The 1st meeting of the Subcommittee on Natural Resources of the Interim Joint Committee on Agriculture and Natural Resources was held on Wednesday, June 18, 2003, at<MeetTime> 10:00 AM, in the Grande Ballroom of the Madison Center in Covington, Kentucky. Senator Ernie Harris, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative James Gooch, Co-Chair; Senators David Boswell, and Paul Herron Jr; Representatives Rocky Adkins, Hubert Collins, Tim Couch, and Brandon Smith.
Guests: Commissioner Martin Huelsmann, Public Service Commission; Larry Brown, Veto the Vet; Kori Jones, Kentucky Farm Bureau; Terry Garman, Kentucky Department of Agriculture; Eric Gregory, East Kentucky Power Co-op; Van Needham, Cinergy; and Greg Pauley, American Electric Power.
LRC Staff: Tanya Monsanto, Kelly Blevins, and Randy Smith.
Senator Harris called the meeting to order and the secretary called the roll. Senator Harris thanked the subcommittee members for their attendance and the Northern Kentucky hosts for the accommodations. Sen. Harris called Martin Heulsmann, chairman of the Public Service Commission (PSC) and the Kentucky Board on Electric Generation and Transmission Siting (hereafter referred to as Siting Board) to provide testimony on the implementation of SB 257.
Chairman Huelsmann thanked the subcommittee members for receiving his testimony. He discussed implementation of SB 257, reasons for declines in power plant siting in Kentucky, lessons learned about the siting process and necessary changes to the siting law.
Chairman Huelsmann described the key components of the Siting law including the importance of local participation on the Siting Board and the conduct of the site review process. He also discussed the importance of having a 30-day notice of intent to file an application with the Siting Board, the administration of the application fees, and the requirements for a local public and an evidentiary hearing. Chairman Huelsmann then identified those power plants that filed for a certificate from the Siting Board and some of the key aspects of each project. The following key trends were discerned after a review of the applications. First, there were fewer than anticipated applications filed with the Siting Board. Second, soft energy markets and restricted capital availability prevent many projects from going forward. Third, projects that are going forward are coal-fired.
Regarding the Siting Board’s legislative agenda, Chairman Huelsmann stated that three items are of importance. First, the 30-day notice of intent needs to be a statutory requirement. Second, the right of administrative appeal needs to be clarified. Finally, the Siting Board needs enforcement powers. Chairman Huelsmann spoke about rising natural gas prices. Injections into cavern storage are small compared to anticipated demand. Currently injections are taking place at the price of $6.30 to $6.50 mcf. If there is a hot summer and cold winter natural gas prices could triple.
Senator Harris asked if a 30-day extension of time for the Siting Board to approve or disapprove applications and a 30-day notice of intent would be helpful. Chairman Huelsmann stated that it would be helpful.
Senator Harris asked if industry would like to give comment on the idea of a 30-day extension. Chairman Huelsmann noted that there were no independent power producers in the audience.
Representative Gooch expressed reluctance to pass any measures creating unnecessary hurdles to siting electric generation in Kentucky. Rep. Gooch commented that Pioneer had been planned for years before the creation of the Siting Board and asked why they needed to go before the Siting Board. Chairman Huelsmann replied that Pioneer is a merchant electric generator and the siting statutes require merchant plants to comply with local planning and zoning. The site for Pioneer is zoned agricultural rather than industrial. The site is owned by East Kentucky Power Cooperative (EKPC). The existence of EKPC facilities must have predated planning and zoning restrictions. Pioneer is going through planning and zoning now, and the Siting Board will hold an evidentiary hearing.
Representative Gooch stated that Kentucky needs a project like Pioneer. It is coal-fired and utilizes funds from the Department of Energy. The Siting Board created a reopener for legally opposing the Pioneer plant. Chairman Huelsmann responded that the Siting Board does not oppose coal gasification plants. They are the future of the coal economy.
Senator Harris asked if once a project obtains planning and zoning approval will there be a hearing. Chairman Huelsmann responded that planning and zoning will permit or reject the project. Afterward, the Siting Board will hold an evidentiary hearing.
Representative Collins asked a series of questions. First, how effective is local representation on the Siting Board? Second, why does Kentucky have low electric rates and are the environmental costs directly passed through to the consumer? Finally, will the increase in natural gas prices affect the plants coming on-line? Chairman Huelsmann replied that local membership on the Siting Board works well. Regarding the environmental surcharge, only a miniscule amount is passed through on a month to month basis. Regarding electricity rates, Kentucky has performance based rates to increase efficiency. Older plants continue to produce power cheaply, there is good management at our utilities, and a cooperative relationship between the PSC and utilities. Regarding the impact of rising natural gas prices, most of our utilities share export profits with the ratepayer so exports should lower the rate to the consumer. However, many natural gas plants will not come on-line as planned.
Representative Adkins remarked that Kentucky has the cheapest rates in the nation and 98% of our electricity is produced from coal. He stressed the importance of coal to the economy and the ratepayers and opposed use of natural gas for baseload generation.
Representative Gooch commented that mines aren’t making money. He discussed mine closures, unemployment rates, and the cutting of funding for the Kentucky Coal Council. He asked where Kentucky purchases natural gas from? Chairman Huelsmann stated that Kentucky gets its natural gas from the Gulf and expressed concern that no drilling is occurring in Western Kentucky.
Representative Gooch also expressed concern that natural gas is competing with coal as a baseload fuel for generation. This is causing home heating costs to rise and the PSC should be keeping tabs on the relationship. Chairman Huelsmann stated that some experts think natural gas is improperly used for generating electricity.
Senator Herron inquired about Henderson’s Cash Creek power plant and commented that Indiana’s regulatory environment creates fewer permit barriers. Henderson has lost one plant to Indiana already. Chairman Huelsmann commented that he didn’t know much about the Cash Creek project.
Representative Adkins remarked that coal companies are facing capital problems and coal prices remain low. Representative Collins asked whether Indiana is in the same EPA region as Kentucky. Chairman Huelsmann replied that Indiana is in a different air permit evaluation area.
Senator Harris remarked that Kentucky falls into the Atlanta region. He asked if the Atlanta region and other regions are treated similarly by EPA. Senator Harris asked utility representatives present to speak to the issue. Greg Pauley with American Electric Power (AEP) replied that compliance is the same, but offices might run a little differently. The standards for evaluating compliance are the same for the different regions.
Representative Adkins asked if regions implement similar policies. Rusty Cress with AIK stated that there are differences between regions. Using how different regions evaluate toxicity as an example, Indiana may view one constituent as harmless whereas Kentucky will view it as dangerous.
Senator Harris asked Mr. Cress if the differences were attributable to EPA or the Natural Resources and Environmental Protection Cabinet. Mr. Cress stated it was due to the Cabinet.
Representative Smith remarked that the public considers coal to be an obsolete fuel. Chairman Huelsmann commented that states must be vigilant. US EPA would mothball many coal-fired plants and replace them with gas if possible. We think this is imprudent.
Senator Harris encouraged anyone attending ALEC or NCSL to attend meetings about emissions limitations and talk to experts on the subject. Representative Collins reminded the Natural Resources subcommittee of AEP’s invitation to visit the Big Sandy electric plant in Louisa, KY.
Gregg Pauley with AEP introduced himself and invited the members of the subcommittee to the Big Sandy plant in Louisa, KY. The tour will be on July 14, 2003. AEP will have a plant manager and environmental staff on hand to answer questions. We will provide lunch and asked that the attendees please respond at their earliest convenience.
Senator Harris asked if there was any more business to come before the subcommittee. Seeing none, Senator Harris asked for a motion to adjourn.
The meeting adjourned at approximately 11:30 a.m.