2. Procedural History
2.1. Responses to the Application
Notice of the instant application appeared in the Commission's Daily Calendar on May 11, 2007, so the 30-day period for filing protests to the application expired on June 11, 2007. No protests were filed, but four responsive pleadings were filed by the due date.
The first was a motion filed on June 7 by PG&E seeking party status pursuant to Rule 1.4(a)(4) of the Commission's Rules of Practice and Procedure (Rules). The motion noted that since PG&E would be affected by the proposed expansion of the interconnection of the Facility with PG&E's Line 400, it was appropriate that PG&E should enjoy party status.
The second pleading was a Response filed on June 8 by the Division of Ratepayer Advocates (DRA). In its response, DRA stated that it was not opposed to the application and saw advantages to the additional gas storage capacity that Phase II would bring. However, DRA requested that LGS be required to file annual reports that would assist DRA in tracking developments within the gas storage industry. DRA stated:
"DRA requests that LGS file an annual report detailing its operations, consistent with the status of LGS as a public utility, in order to allow the Commission to monitor the operational utilization of the facility and mitigate any concerns about the exercise of market power. The report should contain the following information:
1. The capacity of the facilities, i.e., total inventory, injection and withdrawal rights.
2. Average monthly inventory in storage, injections, and withdrawals.
3. Daily operating records.
4. Firm capacity under contract, on a monthly and annual basis.
5. Interruptible capacity sold, on a monthly and annual basis.
6. Annual safety report describing all safety-related incidents." (DRA Response at 2.)
The two remaining responsive pleadings were filed on June 11, 2007 by Wild Goose Storage, Inc. (Wild Goose) and Sacramento Natural Gas Storage LLC (Sacramento NGS). Wild Goose sought intervention pursuant to Rule 11.1, arguing that the increase in gas storage capacity that would be brought about by Phase II would "provide additional direct competition with Wild Goose." (Wild Goose Motion at 2.) Sacramento NGS's response was filed pursuant to Rule 2.6 and noted that Sacramento NGS was seeking a CPCN to construct and operate its own gas storage facilities, and would thus be impacted by Phase II. Sacramento NGS's response requested information-only status.
On June 21, 2007, LGS filed a response to DRA. Although not conceding that any report was necessary or appropriate, LGS stated that it had reached an agreement with DRA concerning each of the six items quoted above that DRA had asked be included in an annual report.4
Since the filing of LGS's June 21 Response, DRA has given no indication that it objects to LGS's proposed resolution of any of the six reporting issues that DRA raised.
2.2. Adequacy of the Proponent's Environmental Assessment
Under Rule 2.4(b), any applicant who proposes to construct a project such as Phase II of the Kirby Hills Facility is required to submit, as a separate exhibit, a PEA. Moreover, as the agency responsible for certification of Phase II, the Commission is required under § 15100 of CEQA to assess the completeness of the application, including the PEA.
In its PEA, LGS asserted that Phase II of the Kirby Hills Facility would either have no significant effects upon the environment, or that-with the exception of certain wetlands that must be filled in5-any environmental impacts that Phase II might have could be reduced to less-than-significant levels through implementation of some of the same measures identified in the Mitigation Monitoring Plan set forth in Section C of the Final IS/MND adopted in D.06-03-012.
After an initial review of the application including the PEA, the Commission's Energy Division sent LGS a letter on June 1, 2007 stating that the application and PEA would be deemed complete.
Pursuant to CEQA, the Energy Division then commenced its initial study of the project to determine whether, as LGS had requested, a Subsequent MND could be issued in connection with Phase II. On August 24, 2007, the Energy Division issued for 30 days of public review and comment a Proposed Subsequent MND/IS in connection with Phase II. The Proposed Subsequent MND/IS concluded that if certain mitigation measures in addition to those proposed by LGS were implemented, the environmental effects of Phase II could be reduced to less-than-significant levels.
2.2.1. Objections to Phase II Raised by KH Associates in Its Comments on the Proposed Subsequent MND/IS
As noted above, the Proposed Subsequent MND/IS was issued on August 24, 2007, so comments concerning it were due on September 24, 2007.
Four sets of comments were submitted by the due date. These comments are set forth in full in Section D of the Subsequent MND/IS that we are adopting as part of today's decision.6 Of the comments, the most significant was one submitted on September 19 in the form of a letter from David J. Bowie, an attorney representing KH Associates, the entity that owns the Kirby Hills Ranch. As stated in D.06-03-012, LGS's rights to use the Kirby Hills Ranch for the Facility are based upon a lease entered into between KH Associates and Lodi Holdings in March 2005, which lease was subsequently assigned to LGS. (D.06-03-012 at 8.) In his September 19 letter, while not dealing directly with CEQA issues, Bowie stated:
"The substantive basis and claim of legal right upon which the subject LGS Storage Facility Project is grounded is that very [March 2005] Lease with my client. That Lease specifically defines the subsurface areas for which Gas Storage Facility rights have been granted. The subsurface areas of the Ranch available to LGS for gas storage purposes exist between the depths of 1700 and 2300 feet as measured from mean sea level. Certain expansion rights as to the existing gas storage reservoir within the same subsurface depths have been granted pursuant to Lease. Nothing in the Lease, however, grants to LGS any rights of gas storage at the subsurface depths proposed in the subject application.
"LGS has been placed on written notice that its subsequent proposed Gas Storage Facility labeled as a Phase II Project is not sanctioned by its Lease. LGS has been advised that pursuit of the existing application and any actions taken to implement the Project will constitute a trespass in derogation of the private property rights of [KH Associates.]"
The Bowie letter closed by demanding that in view of the dispute between the ranch owners and LGS, "further processing of this application be immediately suspended."
2.2.2. LGS's Response to the Objections
Raised by KH Associates
On September 27, 2007, one of the attorneys for LGS, James McTarnaghan, sent the assigned Administrative Law Judge (ALJ) a letter in response to the September 19 letter from Bowie. This letter is also included in Section D of the Subsequent MND/IS. In McTarnaghan's letter, LGS argued that for several reasons, the issues raised in the Bowie letter should be ignored and that the instant application should continue to move forward.
First, LGS pointed out that the issues raised by Bowie, even if considered legitimate-which LGS denied-should have been raised in a protest. However, despite having been properly served with the application, and thus being placed on notice of LGS's claim of right to use the Wagenet Reservoir for gas storage under the 2005 lease, KH Associates had failed to file a protest by the June 11, 2007 deadline. (McTarnaghan Letter, p. 2.)7
Second, LGS argued that the Bowie letter was improper because it failed to discuss any issue related to CEQA. By raising a dispute about lease terms rather than environmental issues, KH Associates was "attempt[ing] to insert an irrelevant commercial dispute into this proceeding over three months after any protest was due," thereby "try[ing] to add leverage to its commercial position," according to LGS. In view of KH Associates' failure to file a timely protest, LGS argued that it "should not be allowed to misuse the CEQA process to now `comment' upon the Application itself." (Id. at 2-3.)
Third, while reiterating its confidence that the 2005 lease with KH Associates allowed it to store gas in the portion of the Wagenet Reservoir lying beneath the Kirby Hills Ranch, LGS emphasized that the new dispute with KH Associates would be resolved outside of Commission processes, and thus there was no reason to hold up continued work on the application:
"As it would address other commercial disputes in the normal course of business, LGS is fully prepared to resolve this dispute with KH Associates and take all steps necessary to maintain its storage rights under the Agreement. Thus, the dispute does not relate to the Application and its resolution falls outside the jurisdiction of the Commission. As with any such dispute, LGS, as a participant in the competitive gas storage market, bears the risk of resolution and fully expects to resolve this dispute long before it could have any operational impact on the Kirby Hills II Expansion. Further, it is common for an Applicant to have some outstanding commercial matters at the time the Commission grants a certificate to construct a new facility." (Id. at 4; footnote omitted.)
The McTarnaghan letter closed by pointing out that when LGS had conducted an "open season" to gauge interest in an expansion of the Kirby Hills Facility, indications of interest were received from 22 market participants, who sought more than twice the amount of capacity that would result from the Phase II expansion. Based on this, LGS stated that it had begun to negotiate new storage contracts that were contingent upon Commission approval of the instant application. Thus, LGS concluded, any delay in processing the Phase II application would harm not only LGS, but also those gas market participants who were interested in purchasing additional gas storage capacity.
On October 17, 2007, KH Associates followed up on the allegations in Bowie's September 19 letter by submitting to the Commission a motion to intervene in this proceeding, a motion for acceptance of a late-filed protest, a protest, and a declaration by Bowie in support of the motion for acceptance of the late-filed protest. These pleadings repeated and expanded upon the allegations made in Bowie's letter of September 19.
On October 26, 2007, LGS counsel McTarnaghan, sent a letter to the assigned ALJ on behalf of LGS and KH Associates that stated as follows:
"We are pleased to report to you that the dispute between KH Associates and LGS has been resolved in principle and that the parties are now working on documents to memorialize the agreement. The parties anticipate that KH Associates will withdraw its opposition to the Application and hope to be in a position to do so in the very near future."
In order to preserve its rights to respond to the October 17 pleadings submitted by KH Associates, however, LGS also requested that in the "unlikely event" the parties' agreement in principle fell apart, LGS's time for responding to the October 17 pleadings be extended for "up to 10 days from the time notice is provided that the [KH Associates] pleadings will not be withdrawn . . ."
On October 29, 2007, the assigned ALJ sent McTarnaghan an e-mail stating that his time for responding to KH Associates' October 17 pleadings, in the event such responses became necessary, would be extended to November 15, 2007. The ALJ also stated that if the parties needed additional time beyond November 15 to finalize their agreement, "you will be expected to give us a substantive progress report summarizing the status of your discussions and indicating when you expect to be able to reach and document your agreement." Subsequently, LGS provided such reports and its time to file any necessary responses was extended first to November 27, and then to November 30, 2007.
On November 30, 2007, KH Associates filed a motion to withdraw the pleadings it had submitted on October 17; viz., the motion to intervene, the motion for acceptance of a late-filed protest, the protest, and the Bowie declaration in support of the motion to accept the late-filed protest. In its withdrawal motion, KH Associates stated:
". . . KH Associates and LGS have reached agreement to modify their pre-existing Gas Storage Lease and Agreement. The modifications address the concerns of KH Associates' regarding the Lease by LGS of those certain subsurface rights necessary to its operation of the proposed Kirby Hills II facility. Specifically, an Amended and Restated Gas Storage Lease and Agreement has been negotiated between KH Associates and LGS and executed by them, pursuant to which LGS now has acquired the necessary legal rights to the subsurface strata of the Kirby Hills Ranch necessary for the construction and operation of the Kirby Hills II facility.
"As a result of such agreement, KH Associates hereby moves the withdrawal of the KH Associates' Pleadings filed in this proceeding and advises that it has concurrently waived its opposition to A.07-05-009." (KH Associates' Motion, pp. 2-3.)
On December 19, 2007, the Commission's Energy Division caused to be issued the Subsequent MND/IS concerning Phase II of the Kirby Hills Facility. Apart from noting and briefly responding to the handful of comments submitted in response to the Proposed Subsequent MND/IS, the Subsequent MND/IS makes no changes to the Proposed Subsequent MND/IS.
4 With respect to the capacity issues covered by DRA's first item, the June 21 response stated that this information is available on LGS's website, and is already reported in more detail than DRA had requested to the Commission's Energy Division. LGS agreed to provide to DRA the same capacity report it provides to the Energy Division, provided that DRA treated the report as confidential pursuant to General Order (GO) 66-C and Pub. Util. Code § 583.
With respect to DRA's second item, average monthly inventories, LGS noted that it reports this data on a weekly and monthly basis to the U.S. Department of Energy in a document entitled the Energy Information Report (Energy IR). In lieu of providing these reports to DRA, LGS agreed to prepare an annual summary showing average monthly storage inventory, injections and withdrawals, based on the Energy IR reports.
As to the third item, daily operating records, LGS noted that this is provided in the weekly Energy IR reports. LGS agreed to include the weekly aggregate data in the annual summary it will provide to DRA.
With respect to the fourth and fifth items-firm capacity under contract on a monthly and annual basis, and interruptible capacity sold on a monthly and annual basis-LGS noted that it is already required under D.03-02-071 and D.05-12-007 to submit such contracts and provide such information to the Commission. LGS agreed to provide this same material to DRA subject to the data being treated as confidential pursuant to GO 66-C and Pub. Util. Code § 583.
With respect to the final item, an annual report describing all safety-related incidents, LGS noted that it prepares an annual safety report for the U.S. Department of Transportation, of which the Commission receives a copy. LGS agreed to provide a copy of this safety report to DRA, and also pointed out that it is obliged to report all safety incidents to the Commission pursuant to GO 112-A.
5 As noted in footnote 3, LGS acknowledges that Phase II will necessitate filling in approximately 1.17 acres of brackish marsh and mudflats that lie within the SMPMA and are likely to be considered waters of the United States. With respect to this acreage, LGS acknowledges it will be required to obtain a permit from the U.S. Army Corps of Engineers pursuant to § 404 of the Clean Water Act (CWA), as well as a water quality certification from the Regional Water Quality Control Board (RWQCB) pursuant to § 401 of the CWA.
In APM B-7, which appears at page 3.3-20 of the PEA, LGS states that "as part of these permit authorizations, LGS will implement measures to minimize the placement of fill material into the wetlands and will compensate for the permanent loss of wetlands at a minimum 1:1 ratio (1 acre for every 1 acre filled.) The final compensatory mitigation ratio and implementation plan (e.g., the purchase of mitigation bank credits) will be determined through coordination with the Corps [of Engineers], RWQCB, and [the Bay Conservation and Development Commission, or BCDC] (if necessary)."
6 In addition to these comments, one comment was submitted to the Solano County Resource Management Department, which received it on September 25, 2007. Even though out-of-time, this comment is also included in Section D of the adopted Subsequent MND/IS.
7 On the question of LGS's lease rights, the application stated:
"Lodi Holdings, L.L.C. entered into a 50-year Gas Storage Lease and Agreement (`Agreement') with Kirby Hills Associates, a California Limited Liability Company, in March of 2005 for a portion of the Kirby Property's surface estate and all of the identified subsurface storage reservoirs. The Agreement was subsequently assigned to LGS. The existing surface and storage lease rights provided in the Agreement will satisfy all surface, storage and mineral rights required for Kirby Hills II on the Kirby Property during construction and operation. In 2007 Lodi Development, L.L.C. acquired the storage rights to the Wohn Parcel that overlies a portion of the Wagenet Reservoir, as well as the surface access rights to the Wohn Parcel that is required in order to convert two existing abandoned wells to observation wells. Lodi Development, L.L.C. also has the consent from the mineral rights owner to conduct the proposed storage operations." (Application, pp. 12-13.)
