In what is becoming a bizarre case of concern to future merchantenergy project proponents, California regulators rescued a secondmerchant underground natural gas storage project from the trashheap last week by refusing to support a recommendation to deny theproposal and postponing the item for a future meeting. Analternative to the proposed administrative law judge (ALJ) decisionis likely to be developed by one of the members of the CaliforniaPublic Utilities Commission.

So, there is still life for the $80 million Lodi Gas StorageProject and 35-mile transmission pipeline to connect with PacificGas and Electric’s backbone pipeline system, despite an unusualproposed ALJ decision that OKs the Lodi Project’s environmentalimpact report but recommends the project not be built bymisapplying a local need criteria.

The proposal has stirred concerns among unlikely allies such asPG&E and the CPUC’s consumer advocacy division, the Office ofRatepayer Advocates (ORA), both of which think the ALJ’s proposalwould set a troubling policy if any future energy infrastructureprojects require a “greater local need” than the state as a whole.

ALJ Janet Econome acknowledges a state law and CPUC policyencouraging merchant gas storage projects for the state as a wholebut disregards them in finding that despite an acknowledgedstatewide 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 thepower plant in LA because the project should be where the localneed is greatest,” said Jim Fossum, California project manager forTexas-based Western Hub Properties, the sponsors of the Lodistorage facility.

“It is a complete 180-degree turn in policy for the CPUC if ittakes this stance, and says we’ll never do another project of anykind in California again, including putting up transmission lines,telephone rights-of-way, etc.”

After experiencing about a year’s delay so far because theproject — unlike an earlier merchant storage project nowoperating (Wild Goose Storage) — was required to complete afull-blown environmental impact report, Western Hub Propertiescompleted the EIR in late February and was expecting a finaldecision by mid-year to start construction this summer. The ALJ’snegative conclusion has cast doubt on the project, but Fossumremains optimistic, and in fact, is pursuing a second merchantstorage project in the state.

PG&E in a March 22 filing recommending that the CPUC rejectthe proposed negative decision is unsparing in its criticism,particularly regarding the proposed decision’s potential “chillingeffect” on other gas and electric projects. “(The proposeddecision) would frustrate the goals of PG&E —and thiscommission — in providing for safe and reliable gas and electricservice (not merely gas storage) for our state.

Fossum said that because of its unique geographical proximity tokey electric generating plants, the Lodi project will be the onlyunderground storage project in the state offering fastdeliverability to meet the needs of an increasingly competitiveelectric generation market that needs quick in- and out-capabilityfrom gas storage. The Lodi project is planned for 12 Bcf of naturalgas working capacity, with 400 MMcf/d injection and 500 MMcf/dwithdrawal capacities.

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