TO:      Members of the Executive Committee

FR:      Representative Ron G. Peters, Oklahoma
            Chair, Energy and Environment Committee

RE:      Report of Activities of the Energy and Environment Committee at the 61^st   Annual Meeting of the Southern Legislative Conference in Williamsburg, Virginia, July 14-18, 2007

            The Energy and Environment Committee convened on Sunday, July 15, for a program session and on Monday, July 16, for a business session during the 61^st SLC Annual Meeting.  The following is a summary of the speaker presentations and Committee activities during this event.  An attendance list is attached.

Program Session, July 15, 2007

I.         The Role of Coal-to-Liquid Technology in Achieving Energy Independence

            Senator Frank Wagner,Virginia

Background

            With the price of crude oil far exceeding $40 a barrel, the use of coal liquefaction technology, which has been used in various parts of the world for many decades, has become an economically viable alternative to the use of gasoline for fuel. Transportation fuels produced using this technology will play a vital role in the continued efforts of the United States to reduce dependence on other fuel sources.

Senator Wagner’s Presentation

            Senator Wagner began by stating that the United States has more coal than any other nation, with estimates ranging from 250 to 450 years worth of fuel at current consumption rates.  Also, Senator Wagner emphasized that the United States imports approximately 60 percent of the oil that it consumes, and most of this foreign oil is used as a transportation fuel.  It is obvious, he observed, that alternatives that provide a supplement to dependence on such imports are critical to a uniform movement toward energy independence.  Coal-to-liquid technology, which allows the production of transportation fuel from coal, can assist the United States in achieving this independence. 

            Senator Wagner emphasized that both economic security and national security rely on our ability to offer alternatives to continued reliance on oil, in general, which has now reached $72 a barrel, and foreign oil specifically.  Once the price of oil reaches $40 a barrel, coal-to-liquids becomes an economically feasible option.  Also, Senator Wagner noted, the amount of money spent overseas simply to secure our foreign oil supply should alone be enough to encourage exploration into other options. 

            Senator Wagner explained that the coal liquefaction technology has been used since World War II, when the Germans used it to fuel their vehicles after the Allies bombed many of their oil refineries.  Likewise, today, it provides South Africa with about 40 percent of its transportation fuel needs.  The Virginia Energy Plan, SB 262, drafted and sponsored by Senator Wagner and approved by the Virginia General Assembly in 2006, recognizes the opportunity to capitalize on such an important technology, and advocates its use on moving the Commonwealth toward greater energy independence. 

            The legislation, Senator Wagner explained, directs the state Department of Mines, Minerals and Energy’s Division of Energy, in collaboration with various other governmental and public entities, to compose and implement a 10-year energy plan for the state.  The legislation creates the Coastal Energy Research Consortium, which includes participation by Virginia Polytechnic Institute and has the responsibility of coordinating the role of each type of energy source into the Virginia Energy Plan.  Along with clean coal projects, the initiative calls for the study of wind and solar technologies, as well as other renewable and alternative fuels.  The Plan links funds from offshore drilling for natural gas to clean coal projects, as well as these others.  The goal of the plan, in general, is to address the immediate needs of the state by utilizing traditional sources of energy, such as coal. 

            Clean coal technologies, Senator Wagner continued, are not limited to coal-to-liquid projects, but also can include projects that gasify the hydrogen from coal for its use in fuel cells, for example.  Senator Wagner contended that the major problem in the United States in regard to energy is not an energy shortage itself, but rather bad policy that leads to energy shortages. 

            As an example of good federal policy, Senator Wagner pointed out details regarding the current federal legislation sponsored by Congressman Rick Boucher that encourages the advancement of coal-to-liquid technology, allowing the Department of Energy to more easily fund such projects with federal price guarantees.  Also, Senator Wagner noted, the legislation includes a trigger mechanism, whereby if the cost of oil should fall below $35 per barrel, or some other agreed upon point, the federal government would pay the participating facility for the shortfall.  Likewise, if the price of crude oil rises above $80 per barrel, or some other designated ceiling, then the participating facility would be required to pay the federal government for the benefits from the windfall. 

            In conclusion, Senator Wagner spoke against the popular notion of prioritizing one source of fuel or one technology over another, and emphasized the need for ardent exploration of all available energy sources, including the examination of the high potential that lies in developments such as coal-to-liquid technologies.  He encouraged the audience to use it, conserve it, and make it environmentally friendly.  But most importantly, Senator Wagner concluded, America must produce American fuel for American consumers, for the benefit of all Americans.

II.        Nuclear Energy in the 21^st Century

Michael McGarey, Manager of State Programs, Nuclear Energy Institute, Washington, D.C.
Greg Williams, Senior Policy Adviser for Federal-State Relations, Office of Civilian Radioactive Waste Management, U.S. Department of Energy, Washington, D.C.

Background

            Given the vast capabilities of the nuclear energy infrastructure in the United States, the necessity for sustained and prolonged development of nuclear power technology is an important consideration for America’s energy outlook. There are a variety of issues when addressing the expanse or continued use of nuclear power, such as concerns over storage and transportation of nuclear waste, as well as the many advantages to expanding nuclear production capacity in various parts of the country.

Mr. McGarey’s Presentation

            Mr. McGarey began by stating that there are licenses for over 30 new nuclear power plants in the United States.  Eighteen of these currently are under construction, and 15 of those are located in SLC states.  There are a variety of reasons nuclear power has maintained public approval throughout the decades and, most recently, particularly in light of the warranted attention given to the dangers of global climate change, a renewed emphasis has been placed on nuclear energy due to the environmental benefits:  nuclear power generates no emissions. 

            There are various factors that point to nuclear energy’s future role in the electricity market, Mr. McGarey noted.  The growing need for baseload generation is one of these.  There is a near-term need for new baseload capacity, especially in the mid-Atlantic region, the Southeast and Northeast in general and, specifically, in Texas.  Another indication of the need for continued use of nuclear energy to generate electricity is the constantly increasing environmental constraints and compliance costs for the electric industry, as well as the potential controls on carbon emissions that are likely to continue getting stricter.  A third reason is the chronic volatility in natural gas prices due to unsustainable pressure on the natural gas supply. 

            However, these reasons point to the one reality—that electricity consumption continues to grow in the United States.  From 2005 to 2030, for instance, electricity consumption is expected to grow by more than 40 percent, obviously increasing demand for it.  Therefore, the additional need for baseload capacity will continue to escalate with this dynamic.  In fact, the Energy Information Administration has stated that by 2030, in order to maintain the current electric fuel supply mix, the United States would require building 261 additional coal-fired plants, 279 new natural gas plants, or 50 new nuclear power plants. 

            Also, Mr. McGarey emphasized, with the rise in demand there inevitably comes a rise in price for electricity, and nuclear energy yields the cheapest kilowatt-hour of electricity in the world.  Over the last decade the prices of oil and natural gas have risen dramatically, with the cost of each arriving at or around 7.5 cents to 8 cents per kilowatt-hour in 2005.  Also, while the price of coal has remained fairly constant, in 2006 it still was slightly higher than the price of nuclear energy, which was 1.65 cents per kilowatt-hour.  And as technology continues to advance, the cost of nuclear energy will steadily continue to decline, just as it has done over the last decade. 

            Correspondingly, Mr. McGarey noted, output capacity from nuclear energy continues to steadily increase, reaching 788 billion kilowatt-hours in 2006.  Also, nuclear energy is the largest source of emission-free energy in the United States, contributing almost three-fourths of all emissions-free energy.  Hydroelectric generation is second, contributing almost one quarter of the energy, with geothermal, wind and solar supplying only miniscule portions. 

            Mr. McGarey offered suggestions in regards to state climate policy perspectives.  First of all, Mr. McGarey insisted that climate policy should be addressed as an element of an effective, integrated energy policy.  Secondly, such a policy should encourage adequate supplies of clean, reliable, affordable and secure energy to meet societal needs.  Thirdly, the policy should take into serious consideration the goals and perspectives embraced in the Kyoto Treaty.  In this regard, Mr. McGarey stated, the United Nations Framework Convention on Climate Change estimates that the Kyoto Protocol’s Clean Development Mechanism (CDM) will generate 1.2 billion tons of emission reductions by the end of 2012; worldwide, nuclear power avoids the emissions of around 2 billion tons of carbon dioxide annually, dominating the U.S. Voluntary Carbon Reductions Program.  Fourthly, a robust climate policy will affect the rate at which nuclear power plants are built in the United States. 

            More specifically, Mr. McGarey added, an adequate U.S. climate policy would be: economically wide in reach rather than target a single industry for emission reductions; national in scope, yet consider varying impacts across regions and economic sectors; market-based, with price signals leading to technological innovation and investment, energy efficient and geared toward conservation; begin to reduce greenhouse gas emissions now and do so gradually over time; be simple enough to administer; and provide price certainty. 

            In conclusion, Mr. McGarey emphasized the economic benefits that new nuclear power plants bring, such as employment.  The nuclear power plants now under construction will require 50,000 new skilled workers in order to be operational.  Twenty-thousand of these jobs would be located in the South.

Mr. Williams’ Presentation

            Mr. Williams began by stating that the mission of the U.S. Department of Energy (DOE) with regard to nuclear energy is to manage and dispose of high-level radioactive waste and spent nuclear fuel in a manner that protects health, safety, and the environment; enhances national and energy security; and merits public confidence.  Currently, Mr. Williams stated, there are 121 sites in 39 states that are the locations of spent nuclear fuel and high-level radioactive waste destined for geologic disposal.  In order to store this waste in Yucca Mountain, Nevada, which is located 100 miles northwest of Las Vegas, the DOE must submit a high-quality license application to the Nuclear Regulatory Commission, as well as develop and begin implementation of a comprehensive national transportation plan that accommodates state, local and tribal concerns and input to the greatest extent possible. 

            Mr. Williams outlined why this program is so important to states.  First of all, proper nuclear storage is integral to national security.  As one example, in order to support continued operation of the U.S. Navy’s principal combat vessels, a repository would provide the safe and secure disposal of the Navy’s spent fuel.  Secondly, Mr. Williams said that a repository promotes homeland security objectives by consolidating radioactive waste to one secure government location.  Currently nuclear materials are located at 121 temporary storage sites in 39 states, within a 75-mile radius of 161 million Americans and nearly every major waterway.  Thirdly, nuclear non-proliferation is an important benefit of authorizing this program.  Mr. Williams emphasized that a repository program is the technical foundation of our international position on nuclear non-proliferation.  Commitment to disposing of waste in a secure location encourages other nuclear nations to do the same.  Also, there would be the opportunity for disposal of U.S. fuel that currently is housed in other countries.  Fourthly, energy security is a major advantage of building the repository and disposing of commercial spent nuclear fuel.  In doing so, this program encourages the option of nuclear energy, which, as stated earlier by Mr. McGarey, currently makes up approximately 20 percent of the country’s electrical energy supply.  Also, the project would ensure that the government obligation to dispose of commercial spent nuclear fuel from nuclear power reactors under the Nuclear Waste Policy Act of 1998 would be fully carried out.  Delays in such an endeavor, Mr. Williams asserted, would cost more than $1 billion per year in DOE and utility expenses after 2010.  Finally, this program would assist in protecting the environment by supporting the country’s efforts to clean up radioactive waste from the Cold War, and the timely opening of Yucca Mountain would avoid additional site storage costs.

            Mr. Williams explained how the project is funded, which is partly through moneys designated in the Nuclear Waste Fund.  In addition, revenues totaling approximately $750 million per year are generated from fees paid by utility companies using electricity generated and sold from nuclear power plants.  Mr. Williams expressed the perceived discrepancy between what was needed to fully fund the project and the actual amount being allotted annually to the Nuclear Waste Fund, encouraging lawmakers to be pro-active in advocating adequate funding for Yucca Mountain. 

            In closing, Mr. Williams emphasized the importance of the development of Yucca Mountain to the South, specifically.  Mr. Williams noted that there currently are 45 reactors at 25 sites in 13 SLC states, and that approximately 24.5 million people in the South live within 50 miles of a nuclear reactor.  Mr. Williams noted in conclusion that liability is growing and every year of delay ensures a larger financial burden for future generations.  Further, he emphasized that the DOE is committed to the development of Yucca Mountain as a geologic repository and that protecting the public health and safety, as well as the environment, remain top priorities. 

III.       Investing in America’s Electric Future

M. William Brier, Vice President for Policy and Public Affairs, Edison Electric Institute, Washington, D.C.

Background
            Economic growth – linked to the growth of the electrical industry – increased demand, energy efficiency, and global climate change all are major factors lawmakers should consider in determining the role of electricity in America’s energy future.

Mr. Brier’s Presentation

            Mr. Brier began his presentation by emphasizing the inextricable link between the rapid growth of electricity use in the United States, which exceeds the rate at which energy use in general is climbing, and the growth of the gross domestic product.  Mr. Brier explained the various reasons for continued escalation of electricity use in this country and why usage is expected to increase by about 40 percent by the year 2030.  Taking the typical American household as an example, the average family home used a total of 1.07 kilowatt-hours in 1979, for the purposes of heating and cooling the home, water heating, and for digital and electrical appliances.  Although the standard home now uses electricity for these same purposes today, larger homes, larger families, and larger appliances require an average of 1.3 kilowatt-hours annually.  By 2030, that number is projected to reach 1.45 kilowatt-hours.  In order to meet growth in electricity demand, Mr. Brier maintained, and to replace inefficient, older plants that are retired, new power plants must be built.  According to the Energy Information Administration, 258 gigawatts of new capacity will be needed by 2030.  In effect, if the entirety of this new capacity is built, costs would be approximately $412 billion.

            However, significant increases in investment are coinciding with a surge in generating capacity.  Since 2000, Mr. Brier noted, the electric power industry has invested more than $37.8 billion in the nation’s transmission system.  Also, shareholder-owned electric companies are planning to invest at least $31.5 billion in the transmission system from 2006-2009, a nearly 60 percent increase over the amount invested from 2002-2005.  The benefits of this include newer technologies, stronger economic markets, lower prices, and better reliability.  In regard to distribution of electricity, shareholder-owned electric utility investment in these systems surpassed $17 billion for the first time in 2006.  This represents a 6.5 percent increase over the inflation-adjusted $16.2 billion invested in 2005.  Since the beginning of 2000, the industry has invested almost $109 billion in the nation’s distribution system.  In addition, investment is likely to exceed generation and environmental capital spending in the next decade.

            Mr. Brier also explained that there have been and will continue to be some costs to the electricity industry for environmental reasons.  From 2002-2005, the electric utility industry as a whole spent at least $21 billion on compliance with federal environmental laws.  Also, state and local rules drive that total even higher.  Additionally, two recent EPA rulemakings – the Clean Air Interstate Rule and the Clean Air Mercury Rule – will cost the electric utility industry approximately $47.8 billion in compliance costs between the years 2007 to 2025.  Research, design, development and deployment costs for the technologies needed to reduce greenhouse gas emissions, as well as compliance costs for possible future carbon mandates, will require additional investments by utilities.

                        This led into a discussion of energy efficiency, at which point Mr. Brier outlined his recommendations, which include: encouraging the construction of energy-efficient buildings; promoting energy-efficient appliances and electric technologies; commercializing plug-in hybrid electric vehicles; accelerating development of the “smart” grid; and developing alternative rates to give customers more control over electricity bills.  Mr. Brier then encouraged lawmakers to promote energy-efficiency programs by utilities, as well as support development of electric ratemaking, rate design and technologies to assist customers in this manner.  He also encouraged them to promote energy efficiency as an investment for utilities.

            Mr. Brier concluded by explaining various ways in which Edison Electric Institute encourages more efficient practices, emphasizing the development of their new Internet campaign to help educate consumers about the key issues facing the electric power industry today.

Business Session, July 16, 2007

I.          The Outlook for Energy to 2030

Kenneth Cohen, Vice President, Public Affairs, ExxonMobil Corporation, Texas

Background 
            A variety of energy sources and the technologies used to produce them, will play a vital role in America’s energy future.  The use of all current and developing technologies to make best use of all existing energy sources will continue to be a vital aspect of energy production and use through 2030.

Mr. Cohen’s Presentation

            Mr. Cohen began his presentation by stating that the United States is at the center of three dramatic forces currently in operation: economic development, energy security, and concern for environmental issues.  Beginning with economic development, the price of commodities for the developing world will continue to increase.  These increases include the cost of energy commodities as well.  As the price of commodities increases, Mr. Cohen noted, so has concern for energy security.  This is not simply a western or American concern, but one that is global.  Also, as the United States concerns itself with the cost of energy commodities and with the prospect of greater energy security, as a country, Mr. Cohen insisted, we must do so in a way that is mindful of the environmental implications.  Mr. Cohen maintained that these three issues will frame how the United States will go forward in constructing energy policies.

            Very generally, understanding the extreme increase in demand is imperative to understanding America’s energy future, Mr. Cohen noted.  First of all, by 2030, the world’s population will be about 8 billion.  Secondly, the world’s incomes are rising, contributing to the potential for greater consumption.  And thirdly, energy demand is projected to increase by 40 percent by 2030. 

            Mr. Cohen began detailing the process of understanding where the world will be in 2030, regarding energy.  First of all, he maintained, most of the world’s energy – approximately 80 percent – currently is provided by traditional sources of energy: oil, coal and natural gas.  Despite dramatic increases in alternative and renewable fuel sources of all types, Mr. Cohen insisted that a continued increase in the use of these traditional sources can be anticipated as well.  In fact, approximately the same portion of the world’s energy – about 80 percent – will come from these sources in 2030. 

            Mr. Cohen next discussed electrical demand.  Currently, about 40 percent of the world’s electricity comes from coal; about 20 percent from natural gas; 17 percent of hydroelectric power; 16 percent from nuclear; 7 percent from oil; and about 1 percent from biomass, wind and geothermal sources.  Also, the relative cost of natural gas (arguably the cheapest source of electricity at 4 cents to 7 cents per kilowatt hour), as well as coal and nuclear energy, is far cheaper than wind, hydroelectric, geothermal and solar (the most expensive) sources of electricity. 

            Mr. Cohen then detailed the role nuclear energy will play in the next two decades.  Nuclear sources of energy are expected to grow about 1.4 percent during this period.  The potential for nuclear energy development is almost immeasurable, but the challenges associated with this development, such as safety, waste disposal, transportation of waste, and so forth, are extremely great. 

            Little growth is expected in hydroelectric power generation between now and 2030, mainly due to the fact that this type of energy source is location specific, and most of the sites for generation already are being put to use.  While hydroelectric power technology is very mature, its potential for growth is very limited.

            Wind energy is limited in similar ways, since prospective sitings for wind farms are restricted to specific locations where ample land is available.  Also, the power generated from these sites relative to their size is problematic.  The energy generated from a six-square-mile wind farm is equal to the kilowatt production of a 150 megawatt coal-fired power plant.  Another limitation of wind energy is that it is only generated when the wind is blowing.  When the wind is not blowing, there are connectivity challenges that arise regarding storage and transportation of generated energy.  Therefore, the potential for growth in wind energy will be minimal in the next two decades. 

            Geothermal is a new technology that is in use in some areas of the world.  Engineered geothermal energy is obtained through digging wells, collecting geothermal rocks from those wells, fracturing those rocks, and forcing water through the rock so that it can be heated.  Then, the water must be transported to the surface to be used.  Although there is much attention being given to this source of energy, and its potential contribution to the energy market is huge, major breakthroughs in its currently immature technology would be necessary for any significant gains to be realized in the next two decades. 

            Solar energy is broken down into two types, Mr. Cohen explained.  Thermal solar uses mirrors to refract the suns rays to generate heat.  This is a mature technology that has been around for a long time, although there have been little gains in the relative contribution it can make to the market.  This is largely due to cost.  Photovoltaic solar energy involves a direct conversion of sunlight into electricity.  Much attention has been given to this type of solar energy, although the technology is very new and underdeveloped.  Although the potential for development is great, again, cost will continue to be a factor in the role this type of solar energy will play in the larger energy market through 2030.

            Biofuels, which are growing rapidly, will contribute greatly to meeting the energy demands of the United States.  The production of first generation biofuels, which employs a mature technology (distillation) that has been around for thousands of years, will continue to grow, particularly in the United States, a country that has the ability to grow a large amount of fuel sources like corn.  However, limitations on first generation biofuels include the necessity for land, removal from the food supply, and ensuing economic repercussions for these adjustments.  Currently, the United States is producing about 5 million barrels a day of ethanol, which is requiring the use of approximately 20 percent of the corn crop. 

            Second generation biofuels, such as cellulosic ethanol production, have greater potential than first generation biofuels.  Advances in technology, such as the ability to break down these products, along with the potential ability to use a greater variety of sources, such as cornstalks and woodchips, also elevates the promise of second generation biofuels contributing to the world’s energy needs.  However, due to the growing demand factors (population growth, GDP growth, and especially energy demand growth), it currently appears that the relative contribution of biofuels as energy sources will be comparable to what it is today by 2030.  The input from these sources, combined with wind and solar power, is expected to be around 5 million barrels a day by 2030, only a small portion of the projected 325 million barrels of total consumption per day.

            In closing, Mr. Cohen summarized the various challenges associated with the different types of energy that are currently and potentially utilized.  Producing the types of energy that the world needs, while doing so in a way that takes into account the preservation of the environment, is what the United States as a world leader should be doing.  Also, maximizing the use of domestic energy sources also is very important, but the recognition of the extreme interconnectedness of the energy markets is likewise important.  He also added that fuel efficiency is one of the most promising prospects for maximizing energy potential.  Efficient use of energy is an alternative fuel, Mr. Cohen adjoined.

II.        Southern States Energy Board’s (SSEB) Legislative Digest, 2007, Presentation and Roundtable Discussion

Senator John Watkins, Virginia

Background
            The Legislative Digest is a compilation of model energy and environmental legislation enacted by Southern states that has been compiled by the SSEB for more than 20 years. 

Senator Watkins’ Presentation

            According to Senator Watkins, over 488 energy-related bills were passed by Southern legislatures this year, ranging in topics from coal to utilities to solid waste.  Nearly every Southern state this year addressed the issue of biofuels, with three states actually passing mandates that require the use of biofuels.  One state enacted legislation meant to enhance the growth of the biofuel industry in their state. 

            Numerous states passed bills relating to coal production and use.  One state had several pieces of legislation relating to the advancement of clean coal technologies.  Various states passed legislation supporting the FutureGen Initiative and the use of coal-to-liquid technologies.  In addition, several states addressed the coal-to-liquid incentives currently in the energy bill before Congress.

            A primary area of concern for states with regard to utilities was the Renewable Portfolio Standards.  Many states passed pieces of legislation to promote conservation through financial incentives, and various states have gone into re-regulation of utility sale.  Another issue addressed by several states this year was electronic recycling. 

            Senator Watkins opened the floor to any members who preferred to speak on specific pieces of legislation, or other energy or environmental issues, addressed in their home states.  Topics of discussion included: the use of wood waste; the proliferation of wind use; comprehensive energy bills; alternative fuels, including the production cellulosic ethanol and biodiesel; distribution and availability of alternative fuels; funding for technology research; and natural resource preservation.

III.       Consideration of Policy Positions

            Representative Chuck Martin, Georgia, introduced four policy positions regarding: the Notice of Proposed Rulemaking (NOPR) implementing the loan guarantee program authorized by the Energy Policy Act of 2005; the Low-Income Home Energy Assistance Program (LIHEAP); support of nuclear power and reform and full funding of the Yucca Mountain Repository Program; and Federal Renewable Portfolio Standards.  All four positions were passed by the Committee.  Subsequently, all five positions were adopted by the Southern Legislative Conference, Tuesday, July 17.   

IV.       Presentation by Mr. Ken Nemeth

            Mr. Nemeth, executive director of the Southern States Energy Board, spoke briefly on the need for energy independence in the United States, and the necessity for diversification and maximization of domestic fuel sources in achieving this goal.

V.        Election of Officers

            The Nominating Committee, chaired by Representative Chuck Martin, recommended that the Energy and Environment Committee re-elect Representative Ron Peters of Oklahoma as its chair and Representative Rocky Adkins of Kentucky as its vice chair for 2007-2008.  The Committee voted, concurring with those recommendations.   

Southern Legislative Conference Fall Conference

San Antonio Texas, October 26-29, 2007

            The SLC will meet for its 2007 Fall Conference October 26-29 at the Westin Riverwalk, San Antonio, Texas, for discussions on how states are focusing their policies to encourage the development of existing businesses and foster the growth of new industries.  Members will share their experiences and hear from leading experts on how communities and regions succeed or fail, and learn about innovative ways to achieve collaborative success for economic development.  In keeping with the wishes of the SLC presiding officers, please note that meeting notification does not authorize travel.

SLC Staff Contact:   If you have any questions regarding this report or the 2007 SLC Fall Conference, please contact Jeremy Williams in our Atlanta office at 404/633-1866 or jlwilliams@csg.org.