Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Natural Resources and Environment was held on Thursday, July 7, 2011, at 10:00 AM, at the Rio Tinto Alcan plant in Sebree, Kentucky. 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 Joe Bowen, Ernie Harris, Ray S. Jones II, Bob Leeper, and Dorsey Ridley; Representatives Tim Couch, Reginald Meeks, John Short, Fitz Steele, Jim Stewart III, and Jill York.
Legislative Guests: Representative Fred Nesler.
Guests: Stephane Leblanc, General Manager, and Pam Schneider, Human Resources Manager, Rio Tinto Alcan; Hugh McCormick, Henderson County Judge-Executive; Kevin Sheilley, Northwest Kentucky Forward; Mike Baker, Kentucky Aluminum Network; Kenny Allen, Armstrong Coal; Charlie Hiatt, USW Local 9443-00; and Ron Brooks, Kentucky Department of Fish and Wildlife Resources.
LRC Staff: Stefan Kasacavage, Biff Baker, and Kelly Blevins.
A quorum was present. After a motion and a second, the minutes for the June 2, 2011 meeting were approved.
Presentation by Alcan Regarding the Aluminum Industry and its Challenges
After Pam Schneider, Human Resources Manager for Rio Tinto Alcan, welcomed the committee and gave a safety briefing to the members, Henderson County Judge-Executive Hugh McCormick and Senator Ridley discussed the importance of both the Rio Tinto Alcan plant and coal to the economy of western Kentucky.
Kevin Sheilly, president and CEO of Northwest Kentucky Forward, explained that his group is the lead economic development organization for Henderson, Webster, Union, and McLean Counties. The mission of Northwest Kentucky Forward is to create wealth and opportunity for the people of northwest Kentucky in four main ways: business retention, business attraction, business creation, and workforce development. Rio Tinto Alcan helps create wealth and opportunity for the citizens of northwest Kentucky in all of these ways.
Mike Baker, director of the Kentucky Aluminum Network, stated that two of the nine aluminum smelters currently operating in the United States are in western Kentucky. The four main challenges currently facing the aluminum industry are access to cost-effective and available power, reasonable environmental regulation, aging infrastructure, and a depleted workforce as baby-boomers continue to reach retirement age. The General Assembly has been active in offering business incentives for investment in the aluminum industry in Kentucky and in adopting policies to promote workforce readiness, but challenges for the aluminum industry, especially access to affordable electricity, persist.
Kenny Allen, vice president of operations for Armstrong Coal, discussed the challenges that the coal industry faces in Kentucky and its importance to the aluminum industry. The aluminum industry’s ability to survive is contingent on its ability to acquire affordable energy, and in Kentucky, that means energy produced from coal. Kentucky currently has the third lowest cost of energy of any state in the United States, but increased federal regulatory activity with regard to the coal industry imperils that status. The inexpensive electricity produced from coal is a vital component to Kentucky’s economic competitiveness, and the General Assembly should be vigilant in defending it against overregulation at the federal level.
Chair Smith stated that he was keenly aware of the problems that the US EPA was causing for the coal industry in Kentucky, which is why he sponsored the coal sanctuary state bill during the last legislative session.
Charlie Hiatt, president of USW Local 9443-00, discussed the importance of the aluminum industry to the economy of the region. If the two aluminum smelting plants in the area were to close, it would cost the region 4,700 jobs and $176 million in lost wages. State and local governments would lose over $12 million annually in tax revenues. Environmental regulation is important, but Kentucky must maintain reasonably low electricity costs to maintain industry competitiveness in the global market.
Stephane Leblanc, general manager for Rio Tinto Alcan, gave a presentation on the economic challenges facing Rio Tinto Alcan as it competes to keep its costs low in the international aluminum market. There are three main cost components for aluminum production: the cost of the raw alumina used for smelting, the operating costs of the individual smelting plant, and the cost of electricity. The cost of alumina is set by the market and is the same for all aluminum producers. When compared to the operating costs of other aluminum smelting plants around the world, the Rio Tinto Alcan plant ranks very favorably. However, the Rio Tinto plant’s overall operating costs relative to other smelting plants are increased greatly by the amount that it must pay for electricity. While Kentucky’s residential electricity rates are low when compared to other states, its industrial rates compared to the global average that others smelters pay are quite high. The Rio Tinto plant pays $43.50/MWh for electricity, which is 65% higher than the global average electricity cost for smelters of $26/MWh. The more money that Rio Tinto Alcan must spend on electricity, the less it can invest in capital improvements that will keep it competitive in other aspects of aluminum production, and the less likely it will be able to maintain full production capacity in western Kentucky.
Mr. Leblanc asked that Kentucky join other states including Missouri, Ohio, West Virginia, and New York in offering discounted utility rates to its large industrial employers so that they can maintain viability within the state. Western Kentucky is a very attractive location for aluminum smelters due to its well-trained workforce, its easy access to channels of commerce, and its strong community support for the industry. However, lower electricity will be necessary to secure the future of the aluminum industry in the area.
In response to a question from Senator Leeper, Mr. Leblanc responded that the Rio Tinto plant and the Century aluminum smelting plant in Hawesville together use 70 percent of the electricity produced by Big Rivers. Big Rivers sells a portion of its power in the secondary market; not all of it is going to smelters and local residential users.
In response to a question from Representative Meeks, Mr. Leblanc responded that the main use for the aluminum produced at the plant was for radiator fabrication.
In response to a question from Co-chair Gooch, Ms. Schneider responded that she believed that about 85 percent of the aluminum in the country was recycled. Mr. Leblanc added that not as much energy is required to remelt the aluminum for recycling as is needed in the primary smelting process. He stated that the plant recycled it own aluminum scraps at the plant, and he would like to expand the recycling capacity.
In response to a question from Representative York, Mr. Leblanc responded that governments at the local and regional level around the world have been offering incentives to their local aluminum smelting plants for years.
In response to a question from Senator Bowen, Mr. Leblanc responded that the advantage to locating an aluminum plant near a river is the ability to bring in the raw material needed for producing aluminum at low cost.
In response to a question from Chair Smith, Mr. Leblanc responded that aluminum components used in heavy-duty trucks were likely made at other plants.
In response to a question from Co-chair Gooch, Mr. Leblanc responded that none of the nine smelters located in the United States had been recently built. If the Rio Tinto plant were to be relocated, it would likely be in another country, not another state. The main consideration in building a new plant is the cost of electricity in the area.
Department of Fish and Wildlife Resources Discusses Asian Carp Problems in Kentucky
Ron Brooks, Fisheries Director for the Department of Fish and Wildlife Resources, discussed the need to reduce the overabundance of Asian carp in Kentucky waters. The Asian carp was introduced from China into Missouri and Illinois waters in the late 1960s and early 1970s to control plankton populations in those areas and has since become a nuisance species that has overpopulated our waters, disrupted local ecosystems, and crowded out indigenous species. Additionally, recreational use of Kentucky waters is comprised by the overabundance of Asian carp.
Mr. Brooks believes that with a $1 million investment from the General Assembly, a commercial fish processing facility could be built in Kentucky that could help curtail the Asian carp population and create a $1.2 billion annual economic benefit to the Commonwealth. The Chinese are already very interested in Asian carp, and a domestic fish meal market could demand 30,000 pounds of Asian carp daily. Building a fish processing facility for the Asian carp would help address the growing overpopulation problem, create jobs, and create a recurring economic benefit to the people of Kentucky.
There being no further business, the meeting was adjourned.