BILL ANALYSIS SB 426 Page 1 Date of Hearing: July 6, 2005 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Loni Hancock, 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 : This bill 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. 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)Declares, under federal law that transportation and sale (interstate and foreign) of natural gas falls under federal jurisdiction, unless natural gas received within or at the boundary of a state is ultimately consumed within such state and subject to regulation by a state commission. 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 SB 426 Page 2 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 the site had not been evaluated and ranked by the CEC. FISCAL EFFECT : Unknown. COMMENTS : 1)Background 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. LNG is natural gas that has been turned into a liquid by a SB 426 Page 3 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. SB 426 Page 4 2)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. The bill would also 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. 3)Environmental Issues 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 SB 426 Page 5 loading structure that places renewable energy and energy efficiency programs higher than building new electric-generation facilities. In addition, SB 1037 (Kehoe), 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. 4)Jurisdictional Issues 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. 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 SB 426 Page 6 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 and State Lands Commission 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. 5)Related Legislation SB 1003 (Escutia), with which this bill is double-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. 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 SB 426 Page 7 Malibu Coastal Land Conservancy The Ocean Conservancy 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 State Treasurer Philip Angelides 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 : Kyra Emanuels Ross / NAT. 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