The 6th meeting of the Interim Joint Committee on Natural Resources and Environment was held on Friday, December 11, 2009, at 1:00 PM, in Room 154 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 Jim Gooch Jr., Co-Chair; Senators David E. Boswell, Tom Jensen, Ray S. Jones II, Bob Leeper, Dorsey Ridley, John Schickel, Katie Kratz Stine, Gary Tapp, and Johnny Ray Turner; Representatives Hubert Collins, Tim Couch, Stan Lee, Tim Moore, Don Pasley, Marie Rader, Kevin Sinnette, Ancel Smith, Fitz Steele, and Jim Stewart III.
Legislative Guest: Speaker Greg Stumbo
Guests: John Whitney and Kelly McKnight, Geothermal Affordability Partners; Dr. Jim Cobb, Dr. Brandon Nuttall, Tom Sparks, Dave Harris, and Sarah Briland, Kentucky Geological Survey; Jeff Derouen, Andrew Melnykovich, and Stephanie Bell, Public Service Commission; Secretary Len Peters, Karen Wilson, and Brooke Parker, Energy and Environment Cabinet; Tom Fitzgerald, Kentucky Resources Council; and Steve Polson.
LRC Staff: Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.
Sen. Smith recognized Rep. Gooch for some remarks on climate change. Rep. Gooch stated that the United States Environmental Protection Agency (USEPA) passed a rule declaring carbon as a pollutant. There is an international meeting on climate change which will negatively impact Kentucky. Electricity rates, employment, economic development and household income will be impacted. Sometimes those decisions are not predicated on the best information. Then Rep. Gooch discussed a meeting on climate change that occurred two years prior and resulted in negatively publicity. Rep. Gooch stated that it was good to examine both sides of the climate change issue and the results of the new USEPA rule will vindicate the exploration of how climate change can harm Kentucky.
Sen. Smith thanked Rep. Gooch and recognized Rep. Collins. He stated that the decision on climate change is still unsettled. There is too much information and we cannot determine who is correct. Then Sen. Smith recognized Ms. Linda Faulkner and Mr. Anthony Adams. He then asked Mr. Whitney and Mr. McKnight, Geothermal Energy Partners, to come to the table to provide testimony on geothermal heating and cooling. Mr. Whitney stated that their company can help reach the goal of the 7-point strategy for energy independence.
Geothermal Energy Partners has a role to play in offering heat pumps. He described how heat pumps work and how heat pumps and geothermal energy in general can reduce greenhouse gases and household bills by 40 percent to 70 percent. Geothermal costs half of the price of conventional systems in terms of maintenance and upkeep. Mr. McKnight also compared the price of the system to other renewables like solar power. These systems work anywhere and the technology is solid. The problems with geothermal systems are the upfront cost for the loop field. He stated that a multiyear lease of the field could aid in financing the cost, but once the system is operating, the bill reductions will pay back the upfront costs.
Sen. Boswell asked if the technology has changed so that the heat pump works the same way everywhere. Mr. Whitney stated yes. Eight of ten schools use geothermal power. The temperature differential is a matter of how it is designed and the heat exchanger works.
Rep. Moore stated the federal government will provide rebates for product and purchase of things like furnaces. Geothermal qualifies and we should advertise that the money is available for energy efficient home improvements. Mr. Whitney replied that there are tax credits and accelerated depreciation, and also that the technology creates jobs.
Sen. Leeper asked if there is a cost in retrofitting. Mr. Whitney responded that they work well in a retrofit situation. Rep. Couch stated he installed geothermal and it cost about $12,000 dollars, but there were significant savings on power consumption and hot water heating. He also thanked Rep. Gooch for taking a firm stance on climate change even though it has been criticized by the press. Finally, Sen. Smith stated that mine sites are a nice fit for geothermal.
Representatives from Kentucky Geological Survey (KGS) and Secretary Lenn Peters with the Energy & Environment Cabinet (EEC) provided testimony on the report of the 2009 Senate Joint Resolution 67. This resolution resulted in a contracted between KGS and EEC to perform a study of the efficacy of oil and gas operations on state and university-owned lands. Dr. Jim Cobb stated that for nine months KGS examined hundreds of properties. Also introduced were Mr. Sparks and Sara Breeland. Then Mr. Cobb described the methodology used to determine the potential of oil and gas on state and university owned lands.
Sen. Smith asked about the software used to produce the results. Mr. Nuttall stated the technology is widely used. Mr. Nuttall continued stating that KGS examined surface access restrictions and the classified lands according to size, population density, residential or urban and if there were special tracks where resources had previously been extracted. The most likely scenario is 12.5 percent royalty and a 4.5 severance tax over 5 years. That would yield between $30 and $77 million per year. Another impediment to the study is the need for better data. The Division of Real Properties and the universities need to put data in a digital format. KGS could also do a better job on modeling and access to additional reservoir data.
Sen. Smith asked if there were questions and Mr. Nuttall posed one to himself. He asked if it was reasonable to think a policy of allowing oil and gas explorations on state lands is a sound policy. In a rhetorical reply, Mr. Nuttall stated that if the policy was designed to plug the budget then no, but if the policy is to add additional money for agencies and to create jobs by developing the oil and gas industry, then the answer is yes.
Rep. Lee asked about exclusion of urban/residential areas in the study. Mr. Nuttall stated those areas were excluded and the tracks are likely to be too small and pose a nuisance to the public. Many of those properties were community college properties. Rep. Lee continued asking so is nothing collected on urban/residential areas. Mr. Nuttall stated no. There are properties identified in the annex to the study. Rep. Lee asked if $30 to $77 million represents royalty payments to the state or overall economic impact. Secretary Peters responded by stating that the cabinet estimated based on a 50 percent drill and 30 percent success rate that the economic impact to the state is $200 million per year. Direct and indirect job creation could be around 1,500, but this data needs to be examined in greater detail. Rep. Lee stated that we want that information and any economic activity is worth consideration.
Sen. Boswell asked if lands owned by the Department of Transportation are suitable or beneficial. Mr. Nuttall replied that there is a list but the study did not access those lands. Sen. Boswell continued that these parcels have market value, minimal real estate value and should be put to a final disposition. Then Sen. Smith thanked those testifying and for the cabinet’s coal permitting assistance.