Discussion

Under the terms of the purchase agreement, LB Pacific will sell to Plains 100 % of its ownership interest in Pacific Management and Pacific Energy, GP together with the 7,848,750 subordinated units and 2,616,250 common units that LB owns in Pacific Energy. The total cash sales price is $700 million. Although the interests transferred are less than half of the total ownership interests in Pacific Energy, they include the entire general partnership interest and accordingly represent effective indirect control of the subject utilities.

Public Utilities 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 section is to enable the Commission, before any transfer of public utility property 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.

This transaction will make Pacific Pipeline and Pacific Terminals part of a large company with a strong balance sheet. Pacific Energy is unable at present to issue investment-grade securities should it need to raise additional money to support the operations of its utility subsidiaries. As of June 2006, Plains' unsecured debt ratings with Standard and Poor's and Moody's Investment Services were BBB- and Baa3, respectively, both of which are considered investment-grade ratings. The savings in interest costs and the enhanced ability to borrow money for operations via an investment-grade parent will benefit both utilities. Moreover, by integrating their facilities into the Plains network, both companies should benefit from economies of scale. In addition to its balance sheet strength, Plains also has significant management depth and a long track record of successful business operations. Finally, both companies will continue to be regulated in the public interest by this Commission after completion of the transaction.

The California Environmental Quality Act (CEQA) requires the Commission as the designated lead agency to assess the potential impact of a project to ensure that adverse effects are avoided, alternatives are investigated, and environmental quality is restored or enhanced to the fullest degree possible. Applicants will not be constructing any facilities beyond those already in use. Therefore it can be seen with certainty that there is no possibility that granting this application will have an adverse effect on the environment. Applicant must file for additional authority and submit to any required CEQA review before it can construct additional facilities.