Special Subcommittee on Energy


Minutes of the<MeetNo1> 1st Meeting

of the 2007 Interim


<MeetMDY1> May 30, 2007


The<MeetNo2> 1st meeting of the Special Subcommittee on Energy was held on<Day> Wednesday,<MeetMDY2> May 30, 2007, at<MeetTime> 1:30 PM, 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, Chair; Representative Rick G. Nelson, Co-Chair; Senators Walter Blevins, Jr., Charlie Borders, Denise Harper Angel, Vernie McGaha, Jerry P. Rhoads, Katie Stine, and Johnny Ray Turner; Representatives Rocky Adkins, Eddie Ballard, Carolyn Belcher, Dwight D. Butler, Bob M. DeWeese, Jim Gooch Jr, J. R. Gray, Fred Nesler, Tanya Pullin, Tom Riner, Brandon Smith, and Brent Yonts.


Guests:† Elizabeth Cawood, Internal Policy Analyst, Department for Community Based Services, Cabinet for Health and Family Services; Virginia Carrington, Internal Policy Analyst, Department for Community Based Services, Cabinet for Health and Family Services; and Kip Bowmar, Kentucky Association for Community Action; Jim Abbott, Commissioner, Finance and Administration Cabinet, Department for Facilities and Support Services; Ken Marks, Deputy Commissioner, Finance and Administration Cabinet, Department for Facilities and Support Services; Martha R. Tarrant, AIA, RossTarrant Architects; Talina Mathews, PhD., Executive Director, Governorís Office of Energy Policy; and Rodney Andrews, Acting Director, University of Kentuckyís Center for Applied Energy Research.


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


The November 17, 2006 minutes were approved, without objection, upon motion made by Rep. Ballard and seconded by Rep. Belcher.


Chairman Stivers introduced Elizabeth Cawood and Virginia Carrington, with the Department for Community Based Services, Cabinet for Health and Family Services; and Kip Bowmar, Kentucky Association for Community Action.†


Ms. Cawood reported on the stateís Low Income Energy Assistance Program (LIHEAP) State Plan for FFY 2008. She stated that the Department expects a federal award of approximately $26.6 million.


She stated that approximately thirteen (13%) percent of the block grant funds are combined with funds from the U.S. Department of Energy to support weatherization services including heating system repair and replacement.† She said that nine (9%)† percent of the grant is used for administrative and planning purposes.


Ms. Cawood explained that the Cabinet contracts with the Kentucky Association for Community Action Incorporated (KACA) who administers and monitors subcontracts with twenty-three community action agencies to provide LIHEAP assistance in all of Kentuckyís† 120 counties. †KACA also subcontracts with twenty-two community action agencies and one local government to provide weatherization services to all of Kentucky.


Mr. Bowmar explained that without the $10 million allocation approved by the General Assembly in 2006, and without the additional federal supplemental funding of $14 million, the LIHEAP program would have faced a† home heating crisis for low income households. He stated that approximately 231,000 households had been served, resulting in approximately $33 million in benefits.†


Mr. Bowmar also said that if the state did not receive any federal supplemental funds for this year, then there would be a very real possibility that the program would have to be shut down earlier than expected.


Rep. Pullin asked that when their agencies request funding that they also present proposals detailing the different ways of institutionalizing energy savings for persons receiving LIHEAP assistance.


In continuing, Mr. Bowmar stated that a household must agree to weatherizing their home before receiving LIHEAP assistance. Because the weatherization program is more expensive per house, they were only able to weatherize approximately 2,200 homes statewide as opposed to the 200,000 plus households that receive LIHEAP.† He stated he would include proposals for energy savings in his budget request.


Sen. Stivers asked who was responsible for administering the weatherization program.


Mr. Bowmar stated that Kentucky Association for Community Action administers the weatherization program through the twenty-two Community Action agencies and one unit of local government in Jefferson County.


Sen. Stivers stated that he found, while working through his church group on a project through the Kentucky Housing Corporation (KHC), that it was hard to find contractors who would agree to work on a $1,000 or $2,000 project.† KHC gave them $2,000 and the church members provided the labor and services.


Mr. Bowmar stated that they do work closely with KHC as well as with other community groups. Several Community Action Agencies participate in Repair Affair which is a similar benefit that KHC has. He said that studies done by the Department of Energy found that a home that has been weatherized would see, on average, about a 20% reduction in energy usage.


Sen. Stivers asked if any persons in the audience had any comments on the proposed LIHEAP Block Grant. There being no questions, Sen. Stivers asked for a motion adopting the Proposed Findings of Fact.


Findings of Fact for the LIHEAP Block Grant Application was adopted, without objection, by roll call vote, upon motion made by Sen. Borders and seconded by Sen. Turner. †(a copy of the Findings of Fact may be found, in their entirety, in the LRC Library file)


Mr. Jim Abbott, Commissioner, Department for Facilities and Support Services, Finance and Administration Cabinet, discussed promoting energy efficiency with procurement and facilities.


He stated that the Department oversees approximately 2.5 million square feet of office space for the Commonwealth. The Department targeted three major areas in which to promote energy efficiency: property contracts, leased property and capital construction projects. He stated that the following initiatives had been undertaken by the Department to advance energy efficiency:


        Minimizing utility costs by reducing usage;

        Using the natural gas procurement process has saved the Commonwealth approximately $1.1 million since its implementation in FY 2004;

        Routinely reviewing utility bills to identify potential errors;

        Pursuing Energy Savings Performance Contracting (ESPC) as an alternative for accomplishing capital improvement projects. He stated that as of May 2007, the Finance & Administration Cabinet had awarded 14 ESPC contracts with guaranteed savings exceeding $5 million each year;


Mr. Abbott stated that since the enactment of KRS 56.770 (July 1996), the Division of Real Property had been engaged in efforts to increase the energy efficiency of leased properties.† He stated that the Division manages approximately 4.5 million square feet of leased building space. He said that the Division worked with the Governorís Office of Energy Policy in 2001 seeking their input on generating new specifications such as installing motion sensitive lighting; increasing the R values from R18 to R36; and installation of LED lighting.† He said that their methods used to capture and track utility cost data indicated that the statewide average per square foot utility cost savings was $.16 cents.


Sen. Stivers asked how many dollars had been saved per square foot.


Mr. Abbot stated that the average per square foot operational cost statewide was $1.05 in 1996 and† $1.21 for 2005.


Sen. Stivers asked how much had energy costs increased in the last ten years.


Mr. Marks stated that when gas prices spiked a couple of years ago, the costs increased at least 100%.†


Rep. Gray asked what percentage of† conventional lighting would be replaced by the use of† LED (Light Emitting Diode) lighting.


Mr. Marks stated that on an annual basis there is substantial savings by switching the emergency exit lights to LED lighting. The LED bulbs are only 2 watts. The life cycle of an LED is 10 or 15 years.


Mr. Abbott stated that †replacing all the traffic signal lights throughout the state with LED bulbs will result in significant savings in terms of utility energy usage and avoidance of maintenance.


Rep. Gray asked if LED lighting could be used to replace† regular bulbs for flood lighting, and if so, would the savings be significant enough to warrant replacement of the bulbs.


Mr. Marks stated that LED lighting is very cost effective in the small wattage.† In the next ten years you will see more switching over to LED lighting.


Rep. Gray asked if it was true that LED lighting took less power to operate, and secondly if LED lighting generated less heat than conventional lighting.


Mr. Marks stated that there would be cost savings during the summer and winter months.


Mr. Abbott stated that the Kentucky Office of Housing, Building and Construction (HBC) adopted an Energy Code in mid 2005, which incorporated the International Energy Conservation Code (IECC). He said that the adoption and enforcement of the code obligated the Commonwealth to design and build more energy efficiency into new and existing buildings.


In conclusion, Mr. Abbott stated that the Division of Engineering and Contract Administration had incorporated energy design practices in the procedures manual. The Division is statutorily required to prepare an annual report of energy savings achieved by good design practices for capital construction projects. The report must be reviewed and accepted by the Division of Engineering and Contract Administration before the Phase C (construction drawings) submittal package could be approved.


Rep. Adkins asked if geothermal heating/cooling was a requirement in the new code for new construction projects.†††


Mr. Abbott stated that geothermal is a part of the new code, and that the newly opened corrections facility in Elliott County used a geothermal system.


Rep. Adkins stated that he would like to know if a cost analysis had been performed to determine if the Commonwealth, the school districts and local governments would save money by switching to geothermal.


Martha R. Tarrant, AIA, RossTarrant Architects, gave a presentation on a new Bluegrass Community & Technical College (BCTC) classroom/lab building. She stated that the building was chosen to be designed under the guidelines of Leadership in Energy and Environmental Design (LEED). LEED promotes the ideas of energy savings and good environmental responsibility. She stated that only three buildings in the Commonwealth of Kentucky have obtained LEED certification. She explained that the BCTC classroom/lab building would be the first publicly funded higher education facility in Kentucky to be designed under these guidelines.


Ms. Tarrant explained that in order for a building to become LEED certified, a very stringent review is done by the U.S. Green Building Council.† She said that it could take up to a year to obtain certification after completion of the building.


She stated that the BCTC building had been designed to the category of Silver.† The silver level includes public transportation access; preferred parking for fuel efficient vehicles; and a green roof. The green roof will get a lot of attention. About half of the roof of the building will have trays of actual plant materials covering the roof. Using the green roof reduces energy consumption,† decreases the amount of storm water runoff and also improves air quality. She said that the portions of the roof that are not green will have a highly reflective surface to reflect heat.†


Ms. Tarrant stated that the building had also been designed to reduce the amount of water usage by 30% over a standard building, and that it was also designed to reduce energy usage by 14% more than the† base level of the new energy code. Additionally,† the HVAC system will not use any CFC-based refrigerants.


She said that materials and resources are also another component of LEED. There are provisions in the building to encourage user recycling. Construction debris will be recycled so that no more than 50% of the debris will go to the landfills.


Indoor environmental air quality is another feature of LEED. Ventilation systems will bring in outside air, and the materials chosen will not introduce harmful chemicals inside. She said that the rooms would have individual controls for lights and HVAC, and daylighting would be used to provide natural lighting. She stated that studies show that students perform 20% to 25% better on standardized tests if they are in a building with proper natural daylight. †


Ms. Tarrant stated that the rooms would also have daylight sensors. As the day- light enters the room, the sensors will decrease the amount of light needed, which in turn decreases the amount of heat generated from lighting, thus decreasing the size of HVAC units needed for cooling.


She stated that it would not be possible to estimate costs incurred using the new technologies because each building is different. On average, she said it would add approximately 2% to the costs by using this design approach. The annual savings projected for the BCTC building are $26,000 in energy costs and $10,000 in water costs.


Sen. Stine asked about heat loss through the glass windows.


Ms. Tarrant stated that the windows would be high energy- efficient glass, which is more expensive.


Sen. Stine asked about the risks of using the green roof approach.


Ms. Tarrant stated that the design is using a tray system which is a safer approach.


Sen. Stine asked about using solar panels.


Ms. Tarrant stated that solar panels would not be used in the BCTC project.


Sen. Borders asked what the total amount of construction costs was on the BCTC building.


Ms. Tarrant stated the construction costs had been budgeted at approximately $22 million.


Sen. Borders asked if the LEEDís approach would be used in constructing two buildings in Ashland.


Ms. Tarrant stated that she was not familiar with the projects in Ashland.


Sen. Borders asked if using the geothermal system would help lower the annual costs.


Ms. Tarrant stated that there would not be an immediate payback. She explained that geothermal had not been included in the BCTC project because of the design of the building.


Rep. Adkins asked why the geothermal system could not be used in the BCTC project.


Ms. Tarrant stated that the wells required for geothermal would have to be 500 or 600 feet deeper than normal.


Dr. Talina Mathews, Executive Director, Governorís Office of Energy Policy, presented an update on the Executive and Legislative Mandates resulting from House Bill 299. She stated the Governorís Office of Energy Policy (GOEP) contracted with the University of Kentuckyís Center for Applied Energy Research to research technologies for producing liquid fuels and synthetic natural gas from coal and to evaluate the suitability of these technologies. The study has been completed and is in the editorial phase.† She stated that the study would be available June 1.


She said the study showed that there is excellent opportunity for the development of† coal- to- liquids and coal- to- gas industries in Kentucky. She said that the capital costs for a small CTL or CTG plant (10,000 barrels per day; 74 million cubic feet per day) would total approximately $1 billion. Such a plant would employ around 1,400 people, and coal use would be approximately 1.8 million tons per year. A 200-acre site would be cost competitive at $50 a barrel world oil price, or $9.00 Henry Hub per thousand cubic feet of gas.


Sen. Stivers asked if the cost of finished CTL product would be around $50 a barrel.


Rodney Andrews, acting Director, Center for Applied Energy Research, stated that the $50 a barrel cost is crude oil equivalent.† It is an equivalent price to the $60 a barrel current price for crude. A CTL plant would produce clean diesel as opposed to a mixed oil.


Dr. Mathews stated that the 10,000 barrel per day capacity is for the finished project.†


Sen. Stivers asked if a barrel of crude contained †55 gallons.


Mr. Andrews stated that a barrel of crude contained 44 gallons.†


In continuing, Dr. Mathews stated that carbon capture and pressurization for sequestration or sale would add about 3% to 4% to the product cost, and that the water use for a small plant would be 2,200 ó 2,600 gallons per minute.


In looking at larger plants (33,000 barrel per day), the costs would be almost about three times greater. The breakeven cost would be at $45 per barrel for CTL or $7.50 for CTG. In addition, a larger plant would need 750 acres and 5 million tons of coal per year.


The KOEP also initiated work with the Kentucky Geological Survey to identify and assess Kentuckyís carbon sequestration opportunities which will be key to locating plants in Kentucky. The research is still on-going and should be completed by June 30, 2008.


She stated that KOEP issued proposals for firms having qualifications and experience to successfully commercialize energy-related industrial projects in Kentucky.† As a result, she said that the KOEP had been able to provide $3.5 million in financial assistance for advanced energy projects. In addition, KOEP was able to fund three other projects: a feasibility study for a CTL facility in eastern Kentucky; a coal gasification facility in western Kentucky; and some preliminary work on an alternative energy center in Pike County.


Sen. Stivers asked if the funded projects would be described as technical grants or economic development grants.


Dr. Mathews stated that she considered the grants to be beneficial to technology and economic development.


Sen. Stivers suggested that the General Assembly look at using the single-county or multi-county funds for the purpose of matching funds.


Dr. Mathews stated that Pike County was providing a match from their single- county fund.


Dr. Mathews stated that KOEPís research and development seed grant program and matching grants program for Kentuckyís universities was approximately $3.3 million for FY06.


She stated that KOEP awarded grants to universities, businesses and industries to encourage energy efficiency and renewable energy projects. She stated that there are now nine Energy Star schools compared to none three years ago.


She stated that the assessment of industrial sites for energy projects was not yet final, but she could say that that nineteen sites had been evaluated. The report should be finalized in June.


†Dr. Mathews stated that in looking at other states, Indiana has an extensive incentives program that has expanded to include synthetic natural gas.


She stated that Illinois has more than $3 billion in revenue bond authorization which has been divided up into different programs. The state has set $3 million aside for advanced technology coalfields projects, and has also set a goal that 10% of the energy used will be derived from coal gasification or other clean coal technologies by 2015.†


Dr. Mathews said that Ohio has conduit financing. She said it is difficult to get details on what Ohio is doing since they keep their information confidential.


She said West Virginia had resurrected the state Public Energy Authority. She said that W. Virginia is looking at packaging sites.


Sen. Borders asked if the legislature should consider subsidizing the companies in order to have a price guarantee.


Dr. Mathews stated that in order for the companies to make a $3 billion investment some sort of subsidy would be advisable. She said that there is a proposed federal bill which includes a price guarantee.


Rep. Adkins stated that he was aware of pending federal legislation that would provide some incentives and protections on private investments.† He said he read recently that demand for electricity and transportation fuels was expected to double in the next 25 years.


Rep. Adkins also stated that the research being done at the Center for Applied Energy Research was being called upon by the world to help implement better technologies. The energy initiative is the new economy for Kentucky, Rep. Adkins added.


Sen. Stine asked if KOEP had considered working with the Economic Cabinetís commercialization and innovation department.


Dr. Mathews stated that they do work with the Economic Cabinet.


Rep. Gooch stated that he agreed that incentives would be very important to entice investment in these plants.


Sen. Stivers asked if there were other universities or research centers doing the same kind of research as the Center for Applied Energy Research.


Mr. Andrews stated that North Dakota has the largest research center, and Wyoming has just started a school for energy.


Sen. Stivers asked for a description of a school of energy.


Mr. Andrews stated that the school centers around energy resources.†


Sen. Stivers asked what other states and state universities are doing for developing energy research just not related to coal; and how they are being funded. He also asked that the information be furnished to the committee.


Sen. Stivers asked if the water being used in CTL or CTG plants was raw or finished water.


Dr. Mathews stated that the water was primarily used for cooling purposes.


Sen. Stivers asked if water had to be filtered or could be taken straight out of a lake or river and used without treatment.


Dr. Mathews stated that the plants use raw water which is why several of the projects are located near rivers.


Sen. Stivers asked how long it would take from start to finish to have a plant capable of putting out a finished products.†


Dr. Mathews stated that most estimates indicate 3-5 years.


Sen. Stivers asked if that estimate was the construction phase only, or did it include permitting and construction.


Dr. Mathews stated that the estimate for was for construction only.†


Sen. Stivers asked how long the permitting process took.


Dr. Mathews stated that there are some limits as to how long the permitting process could take, but it would be hard to predict exactly the length of time involved.


Sen. Stivers asked that the committee be provided information as to what would be an optimal period of time for permitting and construction with the caveat that there could be legal challenges. He also asked that any comments on potential impediments in the permitting or constructions process be included.


Dr. Mathews stated that she would provide the committee with that information.


Sen. Rhoads asked for the current status of merchant power plants, and were there potential sites for those types of facilities. What is the GOEPís level of activity in the area of merchant power plants.†


Dr. Mathews stated there are potential sites† which would be suitable to a †integrated gasification combined cycle power plant. The GOEP proposed the Cash Creek project site in Henderson as the location for the FutureGen project. An IGCC project is presently going through the permitting process.† She said she understood that an air quality permit has been issued for a merchant IGCC plant.† She said that the GOEP has provided some assistance along the way.†


Sen. Harper-Angel asked if Kentucky had maximized the opportunity for federal funds to incentivize coal development projects.


Dr. Mathews stated that the GOEP had done a good job of publicizing the twenty percent match.† She said that some of the federal programs have been under appropriated.


Sen. Harper-Angel asked that Dr. Mathews look over the recent press release from U.S. Department of Energy about regulations for loan guarantee programs up to $9 billion, and be prepared to discuss it at the next committee meeting.


Rep. Adkins stated that a lot of the grants handed out from the GOEP are from the $3.5 million that the General Assembly has appropriated for each year of the biennium from coal severance tax money to help advance projects and technologies.


Rep. Nelson stated that Rep. Eddie Ballard would be hosting a barbeque in Madisonville for members, guests and staff on June 14th, and then on June 15th the committee will meet and tour the TVA Paradise Coal Plant.


Meeting adjourned.