RD57 - Annual Executive Summary of the Virginia Coal and Energy Commission


    Executive Summary:
    Virginia Coal and Energy Commission
    January 2006

    Pursuant to Chapter 25 (§ 30-188 et seq.) of Title 30 of the Virginia Code, the Virginia Coal and Energy Commission is charged with studying all aspects of coal as an energy resource and endeavoring to stimulate, encourage, promote, and assist in the development of renewable and alternative energy resources other than petroleum.

    The Commission has 20 members: five members of the Senate, eight members of the House of Delegates, and seven citizen members appointed by the Governor. Senator William C. Wampler, Jr., of Bristol served as the Commission's chairman and Delegate Harry J. Parrish as vice chairman. The other Senate members are Senators Charles J. Colgan, John C. Watkins, Frank Wagner (appointed in December 2005 to replace Charles Hawkins), and Phillip P. Puckett. The other House of Delegates members are Delegates R. Lee Ware, Jr., Terry G. Kilgore, Charles W. Carrico, Sr., William R. Janis, Watkins M. Abbitt, Jr., and Kristen J. Amundson. The position held by former Delegate Jackie T. Stump is currently vacant. The citizen appointees are Barbara Altizer, Harry D. Childress, Frank Henderson, Albert Darrell Holbrook, James K. Martin, John K. Matney, and Dale P. Moore.

    Staffing from the Senate Clerk's Office was provided by Hobie Lehman, and from the Division of Legislative Services by Jessica Eades, Michael Flaherty, and Frank Munyan.

    Commission Activities

    The full Commission met on October 27, 2005, and January 17, 2006. In addition, the chairman established a Special Subcommittee on Energy Policy, which convened on November 9, 2005, November 28, 2005, and December 15, 2005.

    October 27, 2005, Commission Meeting

    Attorney General Judith W. Jagdmann provided the Commission with an overview of the Virginia Post-Disaster Anti-Price Gouging Act. The Act, adopted in 2004 following Hurricane Isabel, prohibits charging unconscionable prices for necessary goods and services within the area affected by a disaster during a time of disaster. To violate the Act, an increase in prices must be so great as to shock the conscience. The Act has been activated on several occasions, most recently following Hurricanes Katrina and Rita. The Attorney General cautioned that natural gas prices have increased significantly since Hurricanes Katrina and Rita disrupted production in the Gulf of Mexico. Natural gas prices at the Henry Hub are in excess of $13/MMBtu; two years ago, prices were below $5/MMBtu. Higher fuel costs have affected wholesale electricity prices. Heating oil, which is burned in 13 percent of Virginia's homes, is expected to cost households on average $378 more this winter, an increase of 32 percent from last year. In the 2004-2005 winter heating season, the retail price of heating oil was $1.92 per gallon; this winter, it is expected to be $2.54 per gallon.

    Stephen A. Walz of the Department of Mines, Minerals and Energy (DMME) addressed the Chairman's request for feedback on the suggestion that a capability be established within the executive branch to monitor and analyze energy supplies and costs and to anticipate energy crises before they affect the Commonwealth. Such a new state energy monitoring function could be located at DMME. Such a function could manage petroleum and solid fuel emergency response activities and provide management support to state agencies and institutions in their fuel purchases.

    Secretary of Health and Human Resources Jane Woods provided an overview of funding for Virginia's low income energy assistance programs. Federal Low Income Home Energy Assistance Program (LIHEAP) grants provided $36 million for heating and cooling assistance in fiscal year 2005. The Department of Social Services' annual report on the effectiveness of low-income energy assistance programs in meeting the needs of low-income Virginians indicates that while the number of households served by energy assistance programs continues to increase, the benefits provide less than 25 percent of a recipient's household's energy needs. The average recipient of LIHEAP heating assistance received a benefit of $220, while the maximum benefit was $370. While the eligibility threshold is 130 percent of the federal poverty level ($24,505 for a family of four), more than 60 percent of the households receiving a benefit had incomes of less than $10,000. Secretary Woods estimated that, with anticipated increases in fuel costs, maintaining benefits at their current level given an expected five percent increase in demand, would require $24 million in general funds.

    Staff provided the Commission with an overview of the provisions of the federal Energy Policy Act of 2005 that pertain to strategic investments in energy supplies. The bill seeks to spur new domestic energy production from traditional and alternative sources, and provides $14.6 billion in tax breaks and authorizes expenditures of $85 billion over the next decade.

    Senator Wampler announced the establishment of a special subcommittee on energy policy. The subcommittee, comprised of Senator Watkins (chair), Delegate Parrish, Delegate Kilgore, and Jim Martin, was charged with developing recommendations for short- and long-term strategic investments and actions to ensure that the Commonwealth is positioned to address energy issues. The chairman invited Senator Frank Wagner, Delegate Harvey Morgan, Michael Lipford of the Nature Conservancy, Hugh Keogh of the Virginia Chamber of Commerce, Chris Anderson of Exxon Mobile Corporation, and Hugh Linginfelter of Virginia Natural Gas to participate in the efforts of the subcommittee.

    Senator Frank Wagner testified that the Commonwealth needs to adopt a comprehensive energy policy now. The Joint Subcommittee on the Future of Manufacturing in Virginia has been made aware of the effect of rising natural gas prices. In addition to its use as fuel, natural gas is an important raw material in the manufacture of plastics, fertilizer, and other commodities. The economic implications of the tripling or quadrupling of natural gas prices over the past 18 months has created uncertainty in the manufacturing sector.

    Senator Wagner stressed the need to reduce energy demand via conservation. Energy issues should be solved in ways that minimize environmental impact and provide employment for Virginians. He suggested that elements of the energy plan should address the use of coal, oil, natural gas, nuclear, and renewable sources of energy. Specific elements offered by Senator Wagner include support for the expansion of the existing petroleum refinery in Virginia, promoting LNG imports, developing off-shore natural gas resources, and pre-approving sites for the location of nuclear and wind power generation facilities.

    November 9, 2005, Special Subcommittee on Energy Policy Meeting

    Senator Watkins discussed the need for legislators to collaborate with representatives from various energy-related industries; to this end, he invited several interested citizens to participate in the subcommittee's discussions.

    Staff briefed the subcommittee on draft legislation proposed by Senator Frank Wagner, which would add a title to the Code of Virginia outlining a statewide energy plan. Senator Wagner's draft sets out nine energy objectives, along with the elements of a state energy policy directed at achieving those objectives. It then charges the Department of Mines, Minerals and Energy with developing a plan to implement the policy. The plan is to include projections for energy usage and supply for a 20-year period, an analysis of these projections, and recommendations for how to best meet Virginia's energy supply needs. It is to be prepared by January 1, 2007, and updated every five years thereafter. The most controversial section of the draft provides a process for the State Corporation Commission to designate optimal low-emission energy facility sites.

    Steve Walz of the Department of Mines, Minerals and Energy presented a brief summary of the Virginia Energy Plan established by Executive Order Thirty Seven (1991). The Plan seeks to coordinate energy conservation activities among the executive branch agencies. The stated goals are to operate state government as a model of energy efficiency, and to ensure the sustainable use of energy in Virginia. Implementation is not mandatory; it is merely encouraged.

    Mr. Walz highlighted some of the preliminary findings of the study by the Secretary of Commerce and Trade pursuant to House Joint Resolution 625 (2005) of the possibility of exploring natural gas resources in Virginia's coastal areas. He noted that Virginia's ability to profit from any of these resources is dependent on federal Congressional action.

    November 28, 2005, Special Subcommittee on Energy Policy Meeting

    The Special Subcommittee's second meeting discussed Senator Wagner's proposed energy legislation and, more generally, Virginia's energy supply outlook.

    Cody Walker of the State Corporation Commission (SCC) briefed the subcommittee on the existing pipeline infrastructure in Virginia, as well as the process for expanding this infrastructure. If offshore development were to be allowed, some expansion would be necessary. There was agreement among the subcommittee members that right-of-way issues would be critical to any future expansion project. While pipeline is often located within existing rights-of-way, due to space constraints this might not always be feasible.

    Arlen Bolstad of the SCC's Office of General Counsel detailed how Senator Wagner's proposed energy legislation might be implemented. He noted that this legislation would create a shift in policy; whereas the Commission normally waits for developers to come forward with a specific parcel of land in mind, now the Commission would be evaluating land areas that may never actually be developed. He also noted that the Commission does not currently have enough staff with the technical expertise necessary to complete the required investigations, and outside consultants would be needed. It is unclear who would pay for these services. Another potential problem with implementation is that it would require voluntary collaboration with several federal agencies. Since no other state has enacted similar legislation, it is unclear how much cooperation could be expected.

    Bruce McKay, Manager of Federal Policy of Dominion, addressed Congressional action affecting offshore energy exploration. Mr. McKay stated that one of the problems with drafting this type of legislation at the federal level is that there is currently no state agency with which lawmakers may consult. Senator Watkins expressed interest in becoming involved in this process.

    December 15, 2005, Special Subcommittee on Energy Policy Meeting

    The special subcommittee's third meeting provided a forum for interested parties to provide Senator Wagner with comments on his proposed energy policy legislation. Members of the subcommittee, personnel from the Department of Environmental Quality, Department of Mines Minerals and Energy, and the State Corporation Commission, and 10 public citizens commented on the draft bill. Senator Wagner suggested that Virginia's energy supply problems are the result of an energy policy problem, and agreed to consider the suggestions and incorporate those with which he concurred into a revised bill. Senator Watkins obtained the concurrence of the subcommittee's members to forward the energy policy legislation to the full Commission at its next meeting.

    January 17, 2006, Commission Meeting

    The Coal and Energy Commission received updated information from Duke Storen of the Department of Social Services and Nikki Nicholau of the Department of Housing and Community Development regarding funding for the Low Income Home Energy Assistance Program (LIHEAP) and Weatherization Assistance Program, respectively. Both programs received funding from the Commonwealth, pursuant to an allocation made by Governor Warner on November 30, 2005, to supplement existing federal funding levels. LIHEAP received $14.9 million in state general funds, and Weatherization Assistance Program received nearly $2.1 million, as a result of the supplemental allocation. The increase in LIHEAP funds provided in increase in the average benefit from $223 last winter to $326 this year, though Mr. Storen noted that out-of-pocket expenses by clients are still significantly higher this year as a result of higher energy costs.

    Senator Watkins presented the Special Subcommittee on Energy Policy's report on Senator Wagner's energy plan legislation, which was introduced as Senate Bill 262. The introduced bill incorporated numerous revisions addressing suggestions offered by interested persons. The specific elements of the bill were not debated during the meeting, as Chairman Wampler noted that the provisions of the bill will be properly debated when it is considered by the standing committees of the General Assembly. Without objection, the Commission accepted the report of the Special Subcommittee. Senator Wagner observed that he would prepare an amendment in the nature of a substitute to Senate Bill 262 prior to its consideration in committee, and that persons who wished to offer additional changes to the bill should provide him with suggestions as soon as possible.

    At the conclusion of the meeting, the Commission unanimously elected Delegate Kilgore and Senator Watkins to serve as chairman and vice chairman, respectively, for the next year.

    Additional information regarding the Coal and Energy Commission's activities is available through its web page at http://dls.state.va.us/cec.htm.

    The Commission does not intend to submit a further report for publication.