3. Proceeding Issues

The order opening this proceeding, I.04-04-024, described the scope of issues briefly as those related to the safety of the proposed project, environmental impacts occurring as a result of project construction and operation, and the effects of the facility on California energy markets. At the prehearing conference, parties addressed these issues somewhat more specifically.

a. Safety

The Commission has already expressed concerns about the safety of the proposed project, which involves the transport and processing of hazardous and potentially volatile gasses. The project is located in a highly-populated urban center and within a complex port facility. It is near earthquake fault lines in an area that is subject to liquefaction in the event of a major earthquake.

The Commission's Consumer Protection and Safety Division and community groups stated a need to consider the safety risks of the project. Among the issues the parties stated they are prepared to address are those related to seismicity, the structural integrity of the facility in the event of earthquake or other accident, the risks of pool fires, other hazardous materials at the port, and vessels breaching the docks. One party stated an interest in addressing the safety risks associated with the processing of ethane, butane and propane at the site. The Commission may consider these and any related safety issues.

b. Environmental Quality and Impacts

The Port of Long Beach is preparing an environmental impact report (EIR) on the proposed project, acting as lead agency under the California Environmental Quality Act (CEQA). The Commission is a responsible agency under CEQA, and intends to participate in the EIR process. This proceeding may consider all relevant environmental issues, including those addressed in the EIR and those relating to environmental justice. The Commission has jurisdiction to consider these matters separately from the EIR process in its role to protect the interests of the state and its residents and businesses. (Pub. Util. Code § 1002, D.01-10-029, D.03-10-018 and D.04-07-027.)

c. Effects on California Energy Markets

As proposed, the SES project could import up to almost 10% of California's natural gas supplies. The effects on the state's energy markets could be pronounced during periods of high demand or interruptions of supplies from other sources. To the extent the state relies on gas from the SES plant, supply interruptions could compromise system reliability. In addition, SES could be a vital source of gas supplies during an emergency. One party raised concerns about the effects of the LNG supplies on energy spot markets if SES does not commit its resource to long-term contracts. Another party stated a concern that SES may not have disclosed the intended market for its LNG and that the Commission should consider the relationship between SES and ConocoPhillip's oil refineries.

California law requires the Commission to assess the impacts of its decisions on competitive markets. In addition, the Commission may use related analysis to inform other policies, which might include the need for additional storage facilities in California, the reliability of natural gas supply for new power plants, or the need for long-term contracts from other resource basins.

The proposed project, as we understand it, would interconnect with the existing utility infrastructure; specifically, with the intrastate transportation and distribution systems of Southern California Gas Company. The Commission may consider whether the project, as proposed, would be safely and effectively interconnected to the existing system and whether the proposed project would provide reliable supplies of natural gas to California. Standards for interconnection and product quality are under consideration generally in
Rulemaking (R.) 04-01-025, the Commission's natural gas supply rulemaking. The related issues for this proceeding would emphasize the project's specific characteristics.

Because these issues may not be determinative of the Commission's decision on whether or not to issue a CPCN and in order that the Commission's consideration of them not delay this proceeding, the Commission will defer consideration of these issues to a later phase of the proceeding, assuming the project is approved by jurisdictional authorities and the project proponent proceeds with construction.

d. Project Need and Alternatives

The project as proposed requires a CPCN, which often involves an assessment of the need for the project. Congress has already determined in the Energy Policy Act of 1992 that imports of LNG are deemed to be in the public interest. The Commission need not determine whether LNG should be imported, although it may need to assess how the project may generally affect the state's need for additional gas supplies. This matter is being considered from a broader perspective in R.04-01-025.

At the prehearing conference, several parties suggested an interest in exploring the potential for renewable resources to help meet the state's energy needs. One raised the issue of the City of Long Beach's general plan and whether the project complemented that plan. Unions suggested they may present testimony with regard to the impacts of the project on labor and how the unions may promote safe and efficient operations at the facility. The Commission may consider all of these and any related issues, including a review of alternatives presented in the Port of Long Beach's EIR.