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  








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            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  








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          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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           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  








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          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  








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          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
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          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. RES. / (916)  
          319-2092