Special Subcommittee on Energy


Minutes of the<MeetNo1> 4th Meeting

of the 2016 Interim


<MeetMDY1> September 16, 2016


Call to Order and Roll Call

The<MeetNo2> 4th meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> September 16, 2016, at<MeetTime> 10:00 AM, at Domtar Paper in Hawesville, Kentucky<Room>. Representative Dean Schamore, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Dean Schamore, Co-Chair; Senators Joe Bowen, Ernie Harris, Ray S. Jones II, Brandon Smith, and Johnny Ray Turner, Representatives Rocky Adkins, Leslie Combs, Tim Couch, Jim Gooch Jr., Martha Jane King, Sannie Overly, Tom Riner, John Short, Jeff Taylor, and Brent Yonts.


Guests: Mr. Steve Henry, General Manager, Domtar Paper, Breckenridge County Judge Executive, Maurice Lucas and Hancock County Judge Executive, Jack McCaslan.


LRC Staff: D. Todd Littlefield, Janine Coy-Geeslin, and Susan Spoonamore, Committee Assistant.


The August 19, 2016, minutes were approved, without objection, upon roll call vote by Senator Bowen and second by Representative Overly.


Welcome and Introductory Presentation

Mr. Steve Henry, General Manager, Domtar Paper, explained that Domtar Paper is a Fortune 500 company, leading the market in the pulp and paper industry in North America and continuing to expand its personal care division. Domtar Paper was incorporated in the United States with its headquarters in South Carolina. The Domtar facility in Hawesville has 456 employees, and 65 employees are at the Owensboro location. Based on economic studies in the paper industry, it is estimated that for every 100 jobs another 325 jobs were directly tied to the operation (forestry, logging, contractors, and suppliers). He stated that the hourly employees were represented by United Steel Workers Local 1261. Mr. Henry said that the estimated regional economic impact for the Hawesville/Owensboro location was $335 million per year.


Domtar Paper designs, manufactures, markets, and distributes a wide variety of everyday pulp, paper, and personal care products from copy paper to baby diapers. Domtar’s overall sales were approximately $5.3 billion for 2015. Eighty-three percent is from pulp and paper sales and 17 percent is from the personal care product sales. Domtar has seen a three percent to five percent decline in the demand for printing and writing papers. The markets have seen an increase from exports which offer additional competition. Domtar is seeing growth in personal care, pulp, and specialty papers. Domtar is the largest manufacturer of uncoated freesheet in North American. In 2015, Domtar produced 3.4 million tons of paper manufacturing capacity.


Mr. Henry said that, since 2007, Domtar has seen a 58 percent reduction in safety incidents, which is still not good enough. Domtar cares about its people and the environment. Domtar invests heavily in their employees through wellness efforts and training, and its employees are active partners within the community. For example, Domtar has partnered with Daviess County to build an Exploration Station on a converted school bus. The Exploration Station reaches out to students who do not have the educational opportunity during the summer to read books and other activities. In addition, the Station was able to offer free lunch to students who were on reduced or free lunches during the year. Domtar was pleased to sponsor a Ben Carson reading room at Faust Elementary in Owensboro.


Mr. Henry explained that Domtar had invested billions of dollars to upgrade their facility. The H-2 express is the newest and most modern printing and writing paper machine in North America. It runs at speeds up to 50 miles per hour. Domtar received the 2014 AF&PA (American Forest and Paper Association) Leadership in Sustainability Award for Energy Efficiency and Greenhouse Gas (GHG) reductions. The plant generates 75 percent of the energy used at Domtar. Through combined heat and power, Domtar produces enough renewable energy to power 22,600 average homes for a year. Domtar does not sell power to the open market.


Mr. Henry said that some of the market challenges facing the paper industry are declining markets and intense foreign competition. Other paper mills are declining at a greater rate and are converting over to paper markets, worldwide. Imports supply 20 percent of the market in North America. More recently, 17 percent of the domestic industry has been shut down since 2012 – that equals 1.9 million tons per year of capacity. Verso paper mill in Wickliffe, Kentucky permanently closed this year, impacting 390 families plus 1,325 indirect jobs. The largest facility in North America, International Paper in Alabama, shut down in 2014, resulting in 1,100 direct job losses. Mr. Henry stated that Domtar’s biggest expense is the cost of wood, followed by energy and chemicals.


Mr. Henry said that higher energy costs make Domtar less attractive for facility sustaining capital investments. Kentucky has always enjoyed lower energy costs, but that has changed within the last three years. The energy Domtar has to buy from Kenergy totals $4.15 million a year – an increase of 62 percent compared to 2013.


Mr. Henry expressed concerns regarding Kentucky’s energy prices. Kentucky should support the development of cost-effective strategies that promote energy efficiency and alternative resources and continue to recognize the vital importance of its fossil resources, including coal, and the impact it has on the economy. There are other significant regulatory costs such as coal combustion residuals and effluent limitation guidelines. LG&E and KU have been approved to spend approximately $994 million to comply with those guidelines. The industry, residential customers, and all others will have to foot the bill amounting to approximately $800 per Kenergy member. There should be a level playing field for biomass. Some states inadvertently tilted the field by providing incentives and subsidies to companies burning wood.


In response to Senator Bowen, Mr. Henry said that there is no chipping mill at Hawesville, but there are some at other Domtar mills. The wood that is received at the Hawesville Mill is chips. Sawdust is also used for fuel.


Representative Riner stated that if the public were more educated about China’s workforce, who are abused, then more people would refuse to buy products from China.


In response to Representative Adkins, Mr. Henry stated that Domtar produces approximately 55 megawatts a year. The plant uses all of the 55 megawatts. Domtar is a net purchaser from Big Rivers through Kenergy.


Chairman Schamore stated that a resolution was passed in early 2016 asking that the President, members of Congress, and Secretary of Commerce review the dumping of paper. He said that he hoped the federal government would take into account the companies that are already taking measures to help the environment and local communities.


Mr. Henry said that Domtar plans to continue working towards making sure that the Hawesville Mill will be viable for the long term.


In response to Representative Adkins, Mr. Henry said that the barge facility was built in 2013. The wood chips are brought up the river, unloaded, and belt-lined into the facility. Domtar invests approximately $12 million per year in capital investment and $42 million per year for maintenance.


In response to Senator Turner, Mr. Henry said that soft and hard chips are kept separate depending on the type of paper being made.


In response to Representative Martha Jane King, Mr. Henry said that there has been more demand for paper bags. Although plastic bags are cheaper, consumers are recognizing environmental consequences such as never decomposing in a landfill.


There being no further business, the meeting was adjourned.