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CA Merchant Storage Gains 11th-Hour Reprieve from Regulators

CA Merchant Storage Gains 11th-Hour Reprieve from Regulators

In what is becoming a bizarre case of concern to future merchant energy project proponents, California regulators rescued a second merchant underground natural gas storage project from the trash heap Thursday by refusing to support a recommendation to deny the proposal and postponing the item for a future meeting. An alternative to the proposed administrative law judge (ALJ) decision is likely to be developed by one of the members of the California Public Utilities Commission.

So, there is still life for the $80 million Lodi Gas Storage Project and 35-mile transmission pipeline to connect with Pacific Gas and Electric Co.'s backbone pipeline system, despite an unusual proposed ALJ decision that oks the Lodi Project's environmental impact report, but recommends the project not be built by misapplying a local need criteria.

The proposal has stirred concerns among unlikely allies such as PG&E and the CPUC's consumer advocacy division, the Office of Ratepayer Advocates (ORA), both of which think the ALJ's proposal would set a troubling policy if any future energy infrastructure projects require a "greater local need" than the state as a whole.

ALJ Janet Econome acknowledges a state law and CPUC policy encouraging merchant gas storage projects for the state as a whole, but disregards them in finding that despite an acknowledged statewide need, "the record does not show a specific need for this (Lodi) project in the general Lodi community."

"This means if you need electricity in LA, you better build the power plant in LA because the project should be where the local need is greatest," said Jim Fossum, California project manager for Texas-based Western Hub Properties, the sponsors of the Lodi storage facility.

"It is a complete 180-degree turn in policy for the CPUC if it takes this stance, and says we'll never do another project of any kind in California again, including putting up transmission lines, telephone rights-of-way, etc."

After experiencing about a year's delay so far because the project --- unlike an earlier merchant storage project now operating (Wild Goose Storage) --- was required to complete a full-blown environmental impact report, Western Hub Properties completed the EIR in late February and was expecting a final decision by mid-year to start construction this summer. The ALJ's negative conclusion has cast doubt on the project, but Fossum remains optimistic, and in fact, is pursuing a second merchant storage project in the state.

PG&E in a March 22 filing recommending that the CPUC reject the proposed negative decision is unsparing in its criticism, particularly regarding the proposed decision's potential "chilling effect" on other gas and electric projects. "(The proposed decision) would frustrate the goals of PG&E --- and this commission --- in providing for safe and reliable gas and electric service (not merely gas storage) for our state.

Fossum said that because of its unique geographical proximity to key electric generating plants, the Lodi project will be the only underground storage project in the state offering fast deliverability to meet the needs of an increasingly competitive electric generation market that needs quick in- and out-capability from gas storage. The Lodi project is planned for 12 Bcf of natural gas working capacity, with 400 MMcf/d injection and 500 MMcf/d withdrawal capacity.

Richard Nemec, Los Angeles

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