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 








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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