5. Discussion

In view of the lack of protests to the application and the resolution of the lease issue raised by KH Associates, the thorough analysis of the potential environmental effects of Phase II in the Subsequent MND/IS, its conclusion that any potentially significant effects can be reduced to less-than-significant levels, and the support for Phase II by local elected officials, we have decided to grant the amended CPCN that LGS has requested so that Phase II of the Kirby Hills Facility can go forward.

In D.93-02-013, the so-called Storage Decision (48 CPUC 2d 107), the Commission presumed that competitive gas storage facilities are needed, because the owners of such facilities do not have a captive customer base and operate at their own financial risk. (48 CPUC 2d at 118-119.) In this particular case, we are also satisfied that there is a need for the additional storage facilities Phase II would provide. As LGS's application points out, the Energy Action Plan II adopted by the Commission in October 2005 identified as Key Action No. 4 in its discussion of Natural Gas Supply, Demand and Infrastructure, "encourage[ment of] the development of additional in-state natural gas storage to enhance reliability and mitigate price volatility." LGS also notes that the capacity of the Kirby Hills Facility's first phase is fully-subscribed, and that the open season LGS conducted from mid-February to mid-March of 2007 resulted in bid responses for 26.5 Bcf, more than twice the projected capacity of Phase II. (Application, p. 18.)

As noted in the introduction to this decision, LGS has requested as part of its application, authority to charge market-based rates for the gas storage and withdrawal services it will offer in connection with Phase II. As we have noted in D.06-03-012 and other decisions, D.93-02-013 and its progeny make clear that LGS, and not its ratepayers, will be fully at risk if the expected demand for the storage and withdrawal capacity at Phase II does not 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 that will be offered in connection with Phase II. Granting such authority is also consistent with the manner in which we have treated LGS's Lodi facility.

As was the case with the first phase of the Facility considered in D.06-03-012, the issues that have consumed the most energy in connection with this application (apart from the lease dispute) have been the environmental ones. We commend our Energy Division for their diligence in preparing and issuing the Subsequent MND/IS in a timely manner.

We also think that the Subsequent MND/IS-which is identical (except for the comments and responses in Section D) to the Proposed Subsequent MND/IS-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 Proposed Subsequent MND/IS) into the record. We agree with the Subsequent MND/IS that implementation of the APMs suggested by LGS, along with the additional Mitigation Measures discussed in Section B of the Subsequent MND/IS, will reduce the potentially significant environmental effects that have been identified in connection with Phase II 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 Subsequent MND/IS.

We also conclude that LGS has made a satisfactory showing with respect to the four factors relevant to a CPCN identified in Pub. Util. Code § 1002(a). With respect to the first of these factors, community values, we give considerable weight to the positions of the elected representatives in the area-especially since other community members are not speaking to the contrary-because as noted in D.00-05-048, we believe that these elected officials are generally speaking on behalf of their constituents. (D.00-05-048 at 28.) As noted above, Phase II of the Kirby Hills Facility is supported by Assembly Member Lois Wolk, State Senator Patricia Wiggins, and Solano County Supervisor Mike Reagan, all of whom represent the affected area.

We reach a similar conclusion with respect to the other three factors identified in § 1002(a), viz., recreational and park areas, historical and aesthetic values, and influence on the environment. As LGS points out, the proposed facilities are in remote areas, far away from recreation and park areas. The proposed Phase II operations are consistent with how the Kirby Hills Field has been used for nearly 50 years, and all of Phase II'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 Subsequent MND/IS will, as we have noted in Section 3 of this opinion, require LGS to undertake a broad array of measures designed to minimize the potential effects of Phase II upon the environment.

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 markets for gas storage and injection services in both Northern California and statewide were highly concentrated. (D.03-02-071 at 16.) Although these concerns were reduced 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 approved in D.03-02-071:

"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." (D.03-02-071, pp. 17-18.)

In Application (A.) 07-07-025, which was recently granted in D.08-01-018, we approved a transfer of control of LGS from WHP Acquisition, L.L.C. and WHP Acquisition II, L.L.C. (each of which held a 50% interest in Lodi Holdings, L.L.C., the parent of LGS) to Buckeye Gas Storage LLC, a 100%-owned affiliate of Buckeye Partners, L.P., a national energy firm that is traded on the New York Stock Exchange. As a condition of approving this transfer of control, we also approved a set of conditions that were part of a Settlement Agreement entered into between the joint applicants in A.07-07-025 (and certain other entities) and DRA. These conditions are attached to D.08-01-018 as Appendix A. Condition 3 in Appendix A broadens the requirements on LGS to report changes in market conditions that had been imposed in D.03-02-071. Condition 3 also requires LGS to file a petition for modification of D.03-02-071 seeking the deletion of Ordering Paragraph (OP) 3(c) thereof (which reflects the narrower reporting obligation in D.03-02-071 quoted above), as well as OP 3(b) of D.05-12-007 (which reflected reporting obligations essentially identical to those imposed in D.03-02-071).

As the discussion above and in D.08-01-018 makes clear, none of the evidence before us 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 place LGS on notice that it is subject to the reporting obligations set forth in Appendix A to D.08-01-018, and that compliance with those obligations is a condition of the authority granted in this decision.