BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
SB 426 - Simitian Hearing Date:
April 19, 2005 S
As Amended: April 13, 2005 FISCAL B
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DESCRIPTION
Existing law , the Warren-Alquist Act, grants the California
Energy Commission (CEC) exclusive authority to permit thermal
power plants 50 megawatts and larger. The Act authorizes the
CEC to override other state, local or regional decisions and
certify a power plant it determines is required for "public
convenience and necessity." In approving a proposed power
plant, the CEC must find that the facility's construction and
operation is consistent with a variety of environmental
standards.
(Chapter 276, Statutes of 1974)
Existing law requires the CEC to assess electricity
infrastructure trends and issues facing California and develop
and recommend energy policies for the state to address and
resolve such issues as part of its biennial Integrated Energy
Policy Report (IEPR).
(SB 1389 (Bowen), Chapter 568, Statutes of 2002)
Prior existing law , the Liquefied Natural Gas Terminal Act of
1977, authorized the California Public Utilities Commission
(CPUC) to issue a permit for the construction and operation of a
liquefied natural gas (LNG) terminal pursuant to a prescribed
permit procedure. The terminal was to be at a remote site
selected by the California Coastal Commission.
(SB 1081 (Alquist), Chapter 855, Statutes of 1977, repealed in
1987)
This bill:
1. Requires the CEC to conduct an LNG Needs Assessment
Study by November 1, 2006 to determine the number of LNG
terminals, if any, needed to meet the state's projected
natural gas demand.
2. Requires the CEC to evaluate and rank proposed LNG
terminals according to specified environmental, safety and
economic criteria
3. Provides the CEC may only approve terminals according to
its ranking.
4. Provides that any terminal which requires a Certificate
of Public Convenience and Necessity (CPCN) from the CPUC
must first obtain a permit pursuant to the CEC process and
prohibits re-litigation at the CPUC of environmental
impacts or other issues decided by the CEC.
5. Is contingent on enactment of SB 1003 (Escutia).
BACKGROUND
The CEC's Current Energy Facility Siting Duties
In 1974, in response to a previous energy crisis, the
Warren-Alquist Act established an exclusive process to permit
thermal power plants 50 megawatts and larger. The permitting
process was intended to provide comprehensive environmental
review and predictable, one-stop permitting of applications. It
was also integrated with a planning process that was intended to
guard against under- or over-building of power plants.
The Act required the CEC to develop long-term forecasts of state
energy needs, which served as the basis for planning and
certification of individual power plants. Since the advent of
electrical restructuring, the planning and permitting functions
have been de-coupled, but the Act still grants the CEC exclusive
authority to certify power plants and authorizes the CEC to
override other state, local or regional decisions and certify a
power plant it determines is required for "public convenience
and necessity."
The CEC's power plant review function strikes a balance between
project applicants' interest in certainty and the public's
interest in environmental protection and prudent planning of
energy resources. The CEC's process is a CEQA-equivalent,
requires consultation with other agencies, and is intended to be
rigorous and comprehensive. In approving a proposed power
plant, the CEC must find that the facility's construction and
operation is consistent with a variety of environmental
standards.
California's Reliance on Natural Gas
Compared to most other states, California uses less fossil fuel.
This lower reliance on fossil fuel is due to moderate climate,
the availability of hydroelectric and nuclear power, and the
continuing and growing use of renewable energy. However, the
predominant fuel for electricity generation and heating in
California remains natural gas. Reductions in natural gas use
can be achieved through continued energy efficiency programs and
further developing and integrating renewable energy resources
into electricity supplies.
California imports approximately 85% of its natural gas supply,
primarily from gas fields in the Southwest, Rockies and Alberta,
Canada. The 15% of supply derived from in-state sources is
typically a lower quality gas, which must be blended with higher
BTU gas, such as propane, to meet pipeline and end-use
specifications. Additional supplies of in-state gas are
available, but remain untapped. Not only is California's demand
for natural gas growing, demand for gas in other regions is
growing as well, and California lies at the end of the pipeline
"delivery route."
LNG Proposed as Alternative Supply
LNG is natural gas that has been liquefied by cooling it to
minus 259 degrees Fahrenheit. Liquefaction reduces its volume
by a factor of 600, allowing it to be transported overseas by
tanker then re-gasified. LNG infrastructure would enable
California consumers to draw gas from major reserves around the
world - e.g., Alaska, Russia, Venezuela, Bolivia, Indonesia,
Australia and the Middle East. The CEC has suggested that
importing natural gas from other continents may help reduce
Canadian and U.S. natural gas prices. One LNG terminal could
supply approximately 10% of California's total natural gas
demand.
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.
Currently, there are several proposals to develop LNG facilities
in or near California which would serve in-state gas demand.
Private companies have proposed building receiving terminals at
the Port of Long Beach, offshore of Ventura County and in Baja
California.
Proposed California/Baja terminals:
1. Sound Energy Solutions (Long Beach Harbor) - Mitsubishi
2. Cabrillo Deepwater Port (offshore of Port Hueneme) - BHP
Billiton
3. Clearwater Port (offshore of Oxnard) - Crystal Energy
and Woodside Energy
4. Energia Costa Azul (onshore near Ensenada) - Sempra and
Shell
5. Terminal Mar Adentro (offshore of Tijuana) -
Chevron/Texaco
A few other projects have been announced, but not formally
proposed. Recent proposals to build terminals at Mare Island
and Humboldt Bay have been withdrawn due to community
opposition.
D?j? vu
In the early 1970's, California's gas utilities identified the
Port of Los Angeles, Oxnard and Point Conception as possible
sites for an LNG import facility. However, the three agencies
involved in site approval could not agree on a preferred site.
To address the conflict, the project proponents turned to the
Legislature, which enacted the LNG Terminal Act in 1977. Under
the Act, the CPUC, with input from the Coastal Commission and
the CEC, could approve one site. The site was to be remote from
human population and selected according to a ranking by the
Coastal Commission. Reflecting the utilities' plans, the
statute limited the terminal's capacity and specified the
natural gas was to be imported from Indonesia or south Alaska.
The CPUC approved a remote site at Point Conception, but the
proponents cancelled the project when LNG became uneconomical.
In 1987, the Legislature repealed the Act. Since the Act's
repeal, the state process for evaluating and permitting LNG
facilities has been ill-defined.
Jurisdictional Dispute
The CPUC 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 CPCN. The Federal
Energy Regulatory Commission (FERC) has resisted the CPUC's
claim, maintaining it has exclusive jurisdiction under the
federal Natural Gas Act. The CPUC/FERC dispute is pending in
the 9th Circuit Court of Appeals. The basic question is whether
FERC has jurisdiction over a facility for importing natural gas
which is for intrastate commerce (as the Long Beach terminal
would be), rather than interstate commerce.
Meanwhile, opponents of state review have taken the fight to
Congress. The Energy Bill approved last week by the House
Energy and Commerce Committee contains a provision intended to
give FERC exclusive jurisdiction over all LNG import facilities.
This gambit has been driven by FERC and developers anxious to
proceed with LNG terminals without interference from state
authorities like the CPUC and the Coastal Commission. If this
provision is enacted in federal law, the LNG permitting role
contemplated in this bill (or for that matter, any existing
state role) may be preempted.
COMMENTS
1. Putting the CEC in the driver's seat. Currently, LNG
developers are driving the process for consideration of
proposed import terminals. This bill, in conjunction with
SB 1003, would require developers to submit to a process
driven instead by the CEC. The two bills lay out a
three-step process for the CEC to evaluate and permit LNG
terminals.
Step 1 - Assessment of need for LNG, due November 1, 2006
(SB 426).
Step 2 - Comparison and ranking of proposed LNG terminals
(SB 426).
Step 3 - Selection and permitting of best project(s) (SB
1003).
For the three projects proposed within or offshore of the
state, this process may portend delay. Each is in the
midst of a process which requires various federal, state
and/or local approvals. If those developers believe the
existing process, or the federal preemption gambit, will
lead to project approval and construction, they are
unlikely to be interested in submitting to the process
established by these bills. These bills present the
question: Should developers or the state drive the process
for deciding whether and how to import LNG?
The author and the committee may wish to consider
establishing more definitive timelines for the CEC process.
To do this, this bill should be amended to give project
developers a deadline shortly after enactment of the bill
to submit applications to the CEC. In turn, the CEC should
be given a deadline to complete its project ranking within
a reasonable time after the application deadline. Finally,
SB 1003 should be amended to establish a deadline for the
CEC's permit decision on the initial crop of projects.
2. Enactment contingent on SB 1003. This bill's enactment
is contingent on enactment of SB 1003, also pending in this
committee.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
SB 426 Analysis
Hearing Date: April 19, 2005