State Energy Resources Coordination Council

September 11, 2003

KCC, Topeka, Kansas

SERCC Chair Lee Allison called the meeting to order at 10:10 a.m. Stuart Lowry, with the Kansas Electric Cooperative Council is present today to fill in for Barry Hart. The May 7th meeting notes were distributed.
Allison introduced Brian Moline, Chair of the KCC. This being Moline’s first meeting as Vice Chair of the Energy Council, Lee asked if he had any thoughts?
Moline: John Wine kept us informed of the Energy Council's activities while he was on the council. Said he was in a learning mode today.
Allison: Gas prices are going up, and in cooperation with the KCC and the Governor's office, we have put together an energy brochure, please take some with you today. These brochures are being distributed at the state fair. Also, they will be available at the Wind and Biomass Conference the end of this month.

Kansas Energy Abstract

Allison: This is the newest SERCC report.
Brosius: Scott White helped with the data, and Michael Volker reviewed the document. Some of the data is not as up to date as we might wish, due to lag time’s in EIA data.
Allison: This is the 2nd publication for the Energy Council, we may want to update these each year.
Nelson: When do we need to contribute to that? I would like to see a renewables section.
Brosius: There is a very short section on renewables. It is hard to find data. We may also want to consider online publication for future reports.
Holloway: Even the legislature has allowed electronic format only now.
Volker: If we do another "Energy Abstract", and have in an electronic format only, producing a limited number of hard copies should be considered, depending on where they are distributed.
Allison: Printing on demand can be slow.
Holloway: Would it make sense to give out CD ROMS at conferences?
Brosius: One good thing about PDFs is that people can download and print what they want.
Natural gas summit

Brosius: The Kansas Summit on Natural Gas will be held on October 2nd at Washburn University in Topeka. We still have some speakers that need to be contacted; we need volunteers to do that.
Allison: The room holds 240, we have 3 breakout sessions, and have mailed out 350 invitations, the target is producers to social service agencies.
Brosius: We have worked with Bruce Snead on the breakout sessions. At the end there will be a list of recommendations, short term, long term, easy, and costly. This will be a working conference, we have some chance to come out of it with a good list of recommendations.
Allison: We are asking people to come and not be observers, but to be participants.
Brosius: We are not asking SERCC members to pay registration fee; you will receive a letter of invitation and a registration form.
Springe: We need to talk about these 3 people that we need to contact for speakers.
Terry Loveland – KCC.
Volker: I will contact KCCI president.
Springe: What about this person from Midwest Energy?
Volker: He is waiting to be contacted.
Springe: For the media speaker – needs to have a broad scope - TV, newspapers, etc. What about Steve Everly with the Kansas City Star? I can talk with him.
Allison: A press release will go out, but we need someone on the panel. Also, what about Jerry Heaster from the Kansas City Star?
Springe: I would go with Steve Everly, Jerry Heaster is more of a columnist, opinion. We could use Dion Lefler from the Wichita Eagle, she does a great job, but I would still go with Steve Everly. The problem is how to get the message out, and how to do it well. I will make some phone calls, see if they can recommend someone.
Allison: I have been working with the Dept. of Energy, hoping to get an Assistant Secretary, or someone higher up, with knowledgeable about what is going on at the national level.
Brosius: I brought some registration forms in case anyone wants some.
Transmission task force

Allison: This was a priority for the Council this year. The task force will look at bottlenecks in electric transmission. There is added emphasis to look at reliability and security since the blackout in the northeast. The Transmission Task Force charge was distributed. In the midst of establishing the task force, we have a chair and a few who have agreed to serve, but we will not announce the makeup of the task force yet. We will ask the task force to come up with preliminary thoughts so that by the November meeting they will be able to share with the Council. We will keep the task force group small, with a good mix of members, not just technical folks.
KACEE–SERCC partnership

Brosius: Shari Wilson from the Kansas Association for Conservation and Environmental Education (KACEE). Shari will share ideas she has for ways the Council can partner with KACEE.
Wilson: Shari explained that she is the Special Projector coordinator for KACEE and that KACC has partnered with KGS for years. The partnership with KCC is newer. Shari passed around some materials. The primary focus is education. Perhaps partnering with the Council on a conference. This year, the annual KACEE conference will be in Manhattan in November, and there will be a couple of sessions covering energy. Next year the conference is in Dodge City. There will be a concurrent session track on energy, this year there will be ten sessions on energy. We will have about 200 attendees; it is a good forum of educators, natural resources folks, conservationists, and university staff. We could have a good partnership. Also, we could have a forum and then have feedback, see what their concerns are.
Dayvault: The KIOGA Education Foundation would also be an opportunity for you also to coop with them.
Brosius: The 2nd priority item from the 2003 energy plan is to develop an educational component.
Allison: We need to talk with Mark Shreve with the KIOGA Foundation. We possibly could have him here at the next Wichita meeting.
Bio-Energy Working group

Nelson: – This was my idea. I attended a meeting in Iowa the end of June, and then approached the Commerce Dept. – group would be people in the state that use and/or know the economic development issues of natural resources. We have had one meeting, in August, and we will meet again and see if it will be worthwhile to meet again.  We want to move beyond ethanol, look at switch grass, and bio diesel.
Allison: You can serve as liaison for this group, look at how to collaborate, and if things come out of that working group, you can bring to the renewables committee here. Your work would then go into the energy plan to the legislature in January.
Menard: This month or next we are adding tankage for biodiesel in McPherson.
Nelson: Will it be used for feedstock?
Menard: I don’t know, the customers are doing it. It would be distributed to the state through jobbers.
New executive order  

Allison: The Governor’s office is supposed to have the new executive order ready soon. There have been a few drafts floating around. The new executive order will add language that we developed. There will be additional seats in renewables, agriculture, and efficiencies. Troy Findley is saying don’t hold back on what the Council is doing now, doing good work. We may see some change in the existing membership, reconstituting membership. Or, the order may dissolve and reappoint. We have been hoping to get it out for several months now, before the gas summit.
Rural Life Task Force  

Allison: Laura McClure serves on the Rural Life Task Force and has a subcommittee on energy. Laura is a former legislator from Osborne Co. She has asked for the energy plan and the energy abstract for her members. She was unable to attend today. There are a lot of groups out there that we can partner with.
Ploger: At the Wind and Biomass Conference a new wind map will debut.
Holloway: The generation interconnection conference will also follow the Wind and Biomass Conference.
Allison: I have been asked to report on SERCC activities related to the blackout to Carl Holmes blackout roundtable on Oct. 3 at KCC in Topeka.
Energy Plan 2004  

Brosius: In last year’s report one key message was that Kansas had become a net energy importer. What is the key message for this year’s report? Also, we need to talk about responsibility for tasks on the executive order.
Gerhard: We did a good job on the historical perspective in the 2003 plan, but we need to project demand, identify problems, and then show how to solve the problems.
Brosius: Do you think that we need to show projections on demand and production?
Gerhard: We will likely see a widening gap.
Volker: The forecasts are in, we just need to update them. We should not do an elaborate process, just update, using the same sources. This would be on the consumption side.
Hansen: We would do the same on the production side.
Allison: We would just add another year.
Gerhard: Are you looking for a theme – economic development? The 2004 plan could present scenarios, realize hopes, show what the impact is; indicate the low, and mid to high end perspective. Recognize that energy infrastructure is important to economics in Kansas.
Volker: Natural gas prices are all over the place; that is why we are having a summit. The overriding theme should be a big thing and under that umbrella, there should be recommendations.
Brosius: The next plan doesn’t need to be that many pages; we don’t need to put the history in it. Focus around something like economic development, or maybe something else; I'm just throwing out ideas to stimulate discussion.
Moline: What is the magic about being an importer as opposed to an exporter. The cost?
Brosius: That is why we revised our mission statement; maybe we should use it in the next energy plan.
Springe: The transmission system needs to be upgraded, and has been needed for the last 50 years. There needs to be a good reliable transmission system, but we see a push to throw a lot of money at a system that is still working. There is too much that is unsure, the money will come from consumers. Rhetoric is that we are a 3rd world country in terms of our transmission system.
Dayvault: We need to get the message out that a lot of our system relies on natural gas.
Silver: It doesn’t sound like we have a focus or theme for Liz. It may depend on the new executive order. We are not unanimous on what our focus will be. Someone should be able to pick up the report and see where the focus is, it is like the 15 second sound bite.
Brosius/Allison: The focus needs to be discussed in your breakout sessions. We don’t have to have it resolved today, but we will need in the next couple of months.
Northeast US power outage—Report by Larry Holloway, KCC

Larry made a presentation on the northeastern United States power outage. What does it mean for Kansas?
Volker: In your opinion, in a deregulated environment, it requires a more comprehensive grid system?
Holloway: We are using the transmission system; it is reliable. The more you do this type of regional dispatch, if you can find cheaper, you make agreements; it goes beyond reliability, also benefited from reserve sharing.
Moline: I will ask my question another way – if powerpools were set up, and were reliable, but we have increased pressure to use that system, we would move from a reliability function to a marketing function. You have indicated any kind of imbalance between supply and demand has the capability to increase levels of power, increase potential fluctuating levels. You have a third of the state that has restructured their market, with price controls taken off, consumers thought that the prices would lower, but that didn’t happen. That is why we are going to have more of these blackouts. The system is built for reliability, but there will have to be an upgrade to transmission lines or replace transmission lines, who pays?
Holloway: Most of the system is built to connect large power plants to load centers, not built for long distance. There is a need to look at a system that does that, you can’t make the decision to have broad wholesale markets. I don’t know how to get back to the system we had in 1970, I can only look at today and how to fix it.
Springe: This is the debate. What FERC is doing in terms of Standard Market Design, instead of having two people trading power and move it over a long distance, once you have prices based on power plants sitting next to loads, the differences are done in a financial manner. You have a financial agreement.
Holloway: It always does that.
Springe: We don’t really have a trading system?
Holloway: It is hard to see the prices.
Volker: You would follow the path of least resistance. There is a cost that is unrecognized by proponents for deregulation. The cost to design a grid system in a nonintegrated basis in a design of a power plant.
Springe: Two things—one is mechanical, and one is economical It is a hard subject to explain, you know that big power lines running through the state is not the right answer.
Volker: A comment regarding pricing—deregulation is not saving money, the cost of electricity in a deregulated framework is not better. The costs associated with doing it, may be lower prices or not, it is hard to tell.
Discussion on transmission lines in KS, power plants, efficiencies, reliability, and costs.
Allison: Lee thanked Larry for his presentation, and then asked if KCC is doing anything in response to the blackout?
Holloway: No. There is a Regional Transmission Organization Commission. On the transmission side – we act as an intervener, to improve transmission, on the distribution side, we look at reliability standards, and also looking at interconnection. At any given time, we have 3-4 staff looking at these issues.
Moline: Everyone agrees that the transmission system needs to be upgraded, when we have demand on the system, there just is not enough space as it is right now. Whoever is willing to pay the price gets his place in the system. Finance, politics and engineering, but also public policies come in to play.
Allison: We will have a working lunch. Sector committees should strategize on priorities for the energy plan. RPS standards as a whole—Rep. Sloan talked about 2% renewables by 2005, DOD energy purchases would require 2% but we cannot get any published information yet.
Brosius: There has been a charge to the agencies to come up with a plan. We are not going to focus on that question.
Moline: It is going to take a legislative act to do.
Lowry: The idea of having RPS standards in states is not new.
Allison: Rep. Sloan went to the Governor, and suggested making it a part of the executive order. Utilities and Renewables committee can look at this afternoon, and then share with the Governor’s staff.
Moline: It can’t be done by executive order.
Allison: We want the committees to bring forward priorities and recommendations for the 2004 energy plan. Choose those that are important to you without restrictions.
12:20 p.m. lunch – break out sessions.
2:20 p.m. Full council.
Allison: Committee chairs will share the outcomes of their breakout session. Galen Menard will then update us on the national gas situation.
Volker: Our group [the utilities committee] spent time on a systems benefit charge and renewable portfolio standard; we left the door open to further study on both. Concerns about a systems benefit charge – what is it going to be used for, consumer perspective problem, how to use the funds, implications for low income, etc. Potential for misuse of the fund is a concern, we are not against the idea, especially if it is used to encourage renewables. Renewable Portfolio Standard – we want to look at what other states are doing. It is a little more politically practical, less preferred.
Springe: SBC and RPS are big subjects and might be worth having a meeting or subcommittee meet to see if some of the issues can be flushed out, and work out the details; it is very detail oriented. Tie down for next year, it could take an entire day to talk about. The subcommittee could put details together.
Allison: I like the idea, we will hear the other presentations, but before we end today, we will set up a subcommittee from across the council plus others.
Silver: [reporting on renewables committee] I acknowledge the need to develop a RPS policy. I'm trying to remain objective, and open minded; just don’t know what the answers are. RPS is the issue. We spent time on transmission, concerns on a transmission approach from two different directions. We have a transmission system already, should make it adequate and reliable, or have it be able to handle wind resource in western Kansas. We also discussed a SBC from the standpoint that energy is important, it makes sense to encourage, or invest, and find a way to finance. A SBC is a good way to do that. What is the magnitude, what is the use of that charge? There is a need to fund SERCC. We talked about net metering, it is not an immediate concern. Just a comment—because Kansas doesn’t have net metering, Kansas is perceived as a state that is renewable friendly. We are not paying enough attention to conservation in terms of energy. For renewables in general, we talked about non-wind because we overemphasized wind in our discussions, we closed our eyes to other renewables. We did not prioritize.
Allison: These two directions for transmission issues are to be in the recommendations. On conservation: in the new executive order, one seat will be dedicated to focus on conservation.
Dayvault: [reporting on the petroleum committee] We spent more time on natural gas than crude oil. It has been publicized that natural gas will be higher this winter, other things have not been publicized, as well is that we may have a cold winter and may have shortages, and a lower inventory going in to winter. Maybe some of that needs to be better communicated. There are no short term fixes on the production side. Also seeing a longer-term solution for higher gas prices and for additional supplies is greater access for lands for drilling purposes. Kansas is a unique state as we have almost 100% access to drilling, but Kansas is now paying the price on higher gas prices because of other states. Maybe Kansas should demand that the government open up other lands for exploration. This has raised issues that at the regulatory level - it would enable oil and natural gas unionization standards. We currently have a 10 ft. median, would make a recommendation to lower that a little more, as the committee doesn't want to go to the Oklahoma standard that anything can be brought forward. We should move in smaller steps, enable projects to go forward that may be delayed otherwise. Move to a 50% threshold, this would be a statutory change. We recognize that both crude and natural gas prices are higher, but this bubble will burst and prices will drop. This puts resources in jeopardy, when these occur, there are certain safety nets. This affects current state revenues.
Ploger: Comments about the White Paper handed out – Public Benefits Program for Kansas – September 2003, prepared by Energy Programs Consortium.
Allison: Should SERCC adopt this?
Springe: Not without reading it.
Volker: We need to go through the document, then make some recommendations or suggestions.
Ploger: This document could be tweaked. It is available electronically.
Allison: Liz – any updates on staffing and funding of the council activities?
Brosius: No, we still have no funds, and staff time has increased. If funding doesn’t come forward as a recommendation, then we will need to look at what the energy council will be able to do.
Allison: schedule and locations for next meetings – things have changed – the council will be reconstituted, plan to meet in Oct in Topeka, new members, could possibly have governor or governor’s staff to talk with us. With activities we have in early Oct, suggest Wed., Oct. 15. Suggest the November 19 meeting be in McPherson, Colin will find meeting rooms, and Galen will give tour of Refinery.
Should have recognized Ed Cross earlier this morning. Ed Cross, Exec. VP of Kioga.
Cross: started this week, from Illinois, worked in oil and gas for 19 years, geologist, then did education in state, cleaned up abandoned oil and gas wells.
New business: Report on high gas prices by Galen Menard
Menard: It started back in winter months when we had very low refinery utilitization in US and were down to running 80-82% (experienced poor crack spreads in refining business, no incentive to run, no maintenance on gulf coast, gas prices in Midwest). Winter is when gas supplies or inventories are built up to increase spring and summer demand. This did not take place. Under best scenario, the post-Memorial Day demand for gas [exceeds] the refining capacity. Refining capacity is down due to major fire at Ponca City plant, Conoco Phillips fire. McPherson refinery was completely shut down in October, SD, MN refineries being shut down. Low refinery utilitization for 2003 has really done it, other plants indirectly impact on us, Alabama major fire, lost 140,000 barrels a day capacity, all this starts adding up, dependent on 16M capacity running at 94-95%, we depend on to meet demand. Makes some capacity low.
Allison: The refining system’s like transmission system.
Menard: Until 9/11/01 we were running at 97%, demand crept up 2% a year. The equipment’s not designed to run at these rates, running longer and harder and they break down, do good maintenance, extend maintenance cycles.
Silver: Price goes up, demand goes down,
Menard: Didn’t see demand fall off, Europe had hot summer, had major impact on refineries over there.
White: any plans for new refineries, or those that are down, being brought back up?
Menard: No, to build a refinery is $2.B. One being built in Asia.
Springe: Projection on how supply is going to be met?
Menard: Higher prices. At our plant we are spending $300M just to stay in business, if we don’t we are out of business in 2006.
Allison: If you have any thoughts on how this council can help to make the refining capacity continue, let us know.
Ploger: What’s the capacity of refineries in KS?
Menard: 300,000 barrels a day, each about 100,00 a day, only 3 refineries. When I started there were 13. But KS crude oil was over 200,000 a day and we’re now down to 20,000 a day.
Allison: Because we are running late, we may have to postpone the discussion of the theme for the energy plan until the next meeting. Focus in on fewer numbers of proposals, 2 or 3 key items on petroleum, work together, move forward. Send ideas to Liz or me. Next meeting, focus in on these.
The meeting adjourned at 3:13 p.m.
Respectfully submitted,
Debbie Douglass