III. CONCLUSION

For the reasons stated above, we grant limited rehearing and modify
D.11-05-045 as discussed herein and as specified below. The application for rehearing of D.11-05-045, as modified, is denied as to all other issues because no legal error has been shown.

THEREFORE, IT IS ORDERED that:

1. We grant limited rehearing of D.11-05-045 regarding the issue of competition and SFPP's request for market based rates.

2. Within 60 days of the effective date of this Order SFPP and Shippers shall file any information they believe will specifically show whether there were, or are, actual or potential competitive alternatives related to the routes and service as between SFPP and Shippers. As part of those filings SFPP and Shippers should include any legal information or argument regarding whether market based rates, if approved, may apply prospectively only or as of the date of SFPP's original request.

3. We grant limited rehearing of D.11-05-045 regarding whether any refunds and adjustments ordered in connection with C.97-04-025 and A.03-02-027 are barred by the rule against retroactive ratemaking. Pending a determination on limited rehearing, refunds ordered pursuant to D.11-05-045 shall be stayed, subject to adjustment.

4. Within 60 days of the effective date of this Order SFPP shall file in this consolidated proceeding:

a. All advice letters and accompanying tariffs filed from 1997 to the present. SFPP shall include all related letters to or from CPUC staff, and any Commission resolutions disposing of the advice letters.

b. Information showing: (i) SFPP's tracking of the total revenue it received from the electric power cost surcharge from October 24, 2002, through the date of D.11-05-045, as required by Resolution O-0043, at p. 10; and (ii) the total revenue SFPP received from the surcharge from the date it was first imposed until October 24, 2002.

c. Information showing all amounts SFPP has refunded to date pursuant to D.11-05-045. The information should separately show any amounts refunded in connection with A.03-02-027 and C.97-04-025.

d. In providing the refund amounts, SFPP shall include the calculations used to determine refunds for the following specific periods: (i) the date rates adopted in D.92-05-018 became effective to the date the electric power cost surcharge was first imposed; (ii) from the date the electric power cost surcharge was first imposed to October 24, 2002; and (iii) from October 24, 2002 to the date SFPP stopped calculating refunds.

e. Information showing what, if any, prospective changes to rates are warranted to reduce the revenue requirement to reflect the changes to SFPP's cost of capital, and income tax and environmental costs ordered by D.11-05-045.

f. Any other documents SFPP believes may be related to and within the scope of the limited rehearing granted herein on the issue of retroactive ratemaking.

5. On rehearing of D.11-05-045 the Commission shall develop a record sufficient to show what, if any, prospective changes to rates are warranted to reduce the revenue requirement to reflect the changes to SFPP's cost of capital, and income tax and environmental costs ordered by D.11-05-045.

6. On rehearing related to C.97-04-025 the Commission shall develop a record to reflect information which includes, at a minimum:

a. All SFPP advice letters, tariffs, and other relevant evidence to show the rates authorized and rates SFPP charged between 1997 and 2002.

b. Any other evidence which demonstrates the rates approved in
D.92-05-018 and the rates challenged in C.97-04-025.

c. If the rates challenged in C.97-04-025 are not the same as the rates approved in D.92-05-018, the parties shall provide evidence to demonstrate whether or not the challenged rates were ever final approved rates.

d. Any other factual and/or legal information to support arguments concerning retroactive ratemaking and the lawfulness of refunds associated with SFPP's income tax and environmental expenses.

7. On rehearing related to A.03-02-027 the Commission shall develop a record to reflect information which includes, at a minimum:

a. ALL SFPP advice letters, tariffs, and other relevant evidence to show the rates approved and the rates SFPP charged from 2002 to present.

b. Evidence to establish the Commission authorized SFPP capital structure in place prior to D.11-05-045.

c. Evidence to show the authorized rates associated with the approved capital structure prior to and after D.11-05-045.

8. Within 120 days of the effective date of this Order Shippers may respond

to SFPP's refund-related filing and either stipulate that the time-relevant documentation as provided is complete, or Shippers may submit additional contemporaneous documents to supplement what SFPP may have omitted, with an explanation of how the documents relate to SFPP's data. Shippers documentation shall be limited to actual relevant data (e.g., tariffs, rate sheets, advice letters, letters, etc.), and not argument regarding the interpretation of data.

9. D.11-05-045 is modified as follows:

a. Section 6.4 titled Environmental Costs beginning on page 27 is modified to delete all text after the first full paragraph and replace as follows:

"In D.99-06-093 the Commission questioned whether SFPP had allocated too much of its costs (approximately 90%) to its California operations rather than other jurisdictional operations. Our review of the record found there was evidence to show the specific costs SFPP attributed to each California and non-California pipeline location, as well as costs associated with terminal operations. Based on this evidence, it can be seen that the total California costs were approximately $3.8 million. That amount included costs related to seven terminal locations. Eliminating those terminal costs reduces the California expense to $3 million.

It is then necessary to determine the appropriate percentage of costs that should be attributed to CPUC jurisdictional (intrastate) versus FERC jurisdictional (interstate) operations. SFPP proposed a 75% CPUC jurisdictional allocation, consistent with its allocation for other expenses. We do not find a 75% jurisdictional allocation to be unreasonable. Further review also shows that with terminal costs eliminated, the California and non-California environmental expenses were essentially even (50%/50%) rather than the 90%/10% originally feared. Nothing suggests this is unreasonable, particularly considering California had more pipeline locations. Applying the 75% to this evidence would result in a recoverable environmental expense of $2.5 million. We will authorize SFPP to recover that amount of California environmental costs."

b. The first sentence of Section 8.1.1. on page 30 is modified to read:

"SFPP requests a 2003 capital structure of 60% equity and 40% debt, based on the target capital structure of KMEP the affiliated entity that manages SFPP's finances."

c. The first sentence of the last paragraph on page 33 is modified to read:

"We will adopt SFPP's proposed capital structure, 60% equity, 40% debt because it best reflects the target structure of the actual financing source, KMEP, and the forecast for KMEP's cost of debt at 7.08%."

d. The last sentence of Section 8.2. on page 34 is modified to read:

"We adopt a ratemaking adjustment for rates beginning the last quarter of 2004 that includes the plant in rate base."

e. Finding of Fact Number 5 on page 39 is modified to read:

"The evidence is adequate to determine the amount of California-jurisdictional environmental costs SFPP should be allowed to recover.

f. Finding of Fact Number 8 on page 40 is modified to read:

"A capital structure of 60% equity and 40% debt is consistent with the target capital structure of SFPP's affiliate, KMEP."

g. Finding of Fact Number 11 on page 40 is modified to read:

"The North Line Expansion Project was placed into service in the last quarter of 2004 and after Test Year 2003."

h. Conclusion of Law Number 6 on page 41 is modified to read:

"The Commission has discretion to adopt an attrition adjustment effective the last quarter of 2004 to reflect capital addition costs associated with the North Line Expansion Project as of the date the plant was put into service."

i. Conclusion of Law Number 7 on page 41 is modified to read:

"SFPP should be allowed to recover $2.5 million in California jurisdictional environmental costs."

j. Conclusion of Law Number 9 on page 41 is deleted.

k. Ordering Paragraph Number 1 on page 42 is deleted and on rehearing as ordered herein the Commission shall determine whether any refunds and adjustments made pursuant to Ordering Paragraph Number 1 shall remain in place or whether further Commission action is required.

10. This proceeding, Case (C.) 97-04-025, remains open to address the issues subject to the limited rehearing ordered herein.

This order is effective today.

Dated March 8, 2012, at San Francisco, California.

MICHAEL R. PEEVEY

President

TIMOTHY ALAN SIMON

MICHEL PETER FLORIO

CATHERINE J.K. SANDOVAL

MARK J. FERRON

Commissioners