BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   SB 426|
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                                 THIRD READING


          Bill No:  SB 426
          Author:   Simitian (D)
          Amended:  5/27/05
          Vote:     21

           
           SEN. ENERGY, UTILITIES & COMM. COMMITTEE  :  6-1, 4/19/05
          AYES:  Escutia, Alarcon, Bowen, Dunn, Kehoe, Simitian
          NOES:  Cox
          NO VOTE RECORDED:  Morrow, Battin, Campbell, Murray

           SENATE APPROPRIATIONS COMMITTEE  :  8-5, 5/26/05
          AYES:  Migden, Alarcon, Alquist, Escutia, Florez, Murray,  
            Ortiz, Romero
          NOES:  Aanestad, Ashburn, Battin, Dutton, Poochigian


           SUBJECT  :    California Energy Commission:  liquefied  
          natural gas plants

           SOURCE  :     Author


           DIGEST  :    This bill (1) requires the California Energy  
          Commission (CEC) to conduct a liquefied natural gas (LNG)  
          needs assessment study, as specified, by November 1, 2006,  
          to determine the number of terminals, if any, necessary to  
          meet the state's projected natural gas demand, (2) requires  
          that the CEC rank, in order of priority and in accordance  
          with specified criteria, LNG terminal permits, (3) provides  
          that the costs of the study are to be recovered from permit  
          fees, and (4) makes related changes.

                                                           CONTINUED





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           ANALYSIS  :    Existing law, the Warren-Alquist Act grants  
          the 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.

          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).

          Prior existing law, the Liquefied Natural Gas Terminal Act  
          of 1977, authorized the Public Utilities Commission (PUC)  
          to issue a permit for the construction and operation of a  
          LNG terminal pursuant to a prescribed permit procedure.   
          The terminal was to be at a remote site selected by the  
          California Coastal Commission.

          This bill:

          1.Requires the CEC, upon filing of an application, to  
            conduct an LNG Needs Assessment Study by November 1, 2006  
            to determine the number of LNG terminals, if any, needed  
            to meet the state's projected natural gas demand.

          2.Requires at least two public hearings on the results of  
            the study.

          3.Provides that the costs for implementing these provisions  
            shall be funded by LNG permit fee revenues.

          4.Requires the CEC to evaluate and rank proposed LNG  
            terminals according to specified environmental, safety  
            and economic criteria.

          5.Provides the CEC may only approve terminals according to  
            its ranking.

          6.Provides that the requirements of these provisions apply  







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            to every LNG terminal to be constructed or operating in  
            California, irrespective of whether an application has  
            been submitted for the construction or operation to any  
            federal, state, or local entity prior to the operative  
            date of this bill.

          7.Provides that any terminal which requires a Certificate  
            of Public Convenience and Necessity (CPCN) from the 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.

          8.Is contingent on enactment of SB 1003 (Escutia).

           Background

           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  







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          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 percent of its natural  
          gas supply, primarily from gas fields in the Southwest,  
          Rockies, and Alberta, Canada.  The 15 percent of supply  
          derived form 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  
          percent 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  







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          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 PUC, 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 PUC 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  







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          repeal, the state process for evaluating and permitting LNG  
          facilities has been ill-defined.

           Jurisdictional Dispute

           The PUC 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 CPCN.  The  
          Federal Energy Regulatory Commission (FERC) has resisted  
          the PUC's claim, maintaining it has exclusive jurisdiction  
          under the federal Natural Gas Act.  The PUC/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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

                          Fiscal Impact (in thousands)

           Major Provisions             2005-06             2006-07          
              2007-08           Fund

           CEC                               $150+ to several hundred  
          thousand            Special*
                                                 dollars annually.   
          Costs should be 
                                                 offset by fee  
          revenues.
           







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           PUC                               Probably not substantial  
          costs, offset         Special**
                                                 by fee revenues.

            *Unspecified
          **Public Utilities' Reimbursement Account


          NOTE:  Unable to verify support and opposition at time of  
          writing.


          NC:cm  5/28/05   Senate Floor Analyses 

                       SUPPORT/OPPOSITION:  NONE RECEIVED

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