Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Southern California Gas Company v. South Coast Air Quality Management District et al

October 27, 2011

SOUTHERN CALIFORNIA GAS COMPANY, PLAINTIFF AND APPELLANT,
v.
SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Los Angeles County, James C. Chalfant and Michael L. Stern, Judges. (Los Angeles County Super. Ct. No. BS122004)

The opinion of the court was delivered by: Turner, P. J.

CERTIFIED FOR PUBLICATION

Affirmed.

I. INTRODUCTION

Plaintiff, Southern California Gas Company, appeals from the denial of its mandate and prohibition petition and declaratory relief complaint. Plaintiff filed suit against defendants, South Coast Air Quality Management District (the district) and the Governing Board of the South Coast Air Quality Management District (the board). Plaintiff unsuccessfully challenged the district's Rule 433 which imposes monitoring, recordkeeping and reporting requirements on it. We conclude the trial court correctly denied plaintiff's petition and complaint.

II. MANDATE AND PROHIBITION PETITION AND DECLARATORY RELIEF COMPLAINT

Before proceeding to a discussion of the petition and complaint, we note many of the theories therein are not raised on appeal. For completeness purposes though, we set forth the plaintiff's allegations in their entirety. Filed August 4, 2009, the petition and complaint alleges plaintiff: operates the nation's largest natural gas distribution facility; distributes gas and provides service to over 20 million customers; and is a network that encompasses over 20,000 square miles across 12 counties and 9 local air pollution and quality management districts. Emissions of nitrogen oxides from "stationary sources' combustion of natural gas in Southern California" account for only five percent of all such discharges in the South Coast Air Basin (the basin). Fourteen percent of the natural gas in plaintiff's system comes from wells in California and offshore. Eighty-six percent of the gas comes from producers in Canada and the southwestern United States and the Rocky Mountains. Plaintiff's commercial customers directly purchase natural gas from these out of state producers. Plaintiff's pipelines are used to convey the gas to local commercial customers who have purchased it directly from out-of-state producers. Approximately 60 percent of the gas flowing through plaintiff's pipelines is owned by its customers. Different natural gas supplies have varying chemical compositions and performance characteristics. It is essential that different supplies by interchangeable without adversely affecting operational safety and efficiency or materially increasing air pollution.

Public Utilities Code 451 requires plaintiff to provide gas services at just and reasonable prices. The California Public Utilities Commission comprehensively regulates plaintiff's operations. This regulatory regime requires plaintiff to charge just and reasonable prices and maintain facilities within its geographical service area. The California Public Utilities Commission also requires uniform pricing throughout its service area for the same units of energy. This comprehensive regulation includes Tariff Rule 30 which governs the chemical composition and performance characteristics of natural gas in plaintiff's gas lines.

Further, the California Public Utilities Commission's tariff specifications require the natural gas in plaintiff's system be interchangeable. One interchangeability measure is the Wobbe Index or Wobbe Number reading which is based on the heating value and specific gravity of the gas. Stated more basically, the Wobbe Index is the measure of the density of the heating volume for a given natural gas amount. In September 2006, the California Public Utilities Commission revised plaintiff's Tariff Rule No. 30. The 2006 revision required that non-California supplies of natural gas have a maximum Wobbe Index reading of 1385. The California Public Utilities Commission considered: the necessity of diversifying gas sources; the need to set a relatively high Wobbe Index standard; and the fact that increased gas supplies will result in lower costs to natural gas and electricity consumers. During the lengthy two-year proceedings leading up to the September 2006 California Public Utilities Commission decision, the district had advocated the adoption of a maximum Wobbe Index reading of 1360 and additional testing be conducted. The California Public Utilities Commission rejected the district's proposed Wobbe Index figure and the need for future testing. The California Public Utilities Commission found that imposing a different Wobbe Index figure in the district's jurisdiction was infeasible. The district filed a mandate petition in the Court of Appeal seeking to set aside Tariff Rule No. 30 which was denied. The district's review petition filed in the Supreme Court was denied on July 16, 2008.

In 2007, while the California Public Utilities Commission proceedings were pending, the district unilaterally proposed setting a Wobbe Index reading of 1360. The district proposed a control measure, designated as CMB-04, which consisted of two components. According to the petition: "'The first component will include monitoring and testing of natural gas supplies to enhance quantification of emission changes attributable to gas quality higher than a Wobbe Index of 1360.' The second component, which is to follow the first, will impose a [Wobbe Index] of 1360 'or equivalent mechanism/parameter.' It will also include unspecified 'mitigation measures."' The document describing CMB-04 admitted that it may be necessary to seek additional legislation in order to implement the proposed control measure. The district adopted its 2007 Air Quality Management Program which included CMB-04.

After CMB-04 was adopted, the district staff recommended adoption of Rule 433. Rule 433 was designed to monitor changes in the quality of natural gas and air pollutant levels. Rule 433 was to apply to all operators that convey natural gas to end users in the district. Plaintiff is the only entity in the district subject to the requirements of Rule 433. Only one other entity in the district is subject to any of Rule 433's requirements. Pursuant rule 433, plaintiff is required to: monitor and report to the district the Wobbe Index readings in numerous locations; educate end users concerning gas quality changes; recommend revisions to end user equipment maintenance programs; determine if there are quality changes in gas derived from liquefied natural gas in selected end user equipment; and prepare an annual estimate of emissions due to liquefied natural gas or other new supplies of natural gas. Plaintiffs initial start up costs of complying with Rule 433 will be between $1.4 and $3.2 million. There will be additional on-going costs of $250,000 per year. Further, imposition of the Wobbe Index reading of 1360 and restraints by the district current out-of-state and new natural gas supplies would increase plaintiff's customers' costs. On April 10 and June 4, 2009, plaintiff submitted written objections to the adoption of Rule 433. On June 5, 2009, the board, acting purportedly pursuant to Health and Safety Code section 41511, adopted Rule 433.

Based on these factual allegations, plaintiff alleges six causes of action. The first cause of action seeks a writ of mandate. The first cause of action alleges: defendants exceeded their authority under the Health and Safety Code; by acting in excess of their jurisdiction, they committed a prejudicial abuse of discretion; and plaintiff have no adequate remedy at law. The second cause of action alleges: the California Public Utilities Commission has authority of over natural gas public utilities; the 2006 decision adopting a Wobbe Index reading of 1385 has the force of law; Rule 433 is intended to enforce a different Wobbe Index reading of 1360; and in setting lower Wobbe Index reading than that established by the California Public Utilities Commission, defendants acted in contravention of their authority under law. The third cause of action seeks issuance of a writ of mandate because defendants violated Health and Safety Code section 40727. According to plaintiff, Health and Safety Code section 40727 requires the board make specified findings before adopting a rule. In making the findings which lacked any evidentiary support, the board acted in an arbitrary and capricious manner. The fourth cause of action sought issuance of a writ of mandate based on an alleged Commerce Clause violation. (U.S. Const. art. I, § 8, cl. 3.) The fifth cause of action seeks issuance of a writ of prohibition based on all of the theories in the first four causes of action. The sixth cause of action for declaratory relief is not before us as it was dismissed pursuant to stipulation after the trial court denied plaintiff's request for issuance of a writ of mandate and prohibition.

The prayer for relief is as the follows: "That this [c]ourt issue a writ of mandate commanding [defendants] to set aside and not enforce Rule 433; [¶] [] That this [c]ourt issue a writ of prohibition arresting their unlawful proceedings; [¶] [] That this [c]ourt declare that [defendants] are without authority to regulate [plaintiff's] distribution of natural gas into the South Coast Air Basin, including specifying the [Wobbe Index] of the natural gas or 'an equivalent mechanism/parameter'; [¶] [] That this [c]ourt award [plaintiff] its costs and reasonable attorneys' fees; [¶] [] That this [c]ourt grant such other relief as it finds just and proper."

III. THE FACTS

A. The California Public Utilities Commission And Federal Energy Regulatory Commission Proceedings

In January 2004, the California Public Utilities Commission instituted a rulemaking proceeding which addressed, in part, the potential introduction of gas derived from liquefied natural gas into California. Among the issues addressed during the rulemaking proceeding was whether gas quality tariff specifications for natural gas transported by plaintiff should be revised. The reason for the potential revision was the anticipated introduction of gas derived from liquefied natural gas into California. One of the issues resolved was whether the Wobbe Index reading should be revised for gas derived from liquefied natural gas transported by plaintiff. The district argued during the rulemaking proceeding the combustion of gas derived from liquefied natural gas would result in increased nitrogen oxide emissions. The district argued during the rulemaking proceeding the Wobbe Index for liquefied natural gas entering the basin should be a range between 1332, plus or minus 2 per cent, and a maximum reading of l360. In addition, the district requested the California Public Utilities Commission order plaintiff to conduct further investigation of the air emission impacts of Wobbe Index reading changes.

In September 2006, the California Public Utilities Commission rejected the district's position that the Wobbe Index maximum reading be set at 1360. The California Public Utilities Commission concluded: a Wobbe Index reading of 1360 would "unnecessarily constrain" this state's California's natural gas supplies; the district's proposal to require that plaintiff to apply a different Wobbe Index reading in the basin was infeasible; and increasing the use of gas derived from liquefied natural gas would benefit the environment by displacing the use of less environmentally friendly fuels. Also, the California Public Utilities Commission rejected the proposal of several parties, including plaintiff, that an upper Wobbe Index reading of 1400 be established. The California Public Utilities Commission established an upper Wobbe Index reading of l385 for plaintiff and San Diego Gas & Electric Company. The California Public Utilities Commission also rejected the district's request that plaintiff be ordered to conduct further testing. The California Public Utilities Commission reasoned that other entities were carrying out "extensive studies" and urged "all stakeholders to participate" in further collaborative testing.

In addition, the district attempted to impose Wobbe Index reading limitations on plaintiff's operations in an interstate pipeline certificate proceeding before the Federal Energy Regulatory Commission. The Federal Energy Regulatory Commission refused to deviate from the decision of the Public Utilities Commission. The Ninth Circuit Court of Appeals affirmed the decision of the Federal Energy Regulatory Commission. (South Coast Air Quality Management District v. FERC (9th Cir. 2010) 621 F.3d 1085, 1094-1101.)

B. Board Proceedings

In 2007, the district's Air Quality Management Plan included a control measure denominated CMB-04 (Natural Gas Specifications). CMB-04 was developed in anticipation of the opening of the Energia Costa Azul regasification terminal located in Ensenada in Baja California and the introduction of gas derived from liquefied natural gas into California. CMB-04 requires the district to work with "stakeholders" to "assess emission impacts based on the data collected" and to conduct additional studies "to further refine emission factors" by equipment type. In 2009, prior to the public release of the then proposed Rule 433, district staff met with plaintiff's employees. Plaintiff's representatives extensively commented and asserted the district had no authority to regulate natural gas under the Health and Safety Code. On June 5, 2009, the board adopted Rule 433. The district's counsel argued Health and Safety Code section 41511, which granted the board the authority to regulate air pollution emission sources, authorized the adoption of Rule 433.

Rule 433 applies to all operators of natural gas distribution systems. But plaintiff is the only entity that is subject to all of Rule 433's requirements. Plaintiff is one of only two entities that are subject to any of its provisions. Rule 433 implements the first component of control measure CMB-04. The first component of CMB-04 requires the monitoring of natural gas supplies to quantify emission changes attributable to a Wobbe Index reading of greater than 1360. While CMB-04 contemplates potential future actions to mitigate emission increases, Rule 433 is limited to monitoring and data gathering. The information collected pursuant to Rule 433 would allow the district to determine the extent of increases in nitrogen oxides emissions from the combustion of higher Wobbe Index natural gas. We will describe the requirements imposed by Rule 433 in detail later in this opinion. (See post at pp. 19-23.)

C. Administrative Record

Natural gas is a component of the district's clean air strategy. Many of the district's rules effectively mandate the use of natural gas as a clean energy source. The predominate fuel used by stationary sources in the district is natural gas. Stationary sources burn very little and coal and oil in the district. Less than 15 percent of the natural gas used in the district originates from sources within the United States but outside California. The chemical composition of these traditional sources of natural gas is relatively stable. Natural gas is composed primarily of methane. But there are additional components of natural gas other than methane which affect its heating value. Higher concentrations of hydrocarbons such as ethane, propane, and butane increase the heating value of the gas. But inert compounds such as carbon dioxide and nitrogen decrease natural gas's heating value.

The district staff described the Wobbe Index thusly, "The Wobbe Index . . . is one of the most important characteristics of natural gas in terms of natural gas interchangeability and its effect on air pollutant emissions." The Wobbe Index readings of domestic natural gas supplies materially vary depending on the place of origin. But the quality of the natural gas historically consumed in the district has been very stable. Based on data provided by plaintiff, Wobbe Index readings vary between only 1319 and 1353 which is less than plus or minus 0.9 per cent.

Imported liquefied natural gas has a different chemical composition than the traditional sources of natural gas consumed in the district. Imported liquefied natural gas is cooled and condensed into liquid for shipment to the United States. As a result of this condensing process and differing international standards and markets, natural gas derived from liquefied natural gas has significantly higher hydrocarbon levels. Additionally, liquefied natural gas possesses lower levels of inert compounds. As a result, liquefied natural gas has a much higher Wobbe Index reading than traditional natural gas. As noted previously, between 2000 and 2004, the natural gas Wobbe Index readings in the district were between 1319 and 1353. Indonesian liquefied natural gas has a Wobbe Index reading of 1412. Australian liquefied natural gas has a Wobbe Index reading of about 1426. Malaysian liquefied natural gas has a Wobbe Index reading of 1414. In May 2008, a study was conducted by the San Diego County Air Pollution Control District (the San Diego district). The San Diego district study indicates that traditional sources of natural gas have a Wobbe Index reading of 1340. By contrast, the Wobbe Index reading for gas derived from liquefied natural gas is near 1385.

Before liquefied natural gas is useable, it must be regasified. The first liquefied natural gas terminal on the West Coast, the Energia Costa Azul regasification terminal located 14 miles north of Ensenada in Baja California, is now operational. The liquefied natural gas received at the Energia Costa Azul regasification terminal will enter the California at Blyth and Otay Mesa near San Diego. The Blythe pipeline receiving point can direct up to 1.2 billion cubic feet per day of gas derived from liquefied natural gas into Southern California. And 11 other liquefied natural gas terminals have been proposed for West Coast development. Four offshore liquefied natural gas terminals have been proposed. One liquefied natural gas terminal is proposed to be built in Long Beach Harbor.

Energia Costa Azul is owned by Sempra LNG, a subsidiary of Sempra Energy. Sempra Energy has contracted for the purchase of liquefied natural gas from Tangguh, Indonesia. Royal Dutch Shell leases 50 percent of the Energia Costa Azul liquefied natural gas capacity. Royal Dutch Shell has contracted to purchase ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.