J. Assignment of Proceeding
John Bohn is the Assigned Commissioner and A. Kirk McKenzie is the assigned ALJ in this proceeding.
1. The joint application is unopposed.
2. On July 16, 2005, Western Hub and WHP Acquisition II executed a Purchase and Sale Agreement, whereby Western Hub agrees to sell its 50% interest in Lodi Holdings, the parent company of LGS, to WHP Acquisition II for $125 million. ArcLight Fund II has guaranteed the payment of the purchase price by WHP Acquisition II to Western Hub.
3. The proposed transfer will result in a change of ownership of LGS and the Lodi Facility, but will not result in the transfer of any certificates, assets, or customers of LGS. LGS will continue to be bound by the terms and conditions prescribed by the Commission in D.00-05-048, as modified, which granted LGS a CPCN and certified the EIR for the Lodi Facility, and by the terms and conditions of LGS's filed tariff.
4. The owner of WHP Acquisition II is ArcLight Fund II, which has no active involvement in energy markets. As of the filing date of the application, ArcLight Fund II had capital commitments of approximately $1.6 billion from its investors.
5. The proposed transaction will bring Lodi Holdings and LGS under sole management by ArcLight Capital Partners, and in so doing will facilitate the proposed expansion of LGS's natural gas storage and injection facilities.
6. Following the proposed transaction, the existing management team from Western Hub, which has served as Company Manager of LGS, will either transition to Lodi Holdings or will be replaced by individuals with similar qualifications and experience.
7. Although the passive nature of the investment by WHP Acquisition II and ArcLight Fund II serve to reduce concern about the possible exercise of market power and the possible abuse of affiliate relationships, the fact remains that the natural gas storage and injection market in California is a highly-concentrated market.
8. To continue the necessary monitoring of the natural gas storage and injection market, the reporting requirements that were imposed on LGS in D.03-02-071 should be retained.
9. To ensure that the performance bond required by D.00-05-048 will continue without interruption, the applicants should provide the Director of the Commission's Energy Division with a written representation that the bonding entities will continue to bond LGS and the Lodi Facility after the proposed transfer. This representation should be verified and should be submitted prior to the transfer of the 50% interest in Lodi Holdings from Western Hub to WHP Acquisition II.
10. The proposed change of ownership of Western Hub's 50% interest in Lodi Holdings will have no significant effect on the environment, because the Lodi Facility will continue to be operated as previously authorized by the Commission, all environmental mitigation measures contained in the EIR certified in D.00-05-048 (as amended) will continue to apply, and all monitoring requirements and restrictions imposed in D.00-05-048 will continue to be applicable.
11. The Commission should extend the environmental mitigation monitoring restrictions imposed by Ordering Paragraph (OP) 16 of D.00-05-048 to persons and entities with a beneficial interest in WHP Acquisition II, ArcLight Fund II or ArcLight Capital Partners.
12. No hearing is necessary.
1. Under the circumstances here, the proposed transfer of a 50% interest in Lodi Holdings constitutes a change of control within the meaning of Pub. Util. Code § 854.
2. The joint application should be granted, subject to the conditions set forth in this opinion.
3. With the conditions set forth herein, the joint application is in the public interest.
4. Following the change of ownership, LGS will continue to be bound by all of the terms and conditions of the CPCN it was granted in D.00-05-048, by all of the modifications to that CPCN set forth in subsequent Commission decisions, and by the tariff filed by LGS with the Commission, as approved and subsequently modified by any approved amendments.
5. The proposed change of ownership should be authorized on the condition that LGS, Lodi Holdings and their owners comply with all of the reporting requirements and with the prohibition on affiliate transactions for storage and hub services set forth in D.03-02-071.
6. The proposed transfer qualifies for an exemption from CEQA pursuant to CEQA Guidelines § 15061(b)(3), so additional environmental review is not required.
7. The restriction preventing persons and entities with a beneficial interest in LGS or its owners from monitoring implementation of the environmental mitigation measures contained in the EIR certified in D.00-05-048 (as amended) should be extended to persons and entities with a beneficial interest in WHP Acquisition II, ArcLight Fund II or ArcLight Capital Partners, or any of their respective affiliates.
8. The proposed transfer should not occur until the joint applicants provide the Director of the Commission' Energy Division with a written, verified representation that the bonding entities will continue to bond LGS and the Lodi Facility under the $20 million performance bond required by D.00-05-048.
9. The joint applicants' motion for leave to file confidential material under seal, dated August 24, 2005, should be granted in part and denied in part, as set forth in Section G of this decision.
10. As set forth in Section G of this decision, applicants should be required to submit a public, redacted version of their purchase and sale agreement, which constitutes Exhibit 7 to the joint application, within 10 days of the effective date of this decision.
11. This order should be effective immediately.
IT IS ORDERED that:
1. The application of Lodi Gas Storage, L.L.C. (LGS), Western Hub Properties L.L.C. (Western Hub) and WHP Acquisition Company II, L.L.C. (WHP Acquisition II), collectively referred to herein as the Joint Applicants, for authorization to transfer Western Hub's 50% interest in Lodi Holdings, L.L.C. (Lodi Holdings) to WHP Acquisition II, is approved pursuant to Pub. Util. Code § 854, subject to the terms and conditions set forth in the following Ordering Paragraphs (OPs).
2. LGS and its owners shall continue to be bound by all the terms and conditions of the certificate of public convenience and necessity (CPCN) granted to LGS by Decision (D.) 00-05-048, and as modified by subsequent decisions of the Commission.
3. The authority granted in OP 1 is conditioned upon compliance with the following subparagraphs. Disclosure of the information required herein, including contracts and other documents, shall be made by LGS and its owners to the Director of the Commission's Energy Division. Competitively sensitive, confidential information may be submitted under seal in accordance with General Order 66-C and Pub. Util. Code § 583. LGS shall:
a. Provide a clear representation in writing, prior to the transfer, that the bonding entities will continue to bond LGS and the Lodi Facility under the $20 million performance bond required by D.00-05-048;
b. Provide prompt disclosure of the following changes in status that reflect a departure from the characteristics the California Public Utilities Commission has relied upon in approving market-based pricing for LGS: (i) the purchase by LGS of natural gas facilities, transmission facilities, or substitutes for natural gas, such as liquefied natural gas facilities; (ii) an increase in the storage capacity or in the interstate or intrastate transmission capacity held by affiliates of LGS's ultimate parents, ArcLight Energy Partners Fund I, L.P. (ArcLight Fund I) and ArcLight Energy Partners Fund II, L.P. (ArcLight Fund II), or their respective successors; or (iii) a merger or other acquisition involving ArcLight Fund I or ArcLight Fund II, or their respective affiliates or successors, and any other entity that owns gas storage or transmission facilities, or facilities that use natural gas as an input, such as electric generation.
c. Provide, for transactions to be completed within one year or less (short-term transactions), true copies of all service agreements for such transactions within 30 days after commencement of the short-term service, to be followed by quarterly transaction summaries of specific sales. If LGS enters into multiple service agreements within a 30-day period, LGS may file these service agreements together so as to conserve the resources of both LGS and the Commission. The quarterly summary of transactions shall list, for all tariffed services, the purchaser, the transaction period, the type of service (e.g., firm, interruptible, balancing, etc.), the rate, the applicable volume, whether there is an affiliate relationship between LGS and the customer, and the total charge to the customer.
d. Provide, for transactions that will not be completed within one year (long-term transactions), true copies of all service agreements for such transactions within 30 days after commencement of the long-term service. To ensure the clear identification of filings, and in order to facilitate the orderly maintenance of the Commission's records, service agreements for long-term transactions shall not be filed with summaries of short-term transactions.
e. Not engage in any storage or hub service transactions with ArcLight Fund I, ArcLight Fund II or ArcLight Capital Partners, L.L.C. (ArcLight Capital Partners) or their respective successors, or with any entity owned, affiliated with, or controlled by any one or more of them.
4. The change of ownership approved herein qualifies for an exemption from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines § 15061(b)(3), so additional environmental review is not required.
5. OP 16 of D.00-05-048, which prohibits persons and entities with a beneficial interest in LGS or its owners from monitoring the implementation of the environmental mitigation measures, shall continue and apply to all persons and entities with a beneficial interest in ArcLight Fund I, ArcLight Fund II or ArcLight Capital Partners.
6. The Joint Applicants' Motion for Leave to file Confidential Material Under Seal, dated August 24, 2005, is granted with respect to the financial statements of LGS for 2004 and 2003 (as restated), Western Hub for 2004 and 2003 (as restated), and ArcLight Fund II for 2004. Said motion is also granted with respect to Schedules 1.1, 3.3, 3.4, 3.9, 3.10, 4.4, 4.6, 4.7, 4.14, 4.15, 6.1, 6.6 and 6.8 attached to the July 16, 2005 Purchase and Sale Agreement between Western Hub and WHP Acquisition II (Purchase and Sale Agreement), which Purchase and Sale Agreement comprises Exhibit 7 to the application. In addition, the Joint Applicants' motion is granted with respect to Exhibit 6.1 to the Purchase and Sale Agreement, which exhibit is entitled "Kirby Hills Expansion Plan." The aforesaid materials should be placed under seal for a period of two years from the effective date of this decision, through and including December 1, 2007, and during that period the material so protected shall not be made accessible or disclosed to anyone other than Commission staff except upon the further order or ruling of the Commission, the Assigned Commissioner, the assigned Administrative Law Judge (ALJ), or the ALJ then designated as Law and Motion Judge. If the Joint Applicants believe that further protection of the aforesaid materials is needed after December 1, 2007, any one or more of them may file a motion stating the justification for further withholding of these materials from public inspection, or for such other relief as the Commission's rules may then provide. Such a motion shall explain with specificity why the designated materials still need protection in light of the passage of time involved, and shall attach a clearly-identified copy of the ordering paragraphs of this decision to the motion. Such a motion shall be filed at least 30 days before expiration of the protective order set forth in this paragraph.
7. With respect to all other portions of the Purchase and Sale Agreement, the Joint Applicants' August 24, 2005 Motion for Leave to file Confidential Material Under Seal is denied. Within 10 days after the effective date of this decision, Joint Applicants shall file a redacted, public version of the Purchase and Sale Agreement, as set forth in Section G of this decision.
8. Joint Applicants shall provide written notification of the transfer of ownership authorized herein to the Director of the Commission's Energy Division within 30 days after the date of the transfer. A true copy of the instruments of transfer shall be attached to the notification.
9. The authority granted herein shall expire if not exercised within one year of the date of this order.
10. This application remains open for the purpose of receiving the redacted, public version of the Purchase and Sale Agreement required by OP 7.
This order is effective today.
Dated _____________________, at San Francisco, California.
