ALJ/RS1/hkr Date of Issuance 11/2/2009
Decision 09-10-035 October 29, 2009
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of Gill Ranch Storage, LLC for a Certificate of Public Convenience and Necessity for Construction and Operation of Natural Gas Storage Facilities. |
Application 08-07-032 (Filed July 29, 2008) |
And Related Matter. |
Application 08-07-033 |
DECISION ADDRESSING GILL RANCH STORAGE, LLC'S
AND PACIFIC GAS AND ELECTRIC COMPANY'S APPLICATIONS FOR AUTHORITY TO CONSTRUCT AND OPERATE A GAS STORAGE FACILITY
TABLE OF CONTENTS
Title Page
DECISION ADDRESSING GILL RANCH STORAGE, LLC'S
AND PACIFIC GAS AND ELECTRIC COMPANY'S APPLICATIONS FOR AUTHORITY TO CONSTRUCT AND OPERATE A GAS
STORAGE FACILITY 22
2. Standard of Review: The CPCN/CEQA Process 99
5. Consideration of the Factors Set Forth in § 1002 1919
5.2. Recreational and Park Areas, Historical and Aesthetic Values,
and Influence on Environment 2121
6. Proposed Settlement Agreement 2222
7.1. Does § 785 Give Priority to Natural Gas Production
Over Storage? 4242
7.2. Liability Insurance and Similar Indemnifications 4747
7.3. Interconnection With PG&E 4848
7.4. GRS' Request for Approval of Market-Based Rates 5151
7.5. Requests for Waiver of Cost Showing 5454
7.6. Requests for Waiver of the Cost Cap Requirement 5555
7.7. GRS' Request for Exemptions From the Requirements
of § 818 and § 851 and the Commission's Competitive
Bidding Rule 5656
8.1. Proponent's Environmental Assessment 5858
8.2. Draft Initial Study/Mitigated Negative Declaration 5858
8.4. Mitigation Monitoring and Reporting Program 5959
8.5. Electric and Magnetic Fields 6161
APPENDIX A: Settlement Agreement
APPENDIX B: Electromagnetic Field Management Plan
DECISION ADDRESSING GILL RANCH STORAGE, LLC'S
AND PACIFIC GAS AND ELECTRIC COMPANY'S APPLICATIONS FOR AUTHORITY TO CONSTRUCT AND OPERATE A GAS STORAGE FACILITY
This decision (Decision) approves two consolidated applications which seek to establish a competitive gas storage facility and to provide related gas storage services. The Decision approves Application (A.) 08-07-032, Gill Ranch Storage, LLC's (GRS') request for a certificate of public convenience and necessity (CPCN) to construct and operate the Gill Ranch Storage Project (Proposed Project) to provide natural gas storage services at market-based rates. The Decision also approves A.08-07-033, the Pacific Gas and Electric Company's (PG&E's) request for a CPCN to construct and operate the Proposed Project, and request for a permit to construct an electric substation and a 115 kilovolt electric power line to provide electric service to the Proposed Project.
As a result of this Decision, GRS and PG&E will offer up to 20 billion cubic feet of competitive natural gas storage services. The Decision grants the Applications after weighing the need for competitive gas storage services, pursuant to Pub. Util. Code §§ 1001,1 et seq., as well as the factors set forth in § 1002 and the outcome of the environmental review process.
The Decision certifies the Mitigated Negative Declaration (MND), authorizes issuance of a Notice of Determination for the Proposed Project pursuant to the California Environmental Quality Act, and conditions the CPCNs and the permit to construct primarily on the conditions and mitigation set forth in the MND.2 The Decision also determines that GRS' project-related development financing is exempt from the requirements of §§ 818 and 851 and the Commission's Competitive Bidding Rule.
The Decision also approves the settlement agreement between the Division of Ratepayer Advocates, Lodi Gas Storage, LLC, GRS, and PG&E which resolves concerns about PG&E increasing its share of the ownership of the Proposed Project and its share of California's gas storage market, concerns that PG&E might grant preferential treatment to GRS over other independent storage providers, and concerns that PG&E might use revenues from core customers to subsidize its Proposed Project costs. The settlement agreement also establishes reporting and disclosure requirements for customer contracts, storage operations, and project ownership that will provide the Commission with information similar to that required of other independent storage providers but with additional information appropriate for the unique relationship between GRS and PG&E.
As a result of our approval of A.08-07-032, GRS will be certificated as a public utility with respect to the Proposed Project and, as such, will have eminent domain authority pursuant to § 613.3 However, because the Proposed Project will offer competitive services, GRS and PG&E must comply with § 625 before they can exercise the power of eminent domain with respect to the Proposed Project.
1. Background
On July 29, 2008, Gill Ranch Storage, LLC (GRS) filed Application (A.) 08-07-032 (the GRS Application) requesting (1) a certificate of public convenience and necessity (CPCN) to construct and operate the Proposed Project; (2) authority to charge market-based rates for storage services provided by GRS; (3) adoption of a Mitigated Negative Declaration (MND) and issuance of a Notice of Determination (NOD) for the Proposed Project pursuant to California Environmental Quality Act (CEQA); and (4) a determination that GRS' project-related development financing is exempt from the requirements of § 818 and § 851 and the Commission's Competitive Bidding Rule.
GRS is an Oregon limited liability company formed in 2007 for the purpose of developing the Proposed Project and is dedicated to exclusively serving the California market. GRS is a wholly owned subsidiary of Northwest Natural Gas Company, an Oregon-based company that provides natural gas distribution services to 652,000 customers in Oregon and southwest Washington.
On July 29, 2008, Pacific Gas and Electric Company (PG&E) filed A.08-07-033 (the PG&E Application) requesting: (1) a CPCN to construct the Proposed Project, including ancillary pipeline and other facilities; (2) a permit to construct (PTC) authorizing construction of an electric substation and a 115 kilovolt (kV) electric power line to provide electric service to the Proposed Project; and (3) adoption of an MND and issuance of a NOD for the Proposed Project pursuant to CEQA. The PG&E Application relies on the Proponent's Environmental Assessment (PEA) that GRS prepared for the Proposed Project.
PG&E is an operating public utility engaged principally in the business of furnishing gas and electric service in California since 1905.
The Proposed Project is comprised of an underground natural gas storage field, a compressor station for injecting and withdrawing gas from the storage field and associated dehydration and control facilities, an approximately 27-mile natural gas pipeline connecting the Proposed Project to PG&E's Line 401, an electric substation located at the compressor station, and a 9-mile 115 kV power line connecting the substation to PG&E's Dairyland-Mendota 115 kV power line to serve the compressors and other facilities. Except for the 115 kV power line, which will be constructed, owned, and operated by PG&E, GRS owns a 75 percent undivided interest in the Proposed Project and PG&E owns a 25 percent undivided interest. GRS and PG&E each will separately market its share of storage capacity in the Proposed Project. The Proposed Project will be constructed by GRS and PG&E and operated by GRS during development, permitting and construction, and for at least three years from the date commercial operations begin, pursuant to an Operator Agreement (OA) between GRS and PG&E.
The Proposed Project will utilize natural gas reservoirs within the Gill Ranch Gas Field (Gas Field), located in Madera and Fresno Counties approximately 10 miles east of Mendota and approximately 20 miles west of Fresno. The Gas Field consists of several geologically separate formations.4 Natural gas production continues today from wells in the Kreyenhagen and the Moreno Formations. The Proposed Project intends to use sandstone reservoirs at the top of the First and Second Starkey Formations for gas storage, situated approximately 2,000 feet below the two producing gas wells.
Notice of the Applications appeared in the Commission's July 31, 2008 Daily Calendar. On September 2, 2008, Armstrong Petroleum Corporation (Armstrong), the Division of Ratepayer Advocates (DRA), and Will Gill & Sons filed protests to the PG&E Application, and Armstrong filed a protest to the GRS Application. Also on September 2, 2008, Lodi Gas Storage, LLC (LGS), Wild Goose Storage, LLC (WGS), and Meyers Farming (Meyers) filed responses to the GRS and PG&E Applications, and DRA filed a response to the GRS Application.
On September 12, 2008, GRS filed a reply to the responses and protest, and on September 15, 2008, PG&E filed a reply to the responses and the Armstrong and DRA protests.5 On October 3, 2008, GRS and PG&E each filed a reply to Will Gill & Sons protest.6
Because both Applications relate to the Proposed Project and involve identical or closely related questions of law or fact relating to the construction and operation of the Proposed Project, including the potential environmental impacts of the Proposed Project, the Administrative Law Judge (ALJ) consolidated A.08-07-032 and A.08-07-033.7
A prehearing conference (PHC) was held on February 3, 2009, where representatives of GRS, PG&E, Armstrong, Will Gill & Sons,8 DRA, LGS, and WGS were in attendance.
On March 2, 2009, a scoping memo and ruling of assigned Commissioner and ALJ (Scoping Memo) was issued that, among other things, denied Armstrong's and Will Gill & Sons' requests to suspend or reject the Applications until GRS and PG&E acquired sufficient ownership interests in the underground reservoirs. The Scoping Memo also called for prehearing briefs on whether § 7859 requires the Commission to give priority to the production of natural gas from the Gas Field over the use of the Gas Field for gas storage services.
On March 11, 2009, GRS and PG&E reported that they reached agreement in principle with Armstrong and Will Gill & Sons on all of the issues that were raised by Armstrong and Will Gill & Sons, and expected to soon finalize an agreement. Also on March 11, 2009, GRS, PG&E, DRA, and LGS submitted a joint status report, and reported that they were near final agreement on the issues raised by LGS and DRA. GRS, PG&E, DRA, and LGS requested a PHC to address procedural issues related to the anticipated resolution of the issues raised by parties.
A second PHC was held on March 24, 2009 to confirm which of the issues listed in the Scoping Memo were resolved through negotiations, to identify the issues that remain unresolved, and to determine the process and schedule for addressing the issues. Pursuant to the March 24 PHC, the April 2, 2009 ALJ ruling modified the proceeding schedule to remove from the schedule the filing of legal briefs, evidentiary hearings, and related procedural activities (i.e., filing of testimony, etc.).
On April 8, 2009, GRS, PG&E, DRA, and LGS filed a motion for approval of a proposed settlement between these parties (Settling Parties). No responses to the motion were filed. However, according to the Settling Parties, WGS does not oppose the settlement terms.
On May 18, 2009, Armstrong withdrew its protests to the GRS and PG&E Applications. Armstrong states that, through negotiations with GRS and PG&E, it has resolved the issues it raised in its protests.
On May 22, 2009, GRS and PG&E filed a motion requesting confirmation of the proceeding schedule established by the April 2, 2009 ALJ ruling (Confirmation Motion). The Confirmation Motion states that GRS and PG&E had reached agreement in principle with Armstrong and Will Gill & Sons regarding the issues raised by those parties in this proceeding related to 2,600 acres of property leased by Armstrong from Will Gill & Sons, but have not been able to finalize an agreement with Will Gill & Sons with respect to approximately 1,000 acres of unleased property owned by the Gill OG&M Trust.10 GRS and PG&E assert, however, that all evidentiary issues have been resolved, and request that the Commission expeditiously move forward with the proceeding.
On May 29, 2009, Will Gill & Sons filed a response to the Confirmation Motion, stating that it has not withdrawn its protest to the PG&E Application and, unless an agreement is reached between Applicants and Will Gill & Sons, the issues it raised in this proceeding are not resolved.
On June 17, 2009, Applicants moved to dismiss the Will Gill & Sons protest as a matter of law because Will Gill & Sons has waived its right to introduce new issues and because the protest does not raise any disputed material facts that are within the scope of this proceeding.
On June 19, 2009, Will Gill & Sons withdrew its protest to the PG&E Application. Will Gill & Sons states that, although it continues to disagree with GRS and PG&E and no settlement has been reached with GRS and PG&E for the approximately 1,000 unleased acres, the Madera County Superior Court is the proper forum for adjudicating the issues raised by Will Gill & Sons concerning the unleased acreage.
1 All statutory references are to the Public Utilities Code unless otherwise indicated.
2 As discussed below, this decision adopts clarifying language to mitigation measure Bio-17 as part of the authority granted to construct and operate.
3 PG&E already has eminent domain authority pursuant to § 613.
4 PEA, at 3.42. These geologically separate formations are referred to as the Kreyenhagen, Domengine, Moreno, and the First and Second Starkey Formations. According to the PEA, the Kreyenhagen and Domengine Formations are 4,300 to 4,700 feet below ground, the Moreno Formation is 5,570 feet below ground and the First and Second Starkey Formations are 5,700 to 6,300 feet below ground.
5 The October 27, 2008 ALJ ruling granted PG&E's request to late file its reply to responses and protests.
6 The September 23, 2008 ALJ ruling notified parties that Will Gill & Sons timely filed its protest but that the protest was not listed on the Commission's website. The ruling established October 3, 2008 as the deadline for responding or replying to the protest.
7 September 17, 2008 ALJ ruling.
8 Counsel for Armstrong also represented Will Gill & Sons, owner of 3,600 acres of property overlying the Gas Field.
9 Section 785(a) states: To the extent consistent with federal law and regulation and contractual obligations regarding other available gas, the commission shall, in consultation with the Division of Oil and Gas of the Department of Conservation and with the State Energy Resources Conservation and Development Commission, encourage, as a first priority, the increased production of gas in this state, including gas produced from that area of the Pacific Ocean along the coast of California commonly known as the outer continental shelf, and shall require, after a hearing, every gas corporation to purchase that gas which is compatible with the corporation's gas plant and which is produced in this state having an actual delivered cost, measured in equivalent heat units, equal to or less than other available gas, unless this requirement will result in higher overall costs of gas or other consequences adverse to the interests of gas customers. (Emphasis added.)
10 Although the protest of Will Gill & Sons states that Will Gill & Sons owns the mineral rights for the Gill Ranch Storage Field, GRS and PG&E state that the Gill OG&M Trust owns the mineral rights and that Will Gill & Sons is a participant in the Gill OG&M Trust.
