The 1st meeting of the Budget Review Subcommittee on Economic Development and Tourism, Natural Resources and Environmental Protection of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, June 4, 2009, at 10:00 AM, in Room 169 of the Capitol Annex. Representative John A. Arnold Jr., Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative John A. Arnold Jr., Co-Chair; Senators, David E. Boswell; Representatives Tim Firkins, Jim Gooch Jr., Dennis Horlander, Dennis Keene, Ruth Ann Palumbo, Marie Rader, Fitz Steele, Jim Stewart III, and Robin L. Webb.
LRC Staff: Melissa Hagan, Perry Papka and Christina Williams.
Chairman Arnold welcomed everyone to the meeting and introduced Dr. Len Peters, Secretary of the Energy and Environment Cabinet to approach the committee. Secretary Peters introduced John Davies who is from the Department for Energy Development and Independence and has been overseeing the program planning for the stimulus dollars. Secretary Peters also introduced Brandon Nutall from Kentucky Geological Survey to help with any questions that may arise. Secretary Peters then discussed the Hancock County Carbon Sequestrian Project and also the Federal Stimulus Funds for Energy and Environment.
Senator Boswell thanked Secretary Peters for his presentation and asked if the Energy Efficiency and Conservation Block Grant Program, where monies have been designated to go back to cities and counties, were based on population and if it was, if the population used was from the 2000 census.
Mr. Davies responded that the money coming from the U.S. Department of Energy to the top 20 entities in the state is based on population from the 2007 census. He further stated that the money that will flow through the cabinet in collaboration with the Department of Local Government will be on a merit basis on project evaluations. Therefore the $6 million that will be distributed to the smaller counties and cities will be based on energy saved, renewable energy generated, and jobs created.
Representative Gooch stated that there is a real opportunity to use some of the onetime stimulus money to invest in projects that are going to save money and in some cases make money in the future for the state. He stated that he is excited to hear some of the ideas being brought forth to the committee by the Cabinet. Representative Gooch indicated that he understood the stimulus money has to be spent in certain areas and certain things do not qualify, however the fact that the state has the unanticipated money means that hopefully the state can have savings and free up money in other areas. He hopes that it is being looked into to see if there are savings in other areas to be had. Representative Gooch also stated he wonders if some of the funds saved could be shifted to helping people obtain mining permits. He stated that each of those permits allows for economic activity for the state increasing employment and taxes. He indicated that he hopes the Commonwealth does not lose sight in trying to find a chance to make sure that they are doing a better job at issuing the permits and that a goal needs to be set in getting money to do that job more efficiently.
Secretary Peters responded that as the funds are being evaluated, there are two things considered. One thing considered is how can the monies augment funds for existing programs. He stated that he does not know what is going to come of the clean coal competitive grant program at this time. He also stated the next thing considered is the programs that the General Assembly has tried to get initiated but there were not adequate funds to do so, for example, broadening the KEEPS program for energy efficiency in schools. Secretary Peters stated that thus far, there have been no funds that have been received by their office through any of the formulas that would enable them to act upon the suggestion made by Representative Gooch on mine permits. He stated the issue of energy efficiency and energy conservation is what is being pushed by the Department of Energy. He indicated the Cabinet is constantly monitoring all programs that may assist them in doing new things but supporting things that are ongoing as well, however funds are limited.
Representative Gooch stated he is glad to see these things occurring, but that it is almost inconceivable to see the federal government give the State of Kentucky $4.1 million for underground storage tank clean up when the state has taken hundreds and millions of dollars out of the fund we have to shift it to other things.
Representative Steele asked if it has been taken into consideration that coal is going to be down a significant amount this year and that there is a big budget shortfall and coal severance taxes are going to plummet as well.
Secretary Peters stated that there have been no programs funded by stimulus money that would fit in that particular category at this time.
Representative Steele stated that the state is up this fiscal year on coal monies, however next fiscal year we will be down and he does not want that to catch the Commonwealth by surprise.
Senator Boswell complimented the Kentucky Geological Survey, the Energy Cabinet and all of its partners on a job well done and further stated that he was impressed by what he observed in Hancock County.
Senator Harris stated there is still some debate if carbon sequestration is the right thing to do, however he does not know if the items related to coal are settled yet. He stated that everyone on this committee, the Agricultural committee, and the Natural Resources committee have been looking into this subject for years and all are very educated about it. Senator Harris stated there have been questions in the previous year on the future of coal, which affects the state. Because of these questions, he is worried about the electric rates and how they would fluctuate.
Senator Harris asked if there are any strings attached to the money and whether there are any warning signs that the state needs to be cognizant of that could affect the state negatively.
Secretary Peters stated that much of what is going on in the state energy program and the Energy and Efficiency Block Grant Program are very much efficiency oriented, which is good for the state because if the state can meet the energy efficiency goals that are laid out in the Governor’s plan it can in fact really meet a significant part of the energy demand by 2025. He further stated the best thing to do is to push efficiency as far as possible because it is the cheapest and best way to keep energy costs low. The programs the Cabinet sees developing are perfectly aligned with where the General Assembly wants the State to go and where the administration wants the State to go in the efficiency area. Furthermore a lot of discussion on biomass and biofuels are now occurring. There is talk of co-firing biofuels and agricultural biomass with coal to begin to obtain carbon offsets, which is positive. Nevertheless, the industry that will be hit the hardest is the electric utilities industry. There are estimates on the increases in rates that are anywhere from 20% to 80%. Secretary Peters added that many studies indicate that Kentucky will probably be one of the five hardest hit states in terms of electric utilities, so the Cabinet is working as hard as possible to help prevent the increases as much as possible.
Secretary Peters stated there are a couple of people missing from the table at the Federal level to discuss energy issues, such as the Secretary of Commerce, the Secretary of Agriculture and the Secretary of Transportation. He stated he believes there is a slow movement at the Federal level towards the realization that five green jobs cannot be created and in the process lose ten traditional jobs. He stated the uncertainty surrounding the Waxman-Markey legislation would ultimately take.
Senator Boswell stated that he would like to know more about the tests that are being done in Hancock County.
Jim Cobb, State Geologist and Director of the Kentucky Geological Survey, addressed the committee on more details having to do with the Hancock County project.
Representative Steele asked Secretary Peters to estimate how much the electric utility rates in Kentucky will increase.
Secretary Peters stated that not only will residents be hit, but that the manufacturing businesses in Kentucky will be hit hard as well with an increase. He further stated that if there is an immediate change overnight in carbon management, the rates could approximately double. He stated that if there were a gradual change, between now and the year of 2020, and there is time to introduce clean coal technologies, there will be an increase of approximately 20-25% in the rates.
Representative Rader asked if any of the stimulus dollars issued could be used for conservation of energy for the schools and if so if there are any grants that may be looked into in order to accomplish that.
Secretary Peters stated the KEEPS program is directed along those lines. He stated the KEEPS program would put an expert in the school districts to show them how to do that.
Mr. Davies stated there was a pilot program in the last few years to develop energy efficiency program for schools. He stated there are savings of 10 to 15% because of this program.
Chairman Arnold asked if Secretary Peters knew what percentage of the stimulus money coming into the Energy Department is used for administration of the programs that have been mentioned.
Secretary Peters stated that about 3.4% of the money will be used administration.
Chairman Arnold stated the money used for more research to bring coal to the front as one of the energy sources is not money wasted, but well invested.
Chairman Arnold adjourned the meeting at 11:20 A.M.