IV. Discussion

A. Phasing Of The Application

At the PHC, one of the issues discussed was whether the proceeding should be phased to timely permit SoCalGas to get started on the well work so that the sale of the reclassified cushion gas can take place before November 2001. This was also one of the issues addressed in SoCalGas' reply. The reply states that no party opposes the basic premise of the proposed project, i.e., that it is in the public interest to drill the additional wells and rework the existing wells at both storage fields, and to reclassify 7 Bcf of cushion gas in each field to working gas.

Parties that attended the prehearing conference did not oppose processing SoCalGas' application using a two-phased approach. The assigned ALJ stated that the first phase would address the following issues: the applicability of Pub. Util. Code § 851; whether CEQA applies to the proposed activities and whether any statutory or categorical exemptions apply; whether SoCalGas should be authorized to proceed with the proposed drilling and related work and to reclassify the cushion gas; and whether SoCalGas should be authorized to recover the project costs from the sale of the gas. No one identified the need for evidentiary hearings on these issues.

The other phase one issue would address the mechanics of the sale of the reclassified cushion gas. This would include resolving the various proposals as to who the reclassified cushion gas should be sold to. Since this issue has the potential to delay any initial authorization that SoCalGas needs in order to make the reclassified gas available by November 2001, none of the parties attending the PHC objected to deferring this issue until additional comments on the various proposals could be solicited, with possible evidentiary hearings. A decision on this issue would be targeted for issuance by the Commission in August or September 2001.

The remaining ratemaking issues would be addressed in the second phase, to take place during the end of 2001 or early 2002.

Since no one objected to the procedure that was described at the PHC, we intend to follow that schedule, as set forth in the scoping memo. Thus, today's decision addresses all phase one issues except that addressing to whom the reclassified cushion gas should be sold.

B. Public Utilities Code Section 851

The first issue to resolve in this phase of the proceeding is whether Pub. Util. Code § 851 applies to the application. The resolution of this issue is important for two reasons. First, if the activities proposed by SoCalGas do not require any discretionary approval by the Commission, then the Commission does not need to comply with CEQA. (Public Resources Code Section 21080(a); CEQA Guidelines, § 15040(a); Miller v. City of Hermosa Beach (1993) 13 Cal.App.4th 1118, 1131.) Second, if this section applies to the proposed activities, then Commission approval is needed before SoCalGas can proceed.

Section 15357 of the CEQA Guidelines defines a "discretionary project" to mean "a project which requires the exercise of judgment or deliberation when the public agency or body decides to approve or disapprove a particular activity, as distinguished from situations where the public agency or body merely has to determine whether there has been conformity with applicable statutes, ordinances, or regulations." Although SoCalGas requests that the Commission conclude that approval of the application is not required under Pub. Util. Code § 851, SoCalGas has requested in the alternative that if such authorization is needed, that it is in the public interest for the Commission to grant such authorization.

Pub. Util. Code § 851 provides in pertinent part:

    "No public utility ... shall sell ... or otherwise dispose of or encumber the whole or any part of its ... line, plant, system, or other property necessary or useful in the performance of its duties to the public ... without first having secured from the commission an order authorizing it so to do. Every such sale ... made other than in accordance with the order of the commission authorizing it is void."

    * * *


    "Nothing in this section shall prevent the sale ... by any public utility of property which is not necessary or useful in the performance of its duties to the public, and any disposition of property by a public utility shall be conclusively presumed to be of property which is not useful or necessary in the performance of its duties to the public, as to any purchaser ... dealing with such property in good faith for value...."

The Commission's exercise of its authority under Pub. Util. Code § 851 is viewed as discretionary. (D.01-02-044, p. 5; D.97-07-019, p. 4.) There is nothing in § 851 which suggests that the Commission's action is ministerial in nature. (See CEQA Guidelines, § 15369.)

The next issue to address is whether Pub. Util. Code § 851 applies to the proposed activities. SoCalGas asserts that it does not apply because the capacities of the two fields, after the withdrawal of 14 Bcf of the reclassified cushion gas, will not be reduced in any dimension from their current capacities. Thus, according to SoCalGas, the 14 Bcf of cushion gas will no longer be necessary or useful in the provisioning of utility service, and § 851 does not apply.

ORA contends that Pub. Util. Code § 851 applies to SoCalGas' application because the cushion gas that is in the two fields is property that is necessary and useful. If the property is necessary or useful in the utility's performance of its duties to the public, then the utility must seek an order from the Commission before the property can be sold or encumbered. (Crum v. Mt. Shasta Power Corporation (1934) 220 Cal. 295, 310; D.80272 [73 CPUC 664, 665].)

SoCalGas traces the history of the two storage facilities in its application. According to SoCalGas, La Goleta went into utility service in approximately 1943, and Aliso Canyon went into utility service in 1972. SoCalGas states that these "two fields are currently in utility service, and have been in service continuously since first placed in service." (Application, p. 3.)

The Commission has placed cushion gas that is used in normal gas storage operations into rate base and has allowed SoCalGas to earn a rate of return on the cushion gas. (See D.90-01-016 [35 CPUC2d 80, at pp. 95-97, 141]; D.84-12-069 [16 CPUC2d 926, at pp. 941, 949, 975]; D.82-12-054 [10 CPUC2d 82, at pp. 124-127, 143-144]; D.92497 [4 CPUC2d 725, at pp. 728, 791-792, 808-809]; D.80430 [74 CPUC 30, at p. 56].) This cushion gas has been used to provide the customers of SoCalGas with the intended benefit of using these fields for gas storage operations.

No one has suggested that the cushion gas in La Goleta and Aliso Canyon is not currently being used by SoCalGas as part of its utility operations. Although SoCalGas argues that the 14 Bcf of cushion gas will no longer be necessary or useful after the well work is done, that cushion is now being used in SoCalGas' gas storage operations. Therefore, we conclude that the cushion gas at these two storage fields is used and useful, and as such, SoCalGas must receive approval from the Commission under Pub. Util. Code § 851 before the proposed activities can proceed.

The next issue in our § 851 analysis is to determine whether the proposed activities of drilling and modifying the wells, so that 14 Bcf of cushion gas can be freed up and reclassified and sold as working gas, are in the public interest.

SoCalGas estimates that it will cost approximately $16 million to drill the new wells and to rework the existing wells at the two storage facilities. The 14 Bcf of cushion gas that will no longer be needed has a book value of 31 cents/Mcf, or $4.4 million. Due to high California border gas prices, and projected gas prices for the upcoming winter, SoCalGas estimates that the reclassified cushion gas can be sold for about $140 million. After taxes and the cost of the project, the net gain is estimated to be about $64 million.

In addition to the projected monetary benefit, the 14 Bcf of gas will be made available to the market in Southern California. This will temporarily increase SoCalGas' capacity to deliver gas to its customers by about 90 MMcf per day without having to utilize the interstate pipelines. This represents the equivalent of about a 2.5% increase in existing system capacity. Several of the parties believe that no curtailments will occur on SoCalGas' system during the winter because of this increase in capacity. After the work is completed, and the 14 Bcf of gas is sold and withdrawn, additional gas storage will also be made available.

SoCalGas also plans to undertake this work during the current electricity crisis that confronts us. The 14 Bcf of reclassified cushion gas will make more gas available during a time of high gas border prices, and the winter demand for more gas supplies. This additional gas will also help to alleviate the demand for natural gas to feed the electrical generation units.

None of the protests or responses to the application oppose the concept of drilling new wells and reworking the existing wells so that the 14 Bcf of cushion gas can be made available. Even the protests of ORA and TURN agree that SoCalGas should be permitted to do the necessary well work and reclassify and sell the gas. The concerns of ORA and TURN focus on to whom the gas should be sold, who should receive the benefits of the gain from the sale of the reclassified cushion gas, and who should be allocated the additional storage inventory.

We find that the proposed activities, as described in SoCalGas' application, have monetary and operational benefits that will benefit the public if the Commission authorizes SoCalGas to proceed. Accordingly, we conclude that authorizing SoCalGas to perform the well drilling and to rework the wells so as to free up 14 Bcf in cushion gas that will no longer be needed, and to reclassify this cushion gas as working gas, is in the public interest. Subject to our discussion below regarding CEQA and the sale of the reclassified cushion gas, SoCalGas is authorized to carry out all of the phase one activities.

C. California Environmental Quality Act

As discussed above, since Pub. Util. Code § 851 applies to this application, the next issue to address is whether a CEQA review applies, or whether the proposed activities are exempt from a CEQA review because of a statutory or categorical exemption. (CEQA Guidelines, § 15061.)

We first note that this Commission is the lead agency for CEQA purposes. Under Rule 17.1 of the Commission's Rules of Practice and Procedure, the Commission is the lead agency for gas storage facilities.

SoCalGas stated in its application that the proposed well work is categorically or statutorily exempt from CEQA. The assigned Commissioner's ruling of May 4, 2001 treated this statement as a motion by SoCalGas for the Commission to determine whether the proposed activities involve a project that is subject to or exempt from CEQA. Interested parties were provided with an opportunity to comment on whether the application is subject to or exempt from CEQA. As SoCalGas pointed out in its reply, no one who filed a protest or response to the application opposed SoCalGas' position that the project is categorically exempt from CEQA.

SoCalGas asserts that the proposed activities are exempt from CEQA review because three categorical exemptions and one statutory exemption apply. The comments which DOGGR filed state:


    "As we understand the project, the proposed wells are to be drilled in the existing Aliso Canyon field on existing pads. Based on such information, if a notice of intent to drill or perform well operations is filed with the Division for these proposed operations, the Division would consider the new wells as a minor alterations to land under Title 14, Chapter 4, Section 1684.2 of the California Code of Regulations and therefore categorically exempt from CEQA. The rework of the existing wells in the Aliso Canyon and La Goleta fields would also be exempt from CEQA under Section 1684.1, because these are existing facilities."

Two members of the Environmental Review Team of the Commission's Energy Division made a site visit to both gas storage facilities on May 18, 2001. Representatives from DOGGR and SoCalGas were also present. The Energy Division filed a report with the Docket Office on June 15, 2001. The report describes the proposed project, the sites where the work is to take place, and the Energy Division's determination of whether the proposed activities are exempt from CEQA. The Energy Division has determined that the Class 1 categorical exemption under § 15301 of the CEQA Guidelines applies, as well as § 15061(b)(3).

Section 15301 of the CEQA Guidelines describes the Class 1 categorical exemption as follows:


    "Class 1 consists of the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the time of the lead agency's determination. The types of `existing facilities' itemized below are not intended to be all-inclusive of the types of projects which might fall within Class 1. The key consideration is whether the project involves negligible or no expansion of an existing use."

Section 15301 describes an example of a Class 1 categorical exemption as: "Existing facilities of both investor and publicly-owned utilities used to provide electric power, natural gas, sewerage, or other public utility services."

The proposed well drilling and rework are consistent with the existing and surrounding land use as a gas storage facility. All of the proposed activities will take place on previously disturbed and isolated areas. In addition, the ongoing operation will remain the same, except that the gas storage capacity will be increased. The noise associated with the proposed activities is not expected to be significant. We agree with the Energy Division's determination that the proposed activities will involve only a negligible expansion of use, and that the proposed activities meet the Class 1 categorical exemption.

The Energy Division also believes that the proposed activities are exempt from CEQA under § 15601(b)(3) of the CEQA Guidelines. Section 15601(b)(3) provides that a project is exempt from CEQA if it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment. (See Pub. Resources Code Section 21084(a).) Since all of the proposed activities are consistent with the existing and surrounding land use, the ongoing operations will remain the same. Also, the drill sites and existing wells are all on previously disturbed areas, so the drilling and rework will not have a significant effect upon the environment. (CEQA Guidelines, § 15061(b)(3); Davidon Homes v. City of San Jose (1997) 54 Cal.App.4th 106, 112-1113, 116-117.) Accordingly, we agree with the Energy Division that the activities proposed by SoCalGas will not have a significant effect upon the environment, and therefore are not subject to CEQA.

Since the assigned Commissioner's ruling of May 4, 2001 treated SoCalGas' statements about the categorical and statutory exemptions as a motion, we will grant the motion that the proposed activities to be undertaken by SoCalGas are exempt from CEQA. The granting of the motion is based upon the Energy Division's site visit and determination, our analysis of the possible impacts, and the fact that no one has opposed the motion.

The assigned Commissioner's ruling also directed SoCalGas to deposit the sum of $10,000 with the Commission, in three installments, to pay for any expenses incurred by the Commission staff to determine whether the proposed project is exempt from CEQA, or, should it be needed, for the cost of preparing a negative declaration or an environmental impact report. Since we have concluded that the proposed activities are exempt from CEQA, there will be no need for the Commission staff to prepare a negative declaration or an environmental impact report. Therefore, SoCalGas need not deposit the remainder of the deposit with the Commission. The Commission's Fiscal Office is directed to return the unused portion of the monies that SoCalGas has deposited with the Commission after all of the Energy Division expenses that have been incurred have been paid.

D. Phase 1 Authorization

Since the activities proposed by SoCalGas in its application are exempt from CEQA, and because we have authorized SoCalGas to do the well drilling and associated work and to reclassify the cushion gas that will no longer be needed after the well work is completed, this section describes the specific work that SoCalGas is authorized to do.

Although we authorize SoCalGas under Pub. Util. Code § 851 to start the work necessary to reclassify the cushion gas that will no longer be needed, SoCalGas shall not be permitted to sell the 14 Bcf of reclassified cushion gas until further order of the Commission.

As suggested by TURN, we will invite additional comment from the parties as to whom the reclassified cushion gas should be sold. The various protests and responses to SoCalGas' application, and the assigned Commissioner's ruling, have suggested several ways in which the reclassified cushion gas could be sold. In addition, the comments may address the advantages or disadvantages of the various proposals before us.

Since all of the parties appear to agree that the sale of the reclassified cushion gas should take place before the upcoming winter season, the Commission will endeavor to issue a decision on the sale of the reclassified cushion gas no later than September 28, 2001. Depending on the proposals, evidentiary hearings may be needed. Therefore, opening comments shall be filed and served on or before July 6, 2001. Reply comments shall be filed and served on or before July 20, 2001. The comments or reply comments should indicate whether there is a need for evidentiary hearings, identify the disputed material facts that require an evidentiary hearing, and state what evidence would be offered at a hearing. If hearings are necessary, we anticipate that these will take place sometime during the last two weeks in July so that a timely decision can be issued.

Several parties who attended the PHC suggested that the issue of the sale of the reclassified cushion gas might be able to be resolved by way of a settlement. Any party interested in doing so should keep the above schedule in mind, as well as the various proposals for directing that the gas be used for certain purposes.

We authorize SoCalGas to do the following:

E. Waiver Of Rules 35 and 36

At page 18 of its application, SoCalGas requests that the Commission waive the requirements in Rules 35 and 36 of the Commission's Rules of Practice and Procedure that the application be signed by all of the parties to the proposed transaction, that the agreed to purchase price be stated, and that the proposed sale contract be filed. Since SoCalGas proposes to sell the reclassified cushion gas in a sealed bid process, and because the Commission has not yet determined what, if any, conditions should be imposed on the sale of the gas, we will waive those requirements.

F. Phase 2 Issues

In accordance with the procedural schedule that was discussed at the PHC, there will be a second phase of this proceeding to address all of the remaining ratemaking issues. Therefore, all other ratemaking issues, including the allocation of the anticipated net gain on sale of the reclassified cushion gas, the anticipated reduction in prospective operating costs, and the allocation of benefits among customer classes, will be deferred to a second phase of this proceeding.

Since this second phase will follow the sale of the reclassified cushion gas, it is anticipated that this second phase will not start up until the last quarter of 2001 or the first quarter of 2002. We also note that it may be convenient and in everyone's interest to address these ratemaking issues in SoCalGas' next BCAP proceeding, as suggested by the SCGC in its response to the application. Parties may comment on whether this second phase should be addressed in the BCAP, or whether it should be addressed separately from the BCAP. Comments on whether the second phase ratemaking issues should be addressed in SoCalGas' next BCAP may be included in the comments that are being filed to address the sale of the reclassified cushion gas. A future ruling or decision will issue informing parties as to how the second phase of this proceeding will be addressed.

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