BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
SB 1003 - Escutia 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(SB 1081 (Alquist), Chapter 855, Statutes of 1977, repealed in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. Authorizes the CEC to issue a permit for the
construction and operation of a LNG terminal, including
receiving, storage, re-gasification and new pipeline
facilities necessary to deliver imported natural gas to
existing pipelines.
2. Requires such a permit prior to LNG terminal
construction and operation.
3. Provides that the CEC permit is in lieu of all other
state or local permits.
4. Requires the CEC to charge each applicant a fee
sufficient to cover the costs of required review.
5. Requires all state agencies to cooperate with the CEC in
reviewing proposed LNG terminals.
6. Requires issuance of any State Lands Commission lease
necessary for the construction and operation of a LNG
terminal approved by the CEC.
7. Requires proposed LNG terminals to be ranked according
to procedures specified in SB 426 (Simitian).
8. Prohibits issuance of a permit unless the CEC finds it
is consistent with the public health, safety and welfare.
9. Provides that the CEC is lead agency for CEQA review.
10. Requires at least one
public hearing in the city or county where the terminal is
proposed prior to issuance of the permit and provides for
review, hearings and recommendations by the city or county.
11. Requires the CEC to adopt
regulations governing safety and construction of LNG
terminals.
12. Requires the CPUC to
monitor LNG terminal costs incurred by entities subject to
CPUC regulation to determine if the costs are in the best
interest of ratepayers.
13. Is contingent on enactment
of SB 426 (Simitian).
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 Certificate of Public
Convenience and Necessity (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. Hybrid of power plant and prior LNG permitting process.
The current process for permitting an LNG terminal in
California depends on the project's location. For the Long
Beach project, the Port of Long Beach is the lead agency
for CEQA review, the FERC is the lead federal agency, and
the CPUC may be responsible for the environmental, safety
and economic review associated with a CPCN, depending on
the outcome of the 9th Circuit case and/or the Energy Bill
in Congress. For the offshore projects, where the terminal
itself is to be outside California waters, the U.S. Coast
Guard is the lead federal agency, although federal law
grants the Governor a say in project approval. For all
projects, the Coastal and State Lands Commissions have
discreet roles associated with project impacts in the
coastal zone and on state lands.
The process established by this bill combines elements of
the CEC's power plant licensing process and the process
established by the 1977 LNG statute. Unlike the 1977 LNG
statute, this bill gives permitting authority to the CEC,
rather than the CPUC. This bill would organize the various
state and local roles into a single process at the CEC,
which would result in a single permit.
This bill's companion, SB 426, includes a need assessment
akin to the one originally included in the CEC's power
plant licensing process. Unlike the 1977 LNG statute, SB
426 gives the task of ranking proposed sites to the CEC,
rather than the Coastal Commission.
2. 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 426, 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, SB 426 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,
this bill should be amended to establish a deadline for the
CEC's permit decision on the initial crop of projects.
3. Enactment contingent on SB 426. This bill's enactment
is contingent on enactment of SB 426, also pending in this
committee.
PRIOR VOTES
Senate Judiciary Committee (5-1, previous,
unrelated version)
POSITIONS
Sponsor:
Author
Support:
California Natural Gas Vehicle Coalition
City of Redlands
Colton Joint Unified School District
ET Energy
GreenField Compression, Inc.
Harris Farms Inc.
Kalmar Industries
New Flyer
NorthStar Inc.
Omnitrans
Southern California Edison (if amended)
Taormina Industries
Oppose:
None on file
Lawrence Lingbloom
SB 1003 Analysis
Hearing Date: April 19, 2005