2. Introduction

In this Joint Application, SCE and Pacific Terminals seek Commission approval under § 851 and § 854 of the Pub. Util. Code of the sale by auction and the transfer to Pacific Terminals of SCE's FOP Facilities,2 which, for the purpose of the Joint Application, include two categories of assets:

The first category, referred to herein as the Edison Pipeline and Terminal Company (EPTC) System Facilities, consists of the assets now used for SCE's commercial oil storage and transport operations for third parties. Some of these assets were originally developed to supply and maintain the fuel oil for generating stations formerly owned by SCE. The rest of the assets were developed for commercial oil transport and storage, pursuant to the authority granted by the Commission in Decision (D.) 94-10-044.3 The EPTC System Facilities include assets developed and supported by electric utility ratepayers as well as other assets developed by shareholders and supported by shareholders.

The second, much smaller, category is referred to as the Station Facilities. These assets were developed for on-site storage and supply of fuel oil for the generating stations. They have not been part of SCE's third-party oil transportation and storage business, and electric utility ratepayers have wholly supported them.

The total purchase price is $158.2 million. Pacific Terminals determined that of the $158.2 million. $152.9 million represents the amount paid for the EPTC System Facilities. The remaining $5.3 million represents the portion of the total attributable to the Station Facilities.

SCE's fuel oil pipeline and storage facilities in Southern California were originally built to store and supply SCE's electric generating stations4 with residual fuel oil purchased from local oil refinery suppliers or brought into the system by marine vessel through supply lines from harbor facilities. The facilities subject to this Joint Application consist of 120 miles of oil pipeline5 with connections to the Port of Long Beach and to Los Angeles-area oil refineries, oil storage tanks totaling 9.4 million barrels (bbl) of nominal capacity, and eleven pumping and heating stations.

Prior to 1994, these facilities were operated and maintained by SCE's Fuel Oil Pipeline Division (FOP Division) and its Steam Generation Division, both part of the Generation Business Unit. The FOP Division operated and maintained the inter-station pipeline and storage facilities (System Facilities), while the Steam Generation Division operated and maintained the intra-station distribution pipelines and storage equipment associated with each electric generating station (Station Facilities). The primary functions of the System Facilities were receiving oil from suppliers, providing interim storage as needed for SCE's generating stations, and transporting oil to the generating stations to assure adequate fuel oil supplies for electrical system operation when fuel oil was the primary fuel utilized at the generating stations. In early 1991, when fuel oil became a secondary fuel for the generating stations, the function of the FOP Division began providing Backup Fuel Oil Services (BFOS) for electric system reliability through strategic deployment of the remaining fuel oil inventory for emergency use in the event of an interruption of the natural gas supply to the generating stations.

Recognizing that the System Facilities would be underutilized in this role, SCE filed Application (A.) 93-07-029 to allow encumbrance of the System Facilities for revenue generation via third-party use, when the System Facilities were not being used by SCE. The Commission issued D.94-10-044, allowing SCE to proceed with this endeavor. In addition, the Commission authorized expenditure of shareholder funds to make the System Facilities suitable for conducting third-party business.

The FOP Division was renamed the Edison Pipeline and Terminal Company to market the underutilized capacity of the System facilities to third parties, while maintaining its commitment to provide fuel backup transportation and storage services for SCE's generating stations. The Commission recognized this ongoing role in maintaining readiness to support electric utility operations by authorizing, in SCE's 1995 General Rate Case, the collection through electric rates of a portion of the costs for these facilities, and these costs have continued to be collected in rates.6

In 1998, electric industry restructuring brought about by Assembly Bill 1890 resulted in the sale of all the SCE generating stations utilizing residual fuel oil and natural gas fuel. SCE committed to continue to provide BFOS to the new owners of the generating stations for a period of 18 months or until the California Independent System Operator (CALISO) decided on the continued need of BFOS for reliability purposes.

On August 26, 1999, the CALISO determined that BFOS were no longer required for electrical system reliability at the former SCE generating stations. This Commission informed the CALISO that it had no objection to the release of generating stations formerly owned by SCE from backup oil burning capability. In D.01-02-059, the Commission implicitly recognized that the EPTC System Facilities were not generation-related assets subject to the valuation requirements of Pub. Util. Code § 367(b). In that decision, the Commission found that A.00-01-037, SCE's application to sell its fuel oil pipeline facilities, should be denied because there was no prospective buyer at the time.

The present Joint Application includes most of the EPTC System Facilities, as well as most of the remaining fuel oil-related Stations-Facilities that have not yet been sold or decommissioned.7 The following diagram depicts the categorization of assets included in the proposed sale and the terminology used throughout the Joint Application and this decision: