BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SCR 40
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          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.
           








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           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
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          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 
           










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           Analysis Prepared by  :    Alice Hu / U. & C. / (916) 319-2083