Special Subcommittee on Energy


Minutes of the<MeetNo1> 1st Meeting

of the 2005 Interim


<MeetMDY1> June 17, 2005


The<MeetNo2> 1st meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> June 17, 2005, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Tanya G Pullin, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Tanya G Pullin, Co-Chair; Senators Walter Blevins Jr, Denise Harper Angel, Ernie Harris, Vernie McGaha, Katie Stine, and Johnny Ray Turner; Representatives Royce W Adams, Rocky Adkins, Eddie Ballard, Carolyn Belcher,  Dwight D Butler, Bob M DeWeese, J R Gray, Lonnie Napier, Rick G Nelson, Tom Riner, and Brandon D Smith.


Guests: Jason Moseley, Director, Division of Policy Development, Cabinet for Health and Family Services; Steve Stivers, Executive Director, Bluegrass Community Action Agency; Chris Whatley, Director of International Affairs, Council of State Governments; Jason Bentley, Executive Director, Kentucky Office of Energy Policy; Tom Talbery, Big Rivers Electric Corporation; Patrick Flower, Cabinet for Health and Family Services; Libby Marshall, Executive Director, Municipal Electric Power Association of Kentucky; and Ari Geertsema, Director, UK Center for Applied Energy Research.


LRC Staff:  D. Todd Littlefield, William Bowker, and Rhonda Carter.


Chair Pullin stated that Representative Yonts was absent due to his serving as a pallbearer in the funeral of former Representative Phillip Stone.  Chair Pullin also noted the deaths of former Senator Tom Easterly and of Representative Nesler’s father and asked for a moment of silence in memory of the three.


Chair Pullin introduced Jason Bentley, Executive Director, Kentucky Office of Energy Policy (KOEP). Mr. Bentley introduced John Davies, Director, Division of Renewable Energy and Energy Efficiency and Bill Higginbotham, Director, Division of Fossil Fuels and Utility Services.  Mr. Bentley surveyed the formation of KOEP, the development of the Commonwealth Energy Policy, recent and upcoming activities of the Office, and the status of Executive Orders that were issued on February 7, 2005, as part of the Kentucky Comprehensive Strategy.


The Executive Orders and their status follow: 


1.                  Executive Order 2005-120 - the Kentucky Public Service Commission (PSC) is investigating the interaction of federal and international agencies with the Commonwealth’s Energy Policy and will report by August 7, 2005.

2.                  Executive Order 2005-121 - The PSC is analyzing projected electricity needs, resources, and barriers to technologies and will issue a Strategic Blueprint in August, 2005.

3.                  Executive Order 2005-122 - the Finance and Administration Cabinet and the KOEP have established an Energy Savings Council and are working toward a plan to achieve a savings of 10 percent or more in state government energy expenditures.

4.                  Executive Order 2005-123 - the Environmental and Public Protection Cabinet is investigating opportunities to improve permitting activities for coal and is on track to present recommendations in November, 2005.

5.                  Executive Order 2005-124 - the Transportation Cabinet is taking several actions to expand the use of clean fuels, including increased use of ethanol and biodiesel and addition of hybrid vehicles to the state fleet.


In response to a question from Representative Gray, Mr. Bentley and Mr. Davies explained the use of compressed air in electricity generation and industrial processes and energy saving opportunities presented by these.


Chair Pullin asked about the location of KOEP and about its staffing and resources.  Mr. Bentley stated that the office is on the 12th floor, Capital Plaza Tower, has 12 employees, and is working with the Energy and Environment Consortium in Western Kentucky on a grant RFP.


Senator Harris asked if KOEP is keeping track of developments in energy production and federal and state policies affecting it as well as energy usage.  Mr. Bentley responded that KOEP is trying to build its ability to focus on production side issues including coal, coal bed methane, and natural gas.  With EPPC as the lead agency in emissions issues, KOEP is also focusing on the impact of emissions regulations on energy production and noted that Kentucky has a leading authority in mercury issues in Western Kentucky.


Chair Pullin asked if KOEP knows if the ethanol and biodiesel being utilized came from Kentucky-grown agricultural products.  Mr. Bentley responded that a substantial amount of Kentucky agricultural products is going to ethanol and biodiesel, but he is not sure if there is a direct link with the fuels being used in the Commonwealth.


Senator Blevins asked about Kentucky’s oil shale resources. Mr. Bentley stated that Jim Cobb, Director, Kentucky Geological Survey, had informed him that the resources are very large.  Mining problems have restricted oil shale development.  With today’s oil prices and the technology, described by Senator Blevins for onsite production of oil while freezing the production zone to protect groundwater, oil shale is a potentially important replacement for imports.


Representative Smith asked KOEP to look into permitting problems that prevent the donation of coal encountered in construction projects to such entities as school districts that could benefit from the money from the sale of the coal.  Currently, developers are advised to spoil the coal by burying it offsite.  Representative Smith stated that 300,000 tons of coal had been wasted in the past year or so.  Chair Pullin stated that Executive Order 123 might be a good opportunity to consider the problem.  Representative Adkins stated that, if the coal is removed by government, it may be sold, but if removed by a private entity, the red tape is prohibitive. Usually the coal is spoiled.  The regulations pertaining to removal of coal in government projects may offer a place to begin. The problem is the result of concern over wildcat mining.    Mr. Bentley stated that KOEP will look into the matter.


Representative Adkins asked if Mr. Bentley agreed that the United States can become energy independent, and cited the production of transportation fuels from coal in World War II Germany and currently in South Africa, the potential for hydrogen from coal to be used in fuel cells, and the immense impact on energy prices of China’s growing energy demand.  Representative Adkins stated that the U.S. must get serious about developing the technologies for energy security and for economic prosperity.  Although energy policy is difficult to form and can’t be done quickly, Kentucky is in the driver’s seat.  Chair Pullin pointed out that the Special Subcommittee on Energy had drafted a resolution in which the General Assembly made similar points and stated that Kentucky can be a national leader in energy.  Mr. Bentley agreed that the U.S. can become energy independent and that Kentucky is well-positioned to be a national leader.


Representative Pullin announced that American Electric Power would announce today plans for environmental upgrades, including $300 million for scrubbers at the Big Sandy Power Plant at Louisa.


Chair Pullin thanked Mr. Bentley for his presentation and introduced Mr. Chris Whatley, Director of International Affairs, Council of State Governments, Lexington, KY  (Washington, DC office). Mr. Whatley discussed how states can and should influence American trade policy and how a growing body of trade agreements impact the energy interests of Kentucky.  Mr. Whatley stated that, e.g., tribunals set up under NAFTA to settle disputes between investors and countries have ruled in ways counter to U.S. jurisprudence and have approved retaliatory actions that can affect trade in a commodity, e.g., coal, not directly related to the dispute.  Also most Favored Nation agreements under the General Agreement on Tariffs and Trade and the World Trade Organization can affect “energy services” in unanticipated ways, perhaps affecting rates charged for energy or opening to firms in other nations competition for security-sensitive projects such as natural gas pipelines or LNG facilities.


Mr. Whatley stated that, although we are not likely to see basic constitutional jurisdiction threatened, states do need to monitor and influence such trade agreements.  He described two major mechanisms for doing so, the State Point of Contact (SPOC) and the Intergovernmental Policy Advisory Committee (IGPAC), both attached to the U.S. Trade Representative (USTR).  He recommended that state legislatures give a mandate to the SPOC through legislation requiring, e.g., reporting to the legislature at set intervals, expanding staff, etc.


Representative Napier stated that the United States follows international guidelines but many other countries do not.  He also stated that it is not good for the federal government to support the transfer of jobs overseas and that currently high-tech jobs are going overseas along with low-wage jobs. Representative Napier stated that every state should send a resolution to Washington stating that they are not too happy with NAFTA.  Chair Pullin agreed that the states should communicate better with the federal government on these issues.


Senator Harris asked about the extent to which actions are being taken under treaties or under more general agreements implemented by government agencies and whether the more effective point of influence would be the White House or government agencies such as the U.S. Department of Commerce.  Mr. Whatley said that an increasing number of actions are agreements which, unlike treaties, are not on par with the Constitution.  The most effective point of influence in either case is the USTR who is a cabinet-level advisor to the President. Chair Pullin stated that the USTR is Rob Portman, who was a U.S. Representative from the Ohio district bordering northeastern Kentucky and who understands Kentucky concerns.


Chair Pullin asked if it is the case that every state can have a SPOC, and that having one would allow Kentucky to communicate directly with the USTR.  Mr. Whatley stated that, because a SPOC does not have security clearance, the USTR will communicate only with the executive branch in the states.  For that reason, a state should have a plan for what it wants the SPOC to accomplish and a legislative mandate as discussed earlier


Chair Pullin entertained a motion that the Special Subcommittee on Energy communicate with the Executive Branch concerning the need for a SPOC for Kentucky.  The motion was made by Representative Gray, seconded by Senator Blevins, and passed by voice vote. 


Senator Harris asked about the lack of security clearance for a SPOC.  Mr. Whatley explained that the reason apparently was concern that negotiations might be compromised and stated that the SPOCs on the IGPAC  do have security clearance. States that have persisted in asking have usually been able to have their SPOCs admitted to the IGPAC.  He recommended that Kentucky make such a request.


Chair Pullin asked about the relative influence of the IGPAC versus a SPOC. Mr. Whatley stated that the IGPAC is more influential because the USTR is required to meet with ICPAC at least twice a year and, when an agreement is negotiated, IGPAC is required to report on the impact on the states.


Senator Harper Angel asked if Mr. Whatley could provide a copy of the Washington State legislation that serves as a model for the legislative mandate to the SPOC.  Mr. Whatley said that would be happy to do so.


Chair Pullin thanked Mr. Whatley for his testimony and introduced Mr. Jason Moseley, Director, Division of Policy Development, Cabinet for Health and Family Services and Mr. Steve Stivers, Executive Director, Bluegrass Community Action Agency to discuss the low-income home energy assistance program (LIHEAP) Kentucky block grant application.


Chair Pullin announced that the discussion of LIHEAP would be a public meeting and asked if anyone from the public wished to speak.  Mr. Moseley summarized the information in the members’ packets concerning the application.  The funds are used to help persons pay their heating bills during the winter. In addition, as winter approaches, Kentucky and most states also apply for emergency funds.   


Senator Blevins asked how the funds available compare to funds available last year.  Mr. Moseley stated that the funds are the same; getting the same funds year to year has become viewed as success because federal funds are getting tighter.  Chair Pullin agreed with Senator Blevins’s concern and stated that a study by a student at the University of Kentucky indicated that states are not being treated fairly due to their geographical location.


Representative Napier asked about the amount of funding in each county.  Mr. Moseley stated there is no county breakdown of funds; funds are broken down by the 20 Community Action Agencies (CAAS) in Kentucky.  Representative Napier asked if data could be made available showing recipient households by county.  Mr. Moseley said that he would obtain the data.


Senator Blevins asked what is the amount of federal LIHEAP funding.  Mr. Moseley said that he would get the data.


Representative Napier asked if the use of the funds can be tracked.  Mr. Moseley stated that the use is tracked and great effort is made to prevent fraudulent use of the funds. 


Senator McGaha asked about the administrative cost of LIHEAP. Mr. Moseley stated that the CAAs are limited to 10 percent and that the Cabinet tries to hold the expenditure to less.  He will get the recent average expenditure figures.


Chair Pullin thanked Mr. Moseley for his testimony. 


The subcommittee finds that block grant funds specified in the application have been included in an appropriation provision enacted by the General Assembly; a budget reduction plan specifying services to be reduced in scope if federal funding diminishes or is cut has been included; the budget reduction plan does not propose to increase the ratio of state funds to federal funds if federal funding diminishes or is cut; block grant funds to be provided under the application are fairly and equitably distributed among those recipients eligible for block grant funding; block grant funds to be provided under the application are not to be used to fund programs or services that would duplicate or supplant existing programs or services funded by the private sector; the intended uses of block grant funds specified in the application are in compliance with the applicable federal and state laws pertaining to such block grant funds; and the amount of block grant funds to be retained by the state administering agency for administrative purposes does not exceed an amount allowable under federal law.


Chair Pullin announced that the July meeting of the Subcommittee will, with LRC approval, be on July 22 and that the August meeting will be on the 12th.  The September meeting will be on its scheduled date of the third Friday of the month.


The meeting was adjourned.