3. Background

In September 1998, Pacific Pipeline's predecessor, Pacific Pipeline System Inc. (PPSI), PPS Holding Company and ARCO Pipe Line Company entered into a contribution agreement that resulted in a joint venture that combined into Pacific Pipeline, ARCO's Line 63 System and PPSI's Pacific System, which at the time was still under construction. ARCO received a 26.5% membership interest in Pacific Pipeline. PPS Holding Company retained the remaining 73.5% membership.

From a regulatory standpoint, Pacific Pipeline operates the Line 63 System as a separate system, distinct from the Pacific System. Each pipeline system has its own separate tariff on file with the Commission.

ARCO last requested an increase in Line 63 System rates in 1996. At that time, ARCO requested an 8% increase in its intrastate rates for the transportation of crude oil between various points in California. The request was intended to result in an overall return for 1996-97 of 9.69% and a return on equity of 10.16%, roughly equivalent to the 10.96% equity return that the Commission had authorized in a previous rate filing, Application 96-10-029. In Decision (D.) 97-05-031, the Commission approved the 8% increase in rates.