal transfer price. The record establishes that the internal transfer price varied greatly over a relatively short period of time. The variation was too great to be accounted for as a result of a change in the mixture of heated and unheated service. The ALJ concluded that the internal transfer prices after January 2006 reflected other considerations that need not be taken into account in setting a floor under the refunds. We agree.

3. The PD ignored line fill costs during the refund period. As pointed out in oral argument, all the oil in the pipeline at any time is owned by STUSCO so long as the buy-sell arrangements are in place. Therefore STUSCO, rather than the party from whom STUSCO purchased and to whom STUSCO will sell crude oil, is responsible for line fill costs.

4. The PD ignored the nine cent cost differential between heated and unheated service. All oil in the pipeline, whether heavy or light, is shipped heated. Therefore, there is no cost differential.

5. The test year rate base is too low. The PD rejects the replacement cost method of valuing the rate base in favor of the depreciated original cost method which is our preferred method of rate-making. The ALJ acted within his discretion in accepting the testimony of Independent Shipper experts on the value of the components of the rate base.

6. The refund period began when we decided that the pipeline had been dedicated to public service. In our earlier decision, we stated that the pipeline had been operating as a public utility since at least 1996. The ALJ acted within his discretion in selecting the earlier date for the beginning of the refund period.

7. The PD erred in accepting the Independent Shipper tariff in its entirety. The Independent Shipper tariff is a marked-up version of the SPBPC tariff that departs from it in certain specific respects, particularly with regard to guaranteeing that all shippers have equal access to the pipeline. The ALJ acted within his discretion in accepting those changes.