California’s first merchant natural gas storage facility, Canadian-backed Wild Goose Storage, was fined $51,500 and criticized by state regulators Thursday for its handling of the change of parent company that occurred when EnCana was formed last year. It was a first-of-its-kind fine for this type of technical violation; previous fines never exceeded $8,000.

Wild Goose’s certificate to operate from the California Public Utilities Commission was amended, but the company still needs to file a formal application with the state regulators for approval of the its new ownership.

The EnCana-owned merchant storage company does not plan to fight the regulatory action. “We’ll pay the fine and move on,” said a Canadian-based spokesperson in Calgary, Alberta late last Thursday, noting that the company had violated a technical rule of the CPUC regarding so-called “change of control” in its corporate ownership.

The CPUC on a contentious 4-1 vote in which an alternative for a $1.5 million fine was narrowly defeated, approved “the indirect change of control” at Wild Goose due to its former parent, Alberta Energy Company (AEC) merging with PanCanada to form EnCana. Although divided on how hard to fine the merchant storage operator in northern California, the regulators agreed that is was “in the public interest” to give its approval, although not in a retroactive sense.

“There would obviously be a multiple of discussions around what that (term) constitutes, and how it applied in this situation,” the Wild Goose spokesperson said. “Once we took the advice (from the state regulators) on what we were required to do we followed that, but given today’s action, it appears that did not quite satisfy them. We worked very hard to meet their requirements once we knew what they were.

“So we don’t see this as a significant element or a major setback in any manner. It was a technical ruling, and we’ll move forward from here without being overly concerned about this. Here you have a variety of interpretations about what the commission’s code is all about.”

At issue was the okay Wild Goose obtained from the CPUC in 1997 to develop the first nonutility, market-based natural gas underground storage facility in the state using a depleted natural gas field north of Sacramento. That approval was subject to certain conditions, some of which related to the facility’s change of ownership. Since the change, the CPUC has for about a year been trying to more closely monitor the natural gas storage markets, and therefore, the state regulators did not want to legally disclaim control over the ownership change.

Contending that the CPUC needs to keep jurisdiction to avoid foregoing its ability to monitor market power issues related to storage in the future, former CPUC head Loretta Lynch argued unsuccessfully for a bigger fine to send a stronger message to future operators in the state that are affected by future industry mergers.

“In such circumstances, I believe a relatively high fine is appropriate both to reflect the importance we place on compliance with our laws and processes, and also to serve as an effective deterrent against future such actions and omissions to the commission,” Lynch said.

Wild Goose attorneys had argued with the CPUC in its case that the merger only affected its holding company, Alberta Energy, to which it still reports, and that the change took place at a higher organization level with the formation of EnCana. AEC stock is now privately held, and EnCana is the publicly traded company. Thus, Wild Goose did not think it needed to inform the California regulators prior to AEC’s shares being exchanged for EnCana shares.

In the minority on the eventual 4-1 vote approving the action was the CPUC’s newest member, Susan Kennedy, who wanted a smaller fine because of the administrative law judge’s recommendation. Kennedy called Wild Goose a “company with a sterling record of compliance that is guilty of violating a law that even the judge says is unclear when no harm has been caused to consumers in any way, shape or form due to the violation,” quoting from the ALJ’s recommended decision.

“This is one of the cases where I believe the whole is greater than the sum of its parts,” Kennedy said. “The question is simple — did this company violate commission rules by failing to seek approval for an indirect change of control prior to the transaction? But that is where the simplicity ends. The ALJ’s answer to this question is anything but clear.” She contended that the judge overseeing the case noted that the rule in question had been applied on a “case-by-case” basis, and previous cases failed to define what was meant by “control.”

If the regulators themselves are not clear on a given rule, “how can we expect a company (or companies) to follow it consistently?” the CPUC commissioner asked rhetorically. She added that once apprised of the rule requirements, Wild Goose “promptly and willingly complied,” and it didn’t show any signs of trying to evade state regulation.

“Here we have a case in which even the judge says the company has a stellar record of compliance, is guilty of violating a rule that even the judge says is unclear, with no harm to consumers in any way, shape or form, and where the transactional question has been determined to provide an important public benefit, expanding natural gas storage, and a company that has made this critical investment in California on its own dime with no guarantees of any return, and this commission is going to brand them with the largest penalty in history for this type of infraction,” she said. “What message are we sending? I am not a fan of determinant sentencing. This is not a criminal procedure.”

Commissioner Geoffrey Brown, who calls himself an old criminal lawyer, said “there was no harm to the public or no intentionality” in the actions for which Wild Goose was being fined. He did not, however, agree with the ALJ’s recommendation to essentially cut the fine in half.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.