3. Summary of the Application

In A.09-08-008, CVGS requests the following:

1. A certificate of public convenience and necessity (CPCN) to CVGS to construct and operate an underground natural gas storage field in Colusa County, including a pipeline to connect the storage field to PG&E's gas transmission Line 400/401.

2. Designation as a public utility gas company under Pub. Util. Code § 216 and § 222.1

3. Authority to provide gas storage services at market-based rates and approve CVGS's proposed tariff.

4. A waiver of the requirement in Rule 3.1(f) of the Commission's Rules of Practice and Procedure (Rule) to submit a statement of (i) estimated construction costs, and (ii) estimated annual fixed costs and operating costs.

5. A waiver of the requirement in § 1005.5(a) to specify a maximum reasonable cost for the CVGS Project.

6. An exemption from (i) § 816 et seq., and § 851 et seq., and (ii) the Commission's Competitive Bidding Rule for the issuance of debt and equity securities.

7. Approval of CVGS's proposed reporting requirements.

8. Approval of a mitigated negative declaration (MND) and issuance of a notice of determination pursuant to the California Environmental Quality Act (CEQA) for the CVGS Project.

CVGS intends to bear all risks associated the CVGS Project.

CVGS is a Delaware company with licenses to do business in California and Illinois. Its principal place of business is Lisle, Illinois.

CVGS is owned by Nicor Energy Ventures Company, which in turn is owned by Nicor Inc. (Nicor). Nicor is a publicly traded company listed on the New York Stock Exchange. Nicor's major wholly owned subsidiaries are:

_ Northern Illinois Gas Company d/b/a Nicor Gas Company (NGC), a regulated gas utility in Illinois. NGC owns 150 billion cubic feet (Bcf) of gas storage capacity in Illinois.

_ Nicor Energy Ventures Company, which has various subsidiaries including Nicor Services, LLC, a retail gas marketer and a heating, ventilation and air conditioning warranty, maintenance and repair provider; Prairie Point Energy, LLC, a retail gas marketer in Illinois; and Nicor Enerchange, LLC, a wholesale and retail gas marketer located in Illinois that conducts business primarily in the Midwest.

_ Tropical Shipping USA, LLC, a cargo carrier located in Florida that conducts business in the Caribbean and the Bahamas.

_ Nicor Horizon, LLC, which holds a 50% interest in Horizon Pipeline Company, an interstate natural gas pipeline located in Illinois. Horizon Pipeline Company is a joint venture managed by Kinder Morgan Energy Partners, LP, which holds the other 50% ownership interest.

CVGS will contract with Nicor Enerchange, LLC to manage CVGS's tariffed services and marketing from its Illinois office.

With two exceptions, the Nicor corporate family does not conduct any business or own any assets on the West Coast. One exception is CVGS. The other exception is Nicor Services of California, LLC (NSC), which offers appliance safety inspections.2 CVGS is a separate legal entity and is dedicated exclusively to developing and operating the CVGS Project.

CVGS requests Commission authorization to convert the depleted Princeton Gas Field into a gas storage field. The proposed storage field is located on the western bank of the Sacramento River near the unincorporated town of Princeton in Colusa County, approximately 60 miles northwest of Sacramento. The depleted gas reservoir lies 1,980 to 2,280 feet below the surface, and has a surface area of approximately 677 acres, including buffer acreage.

The Princeton Gas Field was discovered in 1953 and produced approximately 9.7 Bcf of natural gas from 1954 to 1991 from five wells. Currently, three wells are suspended (not producing but open), and the remaining wells have been plugged and abandoned. CVGS drilled a test well in May 2009 which has been cased but not completed.

CVGS proposes to drill nine injection/withdrawal wells to achieve injection and withdrawal rates of up to 300 million cubic feet per days (Mcf/d). The wells will be drilled from a single pad and connected to the compressor station by approximately 1,400 feet of 16-inch pipeline.

CVGS also proposes to convert four existing gas wells (including the recently drilled test well) to observation wells. Prior to converting these wells, CVGS will determine the integrity of casing and wellhead equipment, and perform any required remedial work.

To dispose of salt water produced during the withdrawal of gas, CVGS plans to drill one well to re-inject salt water into the water-bearing formation below the gas storage zone. A salt water storage/surge tank will be on site to collect excess salt water that cannot be immediately injected.

The storage field will have an initial capacity of 9 Bcf, and 11 Bcf within two years. There will be an additional 1.4 Bcf of base gas to achieve the design withdrawal rate of 300 Mcf/d. CVGS anticipates operating with a reservoir pressure of 400 to 1,400 pounds per square inch to achieve design capacities and to displace water from the reservoir.

Most surface facilities will be located on a 10-acre site that is currently a cultivated rice field. The major surface facilities at the site will include: (1) three 3,550 horsepower (hp) natural gas engines to drive three compressors; (2) three gas-fired dehydration units; (3) safety and emergency shut down devices; (4) a 640-kilowatt standby gas-fired generator; (5) metering and regulation facilities; (6) an electric motor control center and utility building; (7) an auxiliary building for the field control room, office, and workshop; (8) an electric power line; and (9) a domestic water well.

The natural gas engines and compressors will be installed in a building designed to minimize noise emissions and meet applicable Colusa County noise standards. The natural gas engines will be equipped with Best Available Control Technology to meet Colusa County Air Pollution Control District emission requirements. The building will be guarded by fire, heat and gas detection systems that, when activated, will commence an alarm sequence with automatic shut down of the compressor station.

The compressor station is designed for a fourth compressor unit to allow for the future expansion of the storage facility beyond 11 Bcf. Installation of the fourth expansion unit is contingent on market demand and reservoir technical considerations, and would be subject to a future application to the Commission.

CVGS proposes to construct 14.7 miles of 24-inch pipeline to connect the storage field with PG&E's Line 400/401 gas transmission pipeline near PG&E's Delevan compressor station. The connecting pipeline will be bidirectional, allowing natural gas to flow to and from the storage field. The connecting pipeline easement will be 30 feet wide and cover approximately 54 acres.

The connection with PG&E's Line 400/401 will provide CVGS's customers with access to Alberta, Rockies, San Juan, and Permian gas supplies through the numerous pipelines that connect to PG&E's system. Customers holding CVGS capacity will also have access to potential supplies from new liquefied natural gas (LNG) facilities under development on the West Coast.

In order to inject gas into the storage field before construction of the connecting pipeline to PG&E's Line 400/401 is completed, CVGS proposes to install approximately 300 feet of 12-inch pipeline to temporarily connect to PG&E's Line 172, a nearby gas distribution line. Gas from Line 172 will be used to displace water from the reservoir and provide base gas and gas for the initial fill. CVGS will not deliver gas back into Line 172. CVGS will disconnect from Line 172 after the initial fill. CVGS understands that its use of Line 172 will be limited to capacity that is not being utilized by PG&E's end-use customers.

To provide electric power to storage field facilities, CVGS will connect to an existing PG&E 12-kilovolt line on Dodge Road. PG&E will design, install and maintain this component. The 3,500-foot power line connection may be a buried cable or an overhead line on existing poles depending on PG&E's requirements.

The CVGS Project will require approximately 269 acres of new land use, including temporary workspace and permanent right-of-way (ROW). CVGS continues to secure temporary surface use agreements and permanent ROW easements from landowners. CVGS is also finalizing the acquisition of rights to use the underground formation to store gas (approximately 677 acres) from property owners through underground lease agreements. The estimated cost of the Project is $78 million.

3.3. Reporting Requirements and Affiliate Transaction Rules

CVGS requests an exemption from the following: (1) the Commission's affiliate transaction rules, which impose various restrictions and reporting requirements on transactions between energy utilities and their affiliates; (2) General Order (GO) 65-A, which requires utilities to file a monthly financial and operating report; (3) GO 77-M, which requires utilities to file an annual report containing data on dues, donations, subscriptions, contributions, legal fees, and employee compensation; and (4) GO 104-A, which requires utilities to file an annual financial report.

In lieu of these requirements, CVGS proposes to submit reports similar to those required of Wild Goose by Decision (D.) 02-07-036, and of Lodi by D.03-02-071 and D.06-03-012. Under its proposal, CVGS will promptly notify the Commission of the following: (1) CVGS's own purchase of other natural gas storage facilities, transmission facilities, or substitutes for natural gas (e.g., LNG facilities); (2) an increase in the storage capacity or pipeline transmission capacity held by affiliates to the extent any such increase is in, or directly connected to, California; and (3) a merger or other acquisition involving affiliates and another entity that owns gas storage or transmission facilities, or facilities that use natural gas as an input such as electric generation, to the extent such facilities are in, or directly connected to, California.

In addition, CVGS will submit quarterly summaries for all short-term transactions (one year or less). For each transaction, the summaries will list the purchaser, the transaction period, the type of service (e.g. firm, interruptible, balancing, etc.), the rate, the volume, whether the customer is an affiliate, and the total charge to the customer. For long-term transactions (longer than one year) in compliance with the pro forma agreements, CVGS will submit the actual service agreement for each transaction within 30 days of the date of commencement of service. For all transactions that deviate from the pro forma agreements, CVGS will submit the individual service agreements for approval prior to commencement of service.

Consistent with Rule 2.4 of the California Environmental Quality Act (CEQA)3 CVGS submitted a Proponent's Environmental Assessment (PEA) that evaluated all potential environmental impacts of the CVGS Project. Commission staff (Staff) reviewed the PEA and conducted an initial study of the Project. Based on the initial study, Staff determined that Project-related environmental impacts could be reduced to a less-than-significant level with certain mitigation measures. Today's decision adopts an MND as described in more detail below.

1 All statutory references are to the Public Utilities Code unless otherwise noted.

2 CVGS reports that NSC's revenues have been negligible.

3 CEQA is contained in &_butType=4&_butStat=0&_butNum=1&_butInline=1&_butinfo=CA PUB RES 21000&_fmtstr=FULL&docnum=1&_startdoc=1&wchp=dGLbVzz-zSkAW&_md5=cb0759bee7f6605d05e424fc4cce458c" target="_top">Cal. Pub. Res. Code § 21000 et seq.

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