IX. Assignment of Proceeding
Loretta M. Lynch is the Assigned Commissioner and Jean Vieth is the assigned ALJ in this proceeding.
1. The Application, 2001 Amendment, and 2002 Amendment are all unopposed.
2. On October 30, 2002 Western Hub, its owners and WHP Acquisition executed an Amended and Restated Unit Purchase Agreement, whereby Western Hub and WHP Acquisition will become indirect, co-owners of a new entity, Lodi Holdings, created to own 100% of LGS.
3. The proposed equity interest of Western Hub in Lodi Holdings is valued at approximately $110 million.
4. WHP Acquisition's proposed equity investment in Lodi Holdings consists of assignment of its interests (approximately $110,000,000) in a note for the construction loan financing LGS obtained through the replacement debt financing arrangement approved by D.01-08-023, together with extension of the maturity date of the note to June 30, 2003.
5. The parties' agreement creates a second new entity, Lodi Finance, L.L.C. (Lodi Finance). Lodi Holdings will transfer the $110 million note from WHP Acquisition to Lodi Finance as a secured loan, in order to preserve the tax benefits to LGS and simplify future refinancing.
6. The proposed transfer will result in the change of ownership and control of LGS and the Lodi Facility but will not result in the transfer of any certificates, assets, or customers of LGS. LGS will continue to be bound by the terms and conditions prescribed by the Commission in D.00-05-048, as modified, which granted LGS a CPCN and certified the EIR for its project, and by the terms and conditions of LGS' filed tariff.
7. The direct owner of WHP Acquisition is ArcLight, which has no active involvement in energy markets. As of September 27, 2002, ArcLight had capital commitments of $950 million from its limited partners.
8. The proposed transaction avoids the likelihood of LGS' near-term default on the construction loan and probable bankruptcy and ensures that LGS will be able to continue to serve its customers, without interruption
9. Under the Lodi Holdings Agreement attached to the Amended and Restated Unit Purchase Agreement, Western Hub will provide day-to-day management of LGS' operations as Company Manager.
10. With Western Hub serving as the Company Manager, day-to-day management and operations will continue under the same management that has been in place since certification.
11. Authorized construction of the Lodi Facility (Phases I and II) is complete.
12. The Lodi Facility has a smaller inventory capacity than Wild Goose but the physical attributes of its storage reservoir permit highly flexible storage operations. The Lodi Facility's 500 MMcf/d of peak withdrawal capacity and Wild Goose's remaining 500 MMcf/d, will compete directly for transmission access to the Bay Area load center, along with all other gas transportation volumes.
13. The 2002 Amendment and Supplement provide Western Hub with a financial partner that does not have an active energy market involvement or the financial problems of Aquila, Inc.
14. Though the 2002 Amendment and Supplement allay the Commission's greatest concerns about the possible exercise of market power or possible abuse of affiliate relationships, the fact remains that the natural gas storage market is a heavily concentrated one.
15. LGS participated actively in the proceeding that led to Wild Goose Expansion, D.02-07-036.
16. To better monitor the evolving natural gas market, and as a condition of our approval of the change of ownership and control (with continued market-based rate authority), the Commission should impose the same reporting requirements on LGS that it has imposed on Wild Goose.
17. The change of control should be authorized only if LGS complies with the prohibition on affiliate transactions for storage or hub services (with the exception of the agreement by which Western Hub will serve as Company Manager for Lodi Holdings) and with the reporting requirements described in this decision.
18. To ensure that the performance bond will continue without interruption, Joint Applicants should provide the Director of the Commission's Energy Division clear representation that the bonding entities will bond LGS and the Lodi Facility under its new ownership. This representation must be verified, must be in writing, and must be submitted prior to any change of control.
19. This change of ownership and control will have no significant effect on the environment since the Lodi Facility will continue to be operated as previously authorized by this Commission, all environmental mitigation measures contained in the certified EIR will continue to apply, and all monitoring requirements and restrictions imposed in D.00-05-048, which certified the EIR, will continue.
20. The Commission should extend the environmental mitigation monitoring restrictions imposed by D.00-05-048, Ordering Paragraph 16, to persons and entities with a beneficial interest in any of LGS' new owners.
21. No hearing is necessary.
1. The transaction proposed constitutes a change of control, within the meaning of Pub. Util. Code § 854.
2. The Application, as amended on October 18, 2002, should be granted, as conditioned herein.
3. As conditioned herein, the Application, as amended on October 18, 2002, is in the public interest.
4. Following the change of control, LGS will continue to be bound by the terms of its CPCN, by all the requirements and conditions mandated in D.00-05-048 as modified by subsequent Commission decisions, and by the tariff filed with the Commission, as approved and subsequently modified by any approved amendments.
5. The preliminary determinations in Resolution ALJ 176-3074 should be confirmed.
6. Article 2.5 of the Commission's Rules of Practice and Procedure ceases to apply to this proceeding.
7. This change of control qualifies for an exemption from CEQA under CEQA Guidelines § 1506(b)(3)(1) and therefore, additional environmental review is not required.
8. The restriction preventing persons and entities with a beneficial interest in LGS or its present owners from monitoring the implementation of the environmental mitigation measures should be extended to persons and entities with a beneficial interest in any of LGS' new owners.
9. The change of control should not occur until Joint Applicants provide the Director of the Commission' Energy Division with verified representation, in writing, that the bonding entities will continue to bond LGS and the Lodi Facility under the $20 million performance bond ordered by D.00-05-048.
10. Because no action has been taken on Joint Applicants' November 20, 2001 and October 18, 2002 motions for orders shortening time for protests and/or responses and limiting the scope of response, the motions are now moot.
11. This order should be effective immediately.
IT IS ORDERED that:
1. The Application, as amended on October 18, 2002, of Lodi Gas Storage, L.L.C. (LGS), Western Hub Properties, L.L.C. (Western Hub) and WHP Acquisition Company, LLC (WHP Acquisition), collectively Joint Applicants, is approved pursuant to Pub. Util. Code § 854, subject to the conditions set forth in the following Ordering Paragraphs.
2. LGS and its owners shall continue to be bound by all terms and conditions of LGS' certificate of public convenience and necessity, as granted by Decision (D.) 00-05-048 and modified by subsequent decisions of the Commission.
3. The authority granted in Ordering Paragraph 1 is conditioned upon compliance with the following subparagraphs. Disclosure of the required information, including contracts and other documents, shall be made to the Director of the Commission's Energy Division by LGS and its owners. Competitively sensitive, confidential information may be submitted under seal in accordance with General Order 66-C and Pub. Util. Code § 583. LGS shall:
a. Provide clear representation in writing, prior to the change of control, that the bonding entities will continue to bond LGS and the Lodi Facility under the $20 million performance bond ordered by D.00-05-048;
b. Provide prompt notice to the Director of the Commission's Energy Division, in writing, if Western Hub should cease to serve as Company Manager of Lodi Holdings for any reason, and explain the reasons for the change;
c. Provide prompt disclosure of the following changes in status that reflect a departure from the characteristics the California Public Utilities Commission has relied upon in approving market-based pricing: (i) LGS' own purchase of natural gas facilities, transmission facilities, or substitutes for natural gas, like liquefied natural gas facilities; (ii) an increase in the storage capacity or in the interstate or intrastate transmission capacity held by affiliates of its ultimate parents (Western Hub and ArcLight Energy Partners Fund I, L.P. (ArcLight)) or their successors; or (iii) merger or other acquisition involving affiliates of its ultimate parents (Western Hub and ArcLight) 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. Provide true copies of all service agreements for short-term transactions (one year or less) within 30 days of the date of commencement of short-term service, to be followed by quarterly transaction summaries of specific sales. If LGS enters into multiple service agreements within a 30-day period, LGS may file these service agreements together so as to conserve the resources both of LGS and the Commission. The quarterly transactions summaries shall list, for all tariffed services, the purchaser, the transaction period, the type of service (e.g., firm, interruptible, balancing, etc.), the rate, the applicable volume, whether there is an affiliate relationship between LGS and the customer, and the total charge to the customer.
e. Provide true copies of all service agreements for long-term transactions (longer than one year), within 30 days of the date of commencement of service. To ensure the clear identification of filings, and in order to facilitate the orderly maintenance of the Commission's records, long-term transaction service agreements shall not be filed together with short-term transaction summaries.
f. Not engage in any storage or hub services transactions with its ultimate parents (Western Hub and ArcLight), or their successors, or any affiliated entity owned or controlled by its ultimate parents or their successors. However, this ban does not apply to the agreement submitted a part of the Amended and Restated Unit Purchase Agreement, by which Western Hub will serve as Company Manager for Lodi Holdings.
4. The change in ownership qualifies for an exemption from the California Environmental Quality Act (CEQA) under CEQA Guidelines § 1506(b)(3)(1) and therefore, additional environmental review is not required.
5. D.00-05-048, Ordering Paragraph 16, which prohibits persons and entities with a beneficial interest in LGS or its present owners from monitoring the implementation of the environmental mitigation measures, shall continue and shall extend to persons and entities with a beneficial interest in any of LGS' new owners.
6. Joint Applicants shall notify the Director of the Commission's Energy Division, in writing, of the transfer of ownership, as authorized herein, within 30 days of the date of the transfer. A true copy of the instruments of transfer shall be attached to the notification.
7. The authority granted herein shall expire if not exercised within one year of the date of this order.
8. Joint Applicants' November 20, 2001 and October 18, 2002 motions for orders shortening time for protests and/or responses to the Amendment to the Application, and limiting the scope of response, are moot.
9. Application 01-09-045 is closed.
This order is effective today.
Dated , at San Francisco, California.
ATTACHMENT A
(END OF ATTACHMENT A)
Attachment A to Vieth Comment Dec.
