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Senate Defeats Bid to Give State Governors Power to Veto Onshore LNG Projects

In another key win for the natural gas industry, the Senate on Wednesday defeated an amendment that would have given state governors the authority to veto the siting of onshore liquefied natural gas (LNG) terminals.

By 52 to 45, the Senate agreed to table the amendment, which was offered by Dianne Feinstein (D-CA) and co-sponsored by several coastal state senators, that would have provided state governors with the same authority to veto, approve or attach conditions to onshore LNG terminals, as they currently have for offshore LNG facilities under the Deepwater Port Act (DPA).

Tabling the issue gives the Senate the option to bring up the Feinstein amendment later in the debate on the omnibus energy bill (HR 6), but sources believe it is unlikely that the Senate to do so. The Senate is expected to vote Thursday morning to end debate on the energy bill. Majority Leader Bill Frist (R-TN) said he was hopeful that a final vote on the bill would be held later in the day.

This was a major victory for the energy industry because existing language was retained in the broad energy bill that gives the Federal Energy Regulatory Commission "exclusive jurisdiction" over the siting of new LNG terminals. It also preserves the states' authority under various federal laws to hold up projects that they oppose.

The existing language was sponsored by Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, and Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the panel.

The vote was a setback for California and coastal states in the Northeast, which have objected to the siting of proposed LNG facilities in their areas and/or the lack of a significant state voice in the siting process.

The siting of LNG terminals is a "federal role under our Constitution," said Bingaman on the Senate floor. Giving state governors the right to veto onshore LNG projects "would turn the...process on its head," and would discourage investment in LNG projects.

Under Feinstein's amendment, state governors would be permitted to veto an LNG project after the National Environmental Policy Act (NEPA) and environmental impact statement (EIS) processes are completed at FERC, Bingaman noted. Governors could take this action without participating in the NEPA process at the agency.

Feinstein and other critics opposed the Domenici-Bingaman provision on LNG siting because they claim it gives FERC all of the authority and leaves the states with little or no role in the project-approval process. But Sen. Lamar Alexander (R-TN) reminded the states that they can thwart projects using their authorities under the federal Clean Air Act (CAA), Clean Water Act (CWA) and Coastal Zone Management Act (CZMA). State governors have "plenty of tools in [their] arsenal" to prevent the construction of LNG terminals that they oppose, he said.

"I happen to think the Domenici-Bingaman proposal [strikes] the right balance," giving FERC sole authority over the siting of LNG facilities, while preserving states' rights under the CZMA, CWA and CAA, Alexander noted.

"This may be the most important provision in the bill" because it could lower $7/Mcf natural gas prices to $5/Mcf, he said. "Our biggest challenge is the price of natural gas," even more than the price of gasoline, Alexander believes. "If we do not bring in natural gas...the price of natural gas may be $13 in this country."

"I do not oppose LNG sites in California," Feinstein said, adding that "clearly this nation is on its way to using LNG." But she argued that "states must have a role in siting LNG facilities in order to protect the welfare of their citizens."

LNG terminal projects should be sited where they pose the least danger to the public, not just where they make the most economic sense, Feinstein said. She noted that it was "nonsensical" to award states veto power over the siting of offshore LNG facilities, but not over onshore LNG terminals.

Outgoing FERC Chairman Pat said Wood said he met with Feinstein last week "and my conclusion was you really do already have this [veto power] on the onshore. It's not a pure governor's veto. It's actually one under the federal statutes that I think is very clear and time tested." What the senator is "interested in actually already exists," he said at a media briefing sponsored by Energy Daily.

Responding to a reporter's question, Wood noted that he didn't endorse the Feinstein amendment "and she didn't directly ask me to." He thinks the "current law on that -- on the state role issue -- is very robust for the states for the things that she's interested in."

Wood recently sent a letter to the senator in which he said, "I think the current law really satisfies the concerns that you and I talked about. So I don't think a change is needed in that regard."

"There is no intention in our legislation that local authority be usurped" with respect to LNG terminals, Domenici assured Feinstein and other colleagues representing coastal states.

Two controversial LNG projects -- the proposed 4.4 Bcf Weaver's Cove LNG terminal near Fall River, MA, and KeySpan LNG's proposed conversion of its existing 600,000 bbl LNG storage terminal in Providence, RI, to an import terminal -- and the Sandia Laboratories' findings on LNG hazards were referred to often during the debate Wednesday.

The KeySpan LNG project "poses serious risks to the state of Rhode Island and...Massachusetts," complained Sen. Jack Reed (D-RI), a co-sponsor of the Feinstein proposal.

But Bingaman countered that a FERC final EIS issued in late May found that the KeySpan LNG project fell short of the current federal safety standards, and may not go forward as a result. This shows that "FERC is doing its job," he said, adding that the agency is not trying to put LNG facilities in locations where it may be unsafe.

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