2. Summary

This interim decision resolves all but one issue in these formally consolidated applications. The issue we defer is whether Carlyle/Riverstone Global Energy and Power Fund III (Carlyle/Riverstone III) and Carlyle Partners IV, two of the investors in Knight Holdco LLC (Knight Holdco), should be granted the same exemptions from Public Utilities Code Section 852 that we grant to Goldman Sachs Group, Inc. (Goldman Sachs) and American International Group, Inc. (AIG), also investors in Knight Holdco.¹ To resolve the issue for Carlyle Partners IV and Carlyle/Riverstone III, we must decide whether to modify two other decisions affecting another utility. Defective notice prevents us from deciding the issue in this decision.

We approve, pursuant to Section 854 and subject to specified conditions, the transfer of indirect ownership and control over jurisdictional portions of two common carrier pipeline utilities, SFPP, L.P. (SFPP) and its affiliate, Calnev Pipe Line, L.L.C. (Calnev). Kinder Morgan Inc. (KMI), a publicly-traded corporation, indirectly owns and controls the pipelines at present. Our approval will permit finalization of the acquisition of KMI by a group of private investors through Knight Holdco, a private limited liability company. The investors include several individuals involved in KMI's current management, including Richard Kinder, the present Chairman and CEO of KMI, and four large financial institutions: Goldman Sachs, AIG, Carlyle Partners IV, and Carlyle/Riverstone III.

The conditions we order are designed to ensure the Commission's ongoing ability to discharge its jurisdictional obligations to monitor the continued ability of the two common carrier pipeline utilities to meet their obligation to serve through reasonable rates, terms and conditions of service and to operate in an environmentally safe manner in this state. Among these conditions are the following: Commission access to books, records and witnesses that we deem cognate and germane to our ongoing regulation of the public utilities; recognition by Knight Holdco and other intermediaries in the organizational structure, as a first priority, of the capital requirements of SFPP and Calnev; assurance that adequate measures exist to structurally separate ("ring-fence") SFPP and Calnev to prevent them from being pulled into a bankruptcy of Knight Holdco or any organizational intermediary; provision of a letter of credit from a national bank to ensure payment of up to $100 million in potential intrastate rate refunds. All conditions are set out in the Ordering Paragraphs.

We also approve, subject to limitations that they now propose, an exemption from Section 852 for Goldman Sachs and AIG. The exemption covers only non-controlling, passive investments in the stock of California utilities. Both entities recognize that acquisitions of controlling interests will continue to require advance Commission approval under Section 854.

¹ Unless otherwise stated hereafter, all references to a section or sections refer to the Public Utilities Code.