Special Report: California Regulatory Developments for Aliso Canyon

Yesterday, the judge overseeing the California Public Utilities Commission (CPUC) investigation into the Aliso Canyon Natural Gas Storage Facility issued a notice, which offered some clarity into expected next steps, with the first such action being a prehearing conference among the parties on June 5, 2017. The uncertainty of the status of the Aliso Canyon facility heightens the concerns that California's gas supply will be adequate during peak demand periods this summer. Shortly after the June 5 prehearing conference, we expect the judge to issue a ruling that provides further insight into the specific issues and schedule for the proceeding.

Regulatory Response

On October 23, 2015, Southern California Gas Company's (SoCalGas) Aliso Canyon Natural Gas Storage Facility experienced a huge natural gas leak that resulted in the shutdown of the entire facility. About four months following the discovery of the leak, SoCalGas was able to permanently plug the leak. In May 2016, California Senate Bill No. 380 was enacted into law, instituting a moratorium on the injection and production of natural gas at the Aliso Canyon storage facility until well integrity is confirmed.   

Senate Bill No. 380 required CPUC to initiate a proceeding to evaluate the continued operation and use of the Aliso Canyon facility. Consequently, on February 9, 2017, CPUC issued an Order Instituting Investigation to effect this requirement. The Order envisions that the proceeding will have two phases: 

• In Phase 1, CPUC will conduct an analysis of whether it is feasible to reduce or eliminate the use of Aliso Canyon while still maintaining electric and gas reliability for the region, to include an assessment of the impact of reducing or eliminating the use of the Aliso Canyon facility on rates. CPUC anticipates that the scope of the analysis will be developed with the participation of interested parties and the public.  
  
• In Phase 2, CPUC will, in consideration of the results of the Phase 1 inquiry, determine whether it should reduce or entirely eliminate the use of the facility, and, if so, also determine the conditions and parameters under which the facility's operations should be reduced or eliminated.  
  

The Order adopted a 24-month time frame for the proceeding, although it is believed that CPUC could likely make its determinations by mid-2018. In the meantime, interested parties, including environmental and consumer advocacy groups, have intervened in the proceeding, with the June 5 pre-hearing conference expected to address unresolved issues. 
Separate from the CPUC's proceeding and oversight, the California Department of Conservation's Division of Oil, Gas, and Geothermal Resources (DOGGR), pursuant to its authority under the California Public Resources Code, conducted a comprehensive safety review of the Aliso Canyon facility, and ordered all 114 injection wells at the facility to be tested to ensure integrity and safety of the wells prior to the resumption of injection into the Aliso Canyon natural gas storage field. Subsequently, DOGGR reported that 45 Aliso Canyon wells have passed all required tests, while the other 69 Aliso Canyon wells have been taken out of operation.

High Demands May Be Unmet 

On May 3, 2017, the California Independent System Operator experienced its first "Stage 1" grid emergency in nearly ten years. This event occurred just a few days after SoCalGas had informed CPUC by letter that CPUC's restrictions on its operation of the Aliso Canyon storage facility could result in a lack of fuel for the state's natural gas generators during high demand periods this summer and next winter. In response to SoCalGas's letter, CPUC directed SoCalGas to immediately begin maximizing storage injections to support SoCalGas's storage requirements for system reliability. CPUC also directed SoCalGas to, by May 19, submit an advice letter detailing additional information regarding SoCal Gas's ability to maintain system reliability, including SoCalGas's minimum month-end storage targets, and forecasted monthly natural gas storage quantities procured to ensure system reliability.