The five-member California Public Utilities Commission (CPUC) on Thursday denied a long-standing proposal to develop an idle dry natural gas field into an underground storage project beneath a residential community in Sacramento. CPUC members voted 3-2 against the 7.5 Bcf capacity independent project.

Backers of Sacramento Natural Gas Storage LLC had a contract with the Sacramento Municipal Utility District (SMUD) to be the project's anchor customer, but Commissioner Mike Florio, who led the move for denial, said the municipal utility's demand for the storage was not a strong enough reason to override safety concerns about the proposed facility because of its location.

After a long public discussion by California's regulators in June it became clear that there was no agreement about the state's underground natural gas storage needs and the potential risks in placing a storage facility in a depleted gas field in a populated area (see Daily GPI, June 11).

The project was originally recommended for approval by an administrative law judge, but drew two alternative decisions from Florio and Commissioner Timothy Alan Simon, who supported going ahead with the project. Along the way the project drew its share of local opposition (see Daily GPI, March 14), which was in evidence again Thursday with more than two dozen residents expressing mostly negative opinions at the CPUC meeting in San Francisco prior to the vote.

CPUC President Michael Peevey was the only regulator siding with Simon. After the vote Peevey made an aside comment that he thought Florio was doing the public a disservice. "My conclusion is simple: that the risk of gas migration [leaks] is low and that risk should not be the reason for denying this application. Further, the risk of pipeline interruption causing electricity curtailment outweighs the risk of gas migration," he said.

In contrast, Commissioner Mark Ferron, one of the newest regulators on the CPUC, said the project "might be desirable, but it is clearly not essential, and in my view there is no overriding consideration in favor of the project."

In looking at existing utility operated gas storage projects in residential areas, the regulators favoring denial noted that all of them -- including Southern California Gas Co.'s Playa del Rey underground facility near Los Angeles International Airport -- were developed away from residential areas or before development came.

The proposed Sacramento facility was slated for acreage that falls within the city boundaries and partly within an adjacent unincorporated area of Sacramento County, all of which is served by SMUD, a large countywide public power entity. SMUD relies heavily on gas-fired generation and was interested in taking about half of the proposed storage capacity.

Sacramento Natural Gas Storage had a contract with SMUD, which wanted a lot of the space in the proposed facility in the old Florin Gas Field under what is now a park and industrialized area. Unlike other independent storage projects in Northern California that were developed under former gas field properties, it had to obtain leases from hundreds of residential and other property owners, about 72% of whom signed up. Organized opposition solidified in recent years.

In the past few years other storage projects have begun or been proposed for the central valley region of Northern California where gas and oil fields once existed. Gill Ranch, a 20 Bcf capacity project in the northern end of the San Joaquin Valley west of Fresno, is now in operation, headed by a unit of Portland, OR-based Northwest Natural Gas and San Francisco-based Pacific Gas and Electric Co. And Illinois-based Nicor Inc.'s Central Valley Gas Storage LLC was originally planned to begin service this year as an 8 Bcf storage facility in north-central California, and is still pending sufficient market interest.

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