12. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Karl Bemesderfer is the assigned ALJ in this proceeding.

Findings of Fact

1. The 20" Pipeline that is the subject of this complaint is owned by Equilon and Shell Trading.

2. The 20" Pipeline is a 265-mile-long heated oil pipeline running from the San Joaquin Valley to the Bay Area.

3. Defendants use the pipeline to transport oil they produce themselves and, when capacity permits, oil purchased from other producers through buy/sell agreements.

4. A buy/sell agreement is a contract in which a pipeline owner or crude oil trader buys crude oil from a supplier at one end of the pipeline and sells an equivalent amount of oil to the supplier at the other end of the pipeline.

5. Defendants aggressively market the excess capacity of the 20" Pipeline to other oil producers in the San Joaquin Valley.

6. The price of oil re-sold by Defendants to a producer pursuant to a buy/sell agreement exceeds the San Joaquin Valley price paid by Defendants to acquire the oil from the producer.

7. The buy/sell price differential represents a fee for transporting the oil from the San Joaquin Valley to the Bay Area.

8. Chevron has had access to the 20" Pipeline for the last five years through buy/sell agreements with Shell Trading pursuant to a Proprietary Pipeline Contract.

9. Chevron in 2005 disputed the prices of certain buy/sell agreements with defendants and, pursuant to the Proprietary Pipeline Contract, submitted the dispute to arbitration.

10. An arbitration decision that issued on June 20, 2005, established the price per barrel under the buy/sell agreements through December 31, 2005.

11. In December 2005, Chevron and Shell Trading entered into a new buy/sell agreement establishing pricing for transactions between January 1, 2006 and June 30, 2007.

12. In December 2005, Chevron filed this complaint, alleging that the 20" Pipeline is a public utility and that the Commission has exclusive jurisdiction to determine pricing for the pipeline.

13. Equilon and Shell Trading have moved to dismiss the complaint based on the doctrines of res judicata and judicial estoppel, as well as what they contend is the Commission's policy on buy/sell agreements at oil pipelines.

14. Both complainant Chevron and defendants Equilon and Shell Trading have moved for summary adjudication.

15. The California Court of Appeal in 1994 held that buy/sell agreements involving the 20" Pipeline are valid contractual agreements and that, therefore, the 20" Pipeline is not a public utility subject to Commission regulation.

16. Chevron was the prevailing party in the 1994 litigation.

17. The 1994 Court of Appeal opinion was not certified for publication.

18. California Rule of Court 977 prohibits citation of or reliance on unpublished opinions except that unpublished opinions may be used to bar re-litigation of claims or issues in subsequent proceedings under the doctrines of res judicata and collateral estoppel.

19. The California Supreme Court in 1917 ruled that a pipeline owner that transports only that oil to which the pipeline owner had acquired title does not thereby transport crude oil for others.

20. The only crude oil pipelines that the Commission currently regulates are those that either voluntarily submitted to Commission regulation or expressly held themselves out as being willing to serve any customer requesting service.

21. There are no material issues of disputed fact.

Conclusions of Law

1. An oil pipeline corporation that transports oil for others for compensation is a public utility subject to the jurisdiction of the Commission.

2. For an oil company to be a public utility and common carrier subject to Commission regulation, in addition to the statutory requirement that it transport oil for others for compensation, the company must have dedicated its property to public use.

3. The Court of Appeal in 1994 held that the use of buy/sell agreements on the oil pipeline at issue in this case did not constitute transportation of oil for others.

4. Res judicata and collateral estoppel may only be invoked to prevent the losing party in prior litigation from re-litigating lost claims or issues in subsequent proceedings between the same parties.

5. Chevron's complaint is not barred by res judicata or collateral estoppel because Chevron was the prevailing party in 1994.

6. Chevron's complaint is not barred by judicial estoppel because unreported cases may not be used to establish judicial estoppel.

7. A pipeline owner may be deemed to have dedicated the pipeline to public use only if it has manifested an unequivocal intention to do so.

8. Equilon and Shell Trading are in the business of transporting oil for a fee through the use of buy/sell agreements.

9. Equilon and Shell Trading have manifested an unequivocal intention to dedicate the 20" Pipeline to public use by engaging in the business of transporting oil for a fee.

10. Chevron's motion for summary adjudication should be granted and this proceeding should be closed, effective immediately.

ORDER

IT IS ORDERED that:

1. The motion of Equilon Enterprises LLC, doing business as Shell Oil Products US, and Shell Trading (US) Company to dismiss this complaint is denied.

2. The motion of Chevron Products Company for summary adjudication is granted.

3. The motion of Equilon Enterprises LLC, doing business as Shell Oil Products US, and Shell Trading (US) Company for summary adjudication is denied.

4. No hearing is necessary in this proceeding.

5. Case 05-12-004 is closed.

This order is effective today.

Dated July 26, 2007, at San Francisco, California.

Commissioner Rachelle B. Chong, dissenting:

Complainant Chevron claims that the Equilon/Shell pipeline, which runs from San Joaquin production fields to Bay Area refineries, is a public utility subject to this Commission's regulation. I believe the facts show otherwise, and for that reason the Commission should not undertake to regulate this oil pipeline.

Under Sections 211 and 216(b) of the Public Utilities Code, the Commission would regulate this pipeline if its owners were transporting oil for others and had dedicated the pipeline to public use. I believe that the facts demonstrate that these tests are not met in this case. Unlike the majority, I agree with the assigned Administrative Law Judge's finding that this oil pipeline is not dedicated to public use.

As complainant Chevron agrees, public utility dedication cannot be presumed without evidence of unequivocal intention (Proposed Decision of ALJ Bemesderfer, Mimeo p. 18). Complainant has produced no such evidence in this case. It is undisputed that the owners do not provide pipeline access to all who seek it; furthermore they have only provided access where there are agreed-upon terms and conditions of service, including price, which may differ from customer to customer. The "buy-sell" arrangements involve a transfer of the 1) risk of loss, 2) the risk of property damage, and 3) the risk that the purchaser might not accept the oil when tendered for delivery. Finally, the pipeline owners are making available to third parties only their excess capacity, specifically the amount of pipeline capacity remaining over after Equilon has transported oil produced by Shell.

Much is made of the fact that the pipeline often carries fifty percent or more in excess capacity purchases. However a specific number is not determinative in showing unequivocal intention of dedication. While fifty percent is not de minimis, that is not the correct standard. Rather the facts show that these pipeline owners are trying to generate incremental revenue from an asset operated in the first instance for their own benefit. This effort, no matter how aggressive, does not convert their operations to common carriage.

Nor do I find PG&E v. Dow Chemical Corp (1994), 55 CPUC 2d 430, relevant to this case. In that decision, the Commission disregarded defendant's claims of private carriage via leases and exchange agreements, but it did so in the interests of protecting PG&E, which has the obligation to serve customers in a monopoly franchise territory from unfair competition. As the Administrative Law Judge's Proposed Decision notes, the Commission considered Dow's conduct as manifesting the intention to compete with PG&E for gas transmission services. These are not the same facts we confront in this case.

A final argument is made that there is a compelling policy reason for regulating this oil pipeline, based on a point made by Tesoro during oral argument after evidentiary hearings had concluded. Tesoro argues that through Shell's monopoly control of the only heated pipeline between the San Joaquin Valley and the Bay Area, Shell Oil may be in a position to use the pipeline in an anticompetitive manner. Quite simply, this is a claim based on argument, not actual evidence in the record, and it should not sway the ultimate outcome in an adjudicatory proceeding.

I believe it is unwise to change fundamental Commission policy on oil pipeline regulation in a complaint proceeding resolving what I believe to be essentially a commercial dispute. A broader regulatory perspective of the oil pipeline industry is needed before making such an important policy shift. The Commission has wisely followed this course in the past. Both in 1917 and again in 1975-1979, the Commission conducted industry-wide reviews so that it could properly assess the merits of its regulatory approach to this industry, as well as the market and economic effects of its decision-making. The Commission should follow this approach again, instead of choosing a reregulation path without the benefit of an industry-wide review.

For these reasons, I respectfully dissent from the majority decision.

Dated July 26, 2007, at San Francisco, California.

/s/ RACHELLE B. CHONG

Rachelle B. Chong

Commissioner

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