ALJ/XJV/sid DRAFT Item 3

9/5/2002

Agenda ID #956

Decision __________

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Joint Application of Lodi Gas Storage, L.L.C., Western Hub Properties L.L.C., and WHP Acquisition Company, LLC, to Transfer Control of Lodi Gas Storage, L.L.C., to WHP Acquisition Company, LLC, Which Will Occur Indirectly as a Result of the Purchase of Western Hub Properties L.L.C. by WHP Acquisition Company, LLC, Pursuant to Public Utilities Code Section 854(a) and of Lodi Gas Storage, L.L.C. for Approval of a Secured Long-Term Financing Pursuant to Public Utilities Code Sections 816, 817, 818, 823 and 851.

Application 01-09-045 (Filed September 28, 2001)

O P I N I O N

I. Summary

We approve, subject to conditions, the unopposed request of Joint Applicants, Lodi Gas Storage, L.L.C. (LGS), Western Hub Properties, L.L.C. (Western Hub) and WHP Acquisition Company, LLC (WHP), for a change in the ultimate ownership of LGS and its Lodi gas storage facility and for authority to enter into a secured, long-term bank financing agreement. The change in ownership, by which WHP will acquire Western Hub and indirectly, LGS and the Lodi Facility, will not affect the rates, terms or conditions under which LGS is to operate pursuant to previous Commission decisions.¹ As certificated, LGS will continue to offer market-based rates to noncore natural gas storage customers in accordance with the requirements of those decisions and its tariff. In addition, we authorize Joint Applicants to negotiate contracts on behalf of LGS, on a provisional basis, for the management of continuing construction at the Lodi Facility and for management of the day-to-day operations of LGS. We decline to authorize contracts with any LGS affiliate for the marketing of unsubscribed firm and interruptible storage capacity at the Lodi Facility and moreover, prohibit LGS from engaging in any storage or hub services transactions with its ultimate corporate parents or their affiliates.

The change of control will not affect our prior determination that LGS is exempt from our 1997 Affiliate Transaction Rules, pending conclusion of a reexamination of this issue in Rulemaking (R.) 01-01-001. Until further order, LGS must continue to comply with the same reporting requirements as the other, similarly-situated, independent natural gas storage utility certificated to operate in California. The transfer of control qualifies for an exemption from the California Environmental Act (CEQA) and therefore, additional environmental review is not required. However, we will continue the restrictions that prevent persons and entities with a beneficial interest in LGS or its present owners from monitoring the implementation of the environmental mitigation measures and we will extend these restrictions to persons and entities with a beneficial interest in the new owners.

As discussed in the body of this decision, we condition our approval upon disclosure to the Director of the Commission's Energy Division of the following information, including contracts and other documents, so that we may monitor LGS' position under its new ownership:

· Clear representation in writing, prior to the change of control, that the bonding entities will continue to bond LGS and the Lodi Facility under the $20 million performance bond we ordered in D.00-05-048;

· Copies of the contracts, and any amendments to those contracts, for the management of continuing construction and day-to-day operations at LGS and the Lodi Facility;

· A copy of the final, debt financing arrangement from the proposed and/or any alternative lenders, once that arrangement is finalized in accordance with the terms we approve today.

· Information regarding ownership by LGS, its parents or affiliates of its parents of natural gas facilities or other entities specified herein as well as copies of service agreements for short-term and long-term gas transactions.