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Planned LNG plant faces utility, court hurdles

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Puget Sound Energy’s planned liquefied natural gas facility on the tideflats is facing challenges from state regulators, possible legal challenges and rising calls for additional environmental review by citizens critical of the project.
The private energy company has most of the permits required to start construction of an 8 million gallon facility at 1001 Alexander Ave. E. on the tideflats that would manufacture liquefied natural gas (LNG). The $275 million facility would then sell LNG to container ships and other commercial transportation customers seeking lower-emission fuels. Only Totem Ocean Trailer Express has signed on so far. Tanks would also store gas that the utility could tap into during the handful of unusual weather days each year when demand outpaces current supplies. Construction could start later this year if the remaining permits come through and legal challenges greenlight the project. The facility could open in 2019 following a construction timeline that could span three years.
But that timeline could change if critics have their way.
Washington Utility and Transportation Commission staffers and legal staff, for example, object to PSE’s request for a waiver on its original contract to allow the company to form a for-profit subsidiary to handle the unregulated sales of LNG to container shipping companies alongside the regulated storage for “peak shaving” use by utility customers. An Australian investment conglomerate called the Macquarie Group bought Puget Sound Energy in 2008 under the condition that the utility would not form a private company in a way that could open its 2 million customers to potentially higher rates or market risk. Spreadsheet wranglers call it “ring fencing” since the idea is to have clearly defined financial fences around any regulated utility expenses and those borne by a for-profit company and its investors on the unregulated free market.

“We believe that this is a really good project for both the company, its customers, the region and the environment,” PSE’s legal counsel Jason Kuzma said during a WUTC hearing. “… Due to the unregulated and the regulated nature of it -- it's sort of a square peg and we're trying to fit it into a regulatory round hole.”
Plans for the LNG plant, however, call for Puget Energy to form a separate company called Puget LNG to operate and own the tideflats location alongside Puget Sound Energy. The new company would share the cost of building and operating the facility and its 18 employees based on a yet-to-be determined formula. There are several examples of a utility co-owning power plants and other facilities with a private company. This would be the only facility of its kind in the country, however, since the “partners” would be owned by the same parent company.
“We can’t build a regulated standalone project and we can’t build an unregulated standalone project,” Kuzma said. “It’s the economies of scale that capture the benefits of the customers, which we project to be about $100 million… This is a once-in-a-generation opportunity to build this project that’s come about in large part due to environmental regulations facing TOTE. And if we do not seize this at this time, TOTE has the opportunity to seek other alternatives.”
So far the UTC has denied the waivers, citing that PSE is requesting to do something it specifically pledge in 2007 to never do when it sought approval of the ownership change.
“There may very well be broad merit to the plans offered by the company; however, the company’s proposals invoke novel and complex questions of law and policy,” UTC staffers summarized.

PSE has been in talks with state regulators for months to gain the contract waivers to no success so far. The utility commission held a status hearing on Tuesday, which ended with no decision as mediation continues.
The legal waters involving the proposed plant is equally muddy with the Washington State Shorelines Hearings Board recently rejecting an appeal by the Puyallup Tribe of Indians. The tribe had sought more environmental review concerning potential run off from the site leaking into the Blair and Hylebos waterways. An appeal to the board’s decision is almost certain.
Puget Sound Energy officials updated Port of Tacoma Commissioners on the project late last month since the corporate structure they want would require a change in the lease for the port-own land. The current lease lists the operator as Puget Sound Energy, so a shared facility would have to list both the regulated utility arm, PSE and the new for-profit entity, Puget LNG. Commissioners want both, or the parent company Puget Energy, named on the lease as a way to safeguard against cleanup expenses if the plant falters.
“That has been our history,” Commissioner Don Meyer said. “I don’t want to see the liability being transferred.”
In another wrinkle, a hearing on PSE’s appeal of a lower court decision regarding the release of emergency response scenarios to the grassroots environmental group RedLine Tacoma won’t reach a courtroom until early 2017. The City of Tacoma and a Superior Court judge have already determined the information should be released as public documents. PSE claims making those disaster-response information would make the plant vulnerable to terrorist attacks and should therefore remain secret.