Program Review and Investigations Committee




<MeetMDY1> November 8, 2007


The<MeetNo2> Program Review and Investigations Committee met on<Day> Thursday,<MeetMDY2> November 8, 2007, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Rick G. Nelson, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Ernie Harris, Co-Chair; Representative Rick G. Nelson, Co-Chair; Senators Vernie McGaha, Joey Pendleton, Dan Seum, and Katie Stine; Representatives Dwight D. Butler, Leslie Combs, Charlie Hoffman, Ruth Ann Palumbo, Rick Rand, and Arnold Simpson.


Guests: Beth O’Donnell, Executive Director, and David Samford, General Counsel, Public Service Commission; Mary Jane Warner, Manager of Engineering, East Kentucky Power Cooperative; Ed Staton, Director of Transmission, and Robbie Trimble, Manager of Transmission Lines, E.ON U.S.; Ben Cook, Chief Executive Officer, Rick McQuady, Chief Operating Officer, and Mark Offerman, Chief Program Officer, Kentucky Housing Corporation.


LRC Staff: Greg Hager, Committee Staff Administrator; Rick Graycarek; Jim Guinn; Christopher Hall; Margaret Hurst; Colleen Kennedy; Van Knowles; Rkia Rhrib; Tara Rose; Cindy Upton; Kristi Culpepper, LRC Staff Economist; and Karen Wirth, Committee Assistant.


Minutes of the October 11, 2007 meeting were approved, without objection, upon motion made by Sen. Seum and seconded by Rep. Rand.


Greg Hager presented the report Siting of Electric Transmission Lines.


Mr. Hager said regulation of the sitting of transmission lines in Kentucky is governed by the Public Service Commission (PSC) and the State Board on Electric Generation and Transmission Siting (Siting Board). The Siting Board reviews applications from entities not regulated by PSC for lines of 69 kilovolts or more.


Mr. Hager said the Tennessee Valley Authority has more than 1,500 miles of transmission lines in Kentucky but is a federal organization and not subject to regulation by Kentucky agencies.


He explained that PSC regulates six entities in Kentucky that transmit electricity: Kentucky Power, Duke Energy, the E.On U.S. subsidiaries Kentucky Utilities and Louisville Gas and Electric,  Big Rivers Electric Corporation, and East Kentucky Power Cooperative.


Mr. Hager said the process for regulating lines changed in 2004 with the enactment of Senate Bill 246. Transmission line owners subject to PSC regulation must now obtain a Certificate of Public Convenience and Necessity (CPCN) from PSC for a line of at least 138 kilovolts and at least 1 mile long.  Senate Bill 246 also changed the process to include participation by members of the public.


He said the process begins with the transmission owner filing a Notice of Intent to File an Application. The transmission owner must notify the public by publishing a notice in a local newspaper and must notify in writing each landowner affected by the transmission line. After 30 days, the transmission owner may apply for a CPCN. After the application is administratively complete, a member of the public can request a local hearing and request to participate in the case officially.


Mr. Hager said PSC is required to make its decision within 120 days. He said that PSC commissioners and staff identified the 120-day limit as a problem, especially if outside consultants were needed for cases. Some public participants have noted that they would like the time limit extended because there can be a lot of  information for them to consider. Applicants for transmission lines said that the 120-day time period was sufficient and any additional time could cause delays beyond any time added to the limit, often involving environmental or construction issues. Mr. Hager said the report has no recommendation regarding the time limit, which is set by statute. Changing it would be a policy decision to be made by the General Assembly.


Mr. Hager said that an applicant using federally guaranteed loans must also comply with the National Environmental Policy Act (NEPA). Meeting NEPA requirements may require moving the centerline in order to limit the effects on the environment. This could cause a problem because PSC‘s approved route centerline can only be adjusted by 500 feet in either direction and must have written approval by the landowner. PSC’s rationale for this is that the statute requires that affected landowners be notified of the proposed line and that they have the right to participate in the case.  


Mr. Hager said PSC’s criteria for whether to approve transmission lines are derived primarily from the 1952 court case Kentucky Utilities v. PSC. According to the ruling, applicants can meet the requirement for public convenience and necessity by demonstrating need and the absence of wasteful duplication. To demonstrate the absence of wasteful duplication, the applicant must show that it has conducted a thorough review of all alternatives and that the proposed route is reasonable. This involves a comprehensive analysis of existing utility corridors and rights-of-way.


He said that since 2004 PSC has emphasized co-locating or rebuilding lines.  Routes with rebuild or co-location may not be the least expensive; a standard of reasonableness applies. Since 2004, PSC has approved applications for more than 200 miles of transmission line and denied applications for approximately 100 miles.


Mr. Hager said that an applicant to the Siting Board must complete a Notice of Intent to File an Application, notify the governor, and notify county and city governments and the public in the area of the proposed line. The applicant may apply for a construction certificate with the Siting Board 30 days after the notice. A member of the public can request a local public hearing and request to be a party to the case within 30 days of the application. A party to the case can also request an evidentiary hearing within 30 days of the application. If no local public hearing is held, the Siting Board’s time limit for making a decision is 90 days. The limit is 120 days if a local public hearing is held.


He said the Siting Board’s criteria for decisions are different from PSC’s. By statute, the board can consider minimizing significant adverse impact on the scenic assets of Kentucky. A change to statute in 2006 allowed the board to consider interstate benefits of a proposed line. Since 2002, the Siting Board has approved applications for more than  150 miles of transmission line and denied no applications.


Mr. Hager discussed the routing method developed by the Electric Power Research Institute and the Georgia Transmission Corporation (EPRI-GTC). In 2006, a workshop including utilities, local governments, and groups representing neighborhood, environmental, and agricultural interests met to adapt the EPRI-GTC method for use in Kentucky. The resulting calibration of the EPRI-GTC method to Kentucky’s conditions is referred to as the Kentucky Transmission Line Siting Model.


He said that the EPRI-GTC method is important because it has potential to significantly affect how transmission lines are routed in Kentucky and other states. He provided an overview of the method and gave examples of some aspects of it. The method has three phases, progressing from consideration of larger to smaller areas and based on more detailed data. Expert judgment is used to select the preferred route from among the routes that scored best according to the method.


Mr. Hager said the report recommends that PSC make available as a document and on its Website a primer on the workings of the Kentucky Transmission Line Siting Model. A second recommendation is that PSC should work with Kentucky utility companies to periodically update the model as changes in priorities may occur. The report’s third recommendation is that PSC consider hiring a consultant to verify that data used in the model are accurate and to create a plan to address any data deficiencies found.


Mr. Hager summed up the report by noting its five major conclusions: 1) there is a limited number of transmission line cases to evaluate since the approval process was changed in 2004; 2) PSC has clarified its approval process since 2004;  3) PSC emphasizes co-locating or rebuilding lines but considers a standard of reasonableness in each case; 4) the 120-day time limit for deciding transmission line cases is acceptable to representatives of the utility companies, but PSC and some members of the public would like the limit increased; and 5) the use of the Kentucky Transmission Line Siting Model has great potential to make sitting of routes more consistent.


Sen. Seum asked who appoints the Siting Board.


Mr. Hager responded that the five permanent members are the three PSC commissioners and two cabinet secretaries. Two ad hoc positions are filled on a case-by-case basis.


Sen. Seum asked if the majority of transmission lines were overhead.


Mr. Hager said there are fewer than 10 miles of underground transmission lines in the state, likely because underground lines are much more expensive.


Sen. Seum asked if underground lines could be used in state and national parks.


Mr. Hager said that they could but that underground lines are not always environmentally advantageous.  


Rep. Palumbo asked how property owners were notified.


Mr. Hager said that transmission owners must send written notification to affected landowners whose addresses are obtained from the office of the local property evaluation administrator. The transmission owner must also publish an advertisement in the local paper.


Rep. Palumbo asked how the decision is made to not co-locate lines.


Mr. Hager said that cost was a factor and the decision was made case-by-case.


Rep. Palumbo asked how sites of ritual importance are defined.


Christopher Hall replied that they are defined under NEPA and that he would provide this information.


In response to the report, Beth O’Donnell said the EPRI-GTC method adapted for use in Kentucky is one tool used in deciding among alternative routes. The model is somewhat generic and modified on a case-by-case basis. She said that PSC is considering implementing the report’s first recommendation by putting a generic model on PSC’s website, but this model would not be one that could be used in every case. Regarding the second recommendation, she said that updates could be made that are Kentucky specific. In regard to the final recommendation, she said that PSC does hire consultants to review analytical efforts in the selection process.


She said the 120-day time limit is difficult at times, especially when outside consultants or public participants are involved but she understands why others do not wish to lengthen the process.


Ms. O’Donnell said PSC allows a centerline to be moved 500 feet in either direction. She said that flexibility after the CPCN has been granted is important, but too much flexibility may require renotifying landowners or amending the CPCN.


Sen. Harris asked if the 500 foot limit by PSC is set in statute or administrative regulation.


Mr. Samford said it is not in statute, it is a commission order. PSC allows a 1000 foot corridor that is not directly contemplated by the statute.


Sen. Harris asked if the law should be changed to widen the corridor.


Mr. Samford said he did not feel that the law needed to be changed. If the need for a wider corridor arises, the transmission owner can petition PSC for the allowance.


Sen. Harris asked if historic properties were included in Geographic Information System data.


Ms. O’Donnell said she thought that was addressed.


Sen. Harris asked for a definition of a member of the public.


Mr. Samford said it is defined in statute as a person who has interest in the proceeding.   


Sen. Harris asked what, if any, changes needed to be made to Senate Bill 246.


Ms. O’Donnell responded that she saw no changes needed to the current process.


Mr. Samford said the siting process in Kentucky was better than in surrounding states.



Mary Jane Warner said East Kentucky Power supports the report’s three recommendations. She said that the siting model used is an overview not to be changed on a case-by-case basis, and that the land use data change because the locations change. The weightings in the model are meant to be applicable to all projects in Kentucky. The data used have to be definable in each case. She said that East Kentucky Power takes the report’s third recommendation as being a programmatic review and feel this would be helpful and eliminate conflict as to what issues should be considered and which should not. It will also help in determining the quality of the data. The model and methodology should remain constant and not change from case to case.


She said East Kentucky Power has a concern with the potential serious conflict between the typical limits PSC allows on the adjustment of the route and the mitigation requirements mandated by agencies administering NEPA compliance. If the transmission line is thought to have some adverse affect on a natural resource, East Kentucky Power is required to try and mitigate it. This sometimes requires sufficient relocation to avoid adverse effect on the resource. In this case, East Kentucky Power would have to reapply for a CPCN certificate. This is costly and delays needed projects. East Kentucky Power would like to see a better way to work out conflicting requirements, such as widening the corridor to one-half mile instead of 500 feet. This would allow the utility to work within that corridor to make any necessary changes without having to reapply for another certificate.


Ms. Warner said another issue is the absence of guiding principles for transmission development in Kentucky. PSC’s decision criteria change on a case-by-case basis and East Kentucky Power would like to see consistent guidelines set for obtaining a CPCN. The siting model is excellent in determining the physical aspects of a good route; however, there are issues that the model does not address and PSC should clarify, such as the conditions to determine relocation or co-location of a line and issues outside PSC’s jurisdiction in acquiring a certificate. She would like to see consistency and continuity in the process from PSC and feels this could be helpful for the success of providing transmission where it is needed.


Ed Staton said that he agreed with the report’s recommendations and supported the comments by Ms. Warner regarding the model. He said there should be more flexibility in the corridor width. He explained that errors in landowner addresses obtained from the local property valuation administrator can hinder the notification process and that this issue should be considered. He said that the 120-day time limit should be maintained.


Rep. Butler asked if health effects were considered in determining the co-location of transmission lines.


Ms. Warner said that the distance one is away from the wire is more important than the voltage amount of the wire. The amount of electricity flowing through the wire is the key factor in the level of exposure. There are no standards set by the regulatory agencies, but it is a concern. She said there are many ways to co-locate lines without heightening the level of exposure.


Rep. Bulter asked how the line going through Fort Knox was handled.


Robbie Trimble said there were certain criteria from Fort Knox that had to be met concerning right-of way and environmental issues.


Rep. Rand made the motion to adopt the report and Rep. Simpson seconded. The report Siting of Electric Transmission Lines was adopted without objection by roll call vote.


Cindy Upton presented the report Kentucky Housing Corporation.


Ms. Upton said the two objectives for the report were: 1) to determine whether the corporation administers funding appropriately and effectively and 2) to determine whether the corporation’s procedures maximize efficiency in satisfying its objectives and assess possible limitations of the system.


The Kentucky Housing Corporation (KHC) was formed in 1972 and its major responsibilities are to assess housing needs of Kentuckians, administer rental housing assistance for low-income families, construct multifamily housing for low-income families, provide affordable mortgages for low- and moderate-income families, and  administer housing for special-needs populations.


Ms. Upton said that in 2006 approximately 17 percent of Kentuckians had low income and unaffordable housing. This estimate does not include homeless individuals. The corporation made over $515 million in mortgage loans to over 5,000 families. These mortgages are funded mostly with proceeds from tax-exempt bonds. The corporation borrows money from investors in the bond market to originate the loans. The mortgage payments received from the borrowers are then paid back to the bondholders, plus interest.


She said that in order to issue bonds on a tax-exempt basis, the corporation must receive an allocation of the state’s annual private activity bond cap. The federal tax code limits the amount of tax-exempt bonds a state can issue for private business uses. The corporation’s mortgage loans are considered a private business use. The Kentucky Private Activity Bond Allocation Committee allocates 80 percent of the cap to state debt issuers, including KHC and the Kentucky Higher Education Student Loan Corporation (KHESLC), and 20 percent to local debt issuers for economic development. There are other criteria that tax-exempt mortgage bonds must meet.


Ms. Upton said that KHC’s allocation from the private activity bond cap is not sufficient to meet the demands of the mortgage programs. The corporation issues taxable bonds to make up the difference; these bonds have higher interest rates. If the corporation received a larger amount of the private activity bond cap, it could provide competitive rate loans for more home buyers. This would, however, lower the allocation received by KHESLC and other local issuers. The report recommends that the General Assembly consider allocating a larger portion of the state’s private activity bond cap to KHC or award a fixed percentage of the bond cap to KHC.


Ms. Upton said that by statute, KHC can have no more than $2.5 billion of debt outstanding at one time. As of July 2007, it had $2.05 billion outstanding. The report recommends that the General Assembly may wish to consider increasing the corporation’s limit on outstanding bonded indebtedness.


Ms. Upton said that most rental assistance administered by the corporation is funded through federal grants, such as Section 8. In 2006, KHC administered over $114 million in Section 8 assistance. Many families qualify for assistance but do not receive it. The federal housing policies have produced a compartmentalized system of housing assistance within which the corporation must work. In 2004, the corporation administered 17 percent of the 72,000 assisted rental units, and local housing agencies administered 83 percent.


She said that in the areas of the state where the corporation has jurisdiction over federal rental assistance it is administered appropriately and efficiently. The corporation targets families at different income levels and at different stages of attaining                 self-sufficiency. The corporation does distribute funds to the areas of the state with the highest need and evenly across income levels and populations it is required by statute to serve. There are programs in place that emphasize populations with special needs or  rural areas of the state. These programs are funded by the corporation’s resources or by competitive federal grants.


Ms. Upton said the corporation actively seeks additional funding from federal agencies to reduce the housing cost burden on Kentucky residents. It forms partnerships with federal, state and local governments, nonprofit organizations, private banking institutions, and developers and seeks community input when possible. The Affordable Housing Trust Fund is designed to engage local partners and obtain local commitments of funding for housing. Funding flexibility is of major importance to the corporation in meeting the various needs of the population. The report recommends the General Assembly may wish to consider providing additional funds to the corporation for the Affordable Housing Trust Fund to expand the availability of affordable housing to very low-income persons by partnering with nonprofit organizations and units of local government.


Sen. Stine asked if there was a statutory requirement for rural areas to be prioritized.


Ms. Upton said there is no statutory requirement. The corporation does allocate funds for rural areas because there are not many local partners to help in the rural areas of the state.


Sen. Harris asked if the bonding authority of the corporation is limited by the General Assembly and the budget.       


Ms. Upton said the corporation does not receive state appropriations. The bonds are repaid with the mortgage payments received.


Sen. Harris asked if the limit on indebtedness is set by the General Assembly.


Kristi Culpepper said the limit set in statute reflects a moral obligation for repayment of these loans. If the corporation cannot repay the debt, it can ask for assistance from the governor, even though the funds are outside of the budget process.


Sen. Harris asked if the mortgage interest rates are lower than one could obtain from a lending institution.


Ms. Culpepper said the corporation helps reduce the borrower’s investment. The home buyer can obtain loans with lower borrower investment and the savings are passed on to the borrower. It is unlikely a home buyer could obtain a lower interest rate than the corporation can provide.


In response to the report, Ben Cook explained that many programs administered by KHC can only be done in rural areas. Larger areas such as Louisville, Lexington, and northern Kentucky get a separate entitlement from the federal government. Most mortgage loans occur in the rural areas.


Mr. McQuady said that regarding Recommendation 5.1, the corporation agrees that the more tax-exempt debt the corporation has, the more families can receive lower- interest loan rates. In regard to Recommendation 5.2, the corporation will approach the General Assembly in 2008 to raise the limit of indebtedness for the corporation to $5 billion. The corporation has received $5.3 million since legislation was set for the Affordable Housing Trust Fund and additional funding would enable the corporation to continue helping families at 30 percent of the area median income.


Rep. Simpson asked how existing housing is maintained and who is responsible for this.


Mr. McQuady said there is a compliance and asset management department that ensures that all regulations and rules of the various programs are followed.


Mr. Offerman said there are areas the corporation has no jurisdiction over. They are funded by the U.S. Department of Housing and Urban Development or private industry. In the tax credit program, there is a preference in the scoring criteria to preserve existing rental housing across the state.


Rep. Simpson asked how often existing housing is reviewed.


Mr. Offerman said a unit is reviewed once every 3 years. If a unit is not maintained, it is reviewed annually.


Rep. Simpson asked what the repercussions are if properties are not maintained.


Mr. Offerman said the corporation works with the developer, local officials, and the management company to make the proper repairs to the properties. If there are continual problems, that development team is penalized on any future applications submitted to the corporation within 3 years. The corporation has the ability to defer mortgage payments so the funds can be used for repairs to the housing unit. If proper actions are not taken, the corporation will proceed with foreclosure.


Rep. Nelson suggested that KHC update the committee next year.


Rep. Combs asked if the corporation is up-to-date on the review process.


Mr. Offerman said yes.


Sen. Harris made the motion to adopt the report and Sen. Stine seconded. The report Kentucky Housing Corporation was adopted without objection by roll call vote.


A motion to initiate the study of the process of putting inmates back into society after their release was approved by roll call vote, upon motion made by Rep. Simpson and seconded by Rep. Butler.


The meeting adjourned at 11:52 PM.