City Att'y Informational Memo Explains Points In Process Where Council Can Act re Proposed LNG Facility

July 23, 2004

To: Mayor and Councilmembers
From Robert E.Shannon,City Attorney

The purpose of this memorandum is to provide you with information concerning the liquified natural gas terminal proposed to be located in the Long Beach Harbor District. It will further set forth those points in the process in which the City Council and other public bodies will have the opportunity to pass upon all or a portion of the business plan incidental to the proposed terminal.

BACKGROUND

In May, 2003, the City of Long Beach, acting by and through its Board of Harbor Commissioners, and California LNG Project Corporation, doing business as Sound Energy Solutions entered into a letter of intent to consider the feasibility of a proposed liquefied natural gas terminal on the eastern portion of Pier T in the Long Beach Harbor District on land owned by the City of Long Beach. SES then filed an application with the Federal Energy Regulatory Commission to site, construct, and operate a liquefied natural gas terminal in Long Beach for the purpose of importing LNG from foreign nations into the United States. SES also filed an application with the Long Beach Harbor Department for a harbor development permit.

The proposed LNG project could include four main business components:

• (1) a lease with the Harbor Department;
• (2) vehicle fueling stations for Harbor Department, Fleet Services and City Public Works vehicles;
• (3) a 2.5 mile pipeline connecting to the regional distribution system that would generate transmission fees for the City; and
• (4) a gas supply agreement with the Long Beach City Energy Department.

Decisions pertaining to all non Harbor components of items 2, 3 and 4 will be within the jurisdiction of the City Council.

On May 13, 2003, the City Council authorized the City Manager to execute a Memorandum of Understanding with SES for the purpose of discussions concerning a future long term gas contract and the feasibility and development, finance, construction, operation and maintenance of gas pipelines to the proposed LNG facility. Any agreement flowing from this authorization would be subject to the approval of the City Council. (A copy of the transmittal memorandum dated May 13, 2003 is attached.)

ENVIRONMENTAL REVIEW

The Harbor Department and FERC have agreed to prepare a joint environmental document (EIR/EIS) to study the environmental effects of the proposed project. The EIR/EIS is currently being prepared and a draft is expected to be ready this fall for public comment. In addition, there will be a public hearing before the BHC, at which time comments may be made on the project and draft environmental documents. Also, the BHC and FERC will each review the revised EIR/EIS at a public hearing before voting on the proposed LNG project. If the EIR/EIS is certified by the Board of Harbor Commissioners, the adequacy of the EIR/EIS may be appealed to the City Council.

STATE/FEDERAL JURISDICTION

The Public Utilities Commission of the State of California has argued that jurisdiction over the siting and the operation of the proposed LNG facility rests with the CPUC, not FERC. FERC, in orders issued March 24, 2004 and June 9, 2004, disagreed with the CPUC and asserted exclusive jurisdiction. It was recently reported that the CPUC has decided to challenge this determination in federal court.

FERC further determined that the 2.5 mile pipeline which the City of Long Beach, through its Energy Department, may construct, operate, and own, is not subject to FERC jurisdiction.

It should be emphasized that whatever the outcome of the state/federal dispute over jurisdiction, the BHC retains approval authority over the project, because it cannot commence unless the BHC approves a lease with SES.

THE ROLE OF THE CITY COUNCIL

The City Council has a formal role in the decision making process relating to the business plan which includes the proposed LNG terminal. First, it may withdraw its previous approval authorizing negotiations for a gas contract and development of a gas pipeline. Further, in any event, an agreement of this nature will require final approval by the City Council.

Additionally, should an EIR/EIS be approved by the BHC, any appeal regarding the adequacy of the EIR/EIS would be heard by the City Council.

Finally, apart from its formal role in the decision making process, the City Council may, in its discretion, take a position at any time on all or any portion of the project. (The only caveat in this regard is that the City Council may not enter into a binding commitment to the project before the environmental process is completed.)

Robert E. Shannon, City Attorney
Robert E. Shannon

By: Charles M. Gale

Deputy City Attorney

cc: Gerald R. Miller, City Manager

Attachment