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CA Gets 2nd Merchant Storage Project, 3rd on the Way

CA Gets 2nd Merchant Storage Project, 3rd on the Way

With natural gas and power shortages looming, Western Hub Properties won significant victory from California regulators, who over-rode both internal opposition and vociferous local opposition from nearby property owners to give conditional approval to a proposed $80 million underground natural gas storage field in Northern California.

The Texas-based firm's Lodi storage project is designed to have 12 Bcf of working capacity, with 400 MMcf/d injection and 500 MMcf/d withdrawal capacity. It includes a 35-mile transmission pipeline that connects with Pacific Gas and Electric's backbone line. It will be the state's second non-utility storage project, following Wild Goose storage, which went into service last year. Approval of the Lodi project is effective in mid-June. Western Hub Properties also is formulating plans for a project similar to Lodi outside of Bakersfield.

After postponing a decision, the California Public Utilities Commission (CPUC) President Richard Bilas and another of the five commissioners developed an alternative that gives "conditional" certification to the project so it can proceed with development and construction. To do so, Western Hub will have to comply with all the designated environmental mitigation measures, obtain adequate insurance and gain other state permits, including the State Lands Commission.

The Commission had been faced with an adverse preliminary decision by an administrative law judge who recommended the project not be built because it didn't meet local-need criteria. He found no fault, however, with its environmental aspects.

Bilas said that while he supports "letting the market decide" whether a project should be built and encourages competition in gas storage, he "cannot support allowing competitors to use regulatory loopholes to take advantage of private property owners. In my view, this case comes precariously close to allowing that to happen."

Five local property owners --- one immediately adjacent to the proposed project --- traveled to San Francisco to urge the regulators to reject Western Hub's applications. They called the company "very arrogant" in the way it treated local landowners and argued that the project would "significantly adversely affect the quality of life" in their community.

Western Hub officials have maintained that Lodi's unique geographical location with proximity to key electric generating plants will make it the state's only underground storage project offering fast deliverability for power generation.

Meanwhile, Western Hub is eyeing a second potential storage site near Wheeler Ridge, southwest of Bakersfield, where it is hoping to help develop an important regional energy hub. A merchant storage field of about the same size as Lodi in the Wheeler Ridge area would be in close proximity to each of the four major gas pipelines in the state and to the sites for several proposed gas-fired merchant power plants --- one of them, PG&E Corp.'s La Paloma plant, which began construction May 17, will be the state's largest merchant plant (1,048 MW).

Western Hub anticipates moving through the state approval processes quicker and having the project operational in the "next two to three years," according to its California-based officials.

Western Hub California Project Manager Jim Fossum said Western Hub owns some rights to depleted oil/gas properties in the Wheeler Ridge area, which has a long history of fossil fuel exploration and development covering much of the 20th Century. "We're working on the engineering of it," he said, adding that he is not "free to pinpoint precisely where [the proposed site] is located."

"We have already told people that we intend to be interconnected with PG&E, Southern California Gas, Kern River and Mojave pipelines," he said. "We intend to not only provide service to the power plants in the area, but to the Las Vegas area and to the power plants in Arizona."

Fossum said the expectation is that large customers in Nevada and Arizona could store gas in California for the peak-load times when they need extra supplies; take more than their normal loads off the Kern River or Mojave interstate pipeline and "pay" for the extra supplies out storage that would go to uses in California.

"On a hot summer day, a customer in Las Vegas may need more gas but there is no capacity available because everyone else wants it, too," Fossum said. "So the Nevada customer arranges to take extras from Shell or Chevron [or one of the California-based customers] and supply that gas back to them at Wheeler Ridge."

Richard Nemec, Los Angeles

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