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    News in Depth

    CA Public Utilities Comm'r Loretta Lynch Tells

    • LB LNG Proposal Is A Test Case w/ Nat'l Impacts

    • Gov. Schwarzenegger Should Tell Pres. Bush That Fed'l Energy Regulatory Comm'n (FERC) Is Out Of Control & Should Be Reined In

    • State Lawmakers Should Be Up In Arms & In Court Backing CPUC And Fighting FERC

    (April 28, 2004) -- Loretta Lynch, a member of CA's powerful Public Utilities Commission, (CPUC) visited LB on April 26. Her visit came just days after a historic CPUC meeting (separately reported with audio by at which Commissioners unanimously voted to insist that a firm seeking to build a Liquefied Natural Gas (LNG) facility in the Port of LB first obtain a certificate of public convenience and necessity from CPUC.

    In March (as previously reported by the Federal Energy Regulatory Commission (FERC) declared that it has exclusive federal jurisdiction over safety and siting issues for LNG facilities, contending that CPUC lacks authority to compel the applicant to seek CPUC approval in LB and is without jurisdiction over such LNG applications...a principle that by implication applies statewide and to state regulators nationally.

    CPUC says FERC is legally wrong...and CPUC's April 22 vote to approve an order instituting a regulatory investigation regarding the LB LNG proposal effectively puts the state agency on a collision course with the feds that will almost certainly land in court.

    Commissioner Lynch, a Yale law school graduate and experienced litigator, gained a reputation for speaking her mind during CA's bruising electricity and gas energy controversies. She spent part of her visit to LB speaking on the record with Some salient excerpts: What are your impressions of the [LB] LNG proposal so far?

    Commissioner Lynch: Well, we have a fight at the California Public Utilities Commission with the FERC and the Port of Long Beach because under the [federal] Natural Gas Act...which defines what the Federal Energy Regulatory Commission can do, California in the form of the [C]PUC believes the FERC cannot take jurisdiction or authority over the construction of a facility used for natural gas in a state...

    Unfortunately, Sound Energy [Solutions] has asked FERC to preempt state law, which FERC has done, citing that Section 7 [of the Natural Gas Act] which gives them [FERC] authority over the import of natural gas, necessarily means that they have authority over the construction of natural gas facilities under Section 3 [of the Natural Gas Act] which is a position that no court in the nation has taken, and certainly many courts in the nation have taken a contrary position.

    So I'm here, and the PUC is fighting FERC's preemption of California's authority to allow SES to construct this plant not under California law. What do you think the significance is of this for people in Long Beach and statewide?

    Commissioner Lynch: Well actually nationally, if FERC gets away with federalizing what are local land issues, then you can see LNG facilities and transmission lines and all sorts of energy facilities in every block. Because FERC has a grand vision to put some energy facility in a neighborhood near you (chuckles) in their vision to federalize energy. Which is why, of course, it's always been a state or a local matter, because the states and the localities know best what burdens their citizens are going to bear.

    But ultimately, I'm quite concerned not only from a legal standpoint about FERC's power grab over the state, and over California in this instance, but also from a practical standpoint, because FERC has no expertise in the construction of LNG facilities, because it's not their jurisdiction or their authority area...So from a practical standpoint, even if they had the best of intentions, which they don't, I'm not sure they can follow through and produce a safe plants. Both sides in the dispute are citing Congress on their side...Congress could speak on this and presidential candidates could speak on this since it's a national energy issue. What should Congress say and do, and what should candidates for the highest office in the country do?

    Commissioner Lynch: Well I actually think Congress did speak on this with Section 3 of the Natural Gas Act...So from my perspective, it is clear... ...But if Congress decides to pass an energy bill...if they were to address this issue, exactly would you wish for them to say?

    Commissioner Lynch: They would say we meant what we said when we passed Section 3 [of the Natural Gas Act] so I don't understand why they would need to do anything because Section 3 is very clear...So I don't see what more Congress actually needs to do except for to slap-back FERC and say, hey, we really meant it back in the '30s when we passed the Natural Gas Act for the first time. In the late 1970s, a GAO official testified in Congress to the effect that Congress should do certain [siting] LNG plants away from population centers [separate coverage on, click here] ...[D]o you think that either President Bush or presumptive candidate Kerry should speak about this?

    Commissioner Lynch: Well certainly, Congress could put in more safeguards knowing what we now know over the last 70 years about Liquefied Natural Gas, and so that's certainly something Congress could do. But that's something the state of California already would do if we permitted this plant. We would already look at the terrorism and state safety concerns. We'd look at just the construction of the facility to make sure it's safe. We would look at the earthquake safety, because California has a unique expertise in that. And you would look at the environmental laws and mitigation and efforts that would need to be made to make sure that we would have an environmentally sound plant as well. And I think that's also something that California is also uniquely suited to do.

    So I think while Congress could speak out, this really is a California issue and the person I think who should speak out is the Governor. ..What would you have Governor Schwarzenegger say and do?

    Commissioner Lynch: Well, he's the one who has said he wants to have 20% renewable energy in our energy portfolio by 2010, which is six short years away. To get to 20% renewable, we cannot buy the farm. We have to buy wisely. And so what we need to be buying is renewables and not locking in a fossil fuel future by buying into Liquefied Natural Gas in California. So exactly what would you have him do? Right right now, CPUC I think is the only state agency that has to my knowledge weighed in on behalf of residents not just in this area, but statewide. I can't think of another one that has.

    Commissioner Lynch: That's true, and not only residents but businesses. I think businesses are just as harmed by overbuying natural gas or by paying too much for natural gas. So if Governor Schwarzenegger is serious about a renewable future, he would tell the PUC to buy renewables and not overbuy natural gas, especially Liquefied Natural Gas, which is the most expensive kind of natural gas...And so we already have the third highest power prices in the nation, if we're going to go buy a very expensive source of natural gas which is burned in order to make electricity, then we'll be locking in a higher electric price as well. Would you like him [Gov. Schwarzenegger] to explicitly support the Commission in its jurisdictional dispute with FERC?

    Commissioner Lynch: Absolutely. I think that not only could he support us in court, he could support us in the Bush White House. What would you have him say?

    Commissioner Lynch: I would have the Governor tell the President: FERC is out of control and you must rein FERC in. This is California's decision, not the FERC's. The FERC neither has the authority nor the expertise to make this decision, and let California be energy independent in the way that California thinks best, not in the way that FERC imposes. Is it fair to say what one activist has said, that this is a test case, in terms of the jurisdiction, in terms of what CPUC would be able to do, what other regulators [could do] in the other 49 states?

    Commissioner Lynch: This is absolutely a test case which has drawn my colleagues' in other states' keen interest for this reason: [In] this case, the FERC recognized that this facility will be used in intra-state commerce, which is uniquely the province of California or any other state. So with the FERC asserting its federal authority in an intrastate deal, they are over-reaching all the more. And so other states have looked aghast at the FERC decision to not only say that FERC is in control but that FERC preempts of California. So FERC could have said, well we have authority and California has concurrent authority for an intrastate, and they would still frankly have been on tenuous legal ground because it is a facility. But instead they said we recognize this is an intrastate facility and we take full authority anyway, and that is precedent setting. It's also illegal. What should state lawmakers be saying now?

    Commissioner Lynch: State lawmakers should be up in arms and they should be in court as well...The California Constitution requires state officials to fight when a federal agency has preempted state law. So we can't just stand aside and say, oh well, the FERC thinks they have jurisdiction, not California, so we'll step aside. Instead, we have an affirmative duty to uphold California state laws until a federal appellate court has struck them down as unconstitutional or illegal. And that's not happened here. It's been the federal agency that's overstepped.

    So I think that the Attorney General, and state lawmakers as well as the Governor should join together with the PUC and say, hey, wait a minute FERC, you're out of control, you have no legal basis on which to preempt California, and this is California's choice, not Washington's choice...

    ...This really should be California's choice, and I think that's an easy call...because Washington has neither the inclination, the political will or the expertise to actually do a good job, and do a thorough job, in looking at the safety and the environmental considerations associated with construction of this plant and the operation of the plant as well.

    And the second, we really need to take a look, which is what's now underway at the PUC, about need for natural gas. There is a truism in energy policy right now that we need more natural gas, but that is based on our current, old natural gas plants.

    And when you look at how many plants are how old, you see an opportunity [displays a chart] ...of the 25,000 megawatts that are natural gas fired plants in California, you see that over 55% of those plants are 40 years old or older. And the natural life of a natural gas plant is thirty years.

    So when you look at how many plants are thirty years or older, 78% of our natural gas fired power plants are thirty years old or older. And that means we have a great opportunity to retire those old, stinky, polluting, costly plants and replace them either with renewables or with new, very efficient natural gas plants.

    And so if you replace an old plant, a thirty year old plant, with a new plant you're going to use 1/3 the natural gas that that old plant used, and thereby maybe you might drop your natural gas demand.

    ...[A]s a regulatory official, first we have to look at do we need natural gas, from any source. And then if we need more natural gas, where should it come from and what should the cost be? And the cost should factor in the environmental cost.

    And that's what we're looking at at the PUC right now. And frankly I'm quite concerned that we're cutting corners in our analysis because we're assuming we need more natural gas without actually taking evidence on the question.

    So we really need to develop a full and robust evidentiary record about the tradeoffs between more natural gas versus more renewables versus conservation and energy efficiency, because we just can't buy everything. We don't have the money and the dollar to buy both energy efficiency and renewables and then lard on natural gas on top of it.

    So we have to first look at need and how we should satisfy the need the most effectively, and that's really what we should all be concentrating on before we're sinking pillars into the ground in the Port of Long Beach. ...Long Beach City Hall and the Port of Long Beach are arguably entities now with a financial interest in the outcome of this [LNG proceeding]. Is that problematic? If the PUC, or another agency, had those kinds of financial benefits on the horizon, would you think that's something they should divest themselves of?

    Commissioner Lynch: Well, you know in all this talk of energy agency reorganization, I am very clear. There should be two entities. One should be an operator and one should be a regulator. Because when the regulator operates, the regulator wears two hats and is necessarily conflicted, or there's an appearance of a conflict.

    So from that perspective, the regulator -- the people who set the rules and charge the prices -- should never, ever operate. One of issues that's going to come up is a pipe that will lead from the LNG tanks to the interconnect with Southern California Gas in which the City of Long Beach apparently wants to exercise some jurisdiction and is quarreling with FERC over now. Is that something that CPUC would weigh in on?...

    Commissioner Lynch: Well I find it interesting that the City of Long Beach generally supports this project, yet says to FERC but 'please preempt the state but don't preempt the locals on this pipeline 'cause we'd like the benefit of the pipeline, but go ahead and preempt the state.' I don't think you can have it both ways. You either get California control or you get federal control. But unfortunately, the Natural Gas Act does nothing about community control, so from that perspective, I have not examined in depth the City of Long Beach's papers that they filed...but ultimately, the Natural Gas Act chooses between the feds and the state, and so my view is at least we should go to the state... ...Within recent memory, the President intervened to stop a labor action at the Port of Long Beach saying that it was crucial to the national interest. If, may G-d forbid, something were to happen with an LNG tank...caused a disruption at the Port, that would be a national issue.

    Commissioner Lynch: That would be a national tragedy...After 9-11, all energy officials have taken another look at energy infrastructure, and realized just how vulnerable it is, and certainly we've been focusing on the energy infrastructure that has the most potential to be the most vulnerable at the biggest cost, like the nuclear plants and some of the other facilities. And at first I thought, oh my, we're all over-reacting in a post 9-11 world, but the more I learn about how easy it would be to cause great havoc, the more I become not a scaremonger but a very prudent, cautious person about adding energy infrastructure that is inherently vulnerable. When you have a choice, why make yourself more vulnerable?... Would you be reassured if the [U.S. Dept. of Energy] came out separate from FERC and they said, here's our new [policy] paper; we've determined that these [LNG facilities] are fine...we've got Coast Guard escorts, don't worry about it.

    Commissioner Lynch: In my view, the Dept. of Energy, which does have authority over FERC -- FERC reports up through the Dept. of Energy in the bureaucratic structure -- has operated both under the Bush administration and under the Clinton administration as an apologist for the FERC grand federal design. And so no, I no longer give the [U.S.] Dept. of Energy the benefit of the doubt, as it is in fact FERC's lap dog... ...Since much of this [LNG] is going to be imported, isn't that kind of a cognitive dissonance with those who say we should be energy independent?

    Commissioner Lynch: Sure, I mean, here we are fighting against OPEC while we are clamoring to make ourselves dependent on international sources with unstable third world governments on the natural gas side.

    I mean we saw the Bolivian president tumble because of Liquefied Natural Gas...And so why would we intentionally make ourselves vulnerable to third world unstable countries again?

    ...[W]hen we have supplies in Canada and Alaska and in north America, why are we not first both tapping those supplies and figuring out how we can use natural gas more efficiently? Because clearly. natural gas is part of California's energy future. It is a much better option than coal and nuclear, and we cannot fuel California's economy solely on renewable power today. Maybe sometime in the future, but not today and not in the next ten years. Do we need to move toward that? Sure, but there are not enough solar roofs in California to fuel California's economy, so natural gas will be in our mix from my lifetime, and the question is how much in our mix and from where...

    So that's what the PUC needs to look at this year, which is where should the gas come from and what are the implications of taking gas from other nations? And that is something that I hope that everybody in Long Beach, and frankly everybody in California participates in, because we will set the natural gas market in California for the next ten years in 2004, and it has international environmental implications...such as do we want to destroy more rain forests in order to have Liquefied Natural Gas from other countries? Do we want to destroy or alter indigenous populations because of that? Do we want to upset the migrating habits of the whales in Russia which are in danger?

    So those are choices that will be on our head independent of the economic choices and the energy security choices of having natural gas from north America rather than from internationally. ...Where do you think [the CPUC LB LNG proceeding] is headed [if not stopped by court action]?

    Commissioner Lynch: ...Basically, we are going to go after SES and say 'you must file an application to construct this facility under state law.' And as soon as we enforce that rule, basically issue a cease and desist order or file an application, my bet is they'll take us to court.

    And so then the question will be squarely put in front of a judge: Does FERC have this authority to preempt California law, or does the Natural Gas Act under Section 3 very clearly allow the states, and in fact the states as the sole permitter, of facilities in their state. And I think the law is clear, so I am looking forward to that fight because we have a responsibility and a statutory duty to protect California. What kind of a proceeding would that be?...

    Commissioner Lynch: We have an established state statutory proceeding called a Certificate for Public Convenience and Necessity, and before anyone builds an energy facility in California in order to sell energy, they must get a permit from the Public Utilities Commission...

    And before we can grant that permit or certificate, we must determine that the facility is safe and that it is in the public interest for that facility to be built...

    The staff reviews it...[U]nder the California Environmental Quality Act, we look at how it will affect the environment, and what the company must do to protect the environment as they build or as they operate. In addition, we would look at the earthquake safety of the facility and also the terrorism safety and operation of the facility. ...And it's not like a CEQA proceeding where you simply review it. [In this case] you'd actually make a decision on whether it serves the public interest...

    Commissioner Lynch: Absolutely. Whether there's a need for the facility and whether it's in the public interest for the facility to be built.

    And that's under long-standing state law which is interesting. The state laws that were passed in 1911, the same year that the Public Utilities Commission was established by constitutional amendment was also the same year that the recall provision was put in. Under Hiram Johnson...

    Commissioner Lynch: Under Hiram Johnson, the progressive Governor of the last century that said the people of California should have a voice in their essential economic function, and by the way, in their choice of Governor.

    All the more reason for Governor Schwarzenegger to get involved in this.

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