Special Subcommittee on Energy


Minutes of the<MeetNo1> 1st Meeting

of the 2012 Interim


<MeetMDY1> June 15, 2012


Call to Order and Roll Call

The<MeetNo2> 1st meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> June 15, 2012, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Keith Hall, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Brandon Smith, Co-Chair; Representative Keith Hall, Co-Chair; Senators Ernie Harris, Bob Leeper, and Dorsey Ridley; Representatives Royce W. Adams, Rocky Adkins, Dwight D. Butler, Tim Couch, Will Coursey, Jim Gooch Jr., Wade Hurt, Thomas Kerr, Martha Jane King, Lonnie Napier, Sannie Overly, Tanya Pullin, Tom Riner, Kevin Sinnette, Fitz Steele, and Brent Yonts.


Guests: Elizabeth Caywood and Virginia Carrington, Department for Community Based Services, Cabinet for Health and Family Services; Michael Moynahan, Energy Programs Director, Community Action Kentucky; Secretary Len Peters, Karen Wilson, Chief of Staff, and John Davies, Deputy Commissioner, Department for Energy Development and Independence, Energy and Environment Cabinet.


LRC Staff: D. Todd Littlefield, Sarah Kidder, and Susan Spoonamore, Committee Assistant.


Low Income Home Energy Assistance Program (LIHEAP) Block Grant Application for FFY 2013:

Ms. Elizabeth Caywood and Ms. Virginia Carrington, with the Department for Community Based Services, Cabinet for Health and Family Services, explained that the Low Income Home Energy Assistance Program (LIHEAP) was established to provide low income individuals and families with a safety net for their heating and cooling costs and energy conservation measures. The program is 100 percent federally funded. The anticipated federal funds to be awarded to Kentucky for the block grant for FFY 2013 will be $24.3 million, of which 90 percent will be used for direct benefits to Kentuckians. For the past three years, Kentucky has received enhanced federal funding; however, enhanced funding may not be available this year. The Department for Community Based Services contracts with Community Action Kentucky (CAK) to provide administrative training, monitoring, and technical support to the 23 agencies in the CAK network.


Virginia Carrington spoke about the direct benefits provided through the program. Kentucky serves individuals with incomes at or below 130 percent of the federal poverty level. For a household size of one, monthly income cannot exceed $1,211, and for a household size of four, monthly income cannot exceed $2,498. LIHEAP has two program components, the subsidy component and the crisis component. Last year, the subsidy program served 109,644 unduplicated households with an average benefit of $140.06. The total amount of benefits awarded under the subsidy component was $15,356,844. The crisis component is assistance for energy emergencies. Crisis applicants can apply multiple times until they reach their maximum benefit level. The maximum benefit level for natural gas and electric was $250; however, when enhanced funding was received, it was increased to $400. The crisis program served 96,799 unduplicated households with an average benefit amount of $294.65, totaling $28,522.77. The total amount of benefits provided in both components was $43,878,912, which included money received from enhanced funding. Benefits are provided in all 120 counties.


In response to questions from Representative Keith Hall, Ms. Carrington said that if the money appropriated to the subsidy component had a remaining balance, then that money would be used for the crisis program. The need was greater than the available funding.


Mr. Michael Moynahan, Energy Programs Director, Community Action Kentucky, explained that CAK operates LIHEAP, and serves all 120 counties in the Commonwealth. CAK officials also work with home-bound individuals to make sure they receive needed services. The need to support and continue the services is still great. CAK is always looking for ways to make the program better in an era of rising energy costs and potential federal funding cuts.


The proposed LIHEAP Block Grant Application and Findings of Fact were approved by voice vote, without objection, upon motion of Representative Tanya Pullin and second by Representative Royce Adam.


In response to Senator Brandon Smith’s questions, Mr. Moynahan said that CAK is ready to operate a summer cooling program if requested by the Cabinet. Ms. Carrington said that a cooling program during the summer normally does not happen because all the funds have been utilized during the winter season. If there are any funds available and if high temperatures are going to be consistent for a long period of time, then the Cabinet will try to make a cooling program available. That would also depend upon funding from either the federal or state government.


In response to Representative Hall, Ms. Carrington said that there is no money available for a summer cooling program.


Representative Jim Gooch spoke about the new federal regulations’ consequences to the people of Kentucky. They will have dramatic affects on utility rates, and there may not be enough federal money to fund the heating and cooling programs.


Representative Tanya Pullin asked the Cabinet and CAK to develop a way to assist the home-bound elderly in applying for the program.


Secretary Len Peters, Kentucky Energy and Environment Cabinet, discussed energy consumption and expenditures, transportation fuels, natural gas, electricity costs and generation, and coal production. Because of energy efficiency and the economy, energy consumption in Kentucky and nationally have been relatively flat for the past five years. Since 2000, energy expenditures in Kentucky have more than doubled due to rising transportation fuel prices. Increases in transportation energy expenditures were driven by price increases rather than increased consumption. Kentucky was not a dominant player in natural gas production in that the state’s natural gas production was less than one percent of national production. Kentucky imports 45 percent of its natural gas. There has been a dramatic increase in natural gas production nationally during the last two years, thus causing natural gas prices to fall by half since 2008. Prior to 2000, the price of natural gas was stable, but now the volatility in the market makes it difficult to predict the price of natural gas in 2015.


Secretary Peters said that due to the low price of natural gas, coal has been replaced by natural gas for electricity generation. In March 2012, coal represented only 34 percent of the national electricity generation as opposed to 50 percent in 2010. The trend of switching from coal to natural gas is also prevalent in Florida and Georgia, the top two consumers of Kentucky coal. Kentucky continues to have the lowest electricity rates in the nation, but that is starting to change. Kentucky is in the top ten for the fastest rising electricity prices.


From 1960 through 2011, Kentucky’s coal production was steady, peaking at approximately 18 million tons in 1990. One of the major reasons that eastern Kentucky coal production is declining is the advent of flue-gas desulfurization units on many electricity generating power plants. Low sulfur coal is no longer needed. On the other hand, there has been more of a demand for western Kentucky coal because it is predominantly higher sulfur coal.


Secretary Peters said that energy consumption has been relatively flat, which is good news for energy efficiency. The dominant factor in increasing costs is the rising transportation fuel price, which has had a significant impact on overall energy expenditures. The demand for and production of coal has been falling due to stringent federal regulations and the low cost of natural gas.


In response to Representative Riner’s question, Secretary Peters said that if a military conflict between Iran and Israel were to happen, and if the shipping lanes were closed, it would have an impact on transportation fuels by driving the prices higher. Natural gas costs are somewhat decoupled from petroleum/crude oil prices, but federal regulations regarding fracking could reduce the production of natural gas and make the United States more dependent upon international supplies. It is a very complex political situation.


In response to Representative Steele, Secretary Peters said he would choose coal over natural gas if natural gas prices were to escalate like they did a few years ago. Natural gas does not have a steady energy price. If that volatility continues, then the energy intensive manufacturing industries in Kentucky will have to decide whether it is feasible to expand or build new plants. The United States has greater coal reserves than natural gas.


Representative Adkins said it was important to realize that the decrease in coal production would have a significant impact on Kentucky’s budget for the next biennium starting July 1. Coal severance money that was estimated will probably be reduced by 30 percent. Natural gas should be used as fuel for vehicles so the United States can reduce its importation of foreign oil. Natural gas should not be used for base load power.


In response to Representative Adkins, Secretary Peters said that the volatility of natural gas prices could be a real issue. Electric utility companies will have difficulty choosing their fuel sources not knowing what federal regulations will be enacted in the next few years.


Senator Brandon Smith expressed his concerns over the unpredictability of natural gas price and gas availability. Coal is predictable and readily available.


In response to Representative Jim Gooch’s question, Secretary Peters said that the Cabinet was in the process of researching what this means for Kentucky in the short and long-term, whether the energy profile should be coal, natural gas, or nuclear, what it means about the number of jobs in energy generation, and whether it is better to have stable or unstable energy prices.


In response to Representative Tim Couch’s question, Secretary Peters said that if there were a stadium filled with 10,000 seats, four of those seats would represent the amount of carbon dioxide in the atmosphere, which is about the same amount as it was 30 years ago.


With there being no further business, the meeting was adjourned.