Senate Panel Eyes Open Access at LNG Terminals

Democratic legislators may press Governor Arnold Schwarzenegger to make sure a proposed offshore liquefied natural gas terminal could be used to control gas price spikes. However, the state's interest in open access to unused LNG terminal capacity may be dashed by a competing onshore project in Long Beach that is inching closer to the finish line in the permitting race. The issue of how the state can ensure open access to prevent terminal operators from gaining undue California energy market power was key at an October 27 Senate Energy, Utilities and Communications Committee informational hearing on LNG. Open access would help prevent gas price spikes, but California's options for ensuring it are limited, explained Harvey Morris, California Public Utilities Commission general counsel. "It's the perspective of legislators here as to what's in the public interest," said Senator Martha Escutia (D-Whittier), committee chair. If built and fully supplied with gas imports, the first two West Coast terminals could supply as much as 34 percent of California's natural gas. That is why state officials are concerned about how to prevent LNG importers from manipulating gas prices by idling their facilities, said Joe Desmond, California Energy Commission chair. Sempra Energy is quickly constructing the region's first terminal outside Rosarito Beach, Mexico, just south of San Diego. In California, Sound Energy Solutions, with its proposed Long Beach terminal, and BHP Billiton, with its proposed project off the Ventura County coast, are vying for permits to build the second facility. Sound Energy plans to operate its terminal on a proprietary, not an open-access basis, said John Burnes, company counsel. Likewise for BHP Billiton, said Patrick Cassidy, company senior external affairs adviser. Proprietary terminals are completely controlled by their operators, while at open-access terminals, any shipper can bring LNG cargoes for delivery to customers. In managed-access terminals, the lion's share of capacity is managed by the operator, but a portion of the receipt capacity is reserved for open access. Under the federal energy policy legislation passed earlier this year, Congress prevented the Federal Energy Regulatory Commission from requiring onshore terminal operators licensed under the Natural Gas Act to operate on an open-access or managed-access basis. Congress essentially codified FERC's Hackberry decision, which allowed companies to operate terminals on an integrated basis with upstream facilities in order to encourage investment, said J. Mark Robinson, FERC Office of Energy Projects director. However, offshore terminals licensed under the federal Deepwater Port Act-such as the one proposed by BHP Billiton?can effectively be required to operate under managed access when otherwise idle, according to Morris. "The governor does have some leverage," Escutia observed, since the federal act provides state executives the power to approve or disapprove of offshore terminals. Schwarzenegger conceivably could use his approval authority to leverage managed access at the BHP Billiton terminal if Sound Energy does not preempt its construction by winning earlier permit approval. FERC issued a draft environmental impact statement on the proposed Sound Energy terminal earlier this month (Circuit, Oct. 14, 2005). Meanwhile, BHP Billiton has suffered setbacks in the permitting process, which is supposed to take just 240 days under the Deepwater Port Act. The Coast Guard and the state have decided to revise and recirculate another draft version of the environmental impact statement for BHP Billiton's project for additional public comment and hearings early next year, said Dwight Saunders, State Lands Commission manager. The agencies received more than 1,000 comment letters, prompting the company to revise its project, he said. A final environmental impact statement is not expected until at least June, and litigation is then expected, he said.

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Senate Panel Eyes Open Access at LNG Terminals

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