BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 426|
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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 : 41-37, 9/8/05 - See last page for vote
SUBJECT : California Energy Commission: liquefied
natural gas plants
SOURCE : Author
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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 Liquefied 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
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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
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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 from 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
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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.
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
repeal, the state process for evaluating and permitting LNG
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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 PUC 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
terminals (two off-shore and one on-shore). Each is in
various stages of development. Proponents of this bill
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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.
ASSEMBLY FLOOR :
AYES: Bass, Berg, Bermudez, Calderon, Chan, Chavez, Chu,
Cohn, Coto, De La Torre, Dymally, Evans, Frommer,
Goldberg, Hancock, Jerome Horton, Jones, Karnette, Klehs,
Koretz, Laird, Leno, Levine, Lieber, Liu, Mullin, Nation,
Nava, Negrete McLeod, Oropeza, Pavley, Ridley-Thomas,
Ruskin, Saldana, Salinas, Torrico, Umberg, Vargas, Wolk,
Yee, Nunez
NOES: Aghazarian, Arambula, Baca, Benoit, Blakeslee, Bogh,
Canciamilla, Cogdill, Daucher, DeVore, Emmerson, Garcia,
Harman, Haynes, Shirley Horton, Houston, Huff, Keene, La
Malfa, La Suer, Leslie, Matthews, Maze, McCarthy,
Mountjoy, Nakanishi, Niello, Parra, Plescia, Richman,
Sharon Runner, Spitzer, Strickland, Tran, Villines,
Walters, Wyland
NO VOTE RECORDED: Montanez, Vacancy
NC:cm 1/6/06 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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