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    in Depth

    Gov. Schwarzenegger Mum As Fed'l Agency & House/Senate Committee Contend CA's Public Utilities Comm'n Powerless To Regulate Safety & Siting Of Proposed LB LNG Plant Or Any Proposed CA LNG Facility

    Outcome Of CA vs. Fed'l Dispute Could Affect Rights Of States & Communities Nationwide


    (December 17, 2004) -- While the CA Public Utilities Commission (CPUC) wages a high-stakes battle to protect CA's ability to regulate siting and safety issues involving a proposed Liquefied Natural Gas (LNG) facility in the Port of LB, CA Governor Arnold Schwarzenegger has declined comment on verbiage (not legally binding) by a House/Senate conference committee (accompanying an omnibus spending bill) that contends the CPUC has no regulatory authority over LNG facilities anywhere in the state.

    The Congressional development, reported first among LB media last month by LBReport.com, has drawn fire from activist groups and officials (mainly Democrats to date) in other areas impacted by proposals from energy interests to build LNG import terminals.

    The controversy arose when the Port of Long Beach, which operates on state trust-granted tidelands, chose to facilitate an application by a Mitsubishi subsidiary that seeks approval from the Federal Energy Regulatory Commission (FERC), but not CPUC, to build and operate an 80+ million gallon LNG facility roughly two miles west of downtown LB. Earlier this year, FERC declared that it, and not CPUC, has exclusive jurisdiction under a 1938 federal law to decide the proposal's safety and siting issues. Citing public safety and utility pricing issues, CPUC filed suit in federal court against FERC to enforce CA law.

    On Dec. 16, Governor Schwarzenegger, through his press office, declined comment on the following inquiry emailed Dec. 1 by LBReport.com:

    [begin text]

    We request comment from the Governor on language that appears in a House/Senate (conference committee) report to an omnibus spending bill (HR 4818) in which the conferees say (full quote below) that the Federal Energy Regulatory Commission (FERC) should have exclusive authority -- and California's Public Utilities Commission has no authority and should have none -- in deciding safety and siting issues regarding a proposed Liquefied Natural Gas (LNG) facility in the Port of Long Beach. The CPUC is currently suing FERC in federal court to enforce what CPUC says is CA law requiring the project applicant to obtain CPUC permission. FERC says it has exclusive authority and the project applicant doesn't need CA authority.

    The House/Senate committee report doesn't carry the force of law and FERC's assertion of its exclusive jurisdiction on LNG facilities hasn't been separately debated on the House or Senate floor. CPUC's suit against FERC could decide the extent to which states and communities across the country have the ability under current law to regulate whether an LNG facility is built in their communities and on what terms it operates.

    [begin House/Senate conference report text]

    "On March 24, 2004, FERC issued a declaratory order asserting exclusive jurisdiction over the approval and siting of liquefied natural gas (LNG) terminals. FERC concluded that LNG terminals are engaged in foreign commerce and, as such, fall clearly within the authority granted to the FERC under Section 3 of the Natural Gas Act of 1938. The conferees agree on this point and disagree with the position of at least one State government agency that it should be the authority responsible for LNG terminal siting within its boundaries, rather than the FERC.

    "The Natural Gas Act clearly preempts States on matters of approving and siting natural gas infrastructure associated with interstate and foreign commerce. These facilities need one clear process for review, approval, and siting decisions. Because LNG terminals affect both interstate and foreign commerce, LNG facility development requires a process that also looks at the national public interest, and not just the interests of one State.

    "The conferees recognize that, as a matter of energy supply, the nation will need to expand its LNG infrastructure over the decades to come to satisfy natural gas demand. Any dispute of LNG siting jurisdictional authority now will be counterproductive to meeting our natural gas "

    [end House/Senate conf. committee text]

    Word that Governor Schwarzenegger has declined comment came on the same day he named two new CPUC appointees (to replace members with terms expiring Jan. 1). The Governor's selection of Dian Grueneich and Steve Poizner requires state Senate confirmation. State Senator Alan Lowenthal (D., LB) has previously told LBReport.com that he supports CPUC jurisdiction on the LNG issue. Earlier this year, the CPUC (comprised entirely of appointees of former Gov. Gray Davis) voted 5-0 to sue FERC to defend CPUC's regulatory prerogatives on the LNG issue.

    As part of a release announcing his first CPUC appointees, Governor Schwarzenegger said they share his "commitment to establishing a business climate that will attract investment and jobs to California," adding that CPUC would play a key role in (among other things) "encouraging the development of new supplies of natural gas."

    The LB LNG project applicant, Mitsubishi subsidiary "Sound Energy Solutions," says on its website (www.soundenergysolutions.com):

    As California confronts challenges in cleaning the air and controlling energy costs, we at Sound Energy Solutions are pleased to offer a real solution that will benefit Long Beach residents, as well as the entire Southern California area.

    Liquefied Natural Gas, known as LNG, is becoming the fossil fuel of choice here in the U.S. and around the world. It is the liquid form of the same natural gas we use every day to heat our homes and cook our meals...LNG is safe, clean and can stabilize energy costs for our families.

    In contrast, the Washington, D.C. based advocacy/consumer group Public Citizen says on its website:

    Increasing U.S. reliance on liquefied natural gas also increases our dependence on the Organization of the Petroleum Exporting Countries (OPEC). We obtain most of our natural gas from domestic production, with a small percentage coming from LNG imports. A quarter of those imports are from OPEC nations (Algeria, Qatar and Nigeria). Boosting U.S. reliance on LNG...will result in the United States becoming more dependent on OPEC.

    LB is the only CA community in which an onshore LNG application is currently pending. Plans for an onshore LNG facility in Eureka, CA were abandoned amid community opposition. A proposed LNG facility in Vallejo, CA (on the former Mare Island Naval Shipyard site) was likewise dropped following local resistance.

    Two proposals for offshore LNG facilities several miles from the Ventura-Oxnard coastline are currently pending...but unlike LB, offshore facilities are governed by the Coast Guard, not FERC. FERC's asserted exclusive authority currently applies only to LB...although it could apply to any proposed land-based LNG facility anywhere in CA if CPUC doesn't prevail in its federal court suit or if Congress has the last word and speaks explicitly on the issue.

    The Port of LB, as landlord/manager of the state tidelands-trust area, has the threshold ability to decide whether to proceed with the LNG project (FERC can't order it to proceed). However if the Port says yes, FERC's position (if sustained by the courts or backed by Congress) means that FERC, and not CPUC or local entities, will have safety and siting approval authority and will decide how the plant is operated.

    Rhode Island's Attorney General has called the House/Senate conference committee verbiage "a threat, not only to the pending [CPUC] litigation in California, but to every state in this nation. In a letter to Congressman Patrick Kennedy (D., RI), RI Attorney General Patrick C. Lynch wrote in part:

    The proposed language is unfortunately consistent with public comments made by FERC chairman Patrick Wood in different forums and evidences not only a disregard of state's rights, but particularly on this issue, powerful energy interests stopping at no end in attempting to take away the state's voice in protecting its quality of life and environmental future. Their objective is profit at any cost and expense -- at the expense of our environment, safety, and the very quality of life of our Ocean State.

    ...[I]t is vitally important that this language not become a part of our laws. As such, I urge you to make your voice heard so that my voice and the voice of other state officers and any concerned agencies across this nation will have an opportunity to voice their concern, force proper analysis and demand thorough review of such proposals.

    The Washington, D.C. advocacy/consumer group Public Citizen said CPUC's suit against FERC "is being closely watched by other states, where officials have expressed alarm about the inability of state and local governments to have adequate input into these projects. Without adequate local control over this process, these LNG facilities may be forced upon America's coastal communities."

    In early December, Congressman Barney Frank (D., MA) announced that he is "coordinating an effort with Congressional colleagues from coastal areas to make it clear that a provision accompanying the recently passed omnibus spending bill should not be used to bolster the Federal Energy Regulatory Commissionís (FERC) claim that it has the final say over siting of Liquefied Natural Gas plants."

    In a release posted on his web site, Congressman Frank said the congressional group "will be filing a friend of the court brief to the court considering the California case. The brief will argue that the non-binding language merely represents the opinion of the Members of Congress who authored it, and that it should not be given any particular weight in the California case or other future cases" (which could also include an application for an LNG facility in Fall River, MA).

    The LB LNG applicant, "Sound Energy Solutions," has publicly said that it plans to seek permits from a lengthy list of state and local agencies that have jurisdictional roles apart from CPUC (such as the CA Coastal Commission, AQMD, etc.)

    Under LB's City Charter, a decision on whether the Port of LB proceeds with the proposed LNG facility will be made by five non-elected (Mayor appointed, Council approved) Harbor Commissioners.

    In 2003, the LB City Council (in an agenda item lasting 87 seconds) and the LB Board of Harbor Commissioners separately entered into Memoranda of Understanding with the LNG project applicant. The Port is currently working with FERC and the applicant to process the firm's application.

    LBReport.com maintains a link on our front page to a compilation of our LNG coverage: LBReport.com LNG coverage.


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