The 1st meeting of the Special Subcommittee on Energy was held on Friday, June 20, 2008, at<MeetTime> 10:00 AM, in Room 131 of the Capitol Annex. Senator Brandon Smith, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Brandon Smith, Co-Chair; Representative Rick G. Nelson, Co-Chair; Senators Walter Blevins Jr., Charlie Borders, Tom Buford, Denise Harper Angel, Ernie Harris, Katie Stine, and Johnny Ray Turner; Representatives Royce W. Adams, Rocky Adkins, Scott Alexander, Eddie Ballard, Dwight D. Butler, Will Coursey, Jim Gooch Jr., Thomas Kerr, Fred Nesler, Tanya Pullin, Tom Riner, and Brent Yonts.
Guests: Representative Greg Stumbo; Virginia Carrington, Manager, and Karla Thompson, Policy Analyst, Policy Development and Oversight Branch, Division of Family Support, Department for Community Based Services, Cabinet for Health and Family Services; and Dan McKenzi, Director for Energy Programs, Community Action Kentucky (formerly known as the Kentucky Association for Community Action Services); Denise McCort, Director of Membership, American Petroleum Institute and Mike Helton; and Stephanie Stumbo, Executive Director, Public Service Commission.
LRC Staff: D. Todd Littlefield, CSA, Taylor Moore and Susan Spoonamore, Committee Assistant.
Upon motion made by Rep. Fred Nesler and seconded by Sen. Katie Stine, the November 16, 2007 minutes were approved by voice vote.
Senator Smith introduced Representatives Scott Alexander, Will Coursey, Bob DeWeese and Sannie Overly as the newest members of the committee.
Ms. Virginia Carrington, Manager, Division of Family Support, Department for Community Based Services, Cabinet for Health and Family Services discussed the Low Income Energy Assistance Program (LIHEAP) Annual Plan for FFY 2009. Ms. Carrington indicated that the Cabinet is expecting a block grant of $26 million dollars. She stated that ninety percent (90%) of those funds would be used towards benefits for Kentucky citizens; fifteen percent (15%) would be transferred to the weatherization program; $25,000 would be retained for the preventative assistance program; and $30,000 would be used for leveraging to increase the amount of resources available for assisting eligible households in reducing the residential energy costs or consumption. In addition, the agencies would retain a small percentage of their individual allocations to provide budget counseling, assistance with energy vendors and development of utility budget plans.
Ms. Carrington stated that the Department maintains a contractual arrangement with the Community Action of Kentucky to provide administrative, training, monitoring and technical support through subcontracts with the 23 community action agencies throughout the state. All of Kentucky’s 120 counties are eligible for benefits.
She stated that in 2007, LIHEAP served approximately 106,000 households with an average benefit of $101.90 under the subsidy component, and under the crisis component LIHEAP served nearly 128,000 households with an average benefit of $167.00.
Mr. Dan McKenzi, Director for Energy Programs, Community Action Kentucky, stated that their programs, in light of the energy crisis, would face challenges. He said that the working families in Kentucky are moving into the working-poor class, and he expected families to apply more frequently under desperate circumstances.
He asked that the Low Income Energy Assistance Program Annual Plan for FFY 2009 be accepted by the committee. He also asked that the General Assembly keep Community Action Kentucky in mind as they work on the budget.
Rep. Royce Adams stated he had been a field distributor for 45 years and was familiar with LIHEAP. He said that unless changes are made to the subsidy program, he was concerned that he and others may not be vendors in the program. Due to the increased costs of running trucks, they could not deliver less than 100 gallons. As an example, he explained that last year clients would come to them with a voucher for $200 for Kerosene. Kerosene was $4.65 a gallon which amounted to less than 50 gallons. Before he signs up as a vendor, he would need assurance that the problem would be addressed.
Mr. McKenzi stated that during the later part of last year they began to recognize that there was a problem. There is a need to develop some plan of action that might be mutually acceptable to the critical vendors, especially those serving the rural areas.
Rep. Adams stated that he does offer the opportunity for people to come to the bulk plant and pick it up. He said he would be happy to work with the Department and the Cabinet to see what could be done, especially for those vendors serving the rural areas.
Rep. Gooch stated that he was concerned about the future. If Congress were to pass the energy bill in its current language there is a very real possibility that we could see drastic increases in our electricity bills. Within the last ten years since we have tried to shift from coal to natural gas, the cost of natural gas has increased at least 3 or 4 times.
Rep. Pullin asked if LIHEAP gave free air-conditioners to clients last year.
Ms. Carrington stated that towards the end of summer last year, the Cabinet implemented a summer cooling program. She said that summer cooling is not normally a part of the LIHEAP program, but there is language in the Master Plan that says if money becomes available then a summer cooling program can be implemented. She stated that they were able to obtain funding from Congress last year to help supplement the program.
Rep. Pullin asked how the program could help people who are elderly, cannot drive, and who have no family apply for LIHEAP.
Mr. McKenzi stated that an authorized representative can bring the information to the agency; they can do a home visit to take the application and, if necessary, they could take a phone application as long as the information was verified and a signature obtained. “We make every effort to capture those folks, but with thousands of applications, invariably we may miss someone and we regret every one of those,” Mr. McKenzi stated.
Representative Nesler asked how the monies are distributed statewide and how funds are filtered down to other counties, particularly counties in the west.
Ms. Carrington stated that funds are sent to Community Action of Kentucky and they subcontract with each Community Action agency. Actual allocations are based upon a formula containing information as to need and population.
Representative Nesler asked how many contractors or subcontractors handle the funds.
Ms. Carrington stated that there is one master contract between the Department of Community Based Services (DCBS), Policy Development and Oversight Branch, Division of Family Support, Division of Family. DCBS contracts with Community Action of Kentucky to administer the LIHEAP program. Then Community Action of Kentucky subcontracts with the 23 community action agencies throughout the state. She explained that the Cabinet uses less than 10% of the money for administrative costs.
Representative Nelson asked what mechanisms are in place to prevent fraud in the program. What procedures are used if someone is suspected of committing fraud?
Ms. Carrington stated that there are state regulations that govern the program in addition to documentation verifying eligibility for the program. If someone is selling their voucher, or if landlords are misrepresenting eviction notices, we send the issue up to our Office of Inspector General. After completing their investigation, if they feel that fraud is being committed, then they can prosecute with criminal charges.
Rep. Nelson asked for the number of fraud cases that have been turned over to Inspector General for prosecution.
Ms. Carrington responded that she did not have that number with her, but would send the information to the committee.
Ms. Thompson stated that the number was not going to be very high because the Cabinet is required to substantiate the complaint. Also, once a voucher is given to the client, it is considered the client’s personal property.
Rep. Nelson asked that the Cabinet provide to the committee the number of complaints received for fraud, how many of those complaints have been investigated and how many have been prosecuted.
Rep. Adkins asked if the $26 million grant from the federal government would be used for heating assistance. He also asked if he was correct in saying that the money, based upon need and population, is filtered from the Cabinet to the Community Action Agencies throughout the Commonwealth. And then from there it goes through the local community action agencies which take and process the applications.
Ms. Carrington said that was correct.
Rep. Smith stated he has retail operations as well, but he no longer participates in the program. He asked how many businesses no longer participate in the program.
Mr. McKenzi stated that he did not know how many businesses no longer participate in the program, but he suspected the number had decreased.
Rep. Smith asked Mr. McKenzi to provide to committee staff, the number of small retail operators who have opted out over the last couple of years.
Upon motion made by Rep. Pullin and seconded by Sen. Harper Angel, the Findings of Fact were adopted by voice vote.
Mike Helton, Kentucky Representative for the American Petroleum Institute (API) invited members to tour the technology exhibit upon adjournment of the meeting.
Mr. Helton introduced Denise McCort, Director of Membership with the American Petroleum Institute, Washington, D.C. She stated that the exhibit helps to explain the high technology being used in bringing resources to the customers at the gas stations around the country. She stated that the country and the world need all the resources it can find to provide the energy that is needed.
Ms. McCort explained that the exhibits show new technology using 4D time snapshots of underground resources. She said the exhibit also shows how drill ships are positioned out in the ocean and how new technology allows them to drill 7 miles below the surface. Ocean drilling is the most expensive thing that API does. She said that API is constantly looking for new resources to meet the global demand. The position of API is to focus on energy efficiency, new technology and diversity.
Sen. Smith asked what is currently being done to allow for the recovery of fuel from the product being taken out of the ground.
Ms. McCort stated that because of new technology they are able to remove more oil or natural gas than they were in the past, but they still do not get all of it
Sen. Smith asked if API’s goal was to be able to extract more than 45% out of used wells.
Ms. McCort said that API is always asking how they can maximize the amount of product that they get and the refining capability that they have to do that.
Smith asked if the non-working refineries in France could be seen as an attempt to manipulate the market.
Ms. McCort said she did not know what the impact of the non-working refineries in France have on the U.S. market.
Sen. Borders stated that he was concerned with people speculating and taking advantage of the market by buying oil for the future, causing the price of crude oil to increase even more. As a temporary fix, Washington needs to put back on the market some of the millions of barrels of oil from their strategic reserves.
Sen. Borders and Sen. Stine applauded API for looking at different ways of finding fuel sources. The lack of oil affects ordinary Americans and Kentuckians.
Ms. McCort explained that the federal government owns the property where the resources are located, onshore and offshore. Congress decides whether or not we have access to those resources. She said that 85% of the places in the ocean, which might contain additional resources, are under a moratorium.
Rep. Pullin asked if API, in addition to its individual members, is working with the Department of Defense to develop a single U.S. sourced feedstock for motor fuels for the battlefield.
Ms. McCort stated that she did not know the direct answer to that question. She said that API and its members work very closely with the Department of Defense.
Sen. Buford stated that he knew that the Department of Defense was working heavily in coal gasification and was being extremely successful in reducing their energy costs. He asked Ms. McCort to explain their thoughts on the recent failure of the windfall profits tax issue that took place in the U.S. senate. He also asked if she could explain how the oil companies, such as Exxon, were having record profits.
Ms. McCort stated that it was a challenge to explain the scope of the companies and how large they really are. The number one role is to put the earnings back in to look for oil and gas. It takes 7 or 10 years to bring some of these resources on line. We have stockholders and we have data that shows a major percent of holdings are in 401K and pension funds, she said.
Sen. Buford responded that tremendous bonuses are paid to the executives. He asked if it was possible that the investor, those that are playing the futures and the hedge market, are driving up percentages. Should Congress address those issues?
Mr. Helton stated that the Center for Applied Energy Research recently did an excellent and informative presentation to a legislative committee, discussing the drivers behind pricing of gasoline. The API also has a Primer which contains information as well.
Sen. Buford stated that companies are making billions in profit each year; even though you say you can’t drill here, can’t drill there, and can’t get more exploration out there because of the regulations in Washington. But the profits are continuing to be sky-high. He also said he was not sure their answers explained how a gallon of gas could go from $2 to $4 in a short period of time.
Mr. Helton said there was no answer because it is very technical and complex issue.
Rep. Riner asked how successful would we be in defending our refineries from an attack that would come from the air. What is being done? The terrorists and rogue nations know that our refineries are a very high value target.
Ms. McCort stated that the oil and natural gas industries work very closely with the Department of Homeland Security. There is a very strong partnership between the government and the oil and natural gas industries and any other supplier of energy in how to safeguard those resources. There is definitely an understanding of the importance of critical infrastructure to our economy and our American way of life.
Sen. Blevins asked if it was true that oil companies presently have 30 year oil leases with the federal government. How many of those leases are not being explored?
Ms. McCort stated that every lease is not going to be productive. The reality is the issue of exploration. You have to get enough leases together to be able to have an opportunity to find resources.
Sen. Blevins asked if leases are given back or maintained by the oil companies if they find there is no reason to drill.
Ms. McCort stated that it was her understanding that the lease term was shorter than 30 years. The leases are paid on an on-going basis.
Sen. Blevins asked how much the oil and natural gas companies paid to the federal government.
Ms. McCort stated that MMS posts that information on their website.
Rep. Yonts asked if it was true that there are 89 million acres of lands, both off-shore and on-shore, under lease not being explored, and if so, why was there such a large volume of territory under lease not being explored.
Ms. McCort explained that the issue is the cost of money that it is going to take to bring the resources up.
Rep. Yonts asked if he understood correctly that there is some oil and gas underground or the ocean but not enough to be productive. And, if so, why not give back the leases.
Ms. McCort stated that assuming a permit could be obtained for exploring in the ocean, we really do not know what is out there. Ms. McCort stated that leases have a term limit, and they do give them back.
Rep. Gooch noted that there is a national petition drive called Drill Here, Drill Now, Pay Less. You can go to www.americansolutions.com or org. and sign up.
Rep. Adkins stated that the price of fuel was causing people to struggle and busting the pocketbooks of Americans. The energy policy we have in this nation is unacceptable. We are importing over 62% of our oil from foreign nations, and 30% to 35% of that is coming from nations or countries that we cannot depend on. We are sending billions of dollars a day, of hard earned tax dollars, out of this country to buy foreign oil. Something is not right when our single biggest user of foreign oil in the world is our U.S. Military.
He said that we should be using our technologies and our own natural resources to produce our own energy and transportation fuels, many of which are being researched and developed at the Center for Applied Energy Research.
Rep. Adkins also asked Ms. McCort to take Kentucky’s energy policy back to Washington and show them what the Kentucky General Assembly has implemented. Kentucky recognizes the challenges and intends to be national leaders in energy policy, research, and development.
Meeting adjourned at approximately 12:00 p.m.