Interim Joint Committee on Natural Resources and Energy


Minutes of the<MeetNo1> 5th Meeting

of the 2017 Interim


<MeetMDY1> October 5, 2017


Call to Order and Roll Call

The<MeetNo2> 5th meeting of the Interim Joint Committee on Natural Resources and Energy was held on<Day> Thursday,<MeetMDY2> October 5, 2017, at<MeetTime> 1:00 PM, in<Room> Room 149 of the Capitol Annex. Representative Jim Gooch Jr., Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Jim Gooch Jr., Co-Chair; Senators C.B. Embry Jr., Ernie Harris, John Schickel, Brandon Smith, Johnny Ray Turner, and Whitney Westerfield; Representatives John Blanton, McKenzie Cantrell, Matt Castlen, Tim Couch, Jeffery Donohue, Jim DuPlessis, Daniel Elliott, Chris Fugate, Dennis Keene, Reginald Meeks, Suzanne Miles, Marie Rader, Jim Stewart III, Jim Wayne, and Jill York.


Guests: Paul Bailey, President and Chief Executive Officer, American Coalition for Clean Coal Electricity (ACCCE); Terrance Naulty, General Manager and Chief Executive Officer, Owensboro Municipal Utilities (OMU), and Treasurer, Kentucky Municipal Energy Agency (KyMEA); Josh Callihan, Vice-Chair of KyMEA, President, Kentucky Municipal Utilities Association (KMUA), and General Manager, Barbourville Utility Commission; Ron Herd, Chair of KyMEA, and General Manager, City Utilities Commission of Corbin; and Rusty Cress, Kentucky League of Cities.


LRC Staff: Tanya Monsanto, Stefan Kasacavage, Janine Coy-Geeslin, Nathan Smith, and Rachel Hartley.


The September 7, 2017, minutes were approved by unanimous voice vote.


The Status of the National Coal Fleet

            Paul Bailey provided a brief overview of ACCCE and stated its mission was to advocate for the coal-fired electric generation fleet. ACCCE members include coal producers, railroads, and equipment manufacturers. The coal fleet is needed to provide reliable power, fuel security and diversity for grid reliability and resilience, and affordable electricity.


The coal fleet produced 30 percent of the electricity in the United States through the first half of 2017 and is projected to remain at 30 percent for the next 15 years. The coal fleet produced about 50 percent of the nation’s electricity in 2007.


The coal fleet was at its peak in 2010 with a generating capacity of 318,000 megawatts. In 2017, the generating capacity is 262,000 megawatts. About one-third of the coal fleet has been retired or has announced plans to be retired. In Kentucky, eighteen coal-fired electric generating units have been retired or have announced plans to be retired, representing 3,900 megawatts of electric generating capacity.


Since 1970 the coal fleet has reduced emissions of traditional air pollutants by 92 percent per kilowatt-hour and will invest $127 billion for emission controls by the end of 2020.


The biggest obstacle for the coal fleet is policies from the Environmental Protection Agency (EPA). The Trump Administration has not appointed half of the fifteen key positions in the EPA, which has slowed how quickly the change from Obama-era environmental policy can be accomplished. The Clean Power Plan will be withdrawn. The Effluent Limitations Guidelines for liquid waste and Coal Combustion Residual rules for ash ponds will be rewritten. The New Source Review and New Source Performance Standards will be changed, and there is an expected change to the Regional Haze and Cross-State Air Pollution Rules.


According to the Department of Energy (DOE), natural gas and renewables will comprise almost 75 percent of electric generating capacity by 2040. The remaining 25 percent will be traditional baseload sources including coal and nuclear. A regional transmission organization and an independent system operator are crucial components to the future of the coal fleet.


ACCCE is an advocate for policy that recognizes the value of the coal fleet in maintaining grid reliability and resilience. Mr. Bailey defined resilience as maintaining a reliable grid in the event of high-impact, low-frequency events such as a polar vortex or disruptions in the natural gas infrastructure. The average on-site coal stockpile during February 2017 had the ability to generate electricity for one hundred days, which provides the coal fleet with fuel security.


On September 28, 2017, the DOE directed the Federal Energy Regulatory Commission to issue grid resiliency rules, because fuel-secure baseload generating resources are not being adequately compensated by the wholesale electricity markets. The new rule would require grid operators to fully compensate grid reliability and resiliency generating units if they provide reliability services, have a ninety day on-site fuel supply, and are not subject to cost of service regulation. The DOE created a 105 day schedule to finalize the proposal.


According to public opinion, a majority of Americans agree that coal is necessary to supplement other energy sources. Americans are more focused on electricity price and reliability than clean energy.


In response to Senator Harris, Mr. Bailey stated he does not know how many active coal-fired power plants there are in Kentucky.


In response to Representative Blanton, Mr. Bailey stated one of the reasons President Trump was elected was due to the decline of the coal industry and believes the administration will work to restore it. ACCCE is working with the National Mining Association on a grid operator project.


In response to Representative Gooch, Mr. Bailey said the electricity grid is rapidly changing. ACCCE is attempting to elevate the importance of the coal fleet and the need for diversity in electricity sources. The United States House Energy and Commerce Committee met on October 3, 2017. Most of the discussion was about gas, hydro, solar, and wind. Mr. Bailey estimates that 5 percent of the meeting was used to discuss the two largest sources of energy: coal and nuclear.


In response to Representative Wayne, Mr. Bailey stated that due to conservation, the growth in demand for electricity has been flat.


In response to Representative DuPlessis, Mr. Bailey stated that he did not know whether adding solar energy capacity in eastern Kentucky or removing regulatory constraints on coal mining and coal-fired electric generation sources in the area would lead to the quickest economic development.


In response to Representative Couch, Mr. Bailey stated there are currently more than one thousand individual coal-fired electric generating units in the nation.


Municipal Utility Joint Action Benefits to the Citizens of the Commonwealth

             Terrance Naulty stated legislation was needed to most effectively use joint action to keep municipal electric rates as low as possible. Low municipal electric rates aid in economic development and protect the customer.


            KyMEA has eleven members ranging from a small utility of 300 megawatts in Benham to a large utility of over 30,000 megawatts in Owensboro. The 11 members service approximately 80,000 retail electric customers. Ten of the members are underserved by KMUA for their wholesale power supply, because the members were able to source wholesale energy at a significant discount to the KMUA rates. Those ten members gave notice to terminate the deal with KMUA in 2014.


            KyMEA is seeking legislative changes. The Interlocal Cooperation Act is ambiguous because all members are not authorized under the same KRS provisions and are subject to four different statutes. A single statutory authority will allow for quicker decision making and a higher agency credit rating that will lower electric rates.


            The Joint Action Agency was formed because the individual municipal utilities are too small to gain economies of scale. A significant economy of scale can be created by bonding together power generation and the wholesale market. Other benefits to joint action are power supply expertise, enhanced member services, wholesale market access, and revenue bonds that will not create liability to individual cities. Protections for rate payers regarding power supply decisions will have at least three levels of review, approval, and public comment. The Kentucky Public Service Commission was added to the approval process.


            The current supply portfolio precludes the need for KyMEA ownership, and there are no plans to build new power generation. There are contracts with Big Rivers, Dynergy, and Paducah Power System. There is consideration of renewable energy; however, non-taxed entities do not receive the available tax credits.


            Natural gas is a commodity, and its trade is comparable to the stock market. A contract for natural gas will be structured as a tolling agreement. A portion of the facility is leased and natural gas that has already been acquired will be utilized. The sale of surplus natural gas requires a willing buyer and willing seller along with a contract.


            The bond market is a cost effective way to issue debt. Municipal utility revenue bonds are rated independently based on the strength of revenue certainty. Access to low-cost debt for the benefit of citizen ratepayers through KyMEA is less risky than incurring debt at the municipal level.


            In response to Representative Gooch, Mr. Naulty stated the OMU coal unit is closing due to economic reasons. Josh Callihan stated Barbourville Utilities will save approximately $950,000 annually due to joint action.


            In response to Senator Embry, Rusty Cress stated joint action will be a legislative priority for the Kentucky League of Cities during the coming regular session. The board voted in support of the concepts on previous legislation.


            In response to Senator Westerfield, Mr. Naulty stated Tennessee Valley Authority is neutral towards joint action.


            In response to Representative Castlen, Mr. Naulty stated the peak demand will be between 250-300 megawatts. OMU had planned to sell surplus natural gas to extend the life of the plant that is closing in Owensboro. However, public agencies are subject to the model procurement code, so OMU was not able to sell natural gas below their cost.


            In response to Representative Miles, Mr. Naulty stated the primary change to previous bills is a proposal for the Public Service Commission to hold hearings.


            In response to Representative Stewart, Mr. Naulty stated the legislation is requesting clarification on ambiguity. If joint action passes it will save $200 million over first 10 years.


The next meeting of the Interim Joint Committee on Natural Resources and Energy will be on November 2, 2017. Documents distributed during the meeting are available in the LRC Library.


There being no further business, the meeting was adjourned.