RATE AND OTHER REGULATIONS

GENERAL INTERSTATE REGULATION.
Our High Plains Pipeline, Northwest Products Pipeline and two other interstate pipelines are common carriers subject to regulation by various federal, state and local agencies. The Federal Energy Regulatory Commission (“FERC”) regulates interstate transportation on our crude oil transportation and gathering pipelines and Northwest Products Pipeline under the Interstate Commerce Act (“ICA”), the Energy Policy Act of 1992 (the “EPAct”), and the rules and regulations promulgated under those laws. The ICA and its implementing regulations require that tariff rates for interstate service on oil pipelines, including interstate pipelines that transport crude oil and refined products (collectively, “Petroleum Pipelines”), be just and reasonable and non-discriminatory, and that we file such rates and terms and conditions of service with the FERC. Under the ICA, shippers may challenge new or existing rates or services. The FERC is authorized to suspend the effectiveness of a challenged rate for up to seven months, though rates are typically not suspended for the maximum allowable period. A successful rate challenge could result in Petroleum Pipelines paying refunds for the period that the rate was in effect and/or reparations for up to two years prior to the filing of a complaint. There are no pending challenges or complaints regarding our current tariffs.

TERMINALLING AND TRANSPORTATION.
Our competition primarily comes from independent terminal and pipeline companies, integrated petroleum companies, refining and marketing companies and distribution companies with marketing and trading arms. Competition in particular geographic areas is affected primarily by the volumes of refined products produced by refineries located in those areas, the availability of refined products and the cost of transportation to those areas from refineries located in other areas.

We may compete with third-party terminals for volumes in excess of minimum volume commitments under our commercial agreements with Tesoro and third-party customers as other terminals and pipelines may be able to supply Tesoro’s refineries or end user markets on a more competitive basis, due to terminal location, price, versatility and services provided. If Tesoro’s customers reduced their purchases of refined products from Tesoro due to the increased availability of less expensive product from other suppliers or for other reasons, Tesoro may only receive or deliver the minimum volumes through our terminals (or pay the shortfall payment if it does not deliver the minimum volumes), which would decrease our revenues.

TERMINALLING AND TRANSPORTATION

We generate terminalling and transportation revenues by charging our customers fees for:
• delivering crude oil, refined products and intermediate feedstocks from vessels to refineries and terminals;
• loading and unloading crude oil transported by unit train to Tesoro’s Anacortes refinery;
• marine loading and unloading;
• providing oil storage services in the port of Houston and its environs; 

• transferring refined products from terminals to trucks, barges and pipelines;
• transporting refined products;
• providing ancillary services, ethanol blending and additive injection, and for barge loading or unloading fees; and
• handling petroleum coke for Tesoro’s Los Angeles refinery.

Our refined products terminals are supplied by our pipelines, Tesoro-owned and third-party pipelines, trucks, and barges. Our marine terminals load and unload vessels, our rail car loading and unloading facilities receive crude oil transported on unit trains leased by Tesoro, and our petroleum coke facility handles and stores petroleum coke.

TERMINALLING

The following table shows the locations and types of products handled by our crude oil and refined products terminals and storage facilities including their storage capacities (in shell barrels) as of December 31, 2016.

Terminal Location

Products Handled

Total Approximate Storage Capacity (a) 

Dedicated Storage (b)

California Marine Terminals

Crude Oil; Intermediate Feedstocks; Gasoline; Diesel; Jet Fuel

3,349,000

2,231,000

Houston Terminals and Storage Facilities

Crude Oil Storage; Diesel; ; Gasoline; Gasoline Blendstocks; Jet Fuel; Light Ends; NGLs

20,159,000

17,154,486

Idaho

Gasoline; Diesel; Jet Fuel

878,000

53,826

Utah

Gasoline; Diesel; Jet Fuel; Crude Oil Storage;
Truck Unloading

895,000

878,000

Washington

Gasoline; Diesel; NGLs

2,374,000

1,602,977

Alaska

Gasoline; Diesel; Jet Fuel; Aviation Gasoline

5,563,000

4,156,424

Total Crude Oil and Refined Products                                                                                                33,218,000                                   26,076,713

(a) Includes storage capacity for refined products and ethanol only; excludes additive storage for gasoline and diesel.
(b) Represents dedicated portion of total storage capacity for which we charge a per barrel monthly fee based on storage capacity. 

ENVIRONMENTAL REGULATIONS

GENERAL.
Our operations of pipelines, terminals and associated facilities in connection with the storage and transportation of crude oil, refined products and biofuels as well as our operations of gathering, processing and associated facilities related to the movement of natural gas are subject to extensive and frequently-changing federal, state and local laws, regulations, permits and ordinances relating to the protection of the environment. Among other things, these laws and regulations govern the emission or discharge of pollutants into or onto the land, air and water, the handling and disposal of solid, liquid, salt water and hazardous wastes and the remediation of contamination. Compliance with existing and anticipated environmental laws and regulations increases our overall cost of business, including our capital costs to construct, maintain, operate and upgrade equipment and facilities. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties. Certain environmental statutes impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances, hydrocarbons or wastes have been disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. These requirements may also significantly affect our customers’ operations and may have an indirect effect on our business, financial condition and results of operations. However, we do not expect such effects will have a material impact on our financial position, results of operations or liquidity.

Under the Third Amended and Restated Omnibus Agreement (“Amended Omnibus Agreement”) and the Carson Assets Indemnity Agreement, Tesoro indemnifies us for certain matters, including environmental, title and tax matters associated with the ownership of our assets at or before the closing of the Initial Offering and the subsequent Acquisitions from Tesoro. See Note 10 to our consolidated financial statements in Part II, Item 8 for additional information regarding the Amended Omnibus Agreement and Carson Assets Indemnity Agreement.



AIR EMISSIONS AND CLIMATE CHANGE REGULATIONS.

Our operations are subject to the Clean Air Act and comparable state and local statutes. Under these laws, permits may be required before construction can commence on a new source of potentially significant air emissions, and operating permits may be required for sources that are already constructed. 

If regulations become more stringent, additional emission control technologies may be required to be installed at our facilities and our ability to secure future permits may become less certain. Any such future obligations could require us to incur significant additional capital or operating costs.

The EPA has undertaken significant regulatory initiatives under authority of the Clean Air Act’s New Source Review/Prevention of Significant Deterioration program (“NSR/PSD”) in an effort to further reduce emissions of volatile organic compounds, nitrogen oxides, sulfur dioxide, and particulate matter. 

These regulatory initiatives have been targeted at industries with large manufacturing facilities that are significant sources of emissions, such as refining, paper and pulp, and electric power generating industries.

The basic premise of these initiatives is the EPA’s assertion that many of these industrial establishments have modified or expanded their operations over time without complying with NSR/PSD regulations adopted by the EPA that require permits and new emission controls in connection with any significant facility modifications or expansions that can result in emission increases above certain thresholds. As part of this ongoing NSR/PSD regulatory initiative, the EPA has entered into consent decrees with several refiners, including Tesoro, that require the refiners to make significant capital expenditures to install emissions control equipment at selected facilities. However, we do not expect any additional requirements will have a material impact on our financial position, results of operations or liquidity.

On October 1, 2015, EPA strengthened the National Ambient Air Quality Standards (“NAAQS”) for ground-level ozone to 70 parts per billion (“ppb”) from the 75 ppb level set in 2008. To implement the revised ozone NAAQS, all states will need to review their existing air quality management infrastructure State Implementation Plan for ozone and ensure it is appropriate and adequate. Where areas remain in ozone non-attainment, or come into ozone non-attainment as a result of the revised NAAQS it is likely that additional planning and control obligations will be required. States may impose additional emissions control requirements on stationary sources, changes in fuels specifications, and changes in fuels mix and mobile source emissions controls. The ongoing and potential future requirements imposed by states to meet the ozone NAAQS could have direct impacts on Tesoro facilities through additional requirements and increased permitting costs, and could have indirect impacts through changing or decreasing fuel demand.

The Energy Independence and Security Act was enacted into federal law in December 2007 creating a second Renewable Fuels Standard (“RFS2”) requiring the total volume of renewable transportation fuels (including ethanol and advanced biofuels) sold or introduced in the U.S. to reach 36.0 billion gallons by 2022. On December 14, 2015, the EPA issued a final rule establishing the Renewable Fuel Standard requirements for 2014 (16.28 billion gallons), 2015 (16.93 billion gallons) and 2016 (18.11 billion gallons). The ongoing and increasing requirements for renewable fuels in RFS2 could reduce future demand for petroleum products and thereby have an indirect effect on certain aspects of our business, although it could increase demand for our ethanol and biodiesel fuel blending services at our truck loading racks.

Currently, multiple legislative and regulatory measures to address greenhouse gas emissions are in various phases of discussion or implementation.

WE ARE IN THE BUSINESS OF HELPING YOURS.

CONTACTS

19100 Ridgewood Pkwy San Antonio, TX.

+1 817 204 5470.

info@tlnpllc.com.
pr.tankreservation@tlnpllc.com.