BILL ANALYSIS
SB 1003
Page 1
Date of Hearing: July 6, 2005
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Loni Hancock, 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.
EXISTING LAW requires a state lead agency to consult with the
other relevant state agencies, such as the Air Resources Board
and the Department of Fish and Game, in evaluating the
environmental impact reports.
THIS BILL :
1)Precludes a person from constructing or operating a LNG
terminal without first obtaining a permit from the CEC, and
requires the CEC to issue a decision on an application for a
permit to construct and operate a LNG terminal.
2)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.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Purpose of Bill
According to the author, the purpose of this bill is to provide
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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.
2)Background
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.
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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)Why Co-Joined with SB 426 (Simitian)
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 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.
4)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
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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), 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.
5)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. 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
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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 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.
6)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.
REGISTERED SUPPORT / OPPOSITION :
Support
California Coastal Protection Network
Opposition
SB 1003
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California Chamber of Commerce
California Manufacturers & Technology Association
Western States Petroleum Association
Analysis Prepared by :Kyra Emanuels Ross / NAT. RES. / (916)
319-2092