BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 426|
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THIRD READING
Bill No: SB 426
Author: Simitian (D)
Amended: 5/27/05
Vote: 21
SEN. ENERGY, UTILITIES & COMM. COMMITTEE : 6-1, 4/19/05
AYES: Escutia, Alarcon, Bowen, Dunn, Kehoe, Simitian
NOES: Cox
NO VOTE RECORDED: Morrow, Battin, Campbell, Murray
SENATE APPROPRIATIONS COMMITTEE : 8-5, 5/26/05
AYES: Migden, Alarcon, Alquist, Escutia, Florez, Murray,
Ortiz, Romero
NOES: Aanestad, Ashburn, Battin, Dutton, Poochigian
SUBJECT : California Energy Commission: liquefied
natural gas plants
SOURCE : Author
DIGEST : This bill (1) requires the California Energy
Commission (CEC) to conduct a liquefied natural gas (LNG)
needs assessment study, as specified, by November 1, 2006,
to determine the number of terminals, if any, necessary to
meet the state's projected natural gas demand, (2) requires
that the CEC rank, in order of priority and in accordance
with specified criteria, LNG terminal permits, (3) provides
that the costs of the study are to be recovered from permit
fees, and (4) makes related changes.
CONTINUED
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ANALYSIS : Existing law, the Warren-Alquist Act grants
the 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.
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).
Prior existing law, the Liquefied Natural Gas Terminal Act
of 1977, authorized the Public Utilities Commission (PUC)
to issue a permit for the construction and operation of a
LNG terminal pursuant to a prescribed permit procedure.
The terminal was to be at a remote site selected by the
California Coastal Commission.
This bill:
1.Requires the CEC, upon filing of an application, 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 at least two public hearings on the results of
the study.
3.Provides that the costs for implementing these provisions
shall be funded by LNG permit fee revenues.
4.Requires the CEC to evaluate and rank proposed LNG
terminals according to specified environmental, safety
and economic criteria.
5.Provides the CEC may only approve terminals according to
its ranking.
6.Provides that the requirements of these provisions apply
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to every LNG terminal to be constructed or operating in
California, irrespective of whether an application has
been submitted for the construction or operation to any
federal, state, or local entity prior to the operative
date of this bill.
7.Provides that any terminal which requires a Certificate
of Public Convenience and Necessity (CPCN) from the PUC
must first obtain a permit pursuant to the CEC process
and prohibits re-litigation at the PUC of environmental
impacts or other issues decided by the CEC.
8.Is contingent on enactment of SB 1003 (Escutia).
Background
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
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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 percent of its natural
gas supply, primarily from gas fields in the Southwest,
Rockies, and Alberta, Canada. The 15 percent of supply
derived form 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
percent 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
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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 PUC, 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 PUC 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
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repeal, the state process for evaluating and permitting LNG
facilities has been ill-defined.
Jurisdictional Dispute
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 CPCN. The
Federal Energy Regulatory Commission (FERC) has resisted
the PUC's claim, maintaining it has exclusive jurisdiction
under the federal Natural Gas Act. The PUC/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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2005-06 2006-07
2007-08 Fund
CEC $150+ to several hundred
thousand Special*
dollars annually.
Costs should be
offset by fee
revenues.
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PUC Probably not substantial
costs, offset Special**
by fee revenues.
*Unspecified
**Public Utilities' Reimbursement Account
NOTE: Unable to verify support and opposition at time of
writing.
NC:cm 5/28/05 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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