10. Eminent Domain and SB 177

The issue of whether LGS should be granted the power of eminent domain is very controversial in this case. Several landowners in the evidentiary hearings, and numerous commentors at the public participation hearings, objected to a competitive service provider being granted the power of eminent domain. As stated above, we interpret the Public Utilities Code to provide that once LGS obtains a CPCN, it is a gas corporation which, according to Pub. Util. Code § 613, has the power of condemnation for property necessary for the construction and maintenance of its gas plant.

However, newly enacted legislation, SB 177, places conditions on the ability of certain public utilities to exercise the power of eminent domain for purposes of providing competitive services.²⁰ For example, Section 3 of SB 177, which adds Section 625 to the Public Utilities Code, provides that "a public utility that offers competitive services may not condemn any property for the purpose of competing with another entity in the offering of those competitive services, unless the commission finds that such an action would serve the public interest, pursuant to a petition or complaint filed by the public utility..." (Section 625(a)(1)(A).) Section 625(e) further states that a public utility that does not comply with this section may not exercise the power of eminent domain.

A November 22, 1999 ALJ Ruling made tentative conclusions regarding the applicability of SB 177 to this proceeding, and requested parties' comments. The ALJ ruling stated that SB 177 expressly exempts certain public utilities from its coverage, but these exemptions do not appear to extend to a company like LGS.²¹ SB 177 also limits the applicability of its requirements in other ways which do not apply to this application.²²

We do not define here all services which may be "competitive services" as opposed to those services provided pursuant to a "commission-ordered obligation to serve." However, because LGS' application concerns a competitive gas storage facility, and LGS requests exemptions from other statutory requirements because it plans to operate a competitive business which is not financed with ratepayer funds, we find that LGS' application concerns "competitive services" for purpose of SB 177, and that none of the other exemptions set forth in SB 177 apply to LGS.

We therefore agree with the ALJ's tentative conclusion that if LGS obtains a CPCN from this Commission, LGS would have to follow the mandates of § 625 before LGS could condemn any property for the approved project. This is so because if LGS obtains a CPCN from this Commission, it would be a public utility offering competitive gas storage services and any condemnation action it might initiate would not be filed until after January 1, 2000, the effective date of SB 177.

Therefore, we issue this CPCN on the condition that LGS shall follow the mandates of Pub. Util. Code § 625 before it exercises the power of eminent domain. That means that LGS should file a complaint which has been served on among other persons, the owner of the property to be condemned, and other affected interests. This complaint would initiate an adjudication hearing before the Commission. (The Commission staff has developed a document entitled "Information for Property Owners, Utilities, and the Public Regarding SB 177," which is attached to the EIR.)

According to SB 177, before the Commission could make a finding that LGS' proposed condemnation is in the public interest, LGS must show either that the proposed condemnation is necessary to provide service as a provider of last resort to an unserved area, where there are no competing offers from facilities-based carriers to serve that area; or all of the following:

(a) The public interest and necessity require the proposed project;

(b) The property to be condemned is necessary for the proposed project;

(c) The public benefits of acquiring the property by eminent domain outweighs the hardship to the owners of the property;

(d) The proposed project is located in a manner most compatible with the greatest public good and least private injury. (See § 625(b)(2).)

In their briefs, the parties are in general agreement that if the Commission grants LGS a CPCN, that LGS would have to comply with § 625(b)(2) of SB 177. The parties differ on the details of such implementation. For example, LGS agreed that the ALJ's tentative conclusions set out in the November ruling (that LGS would have to comply with SB 177 if the Commission granted LGS a CPCN) were correct. Wild Goose believes that in order to ensure an efficient process, with no undue delay, LGS should file a petition to comply with SB 177 during the pendency of the CPCN process. The Farm Bureau appears to argue that LGS must satisfy SB 177's requirements before this Commission can act upon the instant CPCN application. Other parties raise the issue of the conclusory effect of findings made in this decision upon the SB 177 issues.

By enacting SB 177, the Legislature placed conditions on the ability of certain public utilities to exercise the power of eminent domain for the purposes of providing competitive services. However, in this case, the proceedings called for by SB 177 are separate proceedings (i.e. a complaint and an adjudicatory hearing) from the instant CPCN proceeding. Moreover, LGS could not initiate an action pursuant to SB 177 prior to Commission approval of its application because it is not yet a public utility. We do not make findings on the SB 177 criteria at this time but rather will do so, if and when LGS commences a proceeding according to the mandates of SB 177. Similar issues with respect to the weight certain findings in this decision would have, if any, in a subsequent proceeding would be addressed in the subsequent proceeding.

However, we make several general comments on this statute because of the importance of this issue to the Lodi community. We note, for instance, that the scope of the showing to meet complainant's burden of proof concerning the findings of "necessity" or "necessary" may not be the same as that burden in this CPCN proceeding, given that the Gas Storage Decision permits a presumptive showing of need. As stated above, the scope of the need showing required to meet a complainant's burden of proving "necessity" or "necessary" as set forth in § 625 is an open issue.

Also, we note that the language of § 625 gives the Commission the discretion to permit a complainant to exercise the power of eminent domain if it meets its burden of proof as to certain issues. Section 625 (b) states that the "commission may make a finding pursuant to subdivision (a) if, in the determination of the commission, either of the following conditions are met...." We interpret § 625 to mean what it says, namely, that the Commission has the discretion whether or not to permit a complainant to exercise the power of eminent domain. Furthermore, the Commission is not required to authorize the use of eminent domain where the complainant makes one of the alternative showings.

The Williams argue that in order for landowners to effectively participate in SB 177 proceedings, they should be compensated for their reasonable costs of participation, including attorneys fees. We do not resolve this issue here, because the issue of whether a party qualifies for intervenor compensation in this circumstance should be addressed in the specific proceeding in which the party is appearing (i.e., the complaint proceeding). The Commission's informational document, cited above, also contains a section on intervenor compensation.

We also more clearly define the scope of LGS' condemnation authority granted pursuant to this CPCN. In its application, LGS explains that only the storage rights, and not the mineral rights, are required for the project because the right to store natural gas in a depleted or non-gas bearing reservoir on a property is not a mineral right. Rather, it is part of the rights of a surface owner unless this right has been specifically severed in a deed or other conveyance. However, LGS is seeking either the mineral rights to the property or consent and agreement of the mineral owners, in some instance limited to the specific zones to be utilized for natural gas storage. According to LGS, this is being done to: (1) preclude another owner of the mineral rights from drilling into or through the storage reservoirs and causing damage or recovering the stored gas; and (2) preclude claims that there exist remaining recoverable gas reserves in the storage reserves prior to injection of new gas.

While we have no objection to LGS acquiring the mineral interests from landowners voluntarily willing to sell them, we do not believe that LGS should obtain the power of condemnation with respect to the mineral interests because according to LGS, only the storage interests are required for the project. We therefore clarify the scope of the project authorized by the CPCN to include only the storage, and not mineral interests in the gas storage field.

Finally, we note that the CPCN that LGS is given by this decision is limited to specific facilities. Therefore, this decision does not provide LGS any basis for condemning property for any other project or facilities.