5. Need

As summarized above, in response to AB 2744 in the 1992 California Legislature, the Commission issued the 1993 Gas Storage Decision. This decision adopted a "let the market decide" policy for competitive gas storage, notwithstanding its statement that "the need for additional storage capacity is less certain [than the need for gas transportation], as shown by the evidence in this proceeding." (Gas Storage Decision, 48 CPUC at p. 119.)

This means that the Commission stated that it would not test the need for new gas storage projects on a resource planning basis, so long as all of the risk of the unused new capacity resides with the builders and users of the new facility.¹¹ In this case, the scoping memo stated that need is one of the issues to be addressed in this proceeding. LGS addressed this issue under objection, given the Commission's pronouncement in the Gas Storage Decision.

In the Gas Storage Decision, the Commission stated that its "let the market decide" policy was consistent with Pub. Util. Code §§ 451 and 1001. However, the Commission also recognized that it was not abandoning regulation of gas storage, and that CPCNs were still necessary to the extent required by law. (Gas Storage Decision, 48 CPUC2d at p. 127, emphasis added.)

Because CPCNs are still necessary to the extent required by law, LGS' application must still comply with, inter alia, Pub. Util. Code § 1002, which we discuss more fully below. Second, if LGS only relies on the Gas Storage Decision for a presumptive showing of need, it may be difficult for the Commission to determine whether or not there is evidence to support a finding of overriding consideration, if necessary, with respect to the EIR that CEQA requires in this case. In short, in some instances, a fuller showing of need may be necessary to the extent required by law.¹²

LGS' testimony addressing need describes the need for gas storage facilities for the general benefit of California. For instance, LGS states that its project will further the objectives of creating competition in the gas storage business as enunciated by the Legislature in 1992 (in AB 2744), and by the Commission in the 1993 Gas Storage Decision, and notes that it is only the second applicant seeking to develop a competitive gas storage business in California.

LGS also believes there is a need for the project for the following reasons: (1) the project will increase the availability of noncore storage capacity and will assist shippers and marketers in managing their loads more effectively; (2) the project will assist in meeting supply reliability requirements in the California marketplace in the event of, among other things, the loss of transmission capacity or the curtailment of wellhead production; (3) LGS will add to the physical balancing services in PG&E's service territory for large commercial and industrial customers and should eliminate the need for additional system-wide storage; (4) LGS will provide storage which can match changes in electric load and which might thereby affect the price of power in the new competitive era of electric generation; and (5) the project could reduce the need for construction of new natural gas transmission pipelines.

Calpine points out that the Gas Storage Decision recognized the benefits of gas storage, namely "to achieve and maintain access to diverse gas sources so that all gas customers in California can obtain adequate, reliable, reasonably priced gas supplies," and "to reduce the likelihood of peak period curtailments in a cost-effective manner." (Gas Storage Decision, 48 CPUC2d at p. 118.)

The only party to challenge need in the evidentiary hearing was the Williams, although others at the public participation hearing generally questioned need. Based on the California Energy Commission's 1998 Natural Gas Market Outlook, the Williams argued that natural gas will remain in plentiful supply for several decades, its cost is expected to rise at only about 1.4 % a year, and that California will have a sufficient supply of gas through at least 2017.

Therefore, according to the Williams, there is little public need for this project. To the extent the project is necessary to meet price spikes, the Williams argued that the commodity futures trade market is a more efficient way to address spikes. At the public participation hearing and in comments to the Draft EIR, other residents indicated that the general Lodi community will not benefit from the proposed project, and many of them did not use gas at their homes or businesses. In fact, some do not have access to natural gas service.

In response, LGS submits that competitive gas storage assists in the physical delivery of gas, and that storage is an alternative to the construction of additional pipelines which might otherwise be necessary in order to meet California's gas needs. LGS also believes that its project will be able to serve the needs of many new gas-fired electric generation facilities now awaiting entry into the California market. According to LGS, its project will offer competitive balancing services, in order to more effectively balance gas supplies.

The EIR summarizes the general need for gas storage and states that, even with the tripling of pipeline capacity into California over the last 15 years, as recently as last winter (1998-1999), the state experienced more than 10 days of natural gas shortages, which forced some fossil-fueled power plants in the state to switch to fuel oil. The EIR does not examine all the causes for this event.

As stated above, in the early 1990s, both the Commission and the Legislature have found the need for competitive gas storage facilities. LGS and Calpine reiterate and elaborate on the rationale underlying this need. The record has established a general need for competitive gas storage services in California, and that the benefits of competitive gas storage include (a) increased reliability; (b) increased availability of storage in California; (c) the potential for reduced energy price volatility; and (d) the potential for reduced need for new gas transmission facilities.