Special Subcommittee on Energy


Minutes of the<MeetNo1> 2nd Meeting

of the 2005 Interim


<MeetMDY1> July 22, 2005


The<MeetNo2> 2nd meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> July 22, 2005, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Robert Stivers II, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Robert Stivers II, Co-Chair; Representative Tanya G Pullin, Co-Chair; Senators Charlie Borders, Denise Harper Angel, Vernie McGaha, and Johnny Ray Turner; Representatives Royce W Adams, Rocky Adkins, Eddie Ballard, Carolyn Belcher, Dwight D Butler, Bob M DeWeese, J R Gray, Thomas Kerr, Fred Nesler, Tom Riner, and Brandon D Smith.


Legislative Guest:     Representative Jim Gooch.


Guests:  Libby Marshall, Executive Director, Municipal Electric Power Association of Kentucky; Frank Crane, Director, Government Relations, Municipal Electric Authority of Georgia; David Vogel, Vice President, Retail and Gas Storage Operations, LGE Energy; Gary Smith, Vice President, Marketing and Regulatory Affairs, Atmos Energy of Kentucky; Michael Ridenour, Director, Governmental Policy, Columbia Gas of Kentucky; Professor Donald H. Graves, Department of Forestry, University of Kentucky; Dr. Ari Geerstema, Director, Center for Applied Energy Research, University of Kentucky; Carmen Agouridis, University of Kentucky; Richard Warner, University of Kentucky; Paul Rothman DNR/DMRE; Cathy Allgood Murphy, AARP; John Parker, Community Action Council; Gena Vincent, Salvation Army, Owensboro; and J. Lindop, Sierra Club.


LRC Staff:  Bill Bowker and Rhonda Carter.


Chair Stivers informed the subcommittee that a letter from the co-chairs urging Governor Fletcher to appoint a Special Point of Contact to the United States Trade Representative had been drafted, as the subcommittee had moved at the June 17, 2005, meeting.


Chair Stivers announced that next meeting of the subcommittee will be Friday, August 12, 2005, at 10:00 a.m.


Chair Stivers introduced Ms. Libby Marshall, Executive Director, Municipal Electric Power Association of Kentucky, to discuss proposed legislation concerning joint municipal power authorities. Ms. Marshall stated that municipal joint action agency legislation, House Bill 406, was introduced at the request of MEPAK by Representative Mike Cherry in the 2004 Regular Session.  Ms. Marshall reported that there are 70 such agencies in 36 states.  Ms. Marshall stated that these are similar to generation and transmission cooperatives and, in most states, are legislatively created entities to allow small municipal utilities to aggregate their resources, their electrical load, and their bonding capacity and credit worthiness to attract low-interest, quality capital to invest in the energy infrastructure of the state.  Ms. Marshall introduced Mr. Frank Crane, Director, Governmental and Corporate Affairs, Municipal Electric Authority of Georgia (MEAG).  Mr. Crane explained that MEAG was formed in 1975 among 49 cities that operated electric distribution systems.  MEAG obtained part ownership in Georgia Power generating facilities by financing $4 billion of Georgia Powers new generation at interest rates about half of those available to investor-owned utilities.  Mr. Crane reported that this has enabled the MEAG cities to have certainty in the wholesale price of electricity and to ensure that they would not be curtailed in favor of retail customers.  Mr. Crane stated that the cities also realize income from off-system sales of electricity; this income makes taxes unnecessary in 37 of the 39 cities.  Mr. Crane also stated that part ownership of the transmission grid in Georgia avoids being captive to any one utility.


Chair Stivers asked if a redraft of House Bill 406 were available. Ms. Marshall responded that a draft would probably be available in the next two weeks.  Chairman Stivers stated that it would be helpful to get a draft as soon as possible.


Representative Gray asked Mr. Crane if he had information comparing electricity rates in Georgia to those in Kentucky.  Mr. Crane responded that the state of Georgia as a whole has rates in the lower half in the U.S. and that the wholesale cost of power to MEAG cities is 4.6 cents per kilowatt hour.  Ms. Marshall commented that MEPAK recognizes that its members have enjoyed very low  wholesale rates in Kentucky; however, TVA has been raising rates periodically and MEPAK is concerned about potential rate increases and whether the partnership with IOUs will continue as strong as in the past.


Representative Gray asked if there might possibly be a scenario in which the wholesale electric rates in Georgia might exceed the tax burdens in cities in Kentucky.  Ms. Marshall stated that she would provide data to address the question.  Representative Gooch stated that cities have been criticized for  transferring funds from a municipal utility to operate other parts of city government and asked if there were a prohibition against this in Georgia.  Mr. Crane answered that there is no such prohibition.  Ms. Marshall stated that there is statutory prohibition in Kentucky that applies to TVA-supplied systems and that there are restrictive statutes that apply to municipal utilities; therefore, there would not be the same situation in Kentucky.  Ms. Marshall added that this  might be need to be considered; however, there is strong accountability to the public if such uses of electricity rate revenues were disapproved of.


Chair Stivers asked if there might be increased rates for other customers of a generating utility if a city joined a municipal power agency, leaving the generating utility with a decreased service area and lost revenues.  Mr. Crane responded that in Georgia no new cities may condemn and purchase a part of the Georgia Power system and join MEAG.  Ms. Marshall added that there are statutory constraints to a Kentucky city’s creating a municipal power system.


Senator McGaha asked if data could be provided showing retail rates that cities of differing populations charge their customers.  Ms. Marshall responded that such data would be provided to the subcommittee.


Representative Belcher asked the current number of municipal electric utilities.  Ms. Marshall answered that the total is 32 and that the 30 cities in MEPAK supply about the same amount of power as the 49 cities in MEAG and also in Indiana.


Representative Adkins asked if Ms. Marshall envisioned a structure in Kentucky similar to that in Georgia.  Ms. Marshall responded that it would be similar to the part ownership partnerships in generating facilities that the MEAG and the Indiana and Illinois joint agencies have with investor owned utilities.  This will require planning, and the legislation is the first step.  Representative Adkins asked if the joint agency would enable cities to ensure the availability of power for the future as well as to build, as in the other states, a rate structure with the investor owned utilities.  Ms. Marshall stated that this would be the case.


Chair Stivers thanked Ms. Marshall and Mr. Crane for their testimony and introduced the representatives of the electric and gas utilities and Community Action agencies to discuss utility check off programs.  David Vogel, VP, Retail and Gas Storage Operations, LGE Energy, reported on the Winter Help and Winter Care programs conducted by LGE and Kentucky Utilities, respectively. The programs have collected over $5 million since beginning in 1983, with Winter Help averaging about $220,000 over the past three years and Winter Care averaging about $110,000 per year.  About two-thirds of the contributions are from customers, with the balance from the utility company matching funds. The funds provide one-time emergency bill assistance from January to April to persons whose eligibility is determined by community assistance agencies.  The programs are promoted through flyers, bill stuffers, messages on bills, referrals by Call Center employees, and occasional public service announcements in conjunction with community action agencies.  Mr. Vogel stated that barriers for companies wanting to initiate such programs mainly consist of the information technology labor costs of changing the bills and customer information systems and the ongoing costs of marketing and of receiving and accounting for funds.


Michael Ridenour, Director, Governmental Policy, Columbia Gas of Kentucky began his report on the Columbia Winter Care Program by expressing the appreciation of the utilities for the subcommittee’s focusing on aspects of the Commonwealth Energy Policy.  Mr. Ridenour reported that the Columbia program is very similar to the LGE and KU programs in structure and functioning. Columbia matches customer contribution at 50/50 up to $20,000 per year. Mr. Ridenour noted that contributions spiked during the very cold winter of 2000-2001 when LIHEAP funds were short nationwide and natural gas prices spiked; this showed that voluntary programs can respond to need.  John Parker, of the Community Council of Lexington-Fayette, Bourbon, Harrison, and Nicholas Counties, added that Winter Care is unique in that eligibility is 150 percent of the national poverty level whereas LIHEAP eligibility is only 110 percent and that Winter Care allows much more flexibility in providing assistance.  Winter Care provides up to $300 per year to an eligible family.


Gary Smith, VP, Marketing and Regulatory Affairs, Atmos Energy of Kentucky, reported that the Atmos Share the Warmth Program is similar to the LGE and Columbia programs in structure and function except that the Salvation Army is the community assistance agency that determines eligibility and distributes funds. Mr. Smith stated that he had provided a written report on the program to the subcommittee and that he concurs that the program is a unique and important addition to the LIHEAP and other assistance programs and is an opportunity for customers to step up and assist others. Mr. Smith introduced Ms. Gena Vincent, Salvation Army, Owensboro, who administers the Share the Warmth Program for Atmos.


Representative Belcher asked if funds collected in a city or area remained in the local area to help local citizens. Mr. Parker responded that, unless a customer earmarks his contribution for a particular county, the funds are prorated to counties in proportion to the number of the utility’s customers in that county.  Representative Belcher asked how applications are handled if a county does not have a Community Action Council.  Mr. Parker responded that every county has a council to handle applications for aid.


Chair Pullin asked if the Columbia program is systemwide or just in some parts of the system.  Mr. Ridenour responded that the program is systemwide and added that Columbia has found that there have been substantial one-time contributions to the program in addition to monthly check-off.  Chair Pullin stated that the programs are very important and helpful and noted that the matter of utilities’ costs of conducting the programs may need to considered further.


Chair Stivers thanked the utility representatives for their testimony and introduced Dr. Donald Graves, Department of Forestry, University of Kentucky to discuss reforestation on surface-mined lands.  Dr. Graves described research that began in 1995 to address the loss of the most valuable trees that had grown in pre-mined areas when the areas were reclaimed with grasses instead of trees. Dr. Graves stated that Kentucky Reclamation Association data showed that of 187,000 acres reclaimed, 101,000 acres had been put into trees prior to 1980, but after 1980 only 1500 acres had been reforested.  This was due largely to federal reclamation regulations’ emphasis on reclamation with grasses.  Dr. Graves reported that high-value trees can actually grow better and faster than trees in undisturbed areas if the spoil is broken up to depths of 4 to 7 feet.  The trees also have very high survival rates.  The cost of ripping to 4 feet is only about $150 per acre.  Ripping also greatly reduces water runoff.  Research is continuing at the old Star Fire surface mine in Perry and Breathitt Counties and at a Pike County site in ripping depths and techniques, effects of piling loose spoil, and effects of various soil/rock types on growth and survival.  Trees planted at the Star Fire research plot are showing an 80 percent survival rate.  A federal grant is also enabling UK to demonstrate the techniques on mined land across Kentucky.  Dr. Graves stated that, with 3 years to go on the grant, over 1.5 million high-value trees have been planted on 2100 acres; ultimately, 3000 acres will be reforested.


Representative Gray asked about the different types of soils in which reforestation research was being done.  Dr. Graves explained how different soils are found in different areas and effect tree survival and growth.


Representative Adkins asked if regulators are now encouraging the reforestation  option and stated that it is important for mining companies to see the benefit and make reforestation the selected method of reclamation.  Representative Adkins added that reforestation should be done not only on currently mined lands, but on pre-1977 Act property also and that electric utilities, as well as mining companies, universities, and government should be involved.  Representative Adkins asked for further discussion of the water retention aspects of the research.  Richard Warner, Department of Forestry, University of Kentucky, responded that in 2004, data showed that only 2 of 38 rain storms had produced any runoff; all of the water was being retained for use by the trees and runoff was so low and water quality so good that sediment structures would not have been necessary in those areas.  Paul Rothman, Director Surface Mining and Reclamation, Environmental and Public Protection Cabinet, explained how reclamation regulations provide several options, depending upon what the landowner prefers, and how misinterpretation at both the federal and state levels had emphasized compaction for stability and consequently had favored the pasture land reclamation option.  Dr. Graves pointed out that 85 percent of West Virginia permits are now planning on reforestation as the post-mining land use.  Sixty percent of current Kentucky permits have either forestry or fish and wildlife as the post-mining land use.


Representative Nesler asked what depths of ripping would be best, especially in the Purchase Area, and what types of trees would best and be most valuable in ripped agriculture land.  Dr. Graves responded that deeper is better for trees and for agriculture generally, but that he did not have data concerning forestation of agricultural land.  Dr. Graves added that dense trees, i.e., hardwoods, are best in terms of value and carbon sequestration and that timber management is vital to ensuring the best yield from the reforested areas. Mr. Rothman pointed out that, in addition to other high-value trees, EPPC has partnered with the American Chestnut Foundation to restore chestnuts by reforesting mined lands.


Representative Belcher and Representative Butler asked about the costs of ripping and how much is being done.  Dr. Graves and Mr. Rothman provided data to illustrate the costs.


Chair Stivers thanked Dr. Graves for his testimony and introduced Dr. Ari Geertsema, Director, Center for Applied Energy Research, University of Kentucky, to discuss production and uses of coal wastes.  Dr. Geersema explained the various types of wastes that occur in coal preparation, combustion, and gasification, and in flue-gas cleanup and described the research underway to develop marketable products from the wastes.  Dr. Geertsema estimated that about 650 million tons of coal could be recovered from the wastes produced from the mining of about 9 billion tons of coal in Kentucky in the past 45 years.  These fine coal wastes are found in about 450 sites in East Kentucky and 65 sites in West Kentucky.  CAER is researching the making of high btu briquettes from the fine coal and sawdust.  CAER is also researching techniques for thickening the fine coal slurry to produce fuel and to prevent spillage problems.  Dr. Geertsema reported that post-combustion wastes including fly ash, bottom ash, and flue gas desulfurization material produced in the U.S. in 2001 totaled 127 million tons of which about 35 percent was marketed as fuels produced from the recovery of carbon; as components of building materials including cement, concrete blocks, and wallboard; as grit for roadbuilding and roofing; and as soil conditioner.  In Kentucky in 2001, about 9 million tons of wastes were produced, of which about 20 percent were utilized in marketable products.  CAER has research projects underway with USDOE and industry funding totaling over $10 million to develop these uses.  CAER is also beginning research in cooperation with East Kentucky Power Cooperative to develop uses, primarily in cement production, for waste material from EKPCs circulating fluidized bed generating units.


Representative Ballard asked if uses were being found in Kentucky for bottom ash produced in coal-fired electricity generating units. Dr. Geertsema responded that the Louisville Metropolitan Sewer District is using the material as backfill in laying sewer lines. Representative Ballard said that he had a bill in the 2004 session to provide an incentive of $2.00 per ton for using ash and plans to reintroduce the bill in the 2006 session.


Chair Pullin thanked Dr. Geetsema and all of the speakers.  The meeting was adjourned at 12:20 p.m.