Special Subcommittee on Energy


Minutes of the<MeetNo1> 3rd Meeting

of the 2003 Interim


<MeetMDY1> September 19, 2003


The<MeetNo2> 3rd meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> September 19, 2003, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Robert Stivers, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Robert Stivers, Co-Chair; Representative Tanya Pullin, Co-Chair; Senators David Boswell, Ernie Harris, Paul Herron Jr., Alice Kerr, and Joey Pendleton; Representatives Royce Adams, Rocky Adkins, Eddie Ballard, Carolyn Belcher, James Bruce, Buddy Buckingham, Dwight Butler, Fred Nesler, Tom Riner, Charles Walton, and Brent Yonts.


Guests:† Representative Jim Gooch, Bryan Stewart , Al Corbett, Myron Callahan, and Karyl Stewart, Tennessee Valley Authority; Randy Bird, Enviropower; Mike Gribler, Cinergy; Eric Gregory, East Kentucky Power Cooperative; Chris Bradley and David Crockett, Big Rivers Electric Cooperative; William Bowker, Deborah Eversole, Talina Mathews, and Kim Jenkins, Public Service Commission; Bill Malcolm and Ron McNamara, Midwest Independent System Operators (MISO); David Freibert, John Wolfram and Mark Johnson, Louisville Gas and Electric; Libby Marshall, Municipal Electric Power Association of Kentucky (MEPAK); Sue Nokes and Rich Gates, University of Kentucky.


LRC Staff:† D.Todd Littlefield, Dan Risch and Sheri Mahan.


Senator Boswell moved that the minutes from the previous meeting be approved.† Second by Senator Pendleton.† Minutes were approved by voice vote.


First, Dr. Ari Geertsema, Director of the University of Kentucky Center for Applied Energy Research, provided testimony regarding ongoing energy research effort by state public universities.† He stated that the research overlaps with several other disciplines within the eight universities contacted.† He detailed the various sectors where research regarding energy issues is being conducted, including agriculture, environmental, geological, and coal related areas.† He described the various funding sources available to the universities, which include state, federal and Electricity Producers Research Institute funding.† He then provided an overview of the research being conducted by each university, outlining the projects and the funding available for each, and discussed the research and development projects underway at the universities.† Finally Dr. Geertsema stated that the state universities are conducting good work, but there is little coordination and some overlap of projects.† He stated that with better coordination, the state could better utilize and leverage the funding available, with better progress being made toward Kentuckyís energy future.†


Senator Boswell asked Dr. Geertsema for suggestion on how to better coordinate efforts among the universities.† Dr. Geertsema replied that Kentucky needs to develop a solid energy policy for the state with guidance and oversight from Frankfort.† Senator Boswell then asked if Kentucky follows through on research and development projects. Dr. Geertsema stated that the universities tend to not completely follow through on marketing the projects developed.† The University of Kentucky does receive some royalties from various developed projects, but in general there is little marketing on developed technologies.


Representative Pullin asked why the aluminum industry is such a major electricity consumer in Kentucky.† Dr. Geertsema replied that aluminum production requires tremendous amounts of electric power.


Senator Stivers asked if any research is being conducted in Kentucky regarding electricity transmission and making it more efficient.† Dr. Geertsema stated that to his knowledge there is no research being conducted in that area.


Next, Mr. Craig Baker, Sr. Vice President for American Electric Power (AEP), discussed current electric transmission issues.† Mr. Baker discussed the pros and cons of the interconnection of electricity transmission systems and listed the transmission owing companies in Kentucky.† He outlined regional and national interconnection grid and provided a basic overview of how the transmission of electricity through several transmission grids works.† He provided a history of the changes in transmission regulation and the consequences of these changes to electricity generating companies.† He provided general information of the flow path of electricity through Kentucky, mapped out the major and lower voltage transmission system, and discussed the adequacy of the transmission system in the state.† He stated that the system was not designed to handle interstate transmission and upgrades are needed.† The major question is who should pay for these needed upgrades.† He discussed the Federal Energy Regulatory Commission Order 2000, which outlines a regional approach to transmission and mandated voluntary regional transmission organizations (RTOs).† He discussed the basic functions of RTOs, and the status of RTO participation in Kentucky.† He stated that Kentuckyís transmission system is stressed and that infrastructure development is slow.† He reinforced the need to maintain reliability within the changing role of the transmission grid.


Senator Boswell asked how many generation facilities exist within the Eastern Interconnect.† It was stated that the number would be in the thousands.† He then asked how many of those generation facilities are owned by AEP.† Mr. Baker stated that AEP owned 60 facilities.†


Senator Stivers asked what updates need to be made to Kentuckyís grid, what would be the costs, and who should pay for the updates.† Mr. Baker replied that improved communication and coordination between utilities and RTOs would be very beneficial.† Additional transmission lines are in planning stages which will help with the electricity flow within and through Kentucky and Mr. Baker discussed the process for getting a transmission line through the planning and construction phases.† It is hard to answer who should pay for these upgrades.† These are the policy debates that are ongoing at the federal and state level.†


Representative Buckingham asked what effects environmental regulations are having on the cost of electricity.† Mr. Baker replied that the proposed environmental regulations could have a significant effect on the cost of electricity.† Coal-fired plants are going to require upgrades and changes to meet the environmental regulations and the cost of electricity will most likely become higher.


Representative Pullin asked if the upgrades to the transmission system are needed to provide reliable electricity to Kentuckians.† Mr. Baker stated possibly yes.† If Kentucky did not interconnect outside the state, then additional generation would be needed to be built to provide electricity throughout the state.† Kentuckyís ability to import power when needed is necessary to keep the stateís electricity prices low.† Mr. Baker stated that Kentuckyís utilities regularly import electricity from interconnected systems.† He stated that traditionally upgrades made to the transmission system stay within that state and are borne by the ratepayer.† More recently there has been discussion of spreading the costs of additional transmission out regionally.†


Representative Adkins asked how AEP would handle the costs of building new transmission lines.† Mr. Baker stated that AEP would have to petition the Public Service Commission through a rate case to pass the costs on to the electricity consumer through a surcharge.†


Representative Pullin asked if regional electricity rates are higher in neighboring states than in Kentucky.† Mr. Baker stated that Kentuckyís rates are slightly lower than in the rest of the region.†


Next, Mr. Karl Pfirmann, President of the Western Region for PJM Interconnection, discussed the role of the RTO in transmission reliability and security.† Mr. Pfirmann discussed the role of the RTO in regional transmission.† He outlined the history of PJM and PJMís corporate structure.† He discussed the regional scope of PJM, outlining its generation resources, territorial jurisdiction, miles of transmission lines, and number or regional energy transactions per year.† He stated that PJMís function is to protect the energy reliability in the region that it serves.† Mr. Pfirmann discussed PJMís operating markets including a voluntary bid-based energy spot market, spinning service, ancillary services, capacity market and FTR market.† He stated short-term reliability is maintained through real time system monitoring and long-term reliability through regional planning.† He discussed the benefits of membership in a RTO to its members.† He discussed PJMís participation in developing a common wholesale market with MISO, Tennessee Valley Authority, and Southeastern Power Producers (SPP), outlining the scope of this common market and the progress that is being made in the discussions.†


Finally, Mr. Robert McNamara, Vice President of Regulatory Affairs and Chief Economist, Midwest Independent System Operator (MISO) discussed the background of this RTO.† He provided a history of the formation of RTOs and the history of MISO.† He discussed the scope of MISO, outlining their generation capacity, transmission system, assets and customers served.† He stated that MISO is the only RTO currently operating in Kentucky, with Louisville Gas and Electric as a founding member.† MISO has twenty-three transmission owning utility members, and was the nationís first FERC approved RTO, beginning operation on December 15, 2001.† He outlined MISOís member services, which include evaluation and scheduling of wholesale transmission, billing and settlement via FERC approved tariffs, coordinating regional reliability, standardizing generation interconnection agreements, and long term regional transmission planning.† Mr. McNamara briefly discussed possible transmission constraints that could effect transmission into and out of Kentucky.† He outlined the current activities of MISO, including membership on the task force investigating the recent blackout, reliability enhancements, and participating in the joint and common market initiative with PJM, TVA and SPP.


Representative Pullin asked how the functions of the RTO were conducted ten years ago.† Mr. McNamara stated that the RTO functions were handled on a utility per utility basis.† Mr. McNamara stated that while participation in an RTO is voluntary, the coordination of the flow of electricity on the transmission system is not.† Only the participation in the pricing system is voluntary.†


Representative Ballard asked how many RTOs are functioning in the nation and do they help to lower electricity prices to the customer.† Mr. McNamara replied there are currently five RTOs nationwide.† Mr. Pfirmann stated it is felt that RTO participation does help to lower electricity prices.†††


Senator Stivers asked for the RTOs and utilities to provide the committee with ideas of how to expand Kentuckyís transmission system to become a regional energy exporter without creating increasing the costs to Kentucky consumers.


Being no further business, the meeting was adjourned at 12:40 p.m.