VII. Discussion

In view of the lack of protests to the application, the thorough analysis of the potential environmental effects of the Kirby Hills Facility reflected in the Draft and Final IS/MNDs, the conclusion in the Final IS/MND that these potential effects can be reduced to less-than-significant levels, and the support for the proposed Facility by affected landowners and elected officials, we have decided to grant the CPCN for the Kirby Hills Facility requested by LGS.

As noted in Section II.A, the only party that raised any substantive issues about the proposed Facility was PG&E. However, even if PG&E's August 25, 2005 comments could be considered a conditional protest, the issues raised therein have been resolved by the settlement agreement that LGS filed on October 5, 2005. We consider the terms of this settlement (as described in Section II.C) to be reasonable, and we will approve them.

We also agree that the Kirby Hills Facility is needed. As LGS points out, its Lodi Facility is fully subscribed, yet the recent open season demonstrated that there is a significant demand in Northern California for additional gas storage. Moreover, the recently-adopted Energy Action Plan II makes clear that both this Commission and the CEC consider additional in-state gas storage desirable in order to enhance reliability and mitigate price volatility.

Under the Gas Storage decision (D.93-02-013) and its progeny, LGS -- not ratepayers -- will be fully at risk if the expected demand for storage and withdrawal capacity at the Kirby Hills Facility fails to materialize. Thus, it is reasonable to grant LGS's request for authority to charge market-based rates for the gas storage, withdrawal and related services at the new Facility. Granting such authority is also consistent with the manner in which we have treated LGS's Lodi facility.

As the previous sections of this decision demonstrate, the issues that have consumed the most energy in connection with this application have been the environmental ones. We commend our Energy Division and its contractor for their diligence in preparing and issuing the Draft IS/MND once LGS had submitted enough additional information so that its application could be deemed complete.

We think that the Final IS/MND -- which is virtually identical, except for the response to comments, to the Draft IS/MND -- represents a thorough, careful analysis of the environmental issues raised by the application and the PEA. Accordingly, we will approve it and receive it (along with the Draft IS/MND) into the record. We agree with the Final IS/MND that implementation of the APMs suggested by LGS, along with the additional Mitigation Measures discussed in Section B of the Final IS/MND, will reduce the potentially significant environmental effects that have been identified to less-than-significant levels. As a condition of the authority granted in this decision, LGS will be required to comply with each and every provision of the Mitigation Monitoring Plan set forth in Section C of the Final IS/MND.

We also conclude that LGS has made a satisfactory showing with respect to the four factors relevant to a CPCN that are identified in Pub. Util. Code § 1002(a). With respect to the first of these factors, community values, we noted in D.00-05-048 that in determining whether a proposed project is compatible with community values, the Commission "give[s] considerable weight to the views of the local community. In addition, we acknowledge the positions of the elected representatives of the area because we believe they are also speaking on behalf of their constituents." (D.00-05-048, mimeo. at 28.)

In this case, several of the elected representatives for the affected area have written to us to express their support for the Kirby Hills Facility. Assemblywoman Lois Wolk, who represents the Eighth Assembly District, states in her August 23, 2005 letter, for example, that LGS "has a strong safety and environmental record in Northern California." In his August 3, 2005 letter, Supervisor Michael J. Reagan of Solano County, who represents the district "encompass[ing] all of the proposed project facilities," states that after reviewing materials relating to the Facility, he believes "its construction and operation are consistent with the character and community values in this area." The Commission has also received letters of support from landowners whose property would be crossed by the proposed pipeline. In view of these statements of support, and the lack of any apparent opposition to the project, we are satisfied that the proposed Kirby Hills Facility is consistent with community values.

We reach a similar conclusion with respect to recreational and park areas, historical and aesthetic values, and influence on the environment, the other three factors identified in § 1002(a). As LGS points out, the proposed facilities are in remote areas, far away from recreation and park areas. The proposed gas storage operations are consistent with how the Kirby Hills Field was used for nearly 50 years, and all of the project's above-ground facilities will either be low-lying or not visible due to topography. As to environmental factors, the Mitigation Monitoring Plan set forth in the Final IS/MND will require LGS to undertake a broad array of measures designed to minimize the effects upon the environment, and LGS has agreed to engage in the same upgrading of facilities and training of its staff that has produced the good safety record at its Lodi Facility.

As a condition of granting the authority requested herein, we will also add several conditions that are not discussed either in LGS's application or in any of the responses thereto. In D.03-02-071, in which we approved the transfer of a 50% interest in LGS's parent, Lodi Holdings, to WHP Acquisition Company, we emphasized that the market for gas storage and injection services in both Northern California and statewide was highly concentrated. (Mimeo. at 16.) Although these concerns were reduced in LGS's case because of the passive nature of the investment by WHP Acquisition Company and ArcLight Fund I, we nonetheless imposed the following restrictions on the transfer:

"So that we may better monitor the evolving natural gas market, and as a condition of our approval of the change of ownership (with continued market-based rate authority), we will impose the same reporting requirements on LGS that we have imposed on Wild Goose. Specifically . . . we will prohibit LGS from engaging in any storage or hub services transactions with its ultimate parents, Western Hub and ArcLight (or their successors) or any other affiliate owned or controlled by either of those entities. In addition, we will direct LGS to promptly inform the Commission of the following changes in status that would reflect a departure from the characteristics the Commission has relied upon in approving market-based pricing: LGS' own purchase of other natural gas facilities, transmission facilities, or substitutes for natural gas, like liquefied natural gas facilities; an increase in the storage capacity or in the interstate or intrastate transmission capacity held by affiliates of its parents or their successors; or, merger or other acquisition involving affiliates of its parents, or their successors, and another entity that owns gas storage or transmission facilities or facilities that use natural gas as an input, such as electric generation." (Id. at 17-18.)

Nothing in the application here suggests that the gas storage injection and withdrawal markets are any less concentrated today than they were when D.03-02-071 was decided. Accordingly, we will incorporate the restrictions quoted above as a condition of granting the requested authority. We will also require LGS to make periodic reports to the Energy Division concerning both the short-term and long-term contracts it has entered into for the Kirby Hills Facility.