BILL ANALYSIS
SB 426
Page 1
Date of Hearing: June 27, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 426 (Simitian) - As Amended: June 21, 2005
SENATE VOTE : 24-14
SUBJECT : State Energy Resources Conservation and Development
Commission: liquefied natural gas plants.
SUMMARY : Requires the California Energy Commission (CEC) to
conduct a liquefied natural gas (LNG) needs assessment study to
determine the number of LNG terminals needed to meet the state's
projected natural gas demand, and compare and rank every
proposed site. In addition, the bill permits the CEC to issue a
permit to build and operate a LNG terminal only if it makes
specific findings. Specifically, this bill :
1)Requires the CEC to conduct a needs assessment study for LNG
terminals that assesses the future demand and supply of
natural gas and determines the number of LNG terminals, if
any, needed to meet the state's projected natural gas demand
after an application has been submitted for approval.
2)Requires the CEC to compare and rank proposed LNG terminals
according to specified environmental, safety, and economic
criteria.
3)Requires the CEC to issue a permit to construct and operate a
LNG terminal only if it determines that the technology chosen
for a particular site will have the least adverse public
health, community, safety, and environmental impacts.
4)Provides that any terminal that requires a Certificate of
Public Convenience and Necessity (CPCN) from the California
Public Utilities Commission (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.
5)Is co-joined with SB 1003 (Escutia), which prohibits the
construction or operation of a LNG terminal without a CEC
permit, requires that specific information be included in the
application, and precludes the CEC from issuing a permit if
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the site had not been evaluated and ranked by the CEC.
EXISTING LAW :
1)Requires the CEC to prepare a biennial integrated energy
policy report that includes an analysis on supply, demand, and
resource additions that cover all aspects of energy industries
and markets.
2)Requires the CEC to certify sufficient sites and related
facilities that are required to provide a supply of electric
power sufficient to accommodate projected demand.
3)Federal law declares that transportation and sale (interstate
and foreign) of natural gas falls under federal jurisdiction,
unless natural gas received by such person from another person
within or at the boundary of a state is ultimately consumed
within such state and subject to regulation by a State
commission.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill,
as co-joined with SB 1003, is to establish a comprehensive
process for the state to evaluate, rank, and permit proposed LNG
terminals. SB 426 is intended to identify the framework for the
siting of LNG facilities, and SB 1003 would establish the
permitting criteria.
1) Why co-joined with SB 1003 : This bill, combined with SB 1003
(Escutia), would provide a comprehensive process for the siting
and permitting of LNG terminals. SB 426 would require the CEC
to perform a needs assessment study to upon submittal of an
application, and rank each site that is proposed pursuant to
specific criteria. In addition, SB 426 would permit the CEC to
issue a permit to build and operate a LNG terminal only if it
determines that the proposed technology will have the least
adverse community, public health, safety, and environmental
impacts.
SB 1003 would identify required elements of permit applications,
and require the CEC to only issue a permit if it has evaluated
and ranked the project and the project is proposed at the
highest ranked site.
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2) Why LNG: LNG is 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 and could decrease prices.
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 10 percent over the next ten
years.
Because LNG is easily transportable, some believe that gas
prices will decrease as the availability of LNG increases. On
April 5, 2005, Alan Greenspan, Chairman of the Federal Reserve
Board stated that one of the reasons for high natural gas prices
is North America's limited capacity to import LNG. The lack of
receiving terminals has effectively restricted the United
States' access to the world's abundant gas supplies, which could
equalize prices across markets.
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.
Six LNG terminals have recently been proposed in California:
onshore in Long Beach, and offshore of Ventura County and in
Baja California. At least one of the Baja California projects
has been built. One of the Ventura County projects and the Long
Beach project should have the draft environmental impact reports
complete within the next two months. This bill would pertain to
every LNG terminal to be constructed or operating in California,
regardless of whether a proposal has been submitted to a federal
agency or whether the proposed terminal resides on-shore or
off-shore.
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3) To whom are they accountable: Most companies expend tens of
thousands of dollars only to evaluate prospective ventures.
After a selection is determined, the private entity evaluates
different sites for the venture, which can include
transportation costs, pollution mitigation costs, and other
criteria to determine the optimal location given demand and
supply assumptions. By the time a company has completed a draft
environmental impact report, it could have spent one-to-two
years and millions of dollars.
This bill would require the CEC to perform a needs assessment
study to review LNG siting applications, and rank each site that
is proposed pursuant to specific criteria. In addition, SB 426
would permit the CEC to issue a permit to build and operate a
LNG terminal only if it determines that the proposed technology
will have the least adverse community, public health, safety,
and environmental impacts. If the CEC staff's assessment is "a
little off" or incorrect, they are not held financially
accountable. However, the evaluation they would perform to
evaluate community, public health, public safety, and
environmental standards may have merit because private entities
do not always evaluate these elements.
4) The assessment of need and the ranking: This bill would
require the CEC to conduct a needs assessment study for LNG
terminals that assesses the future demand and supply of natural
gas. In addition, the bill would require the CEC to rank each
site, and SB 1003 would preclude the CEC from permitting a site
that is not the CEC-determined best-ranked site.
The reason for the initial CEC needs assessment analysis created
back in the 1970s for power plant siting was to ensure that the
investor-owned utilities did not overbuild and stick ratepayers
with the entire risks, including the costs plus a guaranteed
rate of return. Since the utilities have virtually divested
from electricity generation facilities, private developers build
at their own risk with no guarantee of cost recovery. As such,
the CEC no longer evaluates the siting applications for need.
The CEC currently evaluates the future demand and supply of most
electricity generation resources in its Integrated Energy Policy
Report, which includes an analysis of LNG, but it does not use
this to determine issuance of permits.
In addition, it is unclear how the ranking would work. There is
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no deadline that would dictate at which point the projects could
be ranked. This will result in a moving target for those doing
the ranking and will generate tremendous uncertainty for the
companies submitting the proposals. The CEC currently does not
"rank" sites for its power plant siting process outlined in the
Warren-Alquist Act.
5) Environmental concerns : Opponents of LNG projects contend
that LNG is dangerous and could be detrimental to fishing and
tourism industries. These groups often point to an incident in
1944 when holding tanks at a Cleveland LNG plant leaked, which
triggered an explosion that killed 128 people.
In the past 40 years, there have been more than 33,000 LNG ship
voyages. Most recent analyses conducted on LNG have concluded
that in almost all circumstances, LNG is safe. LNG neither
explodes nor burns as a liquid. The LNG vapors are flammable
only in concentrations of 5 to 15 percent with air and will not
explode in an unconfined environment. The ignition temperature
is more than 500 degrees Fahrenheit higher than gasoline.
There is also concern that if the supply of cheaper natural gas
increases in California and prices come down, it would decrease
incentives to promote energy efficiency and encourage the use of
renewable generation resources. The Energy Action Plan cites a
loading structure that places renewable energy and energy
efficiency programs higher than building new electric-generation
facilities. In addition, SB 1037 (Kehoe) being heard in this
committee today, requires the PUC to require gas and electric
utilities, in procuring energy, to first acquire all available
energy efficiency and demand reduction recourses that are
cost-effective, reliable, and feasible before conventional
generation or other resources.
Given the significant administrative and legislative support for
renewable resources, such as requiring the investor-owned
utilities to purchase a specific percentage of generating
capacity from renewable sources by a specific date, it is
difficult to conclude that LNG would negatively impact the
demand for renewable energy.
6) Jurisdictional dispute : At this time, the Federal Energy
Regulatory Commission (FERC) and the PUC are jousting over
jurisdiction for siting LNG facilities in California. The PUC
asserts that the developer needs a PUC certificate to operate.
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The FERC claims that it has exclusive jurisdiction over all LNG
import facilities, and the PUC has no jurisdiction. The dispute
is pending in the Ninth Circuit Court of Appeals.
In Congress, the House of Representatives recently approved the
President's energy bill that clarifies that FERC has exclusive
jurisdiction over LNG facilities and that FERC shall serve as
the lead agency in the review of LNG proposals. Senator Diane
Feinstein has recommended amendments to the Senate energy bill
that would have required the FERC to share siting jurisdiction
with states. On June 22, 2005, the Senate voted down Senator
Feinstein's amendments. The bill is still on the Senate floor
and expected to pass, virtually ensuring that the measure will
be included in any final bill that emerges from Congress and the
states would be precluded from jurisdiction.
The current process for permitting an LNG terminal in California
depends on the project's location. For on-shore projects like
Long Beach, the Port of Long Beach is the lead agency for the
environmental review, the FERC is the lead federal agency, and
the PUC is responsible for the environmental, safety and
economic review, depending on the outcome of the Ninth Circuit
case and/or the House or Senate energy bills. For the off-shore
projects where the terminal would reside outside California
waters, the U.S. Coast Guard is the lead federal agency,
although federal law grants the Governor authority to determine
consistency with coastal protection policies and the power to
reject the project. For all projects, the California Coastal
Commission (CCC) and State Lands Commission (SLC) have discrete
roles associated with project impacts in the coastal zone and on
state lands and authority to issue coastal development permits
and leases for state lands, respectively.
If the pending federal legislation is enacted, the State could
be preempted from permitting LNG facilities or requiring a CEC
permit as proposed by this bill. If either energy bill is not
enacted, the PUC will still retain jurisdiction over onshore
projects and the other State agencies will continue to be
included in the approval process for offshore facilities.
7) What message are we sending: There are currently at least
four LNG project proposals in various stages for permitting
consideration in California or off of the California coast.
Some are farther along than others, and one is only in the
"proposed" stage, according to the CEC website. In order to
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maintain consistency, mitigate uncertainty, and not impose
delays, which could be costly and could provide the federal
government the impetus to take jurisdiction away from the State,
the committee may wish to add a provision that would
"grandfather in" the projects that have reached a specific stage
prior to enactment of this bill and conform SB 1003 to reflect
this provision.
RELATED LEGISLATION:
SB 1003 (Escutia), with which this bill is co-joined, would
identify required elements of permit applications, and require
the CEC to only issue a permit if it has evaluated and ranked
the project, the project is proposed at the highest ranked site,
and it has received all other approvals required by law.
SCR 40 (Lowenthal and Vincent) would memorialize the
Legislature's request for the President and Congress to take
necessary action to preserve state and local authority over the
siting of LNG facilities.
REGISTERED SUPPORT / OPPOSITION :
Support
Border Power Plant Working Group
Cal Coast
California Coastal Commission
California Earth Corps
Center for Energy Efficiency and Renewable Technology (CEERT)
City of Malibu
Clean Power Campaign
Environment California
Environmental Defense Center
Environment In The Public Interest
Group De Trabajo De Termoelectricas Fronterizas
League for Coastal Protection
LNG Danger.COM
Long Beach for Citizens for Utility Reform
Malibu Coastal Land Conservancy
The Ocean Conservancy
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Orange County Coastkeeper
Pacific Environment
Planning and Conservation League
Pro Peninsula
San Diego Baykeeper
San Luis Obispo County Coastkeeper
Santa Barbara Channelkeeper
Santa Monica Baykeeper
Sierra Club California
Southern California Watershed Alliance
Surfrider Foundation
Vote the Coast
Wildcoast International Conservation Team
Opposition
California Manufacturers & Technology Association
California Public Utilities Commission
Crystal Energy
Western States Petroleum Association (WSPA)
Analysis Prepared by : Gina Mandy / U. & C. / (916) 319-2083