BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 376 - Simitian Hearing Date:
April 21, 2009 S
As Amended: April 1, 2009 FISCAL B
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DESCRIPTION
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).
Existing law , the Liquefied Natural Gas Terminal Act of 1977
(since repealed in 1987), authorized the California Public
Utilities Commission (CPUC) to issue a permit for the
construction and operation of a liquefied natural gas (LNG)
terminal pursuant to a prescribed permit procedure. The
terminal was to be at a remote site selected by the California
Coastal Commission. (SB 1081 (Alquist), Chapter 855, Statutes of
1977, repealed in 1987)
This bill requires the CEC to conduct a study of need for LNG
imports as part of the periodic IEPR.
This bill requires that the CEC complete an LNG needs assessment
report as part of the IEPR not more than 60 days before either
the State Lands Commission or the California Coastal Commission
issues a permit to license an LNG facility. The assessment
report shall include a forecast of the supply and demand for
natural gas in California and price projections. The report
shall consider the impact of reducing electricity produced from
coal and potential electricity demand reduction opportunities.
The report shall analyze the impact of new fossil fuel
infrastructure on the investor-owned utility's ability to meet
its renewable energy purchase requirements.
This bill requires the CEC to create a matrix on its website
that describes the proposed LNG terminals in California as well
as LNG facilities from Alaska south through Baja California.
The required information includes location, ownership,
description, capacity, cost, and environmental impacts, to the
extent that such data is publicly available.
This bill requires LNG project applicants to provide evidence
that it has consulted with the United States Department of
Defense on the impact of its project.
This bill requires that the Environmental Impact Report for LNG
projects include a comparative analysis of feasible
alternatives, an analysis of potential disproportionately high
and adverse human health or environmental effects on minority
and low-income populations, and a full life-cycle analysis of
the impacts of the resulting greenhouse gas emissions. This
provision does not apply to LNG projects which were found to be
data adequate before January 1, 2010.
BACKGROUND
California's Reliance on Natural Gas - The predominant fuel for
electricity generation in California is natural gas, which
provides 45% of California's electricity. 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% of its natural gas supply,
primarily from gas fields in the Southwest, Rockies and Alberta,
Canada. The 15% 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. California natural gas demand
is expected to grow at a very modest 0.1% annual rate for the
foreseeable future.<1>
LNG as Alternative Supply - LNG is natural gas that has been
cooled and therefore liquefied. Liquefaction reduces the volume
by a factor of 600, allowing it to be transported overseas by
tanker then re-gasified. LNG infrastructure would enable
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<1> "2008 California Natural Gas Report", by the California Gas
and Electric Utilities.
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% of California's total natural gas
demand.
There are eight LNG receiving and re-gasification terminals in
the U.S., but none are located on the West Coast and able to
serve California. Another seven have been approved and are
under construction, while 16 more have been approved but are not
under construction. With one exception, all these plants are on
the south and east coasts. In late 2008 an LNG plant owned by
Sempra Energy commenced operation in Baja California. Seven LNG
terminals have been proposed for California in recent years.
Plans for all but one of those plants have been either abandoned
or shelved.
Current Permitting Process - The current permitting process for
offshore projects where the terminals are outside of California
waters, as is the case with the remaining LNG proposal, makes
the U.S. Coast Guard the lead federal agency and gives the
Governor authority to reject a project. The California Coastal
Commission has the responsibility to review the project impacts
in the coastal zone and on state lands. The State Lands
Commission has authority to issue coastal development permits
and leases for state lands.
COMMENTS
1. Needs Analysis - This bill requires a needs assessment.
It does not condition the permitting of an LNG plant on the
demonstration of need. The CEC needs assessment is
intended to inform the State Lands Commission and Coastal
Commission permitting process.
By way of contrast, powerplant siting does not require a
needs assessment. Prior to 1999, powerplant siting
included an analysis of need. This analysis was crucial
because once a powerplant was approved, utility customers
were responsible for all the reasonable construction and
operation costs, even if the plant sat idle. The
deregulation of electric markets was intended to shift the
risk of powerplant investment onto unregulated powerplant
operators. Because utility customers were theoretically
not saddled with the cost of idle or underused powerplants
a needs analysis was deemed unnecessary, and this provision
was repealed (SB 110, Chapter 581 of 1999; Peace).
2. Times Have Changed, a Lot - Since the author's last
effort at establishing an LNG facility approval process,
the outlook for LNG developers has soured considerably.
The seven LNG facilities proposed in California as recently
as 2007 has dwindled to one, and that project is much less
active than last year. Only one LNG plant has actually
been constructed on the Pacific Coast in North America.
That plant is in Mexico, and it is operating far below
capacity. Nationwide, LNG imports have collapsed by 2/3
from 2007 to 2008. Enthusiasm for LNG plants seems to have
suffered from falling natural gas prices, diminishing
energy demand, and the global credit shortage.
3. Third Time the Charm? - The author has a track record of
interest in LNG facilities. In 2006 and 2007 the author
carried legislation to establish a permitted process for
LNG facilities. Neither SB 426 nor SB 412 were chaptered.
4. Technical Amendments - The bill could be simplified and
streamlined by incorporating the provisions beginning on
page 5, line 38 through page 6, line 35 into the provisions
beginning on page 7, line 9. This would clarify a
potential redundancy and make clear that the author's
intent is to require a needs assessment immediately prior
to a hearing on permitting an LNG facility.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Randy Chinn
SB 376 Analysis
Hearing Date: April 21, 2009