15. Assignment of Proceeding
Michael Peevey is the Assigned Commissioner and Glen Walker is the assigned Administrative Law Judge in this proceeding.
1. Applicant is a public utility pipeline corporation subject to the jurisdiction of this Commission.
2. Applicant seeks authorizations to operate a common carrier jet fuel pipeline to serve airlines at Sacramento International Airport.
3. The County of Sacramento has acted as the lead agency under CEQA and the Commission has acted as a responsible agency in reviewing the proposed pipeline project.
4. The Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR was prepared pursuant to CEQA and is adequate for this Commission's decision-making purposes.
5. The Commission has considered the Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR in its decision-making process in accordance with the CEQA Guidelines § 15096(f).
6. The project objectives were to potentially lower jet fuel prices at the Sacramento Airport; decrease air pollution; increase safety; decrease energy consumption; decrease oil spill related damage; and decrease traffic congestion.
7. Through the analysis of the alternatives, it was determined that the proposed alignment was the environmentally superior alternative that met the stated project objectives.
8. The Commission finds that the proposed alignment for the project will allow the project to meet all of the stated project objectives.
9. The Final EIR found that no significant impacts will occur with respect to population and housing.
10. The project will result in significant environmental effects with respect to the following issues or resources that can be reduced to less than significant levels and/or avoided with the implementation of mitigation measures: Land Use; Agricultural Resources; Open Space; Aesthetics; Airports; Public Facilities and Services; Transportation and Circulation; Hydrology and Water Quality; Geology and Soils; Cultural Resources; Hazardous materials/Risk Assessment; and Biological Resources.
11. Pursuant to § 15096(g) of the CEQA Guidelines, the Commission should adopt the mitigation measures identified in the Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR, including mitigation measures 4.4.1a-e for air quality impacts and mitigation measures 4.5.1a-b for construction-related noise impacts.
12. Pursuant to § 15091 of the CEQA Guidelines, the project will result in an environmental effect for noise impacts that is considered significant and unavoidable. While mitigation measures for construction related noise impacts would substantially lessen the impacts, the measures will not reduce construction related noise impacts to a less than significant level.
13. Pursuant to § 15091 of the CEQA Guidelines, the project will result in an environmental effect for air quality impacts that is considered significant and unavoidable. While mitigation measures for air quality impacts would substantially lessen the impacts, the measures will not reduce air quality impacts to a less than significant level.
14. Pursuant to §§ 15093 and 15096(h) of the CEQA Guidelines, there is substantial evidence in the record to determine that the benefits of the project outweigh the adverse impacts and that the project should be approved pursuant to the Statement of Overriding Considerations.
15. Applicant proposes to realign it membership structure, capital contributions and indebtedness.
16. Because of the nature of this pipeline operation, applicant seeks authority to negotiate market-based rates.
17. No opposition to the application or the amended application has been filed.
1. Applicant's request for exemptions under Pub. Util. Code §§ 829 and 853(a) should be denied.
2. Applicant's request for authorization of its proposed membership structure, capital contributions and indebtedness appear to be commercially reasonable and should be approved.
3. Applicant is exempt from the Commission's Competitive Bidding Rule under Resolution F-616.
4. Applicant should be authorized to establish market-based rates for its transportation of jet fuel to shippers, because it is unlikely that applicant will be able to exercise market power.
5. Applicant's request for waiver of G.O. 96-A, Sections III, IV, V, VI, VII and IX should be granted to the extent that those provisions are inapplicable to a market-based rate or FERC-style tariff schedule format.
6. The Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR was prepared pursuant to CEQA and is adequate for this Commission's decision-making purposes.
7. The Commission has considered the Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR in its decision-making process in accordance with the CEQA Guidelines § 15096(f).
8. Pursuant to § 15096(g) of the CEQA Guidelines, the Commission should adopt the mitigation measures identified in the Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR, including mitigation measures 4.4.1a-e for air quality impacts and mitigation measures 4.5.1a-b for construction-related noise impacts.
9. Pursuant to §§ 15093 and 15096(h) of the CEQA Guidelines, there is substantial evidence in the record to determine that the benefits of the project outweigh the adverse impacts and that the project should be approved pursuant to the Statement of Overriding Considerations.
10. The application is unopposed, and hearings are not necessary.
IT IS ORDERED that:
1. Wickland Pipelines LLC (applicant) is authorized to restructure its membership and to require additional membership capital contributions in a total amount not to exceed $7,381,000 for funding of the project costs through construction, as more fully set forth in the application.
2. Applicant is authorized to issue unsecured or secured promissory notes, in lieu of corresponding amounts of membership capital contributions, in a total amount not to exceed $5,368,000, as more fully set forth in the application.
3. Applicant is authorized to develop rates and terms of service determined through arm's-length negotiations with its shippers, as more fully set forth in the application.
4. Sections IX and X of General Order (G.O.) 96-A, are waived to the extent those provisions require utility contracts be made expressly subject to modification by the Commission.
5. Applicant is exempt from the provisions of Sections II, III, IV, V, VI and VII of G.O. 96-A to the extent those provisions are inapplicable to a market-based, Federal Energy Regulatory Commission-style tariff schedule format, all as set forth in the application.
6. The final Environmental Impact Report certified by the Sacramento County Board of Supervisors, is approved.
7. The mitigation measures outlined in the Sacramento International Airport Jet Fuel Pipeline and Tank Farm project FEIR and adopted by the Sacramento County Board of Supervisors are hereby made conditions of project approval by this Commission Order.
8. Before commencing service to customers, applicant shall file with this Commission an advice letter and accompanying tariff schedules that meet the criteria set forth in G.O. 96-A, unless such criteria are waived or exempted pursuant to Ordering Paragraphs 5 and 6.
9. Applicant's request for exemption from Pub. Util. Code §§ 818, 851 and 854 is denied.
10. Resolution ALJ 176-3023 is amended to show that hearings in this matter are not necessary.
11. Since all issues raised in this proceeding have been addressed, the proceeding in Application 99-08-050, as amended on May 20, 2002, is closed.
This order is effective today.
Dated November 7, 2002, at San Francisco, California.
HENRY M. DUQUE
GEOFFREY F. BROWN
MICHAEL R. PEEVEY
Commissioners
We will file a dissent.
/s/ LORETTA M. LYNCH
President
/s/ CARL W. WOOD
Commissioner
Dissenting Opinion of President Loretta M. Lynch and Commissioner Carl Wood on Wickland Pipeline LLC's
Decision of November 7, 2002
The opinion adopted, today, grants Wickland authority to charge its customers whatever the market will bear, despite the fact that Wickland has offered no evidence to supports its assertion that it will lack market power. In support of this conclusion, the opinion merely observes that Wickland is likely only to serve airports, that it will be constrained in its pricing strategy by the threat of tank truck competition, and that no one has objected to the proposal. However, the question of whether or not it is reasonable to allow the use of market-based rates for this operation is a more complicated matter.
The Commission has established criteria for determining whether or not market-based rates are appropriate. See, for instance, D.96-04-061, in a complaint involving the Unocal California Pipeline Company. In that decision, the Commission determined that it was appropriate for Unocal to operate under market-based rates after reviewing the criteria the Commission had applied in approving such rates in an earlier decision (D.94-05-022).
The Commission said that the factors supporting market-based rates for Unocal were as follows:
1. Unocal's principal customers are sophisticated market participants
2. Unocal's oil pipelines face potential competition from new pipelines
3. Unocal's customers continue to have reasonable alternatives, such as shipment by truck, vessel or proprietary pipelines
4. Unocal's rates compare favorably to those of other pipelines.
5. Even assuming cost-of-service methods, Unocal's rates produce an acceptable rate of return.
Considering these factors in light of Wickland's request, the record in this proceeding is in some respects superficial, in other respects non-existent. Wickland has argued that its potential customers are
sophisticated and that it faces ongoing competition from tank truck companies, but has provided no evidence to support either assertion. Wickland has provided no basis for the Commission to determine how its rates would compare with those of other pipelines or to assess the reasonableness of its likely rate of return.
It is easy to want to believe that airlines, as savvy businesses, are sophisticated purchasers. However, the record does not help us understand their experience and sophistication in negotiating for pipeline services in the Sacramento area, or whether the nature of the market will place them in a strong position to apply their sophistication to advantage in ensuring fair rates. Much of the answer lies in an understanding of whether, after the construction of this pipeline, there will be any meaningful competitive option, in the form of another pipeline, tank trucks, or both. We cannot know that at this point, because Wickland has not made the case.
Suppose, for instance, that Wickland could provide transportation at half the cost of a tank-trucker. It would, then, be able to negotiate initial rates at a level that would far exceed its costs. Arguably, it could win a contract at rates that might even exceed those of a tank-trucker, if its service would be considered superior in others ways. In either event, Wickland could, then, make exorbitant profits while driving away all competitors.
Its ability to maintain exorbitant profits or drive prices even higher might depend on the ease of re-entry for tank truck carriers. This may depend on many factors, such as whether the tank trucks involved are specialized and whether the loss of existing fuel transportation drives tank truck operators out of business, or out of the area. If, for instance, conveying this particular commodity required any specialized equipment, would truckers be willing to make such an investment if Wickland could respond by temporarily reducing its rates?
And what about competitive pipelines? Are there any in existence or on the drawing boards? Is there reason to believe that other new lines could be sited easily? What would be the lead time? Once again, is it likely that a competitor would make such a commitment, if Wickland could respond by reducing its prices?
It is possible that none of these hypothetical problems apply to the situation in Sacramento, or that there are other potential concerns we cannot even imagine. What is clear, however, is that we do not have a record before us that provides support for the assertion that Wickland will face competitive forces sufficient to keep its prices low. An applicant bears the burden of proving that market-based rates will be reasonable and an assertion of "no market power" must be supported with a credible study of the applicable market.
Finally, since we do not know what rates Wickland will offer, and because Wickland has not provided evidence of rates charged by comparable pipelines, we do not know if Wickland's rates will compare favorably with those of other pipelines or if their rates will reflect a reasonable rate of return. This further undermines our ability to approve Wickland's request for market-based rates now. While it is Wickland's duty to make the case for market-based rates, it is ours to protect the interests of prospective ratepayers, large and small.
For all of these reasons, we are duty-bound to deny Wickland's request for market-based rates without prejudice. While it is pursuing completion of its pipeline, Wickland would be able to submit a more comprehensive showing in this docket to support its request for market-based rates, or prepare a cost-based rate application for the Commission's consideration. Because the majority opinion fails to fulfill this responsibility, we dissent.
/s/ LORETTA M. LYNCH
Loretta M. Lynch
President
/S/ CARL W. WOOD
Carl W. Wood
Commissioner
San Francisco, California
November 7, 2002
