Special Subcommittee on Energy


Minutes of the<MeetNo1> 6th Meeting

of the 2008 Interim


<MeetMDY1> November 21, 2008


The<MeetNo2> 6th meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> November 21, 2008, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Rick G. Nelson, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Brandon Smith, Co-Chair; Representative Rick G. Nelson, Co-Chair; Senators Charlie Borders, Denise Harper Angel, Ernie Harris, Jerry P. Rhoads, Katie Stine, Robert Stivers II, and Johnny Ray Turner; Representatives Royce W. Adams, Scott Alexander, Eddie Ballard, Dwight D. Butler, Leslie Combs, Tim Couch,  Keith Hall, Fred Nesler, Sannie Overly, Tanya Pullin, and Tom Riner.


Guests:  Scott A. Shearer, Ph.D, P.E., Professor and Department Chair, Bio Systems and Agricultural Engineering, University of Kentucky; Scott Maas, Business/ Cooperative Specialist with USDA-Rural Development, and Energy Coordinator for the Renewable Energy and Efficiency Programs for the Commonwealth of Kentucky; Dr. Len Peters, Secretary, Energy and Environment Cabinet; Don Newell, acting director of the Transportation Fuels, Supply and Distribution Division, Department for Energy Independence;  Speaker Jody Richards and Representative John Will Stacy.


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


The October 24, 2008 minutes were approved, without objection, by voice vote upon motion made by Representative Royce Adams and seconded by Representative Leslie Combs.


Scott Maas, Energy Coordinator, Business/Cooperative Specialist, USDA-Rural Development, Kentucky State Office, Lexington, Kentucky discussed energy programs currently available through the federal government, and the steps that Kentucky is taking to promote the programs.

Mr. Maas stated that under the 2008 Farm Bill, there are twelve to thirteen programs regarding energy initiatives.  He emphasized three programs:

 Section 9003 – Biorefinery Assistant Program provides loan guarantees for the development, construction and retrofitting of commercial-scale biorefineries, and grants to help pay for the development and construction costs of demonstration-scale biorefineries.  He said that applications are now being accepted. 

Mr. Maas said that there were two different biorefineries interested in this program.  Both of the projects are biorefineries, basically converting yellow grease or animal fat into biodiesel.

Section 9007 – Rural Energy for America Program (REAP) expands and renames the program formerly called the Renewable Energy Systems and Energy Efficiency Improvements Program. 

Section 9008 – Biomass Research and Development Initiative provides competitive grants, contracts and financial assistance to eligible entities to carry out research on and development and demonstration of biofuels and biobased products, and the methods, practices and technologies for production.

Mr. Maas stated that Kentucky’s geographical location makes it possible for Kentucky to be a major player in all the programs.

The 2008 Farm Bill also includes Section 9009 – Rural Energy Self-Sufficiency Initiative, which authorizes funds of $5 million per year beginning in FY 2009, to provide grants for the purpose of enabling eligible rural communities to increase their energy self-sufficiency.

He said that in 2007, Kentucky received funds for two applications relating to a grain dryer in Hardin County, and a grant and guaranteed loan for a dairy facility in Logan County. In 2008, Kentucky had fifteen applications and five were deemed ineligible or incomplete. Six out of the remaining 10 applications were approved with the average grant amount of approximately $22,000. Most of those grants were tied to poultry.

Mr. Maas stated that the main problem in getting applications approved is the lack of obtaining qualified energy audits on poultry operations.  He said that the University of Kentucky has been helping with energy audits, but more help is needed.  


Scott Shearer, Ph.D., P.E., Professor and Department Chair, Bio Systems and Agricultural Engineering, University of Kentucky discussed the broiler industry in the Commonwealth.  He said that broilers are the number one food commodity in Kentucky and,  Kentucky ranks 7th in the United States as a broiler producer. The broiler industry represents approximately $814 million per year in income. He said Kentucky has 850 independently owned poultry farms representing 2,800 poultry houses.

He explained that the Kentucky Agricultural Development Board funded a project evaluating poultry houses specifically focusing on energy. He said that one evaluation showed that using insulation and changing from incandescent to cold cathode lights would save approximately 8,000 gallons of LP gas per year along with approximately 50,000 kilowatt-hours in savings.  He said that this specific project could see an energy savings of approximately $20,000 per year.

He said Kentucky needs to take advantage of the 2009 USDA programs, but in order to receive funding more energy audits were needed. He said that energy audits require up to 20 person-hours.  He stated that Kentucky needs the professional capability in order to perform energy audits to help Kentucky be more effective in terms of the applications process and bringing more of the federal funds to Kentucky.


Dr. Len Peters, Secretary, Energy and Environment Cabinet, discussed the contents of the energy plan that was recently released by the Governor’s Office and the Energy and Environment Cabinet. He said that the plan is meant to be the initial thoughts and draft of the Executive Branch’s commitment for Kentucky to become a national leader in energy technology and production.

Secretary Peters explained the more important elements which will be critical to energy challenges in the 21st Century.

He said that a number of studies indicate that the energy needs for Kentucky by 2025 are going to be 40% above the needs of today. That increase is coming from both projected population growth, and the use of more energy intensive devices. We will be challenged to develop clean, reliable and affordable energy sources.  Dr. Peters said, “I think we know that today’s energy security is much more closely tied to national security than it was even in 1975 when we had the oil embargo crisis at that time.  We are much more dependent on foreign supplies of energy that we were in the 1970s and 1980s

It is a political reality that we are going to have carbon management legislation at the federal level. If there is anything that we can do to position the Commonwealth to be able to handle that carbon management legislation we will be much better off.

 This summer, we learned that the tipping point for gasoline is $4.00 dollars.

The second thing that we learned during that time was that unlike the prior petroleum crunches—when the U.S. alone could take actions and really make significant changes in the global arena—we can no longer do that. With the emergence of China, India and other nations that are developing, the U.S. no longer by itself really can control the energy prices for supply and demand.  

A third challenge but really one that is a great opportunity for this state – when you look at the average age of our electricity generating fleet today, it is about 35 years old. That is one of the reasons we have low energy prices at this point in time.  Fifty years is the timeframe when most utilities begin to look at how they are going to really replace that electricity generating capacity.  It is a challenge for us, but it is also a great opportunity as we move forward to use cleaner coal and other options for base load generation.

Secretary  Peters stated that we needed to think about this as a sort of integrated whole so we can begin to reshape the energy portfolio in the Commonwealth to meet the needs of Kentucky. Reducing carbon dioxide emissions, we’ll come back to that time and time again. Eliminating and reducing the need for imported oil – how can we use our domestic resources particularly those within Kentucky for our energy needs. We should look at the opportunity for getting greater economic growth and job growth through the energy industry that we can develop over the next 15 to 20 years.

We have proposed a renewable and efficiency portfolio standard.  It is that by 2025 that 25% of Kentucky’s energy needs will be met by efficiency gains and renewable sources such as solar, wind, hydro and biofuels.

The second standard that we are proposing is what we refer to as an alternative transportation fuel standard.  To the best of our knowledge, no other state has really taken this approach.  It is really to try to get at the issue of energy independence.  How we can use resources particularly within Kentucky to begin to displace the petroleum that we have to import in order to refine.  And it is the fact that by 2025, sixty percent (60%) of transportation fuels used in this state will be derived from things like biofuels, coal-based liquids. We know that plug-in hybrids are going to be an important element, putting an additional expectation on electricity generation, and perhaps compressed natural gas. 

Let me start in and spend just a few minutes on each strategy 

The first strategy is efficiency in Kentucky’s homes, buildings, industries and transportation fleets.  We think we can accomplish an 18% reduction in the energy demand in 2025.  If we do not improve efficiency we are going to be looking at building more power plants

The second strategy is around alternative energies and renewable energies, largely solar, wind, and hydro.  We do not have a lot of opportunity for base-load wind or solar generation in Kentucky. However, we do have the opportunity to use these in a more distributed manner on homes, office buildings, etc. We are seeing improved and enhanced technologies all the time in utilization of solar thermal and/or even small wind stations that can be attached to buildings.  So there is that great opportunity in order to do it.  But the goal there is to pretty much triple where we are at today.  It is the equivalent of about 1000 megawatts of clean energy that could come from that arena. 

The third strategy is in biofuels. Right now we produce about 40 million gallons a year of ethanol fuel. We are also producing some biodiesel in Owensboro from soybeans.  We could increase the amount of bio-based fuels from somewhere in the range of 50 million gallons a year to 750 million to 800 million gallons a year. We have the opportunity to grow cellulosic crops so you do not get in the food vs. fuel debate, which I think we want to avoid if we can.  But you can also do it on more marginal farm lands. 

Strategies four, five and six are based around the largest energy resource that we have in this state and that is coal.  The coal to liquid industry is absolutely critical, if the nation is convinced that energy security and national security are tied together.


The fifth strategy is also looking at the great opportunity for using coal to supply synthetic natural gas. We use the equivalent of about 45% of the natural gas that is produced in the state. We have the opportunity with well known, already- implemented technologies to convert coal to synthetic natural gas. The goal there is to compliment the natural gas industry so that we can produce in Kentucky the equivalent of 100% of the natural gas or the gas that we use at this point in time.

The sixth strategy is the one that has probably the largest technology hurdle that we have to move and address. That is the whole carbon capture sequestration. We are going to see geological sequestration of CO2 coming out of power plants. How extensively we are going to be able to implement that technology remains to be seen.  One of the concerns that we have is that the federal government is looking at a single technology for carbon capture and sequestration and that is only geological sequestration. It is going to be a technology that is used and it is an important technology, but being a technologist, I like to have more options because I know it is not going to be applicable in every place. We are putting through some of the funds that have been allocated from the General Assembly into looking at biological sequestration that is producing the carbon-consuming algae.  About two years down the road we would be looking at pulling a real 30 MW equivalent slipstream off one of their plants so that we are not simply looking at a pilot plant with synthetic flue gas.

The seventh strategy is to begin examining the use of nuclear power for electricity generation in Kentucky. We have to have the conversation around nuclear.  Are we going to be part of using nuclear as part of our energy solution or not?  Right now it is used in most of the surrounding states to Kentucky, except for Indiana and West Virginia. There are construction and operating licenses in the early part of the application phase for about 15 nuclear operations in the general region that includes Virginia, Tennessee, South Carolina, Georgia and Alabama.  It is going to be part of the national solution.  Coal is going to be part of the national solution.  At this time we rely on coal for 50% of our electricity generation across the nation. We are not going to get that number to zero percent. Whatever the number is we are going to have to have an energy portfolio mix that is quite substantial.  We have to start that conversation.  What are the issues with spent fuel, storage – what do we need to do.   What is the general acceptance within the Commonwealth for that? 

We are looking at integrating more fully, the energy and agriculture economies.  I think it is well known that the agricultural community is ready, willing and capable of helping us with energy security and we need to advance that.

We have the opportunity to not displace coal but to use coal cleaner and more efficiently through IGCC, having carbon capture and sequestration be it geological or biological. It will move a long way towards achieving energy security by using a lot of our resources within the state – be they biofuels or natural gas, etc.  And finally we will begin diversifying the electricity portfolio mix. But at the same time, we have significantly strengthened the agricultural industry and maintained a coal industry that is very important to us in terms of coal production.

Our best estimate is that we can generate somewhere around 40,000 jobs in the process.  We must reduce carbon emission so that we are positioned for whatever action the federal government takes.


Sen. Harris asked for an update on a company that has made an application for a coal to biodiesel plant in Muhlenberg County.


Don Newell, acting director of the Transportation Fuels, Supply and Distribution Division, Department for Energy Independence stated the company and the Division for Air Quality have held preliminary meetings to determine what is needed to provide a comprehensive application to get an air quality permit.  We are looking at a substantial development in the Muhlenberg County area using coal for coal to diesel or coal to gas.


Sen. Harris asked if the process was moving quickly or is more information needed from the company.


Mr. Newell stated that it was his understanding that they have not submitted a complete application to Air Quality yet but is on the cusp of doing so.  In general that would start about a one year permitting process.  It was also his understanding that they would be doing the front-end engineering design and the final technical specifications of the facility simultaneously with the permitting process.


Sen. Stine asked if there were incentives for the broiler industry to work with the biofuel industry to work in concert to utilize the by-products of the chicken processing plants.


Secretary Peters stated that incentives are not generally discussed, but would not be ruled out. Biodiesel is going to be an important part whether or not it comes from things like soybeans or from recycling. 


Sen. Stine asked if the Commonwealth was promoting biological research currently being done to use the carbon dioxide to grow algae that in turn can be used for fuel.  If so, how is that being promoted?


Secretary Peters stated that was correct.  The Cabinet is supporting a major project with the Center for Applied Energy Research that is part of a three year program. They are refining at the bench and pilot scale.  We anticipate putting it on the slipstream of a 30 MW plant at one of the utilities to demonstrate.


Sen. Stine asked what opportunities or assets are available to small businesses that engage in environmental cleanup.  For example, cleanup the pig refuse reservoirs and indoor coal slurry ponds – spent fuel cleanup.


Secretary Peters stated that there are a number of interesting opportunities, whether it is landfill gas or other ways. 


Sen. Stine stated that she was talking about converting it through chemistry, not storing it. 


Secretary Peters stated that most of the efforts in that particular arena are being used for energy generation and/or energy production.


Sen. Stine asked how that was being promoted.


Secretary Peters stated that a couple of the operations can apply for energy tax credits.


Rep. Pullin stated that she was shocked at the information contained on page 109 of the report.  Particularly that South Shore in Greenup County was one of the four locations given for building a nuclear plant.  She asked if there had been any dialogue or discussion with the people of that community.


Secretary Peters stated that there had been no communication with that community. The sites mentioned in the report were only notional based upon water availability and things of that sort. 


Rep. Pullin stated that she had not been consulted, and in her opinion, the notional sites should not have been mentioned in the report.


Rep. Pullin asked if the Cabinet or the Governor’s Office would instruct the Economic Development Cabinet to not issue incentives for any other use for the land that has been identified for a possible nuclear plant.  There is a company that is moving very rapidly to build another type of plant on that property.


Secretary  Peters stated this is only a plan and a year from now we may decide that nuclear is not going to be a part of the energy portfolio mix for Kentucky.   


Rep. Pullin stated that she noted the absence of any discussion regarding the U.S. Federal Energy Regulatory Commission’s strategic transmission corridors in terms of a national grid. 


Secretary Peters stated that the proposed plan was not meant to be exhaustive at this point in time. There are a number of things that were not discussed in great detail but that does not mean that we are not continuing to look at other issues.


Rep. Nelson stated that building a large coal to liquid plant would cost around $10 to $15 billion.  How much would it cost to build a nuclear plant?


Secretary Peters stated that based on costs to rate payer for a current coal burning power plant, the costs would be approximately 20% higher, excluding any carbon tax or future federal legislation.


Rep. Nelson asked if there were any investors interested in constructing a nuclear power plant.


Secretary Peters said that there is a utility company who is interested.


Sen. Stivers asked Dr. Peters to explain the statement that Kentucky’s energy needs would increase by 40% by 2025.  Is that percentage based on electric generation or a combination of all energy needs?


Secretary Peters stated that the 40% increase was based on all energy needs.


Sen. Stivers asked what would be the number for increase in pure electric generation.


Secretary Peters stated that the Public Service Commission says that the official number right now is 7,000 megawatts.


Sen. Stivers asked in terms of percentage, what would be the increase.


Secretary Peters stated that it would be approximately a 40% increase.


Sen. Stivers asked if the Cabinet had looked at delivering any increases in electric generation to other regions.


Secretary Peters stated that particular issue has not been addressed in the energy plan. We believe that within the next 20 years we are going to see major improvements and enhancements in the electricity grid at the federal level.  Any increases in electric generation will be controlled through the federal government


Sen. Stivers asked if it was true that Kentucky does not have the capability to use wind and solar as energy resources.


Secretary Peters stated that was correct.  Kentucky does not have the resources, be they either solar or wind for baseload electricity generation using current technologies.


Sen. Stivers stated that based on our climate, I think you are saying, at best it is going to be supplemental, which given the figures you have shown us or told us earlier of 1000 megawatts and 22,000 megawatts of use, it is less than 5% of what we need.


Secretary Peters stated that at best, that is correct.


Sen. Borders stated that he agreed with the premise of being energy independent.  When talking about nuclear power – there are many of us on this committee who need to better understand nuclear power before we go out and start talking to the general public.  My concern is that even if a nuclear power plant were the best thing to ever happen for certain locations in Kentucky, until we are educated and the public educated, we may never have the option to consider nuclear power.


Secretary Peters stated that the Cabinet is very close to talking in greater detail to the public.  The Cabinet would be happy to provide additional background material to help educate everyone, especially this committee and the General Assembly. 


Rep. Alexander stated that he was amazed and stunned regarding the letter that the Governor and the Attorney General released concerning stream buffer zones. He said that he could not agree with putting tighter regulations on the coal industry, especially with the economic crisis we are experiencing.


Rep. Combs asked if the Cabinet had a list for future plants for CTG, CTL and nuclear?


Secretary Peters said that the list can be found on their web site.


Rep. Combs, expanding on Rep. Alexander’s comments, stated that when the Administration comes to Eastern Kentucky, they would be asked, how are you going to mine that coal?


Sen. Smith stated that he would like for the Cabinet and the Administration to gather input from both legislative bodies in moving forward with the energy plan.  He also stated that he personally would like to talk to the administration about coal.  Sales and receipts are up – coal is a friend to Kentucky.


Secretary Peters wanted to emphasize that Kentucky is looking at mining the same amount of coal in 2025 as we are today.  In fact, in the intervening years, if one moves forward with coal-to-liquids we would actually be mining more coal during that period of time. 


Sen. Smith stated that he hoped that was true.  Because of the Governor’s letter regarding the stream buffer zone, the future is very frightening for those of us living and working in the coal areas.  We want to have a seat at the table.


Secretary Peters said that on the stream buffer zone letter, let me just say one thing:  When we looked at the direction it was going, we felt that it was really going to create much more regulatory uncertainty as we were moving forward, which is not what the State needs, not what the coal industry needs.  We feel we need to really go back and look at that whole regulation in terms of defining what a “stream” is. It was the intention to move towards greater regulatory certainty in that regards.


Sen. Stivers asked if the UK College of Law is looking at the legal aspects of some type of immunity or who is going to have the legal responsibility for how we deal with carbon capture, sequestration, injection.


Secretary Peters stated that they are looking at all those aspects and more.  Such as who owns the pore-space volume and what is the potential long term liability should CO2 not stay underground.  Besides the UK College of Law, there are a number of individuals trying to understand all of those issues.


Sen. Stivers asked what the Administration’s position was on doing limited immunity for projects that are experimental or done under the umbrella of the Center for Applied Energy Research (CAER) or the Kentucky Geological Society (KGS).


Secretary Peters said he was under the impression that limited immunity had been solved with the KGS and CAER concerning a well that is being drilled in east and west Kentucky. 


Sen. Stivers asked how they resolved that issue.


Secretary Peters stated that he would get that information to Sen. Stivers.


Rep. Pullin asked Secretary Peters to make a public commitment to the committee that the Cabinet and the Administration will not move forward one inch on nuclear sites until a thorough discussion has been had with the communities involved.


Secretary Peters stated that there is absolutely no problem with making that commitment whatsoever.  There would be very extensive conversations throughout the state in that particular regard. We know there are opportunities for nuclear and we recognize the social fears.  But on the other hand, we recognize that a nation like France produces 85% of their electricity from nuclear energy. 


Rep. Pullin thanked Secretary Peters for his commitment.


Rep. Riner asked that if a community or their representative voted against a nuclear plant, would their request would be honored.


Secretary Peters stated that if a community was not supportive of a nuclear plant, then the administration would not be supportive.


Rep. Hall also expressed his disappointment with the Governor’s letter concerning the stream buffer zone.

He said he was encouraged with the discussion on nuclear plants.  Kentucky has to look at other avenues and be open-minded on all forms of energy.


Meeting adjourned at approximately 12:00 p.m.