BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 426| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 SB 426 Page 2 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 SB 426 Page 3 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 SB 426 Page 4 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 SB 426 Page 5 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 SB 426 Page 6 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. SB 426 Page 7 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 **** END ****