Interim Joint Committee on Natural Resources and Environment


Minutes of the<MeetNo1> 4th Meeting

of the 2013 Interim


<MeetMDY1> October 3, 2013


Call to Order and Roll Call

The<MeetNo2> 4th meeting of the Interim Joint Committee on Natural Resources and Environment was held on<Day> Thursday,<MeetMDY2> October 3, 2013, 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> Senator Jared Carpenter, Co-Chair; Representative Jim Gooch Jr., Co-Chair; Senators Joe Bowen, Chris Girdler, Bob Leeper, John Schickel, Brandon Smith, Johnny Ray Turner, and Whitney Westerfield; Representatives Hubert Collins, Tim Couch, Keith Hall, Stan Lee, Reginald Meeks, Tim Moore, Marie Rader, John Short, Fitz Steele, and Jim Stewart III.


Guests: Keith Smith, Office of the Reclamation Guaranty Fund; Dr. Len Peters, John Lyons, and Mike Haynes, Energy and Environment Cabinet.


LRC Staff: Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.


A quorum being present, the chair asked for a motion to approve the minutes for the September 5, 2013 meeting. After a motion and a second, the minutes were approved.


Update on the establishment and administration of the Kentucky Reclamation Guaranty Fund pursuant to HB 66

Keith Smith, Executive Director of the Office of the Reclamation Guaranty Fund, explained the circumstances that led to the passage of HB 66 that established the new bonding fund and the steps his office had taken to implement its requirements. In January 2011, a federal Office of Surface Mining (OSM) report concluded that Kentucky bonds were not always sufficient to complete mining reclamation in the event of forfeiture. In March 2012, an OSM letter--under 30 CFR Part 733--required Kentucky to take immediate and long-term actions to increase bond amounts and ensure the solvency of the bonding fund. Accordingly, the Energy and Environment Cabinet promulgated emergency administrative regulations to increase minimum bond amounts, rates per acre, and supplemental insurance, which resulted in bond amounts increasing on average by 60 percent. Nevertheless, OSM found the new protocols insufficient to satisfy the 733 letter, so an actuarial study was conducted in preparation of establishing a mandatory pool to provide a backstop for individual bonds.


During the 2013 Regular Session, the General Assembly passed HB 66 to establish the Kentucky Reclamation Guaranty Fund (KRGF), which is a mandatory bond pool designed to satisfy the requirements of the 733 letter by adequately covering the costs of reclamation to the cabinet when permit-specific bonds are forfeited. HB 66 abolished the previous voluntary bond pool and commission and established a new commission to administer the fund. The KRGF Commission consists of seven members appointed by the Governor, including the secretary of the cabinet and representatives from the coal, banking, and insurance industries. The commission is charged with a variety of monitoring and maintenance responsibilities and must report to both the Governor and the General Assembly annually.


As of July 1, 2013, all coal mining permitees became mandatory participants in the KRGF. On July 3, the commission promulgated new emergency administrative regulations to establish, among other things, new fees for fund participants. On August 1, the commission sent 307 assessments for start-up fees involving 1,118 permits, and had already received $1,365,000 of the $2,200,000 in total assessed fees. The 105 entities that had not yet responded to their fee assessments had been referred by the commission to a collection agency. The current total balance of the fund is $25,048,000, which includes about $23,000,000 rolled over from the previous voluntary bond pool that was abolished by HB 66.


In response to a question regarding the frequency of reclamation bond forfeitures, Mr. Smith said that in the last several years, there had been about 15-17 forfeitures per year. He further stated that the fee structure and all of the new fee amounts established by HB 66 and the administrative regulations promulgated under it arose from the actuarial report that was done during the summer of 2012. The actuarial report based its fee prescriptions on the current amount of outstanding bonds in the state and not the current amount of outstanding liability facing the cabinet due to bond forfeiture.


In response to a question about whether future bonding amounts would be affected by so many small coal producers ceasing operations, Mr. Smith said that he is concerned that bond rates might have to increase on the surviving producers. However, he hoped that as companies ceased mining, they would still perform their required reclamation so that no new reclamation liability accrued to the cabinet. He would not know the answer to that question until the commission starts preparing the actuarial reports on an annual basis.


Discussion of newly-proposed U.S. Environmental Protection Agency (EPA) regulations that limit greenhouse gas emissions from new sources

Dr. Len Peters, Secretary for the Energy and Environment Cabinet, and John Lyons, Assistant Secretary for Climate Policy, discussed new details of the EPA’s proposed greenhouse gas rules that had emerged since Secretary Peters had last addressed the committee in July. On September 20, 2013, EPA proposed revised New Source Performance Standards (NSPS) for greenhouse gas emissions from new stationary sources, and by June 1, 2014, EPA will propose revised NSPS for existing and modified sources as well. The final rules for both existing and new sources will be issued on June 1, 2015. For new natural gas combined cycle units, the proposed carbon dioxide (CO2) standard will be 1,000 lb CO2/MWh for units over 850 mmBTU/hr and 1,100 lb CO2 MWh for any smaller units. For new fossil fuel-fired (including coal-fired) utility boilers and integrated gas combined cycle units, the proposed CO2 standard will be 1,100 lb CO2/MWh over a 12-operating month period or 1,000-1,050 lb CO2/MWh over an 84-operating month period. The previously proposed standard was 1,000 lb CO2/MWh regardless of fuel source. These revisions create different proposed standards for new natural gas plants than for coal and other fossil fuel plants, but the differences are basically negligible. Since the current average CO2 emissions for existing coal-fired plants in the state is about 1,950 lb CO2/MWh, new coal-fired plants will still not be able to meet this new proposed CO2 standard unless the facilities are capable of carbon capture and storage.


With regard to the CO2 standards for existing sources, the cabinet plans to engage in several initiatives to urge the EPA to incorporate flexibility into the rule for states that are heavily coal-reliant like Kentucky. The cabinet will advocate for a mass emissions reduction plan rather than a standard of performance specific to a particular unit. The cabinet also plans to urge EPA to consider a system-wide approach to emissions reductions that include generation, transmission, and consumption instead of focusing only on reductions at the plant. The cabinet feels that total system-wide CO2 reductions will be much more achievable than individual reductions for existing coal-fired plants and will be much less onerous for utilities and residents. A system-wide focus will allow Kentucky to continue to avail itself of its abundant natural resources while still accomplishing significant emissions reductions.


In response to a question regarding whether EPA is truly engaged in working with the states to help develop and achieve these CO2 standards, Secretary Peters said that only time will tell. However, he believes that the new EPA administrator seems to have a fresh view and is intent on building consensus on what will be best for the United States as a whole and not just one sector.


In response to a question about whether the cabinet was working with other similarly-situated states to influence the impending proposed greenhouse gas rule for existing sources, Mr. Lyons said that Kentucky has taken a leadership role in educating and organizing similar states to urge EPA to adopt system-wide greenhouse gas reduction targets.


In response to a question regarding the need for the greenhouse gas regulations and the process by which they were being adopted, Secretary Peters said that coal was being burned cleaner than ever, but that the proposed greenhouse gas rules were seeking to control a new pollutant that had not yet been regulated. He also stated that these rules were being proposed through the executive branch without input from the US Congress.


In response to a question regarding the cost of achieving the greenhouse gas reductions required by the new proposed standards, Secretary Peters said that meeting the new standards for coal-fired plants would require carbon capture and storage, which would increase the cost of power from these plants by 40-80 percent. The climate benefits to be gained would be the slowing or stopping of the warming trend that has been identified in the latest climate reports, including the United Nation's latest report from its Intergovernmental Panel on Climate Change.


In response to a question regarding the consequences of not abiding by the new proposed greenhouse gas rules and pursuing litigation to fight the rules in court, Secretary Peters said that there are legal options that the cabinet has pursued and will continue to pursue in the future. The underlying legitimacy of EPA regulation of greenhouse gas emissions has been considered and approved by the US Supreme Court, so the question becomes whether Kentuckians will be best served by being active participants in the formulation of the rules. The cabinet feels that it will be better for Kentucky in the long run to work within the system to try to reach an outcome that is most favorable to Kentucky's interests.


In response to a question regarding how greenhouse gas emissions were being reduced in other countries, Mr. Lyons said that Europe had been following a similar path as the United States, but that developing countries were actually becoming more dependent on carbon-intensive sources of energy production.


In response to a question about why people previously believed that the earth was cooling and now the belief is that it is warming, Secretary Peters said that atmospheric concentrations of CO2 have always been on the rise, but that uncontrolled pollutants in the atmosphere like particulate matter had blocked incoming radiation and masked the warming effect. Now that those other pollutants are being controlled, the warming effect from increased atmospheric concentrations of CO2 is becoming more pronounced.


There being no further business, the meeting was adjourned.