Call to Order and Roll Call
The 5th meeting of the Interim Joint Committee on Natural Resources and Environment was held on Thursday, October 2, 2014, at 1:00 PM CDT, at Century Aluminum Company in Hawesville, Kentucky. Representative Jim Gooch Jr., Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Jim Gooch Jr., Co-Chair; Senators Joe Bowen, Jerry P. Rhoads, and Johnny Ray Turner; Representatives Reginald Meeks, Tim Moore, John Short, Fitz Steele, and Jim Stewart III.
Legislative Guests: Senator Dorsey Ridley, Representative Suzanne Miles, and Representative Tommy Thompson.
Guests: Mr. John Hoerner, Mr. Shawn Burn, Mr. Brian Helm, Mr. John DeZee, and Mr. Jaren Brooks, Century Aluminum Company.
LRC Staff: Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.
Century Aluminum
A quorum was not present. Chairman Gooch introduced Mr. John Horn, Vice President North American Operations for Century Aluminum. Mr. Horn welcomed members to the Century Aluminum plant and stated that during the 2013 session an independent study described aluminum as a dying industry in the United States. However, Century Aluminum has two plants, one at Hawesville and the other at Sebree. He said that, although the industry faces constraints, there is opportunity for growth and development.
Sean Byrne, plant manager of the Sebree plant for Century Aluminum, stated that Century’s purchase of Sebree was strategic and there is a plan to take advantage of new markets for aluminum in the automobile industry. Century has moved from lower grade aluminum and plans to take advantage of demand for premium aluminum product. By January 2015, Hawesville and Sebree will produce only premium product for automobiles. Century Aluminum has spent $10 million at Sebree; the company will produce slabs and rolls aluminum into sheets for automobile bodies. Some product is also used in aerospace. Expansion at Hawesville will cost around $25 million and should produce 40 new jobs. The aluminum industry is not dying, but companies must reposition themselves for new growth and opportunities in the market.
In response to a question as to whether aluminum will be shipped by truck or by rail and whether Century would need assistance with transportation costs similar to how the General Assembly assisted A.K Steel, Mr. Horn said that Century Aluminum will use both truck and rail. Mr. Horn said that the plants will continue to refurbish equipment.
In response to a question about how much of Century’s aluminum is used in Kentucky, Mr. Horn said that most of the metal is used in the Midwest, and he did not know the percentage used in Kentucky. Mr. Byrne said that Alcoa purchases ingots for roll directly from Century. Chairman Gooch added that molten aluminum is also sold to Southwire.
In response to several remarks about how the aluminum industry has increased job opportunities, added over $2 billion in total economic investment in the area, and improved the communities that are home to both the Hawesville and Sebree plants, Mr. Horn stated that if Century approves the most recent project consideration then the company will hire 40 new employees. The company is positioning itself to deliver aluminum to the automotive industry. The Ford F150 is redesigning to have an aluminum bed and body. Even with the newer body, there is increased payload with the truck. The new aluminum bodies are preferred and have performed better than heavier trucks with less aluminum. Also, there is less corrosion.
In response to a remark that Southwire Rod and Cable take a large amount of Century’s aluminum, Mr. Horn said that Century pays attention to competitors such as Alcoa. Century’s board has invested $130 million in factories in Kentucky, whereas competitors have invested overseas. There are constraints facing the industry. The transmission system is the most serious constraint because it is not robust enough to handle the full load of two smelters, and there are situations where Century is forced to shut down operations. When shutdowns occur, Century loses millions of dollars. New transmission is needed so the company does not have to shut down pot lines for aluminum.
Mr. Brian Helms described problems with transmission in greater detail. Electricity, unlike other resources, is instantaneous, automatic, and cannot be stored for future use. If a transmission line goes out of service for any reason, all generation flows are interrupted. The current transmission service has too much congestion. The line capacity is too small for the entire electric generating load. The solution is to build a new American Electric Power transmission line from the Rockport plant, which is only 15 miles away. The Midwest Independent System Operators (MISO) agrees this will solve congestion, but there are issues that must be addressed before a line can be built. There must be resolution about whether or when Wilson and Coleman electric generating plants will be retired. In the meantime, the Century plants will continue to face congestion pricing.
In response to a question on how long Century has been looking at Rockport in terms of a new transmission line, Mr. Helms said it has occurred since spring 2014. After a request from Century, MISO began investigating the efficacy of the line. Mr. Horn added that from Century’s standpoint a new transmission line needs to be approved and constructed to advance economic development in this area. Century’s pot lines are at risk, but the company must wait until MISO approves the project. Development will stagnate without it. Century’s board has a commitment to run the smelters in Kentucky.
Mr. John DeZee, Associate General Counsel for Century Aluminum, remarked that without the transmission line, economic development is capped in the region. The companies do not want to relocate. Mr. Michael Baker, Director, Industrial Foundation for Hancock County, stated that Century’s investment in the smelters is no accident. It is directly related to the growth in the automobile industry.
Chairman Gooch remarked that there is potential for growth, and the General Assembly should embrace it. The nation is shifting from fossil fuels for baseload generation, and this concerns all businesses in terms of reliability and affordable electricity rates. The Southern States Energy Board is pushing back against the Clean Air Act 111(d) requirements. There is no storage of electricity; we can only store feedstocks for electricity. Newer fuels being considered cannot be stored. Kentucky is jeopardizing the current system of baseload generation.
In response to a remark about whether the committee should seek to influence MISO, Chairman Gooch stated that the Kentucky Public Service Commission will have to approve the transmission line and the interconnection with the Big Rivers electric system. The committee should take time to review the issue before taking any action.
In response to a question on whether Section 111(d) will affect Big Rivers, Mr. Robert Berry, President and CEO of Big Rivers Electric Corporation, stated that there is uncertainty. The 111(d) requirements will affect the company. There may be a mass emission rate. Chairman Gooch added that different states have different carbon footprints. Kentucky has an 18 percent reduction, but Kentucky has different resources. State by state analysis rather than an average estimate of impact is needed to fully understand the ramifications of imposing these emission reduction requirements on states. The United States Environmental Protection Agency has only used the latter.
Mr. Robert Barry added that the Century discussion is overly simplified. The transmission issues are much more complex. Plant closures to the north of the area could impact which transmission line works. All decisions regarding transmission will be made by MISO, not the PSC. When the Coleman plant is up and running, that should resolve part of the transmission issue in this area. Also, the Wilson plant should continue running through 2015-2016. Mr. Horn responded that Rockport may not be the right line, but the transmission system is still inadequate and must be improved. If Ford, Toyota, and other manufacturers go towards the aluminum body, then there will be a four to five million ton per year increase in the use of aluminum. If Century cannot supply that demand, then aluminum will be imported from Russia and the Middle East. These areas are too risky, which is why the transmission is needed now in Kentucky.
Representative Moore commented that an aerial photograph of the plant will be made available to the committee members. The meeting adjourned at 2:08 PM CST.