INVESTMENTS – EQUITY METHOD AND JOINT VENTURES
For each of the following investments, we determined that the entities did not represent variable interests and thus consolidation was not required. We have the ability to exercise significant influence over each of these investments through our participation in the management committees, which make all significant decisions. However, since we have equal influence over each committee and all significant decisions require consent of the other investor without regard to our economic interest, we have determined that we have joint control and have recorded these investments as joint ventures and applied the equity method of accounting.
Watson Cogeneration Company (“Watson”)
In connection with the closing of the Los Angeles Acquisition on June 1, 2013, we acquired a 51% interest in the Watson cogeneration facility located at the Carson refinery. Watson purchases fuel gas and water from our Carson refinery in order to produce steam and electricity that is sold to the Carson refinery. Excess electrical energy not sold to our Carson refinery is sold to an affiliate of our joint venture partner for resale to its customers. Our transactions with Watson, which do not have intra-entity profits requiring elimination, consist of sales of fuel gas and water, purchases of steam and electricity and charges for general and administrative support. Sales of fuel gas to Watson of $13 million are recorded in revenue in our statements of consolidated operations for the year ended December 31, 2013. Sales of water and the charges for general and administrative support of $10 million are reflected as a reduction to operating expense, and our purchases of steam and electricity of $63 million are recorded as operating expenses.
Our investment in Watson totaled $109 million at December 31, 2013. Since the acquisition through December 31, 2013, we have recorded $11 million of equity in earnings of equity method investments in our statements of consolidated operations and received $13 million in distributions related to our investment in Watson. Additionally, our carrying amount for our investment in Watson exceeded the amount of underlying equity in net assets by $73 million at December 31, 2013. This basis difference is being amortized over the useful life of Watson’s underlying cogeneration assets as a reduction to earnings generated by Watson.
Tesoro Savage Petroleum Terminal, LLC (“Savage Terminal Joint Venture”)
We entered into an equally owned joint venture with Savage Companies to construct, own, and operate a unit train unloading and marine loading terminal at the Port of Vancouver, Washington on April 22, 2013. The facility is currently in the permitting phase prior to construction. We are obligated to fund half of the joint venture’s capital needs. Our investment in the Savage Terminal Joint Venture totaled $5 million at December 31, 2013. Since inception, our share of Savage Terminal Joint Venture’s losses has been immaterial.
