The 2nd meeting of the Interim Joint Committee on Agriculture and Natural Resources was held on Wednesday, July 9, 2008, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Jim Gooch Jr., Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representatives Jim Gooch Jr., Co-Chair, and Tom McKee, Co-Chair; Senators Ernie Harris, Dan Kelly, Bob Leeper, Vernie McGaha, Joey Pendleton, Dorsey Ridley, Brandon Smith, and Damon Thayer; Representatives Scott Alexander, Dwight D. Butler, Mike Cherry, Hubert Collins, James R. Comer Jr., Tim Couch, Mike Denham, C. B. Embry Jr., Richard Henderson, Jimmy Higdon, Charlie Hoffman, Reginald Meeks, Brad Montell, Fred Nesler, David Osborne, Sannie Overly, Don Pasley, Tanya Pullin, Marie Rader, Tom Riner, Steven Rudy, Dottie Sims, Jim Stewart III, Greg Stumbo, Tommy Turner, Ken Upchurch, and Robin L. Webb.
Guests: Tim Mosher, James Keeton, and Jan Harris, American Electric Power; Bill Bowker, Governor’s Office of Energy Policy; Dan Zaluski, SMG; and Mike Gribler, Duke Energy.
LRC Staff: Tanya Monsanto, Lowell Atchley, and Kelly Blevins.
A quorum being present, Rep. Gooch asked for approval of the June meeting minutes. After a motion and a second, the minutes were approved. Sen. Thayer then gave the report of the Subcommittee on Horse Farming. Then Sens. McGaha and Harris gave the reports of the Subcommittee on Rural Issues and Natural Resources, respectively. All three reports were approved after a motion and a second of the committee.
Rep. Gooch thanked everyone for being in attendance at the meeting and for continuing the discussion of energy. He discussed the supply disruption that occurred in the 1970s when the United States imported only 20% of its oil. Today, the United States imports over 62% of its oil. Policymakers who have prevented domestic development of energy resources have affected multiple types of energy uses. During the June meeting, the committee focused on transportation fuels. This meeting, we will discuss the future of electricity rates.
Tim Mosher, President and CEO of American Electric Power and Dan Yates with the Kentucky association of Electric Cooperatives gave testimony. Mr. Mosher’s presentation is on public file with the LRC library. Mr. Mosher stated that the presentation reflects the efforts of all the regulated electric utilities and then described the size, net worth, and investment that regulated electric utilities have made in electricity assets. Mr. Mosher explained the relationship between the increased demand for electricity resources and the new environmental regulations that have added costs to generation. Simultaneously there are new technologies to reduce emissions and the potential costs of climate change and carbon dioxide constraints. The climate change issue is one of the biggest cost drivers for coal.
Kentucky ranks 12th in the production of carbon dioxide, and Kentucky burns coal for 95% of its electricity generation. Kentucky will need to increase electric generation by approximately 2,000 megawatts by 2025. These two factors impact the amount of carbon produced by Kentucky. Then, Mr. Mosher described various climate change proposals such as Kyoto and the Lieberman-Warner bill. Mr. Mosher described how the electricity bills of a typical Eon customer would change with the advent of carbon constraining legislation such as the Lieberman-Warner bill. He provides three different estimates for the future cost of carbon in 2020 and 2030 and stated that the price of carbon is expected to increase in outgoing years. This will impact costs across the nation differently. The Midwest cost per household is expected to be $2,021 which is higher than most areas of the nation with the national average being $1,740.
Mr. Mosher discussed the impact to Kentucky jobs, household income and electricity prices. There will be between 15 to 23 thousand job losses by 2020 with additional losses in 2030; household income will lose significant incomes; and electricity prices will increase as much as 159% by 2030. There are corresponding loses in gross state product, coal production, and electricity production. However households will have to spend a larger proportion of their income on energy including schools and hospitals which may see dramatic increases.
Mr. Mosher recommended certain efficiency measures including increased commitment to renewables, as feasible, to reduce energy consumption. These measures can reduce Kentucky’s carbon emissions. He discussed demand side management and described Kentucky’s limited ability to utilize renewable resources. However there are other options such as nuclear and advanced coal generating technologies that can reduce carbon emissions and meet the demand growth. There are the continued efforts in carbon sequestration and storage and the potential from electric vehicles. These can reduce Kentucky’s emissions.
Legislation is unlikely to pass until 2011 and caps would not be imposed until 2015. There are likely to be markets and trading of emissions credits. Also new technologies may come on line between now and then.
Rep. Collins asked how many tons of coal is burned on an average day and do Kentucky’s utilities reburn coal. Mr. Mosher replied approximately 100,000 tons per day. Most of it is Kentucky coal. Mr. Mosher agreed to compile data on the percentage of Kentucky coal used by each of the utilities. At the moment, Kentucky does not reburn any coal. All of the carbon goes out the stack.
Rep. Collins described a company in Martin County that reuses certain municipal household wastes to reduce emissions producing only a small amount of ash and residual metals. They have a $9 million investment. They are seeking permit approval. Mr. Mosher responded there are projects were municipals operate trash burning power plants, but none have been sustainable.
Rep. Pasley asked if carbon restrictions will pass and is Kentucky doing enough on the issue of carbon sequestration. Can you recommend other policy approaches? Mr. Mosher replied that Kentucky should reexamine demand side management. There are incentives that utilities can offer to reduce consumption but we need more funding for research in the carbon management area. Some have proposed dedicated surcharges to fund research.
Rep. McKee asked if the Northwest power prices are lower due to renewable resources. I read about a wind farm in Northern Indiana and there are new hydro plants. Can you elaborate on this? Tim Mosher yes renewables are a better option in the Midwest. He stated that wind is cheaper because it is a natural phenomenon. There are no new hydro plants. The hydro in our area is used to control flooding.
Rep. Gooch stated that it will take all types of resources to solve the energy problem. He asked about steel prices for making wind turbines and about the grid’s ability to sustain fluctuations in power generation from wind. Mr. Mosher responded that American Electric Power is a winter peaking company but summer peaking is more common today. Certain demand side management and net metering policies have made it more attractive.
Rep. Stumbo stated there is a long-standing relationship with University of Kentucky. Can you provide an overview of this? Mr. Mosher discussed the relationship with the Center for Applied Energy Research and their studies to reduce carbon. One study is looking at capture and another at storage. The scale is small.
Sen. Leeper stated in the past session there were incentives for industry to conduct demand side management in state buildings. Are there other ideas for DSM? Mr. Mosher stated Kentucky should look at integrated gasification combined cycle (IGCC). Sen. Leeper discussed a nuclear power bill from 2008 which he intends to refile. Kentucky should not take itself off the nuclear power map. Mr. Mosher stated that Southern Company could discuss why they are looking at nuclear power as a future option.
Rep. Pullin gave Sen. Harris and Rep. Moberly credit for the net metering bill and asked about the impact on the cooperatives. Mr. Yates responded the cooperatives think a measured carbon approach can keep costs under control. We need reasonable goals and cap and trade. Surcharges with dedication to research and development can help. This money would not go into the general fund but be used for clean coal technologies, renewable and alternative fuels.
Rep. Gooch stated his concerns with the interrelationship between fuel stock and unintended consequences of fuel switching. Mr. Yates replied the surcharge approach is practical because it spreads the cost across families and does not penalize for the type of fuel used such as coal.
Rep. Embry asked if the utilities are looking at alternative fuels like solar and wind. Mr. Mosher replied yes. However sustainable winds are a problem in Kentucky and solar is too because of hazy days. Rep. Sims then introduced a guest and Rep. Gooch asked Mr. Bill Bowker to provide an update on the Kentucky coal industry. He stated that coal production is increasing and talked about the growth in export markets and supply disruptions. As a result of these factors, spot prices have surged. Demand for US coal remains strong, even metallurgical coal is up.
Rep. Webb asked how energy policy is dealt with at the congressional level now that Kentucky has an energy office. Mr. Bowker responded that Kentucky needs to impact energy legislation. He deferred to Secretary Peters who would likely be interacting with the Kentucky congressional delegation. Mr. Bowker suggested resolutions as a method of expressing the intent of the General Assembly. They have worked in the past.
Rep. Gooch stated that the meeting reinforces that Kentucky needs to take a proactive stance on energy issues. Mr. Bowker remarked on the importance of domestic resource development. Rep. Gooch provided an update on the half pricing issue discussed during the June meeting. Rep. Gooch stated even though there is a new regulation in place to allow half pricing, the pump owners cannot set the pumps to prevent overages. Rep. Ridley state that his constituent has pumps that cannot register over $3.99/gallon and this continues to be a hardship for retailers. We need more time to get the new pump technology.
Rep. McKee commented that Rep. Adams is a distributor and brought the issues to the committee’s attention. In rural areas with small stations, this is a problem. Rep. Gooch asked a letter be written to the Department of Agriculture expressing the problems that continue with half pricing and requesting the regulation is extended and modified.
There being no further business the meeting was adjourned.