BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 426| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 426 Author: Simitian (D) Amended: 8/31/05 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 SENATE FLOOR : 24-14, 5/31/05 AYES: Alarcon, Alquist, Bowen, Cedillo, Chesbro, Ducheny, Dunn, Figueroa, Florez, Kehoe, Kuehl, Lowenthal, Maldonado, Migden, Murray, Ortiz, Perata, Romero, Scott, Simitian, Soto, Speier, Torlakson, Vincent NOES: Aanestad, Ackerman, Ashburn, Battin, Campbell, Cox, Denham, Dutton, Hollingsworth, Margett, McClintock, Morrow, Poochigian, Runner NO VOTE RECORDED: Escutia, Machado ASSEMBLY FLOOR : Not available SUBJECT : California Energy Commission: liquefied natural gas plants SOURCE : Author CONTINUED SB 426 Page 2 DIGEST : This bill requires the California Energy Commission to evaluate and rank every proposed liquefied natural gas terminal and directs the Governor to disapprove an application for a license to construct and operate a liquefied natural gas terminal if the project does not meet identified criteria. Assembly Amendments delete all provisions of the bill and recast them as the Liquified Natural Gas Terminal Evaluation Act. The intent remains the same as it left the Senate - to establish a comprehensive process for the state to evaluate, rank, and permit proposed liquefied natural gas terminals. ANALYSIS : Existing Law 1.The federal Deepwater Port Act of 194 precludes the U.S. Secretary of Transportation from issuing a license for the construction and operation of an off-shore natural gas structure in federal waters without the approval of the Governor and each adjacent coastal state, and can condition the license on making the project consistent with state environmental, land-use, water, and coastal management programs. 2.The Energy Policy Act of 2005 provides the Federal Energy Regulatory Commission (FERC) exclusive authority to approve or deny an application for the siting, construction, or operation of a liquefied natural gas (LNG) facility located on-shore or in state waters. This bill: 1.Requires the California Energy Commission (CEC) to evaluate and rank each proposed LNG terminal and provide the results to the Governor and the Legislature by April 1, 2006. 2.Requires the Governor to disapprove an application for a license to construct and operate a LNG terminal unless SB 426 Page 3 the facility is evaluated and ranked by CEC, and is one of the two highest ranked sites. 3.Provides that CEC may only require applicants to provide documents prepared to comply with federal licensing requirements, and precludes CEC from requesting confidential financial or market information from any application for the purpose of the evaluation and ranking. 4.Requires the State Lands Commission or legislatively designated grantee to consider an application for a LNG facility proposed on state tide and submerged lands, in accordance with the evaluation and ranking. 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 SB 426 Page 4 the facility's construction and operation is consistent 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 SB 426 Page 5 able to serve California. The existing U.S. LNG terminals 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 SB 426 Page 6 1987, the Legislature repealed the Act. Since the Act's 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 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. Comments The purpose of this bill is to ensure that state laws and regulations that address safety and environmental impacts of LNG facilities are not preempted by less-protective federal laws and regulations. Current law permits the Governor to approve or disapprove an off-shore LNG facility using discretion. This bill limits the Governor's decision-making authority and requires him to disapprove a project unless it is evaluated by the CEC for, among other things, its effectiveness of meeting energy needs and its mitigation of environmentally damaging effects. There are currently three active proposals to build LNG SB 426 Page 7 terminals (two off-shore and one on-shore). Each is in various stages of development. Proponents of this bill would like to provide more state input into the LNG siting and certification process to ensure the three facilities are evaluated using specific criteria identified in this bill. Opponents assert that new supplies of LNG will decrease costs of energy by increasing the supply of natural gas because natural gas fuels most California power plants. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Assembly Appropriations Committee analysis, for the initial assessment and ranking in 2006, the CEC would need $250,000 for 3.0 personnel years (PYs) and up to $1 million for consulting contracts. For evaluation of subsequent LNG proposals, the CEC would likely need $85,000 for 1.0 PY and about $100,000 for consulting contracts. NOTE: Unable to verify support and opposition at time of writing. NC:cm 9/6/05 Senate Floor Analyses SUPPORT/OPPOSITION: NONE RECEIVED **** END ****