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Debate Follows SoCal Well Leak Closure; Cost Estimate Up to $300M

While leadership has shifted to the California Public Utilities Commission (CPUC) in overseeing an independent investigation of the root causes in the four-month-old natural gas storage well leak in Southern California, the future of the 86 Bcf, 3,600-acre underground storage field is shrouded in doubt and dissention.

Meanwhile, storage operator Southern California Gas Co. (SoCalGas) has estimated that the overall cost of stopping the leak may eventually hit $300 million. The book value of the facility at the end of 2015 was $243 million.

Nearby residents from the upscale Porter Ranch area next to SoCalGas' Aliso Canyon facility want it closed permanently and have stepped up political pressure to have that done, but the Sempra Energy gas-only utility has indicated it will oppose proposed legislation to keep the facility and its 115 storage wells inoperable until all of the wells have been thoroughly and independently tested.

As of Feb. 10, approximately 6,400 households utilized temporary relocation services, and over 1,700 have since moved back into their homes, all paid for by SoCalGas, the utility reported in its most recent Securities and Exchange Commission filing. In addition, the utility has been providing air filtration and purification systems to those residents in the nearby community requesting them.

Permanent closure of the state's largest gas storage facility would seriously hurt the reliability for a service area of more than 20 million people, SoCalGas officials contend.

Last week, the state confirmed that the leaking well (SS-25) has been permanently shut, and thousands of displaced families were allowed to return to their homes. But while that chapter has closed, a pandora's box over legal, political and regulatory activities has been opened.

SoCalGas on Friday said a united command organization involving Los Angeles County fire and public health units and the gas utility was disbanded, and the CPUC has taken command of the well site, ramping up what CPUC President Michael Picker told the Los Angeles Times is "an independent and very comprehensive investigation.” The state regulatory commission is attempting to "preserve evidence," as is routinely done at major industrial accidents or crime scenes, he said.

The state Division of Oil, Gas and Geothermal Resources (DOGGR) last Wednesday published criteria for injection wells that must be met before they can be reactivated (see Daily GPI, Feb. 18), and pending legislation in the state Senate (SB 875, 876 and 877) calls for more regulation, inspections and integrity verification for the state's gas storage facilities, four of which are operated by SoCalGas.

While SoCalGas hasn't publicly taken a position on the pending legislation, a report in the Los Angeles Times Saturday cited the utility as recruiting third parties to oppose the bills, which have passed the Senate and go to an important hearing in the lower house Assembly on Monday. Without the use of Aliso Canyon, utility officials have indicated that reliability would suffer and retail prices could rise without the ability to store large volumes of gas in the summer for use in fulfilling peak winter loads.

In the past months, state officials at the CPUC and DOGGR have underscored the importance of the Aliso Canyon facility in the state's overall natural gas operations, but they have not provided any official data or proclamations that the Sempra gas utility would not be able to meet its energy demands in the greater Los Angeles Basin if the storage field is closed.

In its Feb. 11 SEC filing, SoCalGas reported that 67 lawsuits have been filed against the company, some of which have also named Sempra Energy, asserting "causes of action for negligence, strict liability, property damage, fraud, nuisance, and trespass, among other things." The utility noted that additional litigation aimed at the utility may be filed in the future related to this incident with many of the complaints seeking class action status, compensatory and punitive damages, injunctive relief and attorneys’ fees.

"The costs of defending against these civil and criminal lawsuits and cooperating with these investigations, and any damages and civil and criminal fines and other penalties, if awarded or imposed, could be significant, and to the extent not covered by insurance, or if there were to be significant delays in receiving insurance recoveries, could have a material adverse effect on [SoCalGas'] and Sempra Energy’s cash flows, financial condition and results of operations,"  SoCalGas told the SEC.

According to the SEC documents, SoCalGas' total costs are estimated to be $250-$300 million, consisting of "amounts paid and forecasted to be paid to address the leak and mitigate certain environmental and community impacts, including residents' temporary relocation, drilling relief wells, attempts to stop or mitigate the emissions, and the value of lost gas."

"[SoCalGas] believes that it is probable that this amount, less deductibles of $4 million, will be covered by insurance. These amounts do not include any reserves for damage awards, any civil or criminal fines and other penalties that may be imposed, and associated legal costs, or the costs related to our intention to mitigate the environmental impact of the actual natural gas released from the leak, as these amounts are not reliably estimable as to amount or timing at this time."

SoCalGas said it has four types of insurance policies that will cover "many of the current and expected claims, losses, costs, and litigation" tied to the leak, collectively totaling in excess of $1 billion.”

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