4. Discussion

Pub. Util. Code § 854 requires Commission authorization before a company may "merge, acquire, or control...any public utility organized and doing business in this state...." The purpose of this and related sections is to enable the Commission, before any transfer of public utility authority is consummated, to review the situation and to take such action, as a condition of the transfer, as the public interest may require. (San Jose Water Co. (1916) 10 CRC 56.)

Through the merger, ConocoPhillips will obtain the facilities and expertise of Phillips and Conoco and is expected to be the third-largest integrated energy company in the United States, based on market capitalization and hydrocarbon reserves. While Joint Applicants have not provided information regarding Conoco's operations and expertise, they have described the extensive operations, experience, and expertise of Phillips. On that basis, it is clear that ConocoPhillips will have the technical expertise and financial resources to assume control of UNOCAP. The increased financial capability and the opportunity for significant synergies are benefits that are expected to accrue from the merger.

UNOCAP's tariffs will not be affected by this transaction. UNOCAP will continue to be operated in accordance with its Commission-approved tariffs; no changes in terms and conditions of service or rates are requested as part of this Joint Application.

Under CEQA and Rule 17.1 of the Commission's Rules of Practice and Procedure (Rules), we must consider the environmental consequences of projects that are subject to our discretionary approval. (Public Resources Code Section 21080.) The Assigned Administrative Law Judge issued a ruling on June 26, 2002 which directed Joint Applicants to provide a verified statement addressing whether Joint Applicants intend, post-merger, to make any changes in UNOCAP's operations (e.g., alterations of the pipeline and related physical plant) which are not discussed in the Application and which could have potential effects on the environment. On July 2, 2002, Joint Applicants submitted a verified statement of Supplemental Information on Intended Operations. Joint Applicants state that they do not intend, post-merger, to make any changes to UNOCAP's operations which were not discussed in the Joint Application and which could have potential effects on the environment.

Based upon the record, the proposed transfer of control will have no significant effect on the environment because UNOCAP will continue to be operated as it is now, and its Commission-approved tariffs will be unchanged by this transaction. Consequently, the proposed project qualifies for an exemption from CEQA pursuant to Section 15061(b)(3) of the CEQA guidelines, and the Commission need not perform further environmental review.

Based on the expected synergies and increased financial capability, we find that the proposed transaction is in the public interest as required by Section 854(a). We will authorize the transfer of control of UNOCAP to ConocoPhillips. We will not, however, make this order subject to the approval of the FTC, as Joint Applicants request. Joint Applicants may or may not choose to exercise the authority granted today. If not exercised within one year of the date of this order, this Commission's authorization expires.

Notice of this application appeared in the Commission's Daily Calendar on May 1, 2002. No protests were received.

In Resolution ALJ 176-3087, dated May 2, 2002, the Commission preliminarily categorized this proceeding as ratesetting, and preliminarily determined that hearings were not necessary. Based on the record, we conclude that a public hearing is not necessary, nor is it necessary to alter the preliminary determinations in Resolution ALJ 176-3087. As no hearing is required, and pursuant to Rule 6.6 of the Commission's Rules, Article 2.5 of the Rules ceases to apply to this proceeding.

This is an uncontested matter in which the decision grants the relief requested. Accordingly, pursuant to Public Utilities Code Section 311(g)(2), the otherwise applicable 30-day period for public review and comment is being waived.

Findings of Fact

1. UNOCAP is a pipeline corporation as defined in Public Utilities Code Section 228, and operates as a common carrier intrastate pipeline company between points in California under tariffs on file with the Commission.

2. UNOCAP is a wholly owned subsidiary of Tosco Corporation, which is a wholly owned subsidiary of Phillips. As a result, Phillips controls UNOCAP.

3. Phillips is an integrated oil company with extensive experience and expertise and currently owns and operates over 6,800 miles of pipelines and pipeline-related facilities in the United States.

4. If the merger occurs, Phillips will become a wholly owned subsidiary of ConocoPhillips.

5. Because of its acquisition of Phillips, ConocoPhillips will have the technical expertise and financial resources to assume control of UNOCAP.

6. Merging Phillips and Conoco is expected to create a stronger major integrated oil company with increased financial capability, increased size and scale, and the opportunity for significant synergies.

7. After the merger, UNOCAP will continue to be operated in accordance with its Commission-approved tariffs; no changes in terms and conditions of service or rates are requested as part of this Joint Application.

8. This transfer of control will have no effect on the environment because UNOCAP will continue to be operated as it is now.

Conclusions of Law

1. The proposed transaction is in the public interest.

2. To the extent the Joint Application seeks authorization for a change of control pursuant to Public Utilities Code Section 854, the application should be approved.

3. Article 2.5 of the Commission's Rules of Practice and Procedure ceases to apply to this proceeding.

4. This transfer of control does not require further CEQA review by the Commission.

5. This order should be effective immediately.

ORDER

IT IS ORDERED that:

1. The application of Phillips Petroleum Company (Phillips) and ConocoPhillips for authority to transfer control of Union Pipeline Company (California) (UNOCAP) from Phillips to ConocoPhillips pursuant to Public Utilities Code Section 854 is approved.

2. Joint Applicants shall notify the Director of the Commission's Energy Division in writing of the transfer of authority, as authorized herein, within 30 days of the date of the transfer. A true copy of the instruments of transfer shall be attached to the notification.

3. UNOCAP shall make all books and records available for review and inspection upon Commission staff request.

4. The authority granted herein shall expire if not exercised within one year of the date of this order.

5. Application 02-04-044 is closed.

This order is effective today.

Dated July 17, 2002, at San Francisco, California.

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