Special Subcommittee on Energy


Minutes of the<MeetNo1> 2nd Meeting

of the 2006 Interim


<MeetMDY1> September 15, 2006


The<MeetNo2> 2nd meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> September 15, 2006, at<MeetTime> 10:00 AM, in<Room> Room 169 of the Capitol Annex. Senator Katie Stine,  presiding Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senators Walter Blevins Jr, Charlie Borders, Denise Harper Angel, Ernie Harris, Vernie McGaha, Katie Stine, and Johnny Ray Turner; Representatives Royce W. Adams, Rocky Adkins, Eddie Ballard, Carolyn Belcher, James E. Bruce, Dwight D. Butler, Thomas Kerr, Lonnie Napier, Rick G. Nelson, Fred Nesler, Tom Riner, Brandon D. Smith, and Brent Yonts.


Guests:  George R. Siemens Jr., Vice President, External Affairs, EON; Victor A. Needham III, Regional Governmental Affairs, DUKE; Gregory Pauley, Governmental Affairs Manager, Kentucky Power, and Dr. Talina R. Mathews, Executive Director, Kentucky Office of Energy Policy.


LRC Staff:  D. Todd Littlefield, Committee Staff Administrator, Taylor Moore, and Susan Spoonamore, Committee Assistant.


Minutes of the June 16, 2006 meeting were approved, without objection, upon voice vote, on motion made by Rep. Belcher and seconded by Rep. Bruce.


Presiding Chair, Senator Katie Stine, introduced George R. Siemens, Jr., Victor A. Needham III, and Gregory Pauley to discuss Electricity: The Common Currency for the 21st Century.

Mr. Siemens stated that limits will soon be placed on all energy providers, particularly electricity providers, in order to comply with increasingly stringent greenhouse gas emissions. He said that political and policy changes reducing, controlling or restricting carbon emissions created by the use of coal to generate electricity will happen.  He stated that it will be important to keep Kentucky competitive.


He explained that global energy use is set by three countries: the United States, China and India.  He said China, which has 1.3 billion people, is currently building the equivalent of a 500 megawatt plant each week, compared to the United States who might build a plant once every six or seven years. The electric consumption in China is projected to increase 4.3 percent per year, while Kentucky is projected to increase 1.7 percent a year.  He said that the more electricity used, the higher the gross domestic product, the more prosperous the country is and the quality of life is better.  

 He stated that 50 percent of the electricity generated in the United States comes from coal. He stated that 95 percent of the electricity generated in Kentucky is from coal-fired, and that Kentucky has always enjoyed low rates  compared to the rest of the United States.

Mr. Siemens stated that coal-fired generation plants are making a huge comeback.  He said high natural gas prices and wholesale electric prices have increased coal’s operating margin. He said new technologies are emerging and existing technologies are improving, but capturing and storing CO2 is the only technology that will allow coal use to expand in a carbon constrained world.  He said that within the next five to ten years, older plants would have to be replaced with new larger plants in order to comply with future environmental regulations. Hopefully the new plants would be coal-fired plants. 

Mr. Siemens stated that the United States has approximately 300 million people, which is less than five percent of the world’s population, and produces approximately 25 percent of the world’s CO2

He explained that the U.S. makes about 5.75 billion tons of CO2 a year. In comparison, he said that Kentucky makes approximately 140 million tons of CO2 per year – which is a lot. Of that, he said Kentucky makes 85 million tons of CO2 a year to provide electricity, and transportation accounts for another 30 million. Because Kentucky is primarily a coal-fired state, it is the 12th largest emitter of CO2 in the United States.

 He said several states have already begun to enact  their own CO2 control policies by mandating a 10 percent reduction in power plant emissions while other states are using caps to reduce CO2.  Currently there at least fifteen CO2 control measures pending in congress. He said that consumers will feel the effects of higher prices for electricity unless the measures are implemented gradually. New coal technology – especially CO2 capture and storage – will be the key to the long-term future of coal-fired generation. He stressed that in the future things were going to change, which would have a dramatic affect on how Kentucky generates electricity and the costs associated with the generation.

Mr. Siemens estimated that prices for carbon-capture credits could run between $20 and $40 per ton, based on prices from Europe’s cap and trade program from October 2004 to July 2006.  Using these estimates, electric generation cost increases in Kentucky could run from $190 million to $760 million per year. He stated that Kentucky does not have a lot of renewable sources for energy that could replace coal.  He said that market credits could help to offset emissions along with conservation efforts. He stated that using energy more efficiently, along with new generation and new technologies could be a viable solution to reducing CO2  emissions. Even though there is no one way to solve the problem, there will be various options and techniques.

He stated that environmental regulations will become more stringent therefore requiring additional investments.  He said that  policy makers  needed to:

·        Consider clean coal technology investments;

·        Invest in energy efficiency and conservation on equal financial footing;

·        Establish statewide building codes or energy efficiency codes for more energy efficient buildings.

·        Consider using the Public Service Commission (PSC) to mandate energy efficiency which is a goal of retail rate design.

·        Educate the public about using more energy efficient appliances; electronics, etc.

·        Consider innovative electric rate making/design. Start promoting efficiency and give customers real-time information so that they can control their electric bills.


Rep. Riner asked that if the General Assembly could only do one thing to address the issues that have been raised today, what would it be.


Mr. Siemens stated that there is no one single thing.  He said that teaching people to conserve and become energy efficient would be a starting point.  Global warming C02 will affect this state more than any state in the United States. We will always burn coal, but we will eventually have to do it in a different way which means investing in clean coal technology.


Sen. McGaha asked what the conversion rate would be per kilowatt hour, if the caps imposed are equal to the Euro rates.


Mr. Siemens stated that he did not have that information available, but would provide the committee with a general number.


Rep. Yonts asked how much more would the 4 cent kilowatt hour cost if caps were imposed.


Mr. Siemens stated that some figures show that an additional  2 to 3 cents could be added to the kilowatt hour.


Sen. Harris noted that the Program Review and Investigations Committee had authorized two studies.  One study relates to electric transmission lines sites and the other is a study on energy credits. 


Rep. Adkins asked if energy credits were the same as nitrogen oxides (NOX) credits?  If so, we have already been down this road. Kentucky gave away their NOX credits all except for 5 percent.  


Mr. Siemens stated that NOX credits were to be used to keep the rates as low as possible for Kentucky customers.  


Rep. Adkins asked if the demand for energy in the United States would increase by 50 percent over the next 25 years.


Mr. Siemens stated that was correct.  New coal-fired plants are being built now and more are expected, and the costs will continue to become more expensive.


Rep Adkins asked if it would cost over a billion dollars to build a 500-600 megawatt plant.


Mr. Siemens stated that was correct.


Rep. Adkins asked if AEP had purchased property in another country to reforest and grow trees. If so, why would AEP purchase property in a foreign country instead of the United States. 


Mr. Pauley stated that the property in Brazil was purchased by AEP through a voluntary program for utilities, as a member of the Chicago Climate Exchange.  He also noted that AEP had  property in Louisiana and Arkansas as well.


In response to an earlier question, Mr. Pauley encouraged the General Assembly to  listen to the Office of Energy Policy, the Public Service Commission as well as the Division of Air Quality in order to address the issue of costs.  The bottom of line of doing anything is doing it in the most affordable way.


Dr. Talina Mathews, Executive Director, Kentucky Office of Energy Policy (KOEP), stated that KOEP’s mission is the implementation of the 54 recommendations in the Governor’s Comprehensive Energy Strategy.  She said that the guiding principles of KOEP was to maintain Kentucky’s low cost energy; responsibly develop Kentucky’s energy resources, and preserve Kentucky’s commitment to environmental quality.  She stated that KOEP is working to implement HB 299, and to have their first report ready for the December 31, 2006 deadline. She stated that they have a Memorandum of Agreement (MOA) out with the University of Kentucky to study the incentive programs. At the same time the Center for Applied Energy Research is working on  assessment and technology, including the applicability to Kentucky coals. The FutureGen proposal highlighted the need for more research in carbon sequestration, and the Kentucky Geological Society is conducting surveys which should provide us with more information. She also stated that they were looking for consultants to help with  evaluating the technical and economic viability of those projects received. 

She noted that the Kentucky Office of Energy Policy is hosting an Energy Summit on October 20, 2006 in Louisville, Kentucky and invited members of the committee to attend.


The meeting adjourned at approximately 11:00 a.m.