BILL ANALYSIS
SB 1003
Page 1
Date of Hearing: June 27, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 1003 (Escutia) - As Amended: June 16, 2005
SENATE VOTE : 24-13
SUBJECT : Energy resources: liquefied natural gas terminals.
SUMMARY : Establishes permitting criteria for liquefied natural
gas (LNG) facilities. This bill identifies required elements of
permit applications, and requires the CEC to only issue a permit
if it has evaluated and ranked the project, it is proposed at
the highest ranked site, and has received all other approvals
required by law. Specifically, this bill :
1)Precludes a person from constructing or operating a LNG
terminal without first obtaining a permit from the California
Energy Commission (CEC), and requires the CEC to issue a
decision on an application for a permit to construct and
operate a LNG terminal.
2)Requires all state agencies to cooperate with, and at the
request of the CEC, execute interagency agreements to assist
the CEC with evaluating a LNG site.
3)Requires the permit application to include maps, pictures,
narrative of present and proposed development, engineering
design features, and a description of methods of construction,
proposed operating procedures, shipping routes, control
procedures, safety and public protection features, fire
protection features, evidence of approvals required by any
other state or local agency, and other elements.
4)Prohibits the CEC from issuing a permit for a site that had
not been evaluated and ranked, pursuant to ranking provisions
defined in SB 426 (Simitian).
5)Prohibits the CEC from issuing a permit for a LNG terminal
unless the terminal has received all other approvals otherwise
required by law.
6)Requires the CEC to issue a permit at the highest ranked site,
with specific exceptions.
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7)Requires any responsible agency to consider an application for
the construction or operation of a LNG terminal within 180
days from the date of certification of the environmental
impact report.
8)Is co-joined with SB 426 (Simitian), which requires the CEC to
conduct a LNG needs assessment study to determine the number
of LNG terminals needed to meet the state's projected natural
gas demand, compare and rank every proposed site, and 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 certify sufficient sites and related
facilities that are required to provide a supply of electric
power sufficient to accommodate projected demand.
2)Requires a state lead agency to consult with the other
relevant state agencies such agencies such as the Air
Resources Board (ARB) and the Department of Fish and Game
(DFG) in evaluating the environmental impact reports.
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 is
to provide a comprehensive siting process for LNG facilities.
This bill, as co-joined with SB 426 would require the CEC to
issue a permit to construct and operation a LNG facility to
ensure the public health, safety, and welfare are provided.
1) Why co-joined with SB 426: This bill, combined with SB 426
(Simitian), 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 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
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issue a permit to build and operate a LNG terminal only if it
determines that the proposed technology will have the least
adverse effect on community, public health, safety, and
environmental impacts.
SB 1003 is intended to complement SB 426. Both bills would
require that a permit be issued before construction and
operation of a LNG facility. SB 1003 specifically, would
identify required elements of permit applications and require
the CEC to only issue a permit if it has evaluated and ranked
the project, if it is proposed at the highest ranked site and
has received all other approvals required by law.
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
increase supplies of natural gas, which could have the effect of
decreasing 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
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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.
3) Onshore, offshore, or both: This bill, as co-joined with SB
426, would apply to the onshore proposal in Long Beach Harbor,
as well as the offshore terminals that would regassify the LNG
and pipe it on to shore. SB 1003 specifically defines a LNG
terminal as a facility designed to receive LNG from ocean-going
vessels, including those facilities required for storage and
regasification of the LNG and those pipelines and facilities
necessary for the transmission of the regasified natural gas to
the point of interconnection with existing pipelines. SB 426,
with which this bill is co-joined, makes a finding that the
state has a lead role in decisions regarding the siting and
design of new onshore and offshore infrastructure for the
importation of LNG. In addition, SB 426 finds that construction
and operation of LNG onshore and offshore infrastructure may
commence after completion of a rigorous evaluation that analyzes
the need for LNG. Depending on the outcome of the
jurisdictional dispute described below, if the federal
government exerts exclusive jurisdiction over LNG terminal
siting, it is unclear whether the California Coastal Commission
(CCC), State Lands Commission (SLC), the ARB, and/or the DFG
would continue to have input or exert influence.
4) 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.
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This bill would require the CEC to permit a facility only if
that facility is located on the CEC's highest ranked site, with
specific exceptions. If the CEC staff's assessment is "a little
off" or incorrect, they are not held financially accountable.
However, the evaluation the CEC would perform with regard to
adverse community, public health, safety, and environmental
standards, may have merit because private companies do not
always include those elements. However, the private entity and
its financiers would be prudent to perform their own analysis,
which would render far greater risk if inaccurate. The
committee may wish to amend the bill to delete the provision
that would require the CEC to issue a permit at the site
designated as the highest ranked site. This would provide the
CEC the flexibility to consider alternative sites that may
render economic benefits and exhibit unique advantages.
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
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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 for
jurisdiction over 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 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 be responsible for the environmental, safety and
economic review, depending on the outcome of the Ninth Circuit
case and/or the President's energy bill. 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 CCC and the 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. This bill would prohibit
the CEC from issuing a permit for construction and operation of
a terminal unless the terminal has received all other approvals
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otherwise required by law. Some developers are concerned that
this provision could have the potential to delay a project by at
least one-to-two years. There is concern that to complete the
environmental impact report they would receive specific
approvals, then the proposal would go to the CEC for review and
consideration, then back to other agencies again for any
additional approvals that the CEC may require. The committee
may wish to consider amending the bill to provide that all
agency approvals received prior to the CEC evaluation are
considered conclusive and not subject to re-evaluation by the
same entity.
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 as co-joined with SB 426.
7) Let's all just get along: This bill would require all state
agencies to cooperate with and, at the request of the CEC,
execute interagency agreements to assist the CEC with evaluating
a LNG site. Executing formal interagency agreements can be very
time- and labor-intensive and can redirect resources away from
programmatic objectives. A simple two-party interagency
agreement can take at least six months, even when roles are
clearly defined in the agreement directives. Instead of
requiring a formal agreement, the author and committee may wish
to strike the phrase that would require state agencies to
execute interagency agreements, while retaining the provision
that all state agencies cooperate with the CEC.
8) Time is of the essence: This bill would require any
responsible agency to consider that application within 180 days
from the date of the certification by the lead agency of an
environmental impact report. According to the CCC, the applicant
could reasonably submit the application to that agency at any
time, including 179 days after the CEC has certified the
environmental impact report. Under this scenario, the CCC would
be provided only one day to consider the application, which
would preclude the CCC from performing a responsible review.
Nevertheless, the time constraint has merit to ensure
expeditious consideration. The author and committee may wish to
amend this provision to require any responsible agency to
consider that application within 180 days from the date the
application was submitted to that agency.
9) What message are we sending: There are currently at least
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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
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 426 to reflect
this amendment.
RELATED LEGISLATION:
SB 426 (Simitian), with which this bill is co-joined, would
require the CEC to conduct a 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.
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
Opposition
California Chamber of Commerce
California Coastal Commission (Oppose unless amended)
California Manufacturers & Technology Association
California Public Utilities Commission (CPUC) (Oppose unless
amended)
Western States Petroleum Association (WSPA)
Analysis Prepared by : Gina Mandy / U. & C. / (916) 319-2083