On the surface, a straightforward purchase of California’s second merchant underground natural gas storage facility is taking on major policy implications. It could provide a view this week of just how hard-and-fast the split is between pro-market and pro-enforcement regulators at the state regulatory commission.

The purchase of Lodi Storage by affiliates of Kansas City, MO-based Aquila is expected to be okayed by the five-member California Public Utilities Commission, but not without conditions aimed at what some commissioners fear will be potential market power abuse by the new owners, given the Aquila affiliates.

The pending sale is on the CPUC’s business meeting agenda for Aug. 22. It was presented to the CPUC last month at the same time the commission decided on a 3-2 vote to approve an expansion of the state’s other merchant gas storage facility, EnCana-owned Wild Goose, which is located 50 miles north of Sacramento. The Wild Goose decision carried conditions, including the need to examine possible affiliate relations restrictions, from which the facility is currently exempt.

Wild Goose’s conditions are specifically cited and included in a draft decision to okay the Aquila purchase of Lodi from Texas-based Western Hub Properties. The proposed decision also notes that a mitigating factor is the fact that Lodi and Wild Goose will be competing to serve the large San Francisco Bay Area 50 miles to the west.

EnCana officials in Calgary said last Tuesday that Wild Goose is proceeding with its proposed expansion, but it is watching closely an upcoming proceeding the CPUC has scheduled for September to look at possible affiliate transaction restrictions. What comes out of that proceeding may cause Wild Goose some problems, one Calgary official said.

The draft Lodi sales decision specifically says that the CPUC will not authorize contracts with any Lodi Gas Storage affiliate for “marketing of unsubscribed firm and interruptible storage capacity at the Lodi facility, and moreover, [the commission] prohibits Lodi Gas Storage from engaging in any storage or hub services transactions with its ultimate corporate parents or their affiliates.”

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