BILL ANALYSIS SCR 40 Page 1 Date of Hearing: June 27, 2005 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Lloyd E. Levine, Chair SCR 40 (Lowenthal and Vincent) - As Amended: May 19, 2005 SENATE VOTE : 24-14 SUBJECT : Liquefied Natural Gas Facilities SUMMARY : Memorializes the President and Congress to take necessary action to preserve state and local authority over the siting of liquefied natural gas facilities in California. FISCAL EFFECT : Unknown. COMMENTS : According to the author's office, the purpose of this concurrent resolution is to memorialize state jurisdiction over the siting of liquefied natural gas facilities in California. 1)The current debate is trigged by the proposed Long Beach Terminal: The Long Beach LNG project has generated controversy and a power struggle between the California Public Utilities Commission (PUC) and the Federal Energy Regulatory Commission (FERC). The PUC has asserted jurisdiction over the terminal now proposed at Long Beach, finding that the terminal owner is a public utility and the project requires a PUC-issued Certificate of Public Convenience (CPCN). The FERC has denied the PUC's claim, maintaining it has exclusive jurisdiction under the federal Natural Gas Act and the PUC cannot require the facility to obtain a state permit. There is currently a pending court case between the PUC and the FERC in the Ninth Circuit Court of Appeals. The basic question is whether FERC has jurisdiction over a facility for importing natural gas which is for intra-state commerce, rather than inter-state commerce. In order to proceed with construction and operation of LNG terminals without further delay from the PUC and other state entities, FERC and LNG developers pushed for a solution. H.R. 6 passed through the House of Representatives on April 21, 2005 and is now pending on the Senate Floor. This bill includes a provision stating that FERC has exclusive jurisdiction over on-shore LNG facilities. SCR 40 Page 2 2) Why LNG : LNG is a natural gas that has been turned into a liquid by a cooling process. The process of liquefying the gas makes the gas much denser, meaning more can be transported in a limited space. Once the gas is liquefied, it can be transported overseas by tanker then regassified for use on the other end. Building LNG receiving terminals in or near California would open the state up to natural gas sources beyond the range of overland pipelines. RELATED LEGISLATION : SB 426 (Simitian) is co-joined with SB 1003 (Escutia) and would establish a comprehensive process for the state to evaluate, rank and permit LNG facilities. SB 426 (Simitian) requires the CEC to conduct a needs assessment study to determine the number of LNG terminals needed to meet the state's projected natural gas demand. SB 1003 (Escutia) identifies the elements of a LNG proposal and require the proposal to use the highest ranked location as a site for the plant. Since 2000, retail and wholesale natural gas prices in California have been extremely volatile. These natural gas price swings are the result of an increased demand for natural gas by electric generators, a limited supply of natural gas within California, and limitations on the ability of natural gas pipelines to deliver gas to California. Growing demand for natural gas in California and decreasing supplies will likely continue to put upward pressure on natural gas prices. According to the CEC, natural gas demand in California is predicted to increase by at least ten percent over the next ten years. Significant global trade in natural gas in developing and profitable arbitrage has emerged in natural gas prices across international markets. This is the result of escalated prices of domestic natural gas to levels substantial enough and persistent enough to influence business investment decisions, and facilities that require large quantities of natural gas are searching for alternatives. In addition, prices have significantly reduced for liquefaction and transportation of LNG. 3) California LNG : There are four LNG receiving and re-gasification terminals in the U.S., but none are located on the West Coast and able to serve California. The existing U.S. LNG terminals are located in Louisiana, Georgia, Maryland and Massachusetts. SCR 40 Page 3 Several developers have proposals to construct LNG facilities in or near California. Private companies have proposed building receiving terminals in Long Beach, in the ocean off of Ventura County, and in Baja California. At least one of the Baja California projects has begun construction and other California and Mexico proposals are in various stages of planning and environmental review. It is not certain that all proposed projects will eventually be built. 4) State rights : Language within the Resolution argues in favor of state rights. It is emphasized that the safety of LNG sites could be compromised if there is lack of state input and control over the siting process. The state has a much better understanding of California geography and other natural physical aspects and could effectively utilize this knowledge to prevent accidental release or catastrophic event such as a terrorist attack upon a LNG terminal. The pending federal legislation would prohibit state or local officials from independently conducting safety inspections and enforcing state violations. SB 426 (Simitian) and SB 1003 (Escutia), which are being heard in this committee today, would provide the state the authority to protect public safety, health and the environment by requiring the CEC the use of these criteria to rank proposed LNG projects. SCR 40 would reaffirm the state's rights to protect its environment and its citizens. 5) Public forum : Currently the PUC and FERC are required to permit public participation in the power plan siting and the CPCN process. The FERC process proposed by HR 6, although subject to public participation, would impede California's ability to provide input within its own borders. The CEC holds hearings in the affected locations to encourage public participation. Since FERC is located in Washington D.C. and uses unique procedural methods for public intervention, general Californian citizens are virtually shut out. REGISTERED SUPPORT / OPPOSITION : Support Sierra Club California City of Long Beach Opposition SCR 40 Page 4 Analysis Prepared by : Alice Hu / U. & C. / (916) 319-2083