RD38 - Annual Executive Summary of the Virginia Coal and Energy Commission


    Executive Summary:
    Executive Summary
    Virginia Coal and Energy Commission
    January 2007

    Pursuant to Chapter 25 (§ 30-188 et seq.) of Title 30 of the Code of Virginia, 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, 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., Kristen J. Amundson, and Clarence E. Phillips. The citizen appointees are Barbara Altizer, Harry D. Childress, Frank Henderson, Albert Darrell Holbrook, James K. Martin, Dale P. Lee, and Brian Sullivan (appointed in December 2006 to replace John K. Matney).

    Staffing was provided by Bill Owen from the Office of the Clerk of the House of Delegates and Frank Munyan and Ellen Porter from the Division of Legislative Services.

    Commission Activities

    The Commission met in Richmond on November 28, 2006, and January 11, 2007.

    November 28, 2006, Meeting

    Stephen Walz, Division Director, Department of Mines, Minerals, and Energy (DMME), briefed the Commission on the status of the Virginia Energy Plan. Senate Bill 262 (2006) directs the DMME, with assistance from other entities, to develop a ten-year Energy Plan. The Energy Plan will address energy sources and consumption, research and development, environmental impacts, and energy infrastructure. The Energy Plan is due by June 30, 2006.

    James K. Martin, Vice President of Dominion Resources Services, reported on the coal-fueled electric power generation facility planned for Wise County. The expected benefits of the project include 800 jobs during construction, permanent employment of 75 plant operators, the consumption of 2 million tons of coal from local coal mines, providing an additional 250 mining jobs, more than $2 million in tax revenues, the generation of electricity for the Commonwealth, and the reclamation of the mined land at the site of the project. The facility is expected to use circulating fluidized bed (CFB) technology, which Dominion prefers over integrated gasification combined cycle (IGCC) technologies because, while both can meet emissions standards under the Clean Air Act, CFB has tolerance for variable coal quality and is less expensive. The facility will use air cooled condenser technology to reduce overall water consumption, adding $40 million to the capital costs. Sponsors of the project are currently in the question-and-answer phase with the Department of Environmental Quality regarding air pollution permitting requirements. Dominion filed a petition with the SCC, prior to filing an application for a certificate to build the facility, that among other things sought to establish a rate of return on construction costs and a risk premium during the plant's operation. The SCC has denied these elements of its petition. Martin noted that Dominion would include additional information regarding the impact of the facility on rates at a later date.

    Randy Riha of East Tennessee Natural Gas, a subsidiary of Duke Energy, briefed members on the recently completed Jewell Ridge natural gas pipeline project, which was built in 21 weeks over extraordinarily difficult terrain. The interstate pipeline provides natural gas producers in Virginia with access to new markets. The majority of the pipeline's capacity has been sold. The project required a $60 million investment (of which $2 million was spent to protect the riffleshell mussel), employed more than 200 Virginians, and contributed almost $300,000 in annual property taxes. Riha noted that Duke Energy was spinning off its natural gas operations, including the East Tennessee Natural Gas, into a subsidiary named Spectra Energy.

    Senator Wampler prompted Riha to discuss the significance of the Saltville storage facility in Smyth County, the only salt cavern storage in the region. The facility has a minimum of 10 billion cubic feet available for the storage of natural gas, of which about 2 billion cubic feet is currently used.

    Amber Stanwix of the Department of Taxation reviewed the two tax credits intended to stimulate the use and production of coal. The Coalfield Employment Enhancement Tax Credit is available to any person with an economic interest in coal and varies with the method of production. Credits in excess of $20 million have been claimed in recent years, with $29.6 million being claimed in 2003 (the most recent year for which data are available). The Coal Employment and Production Incentive Tax Credit allows electricity suppliers to claim a credit of $3 for each ton of coal purchased. No credits have been claimed under this program. Possible explanations for the non-use of the credit include situations where electricity suppliers do not own coal-fueled power plants, generating facilities do not burn Virginia coal, and financial circumstances of the electricity suppliers.

    Tom Steinhauser, Director of the Division of Benefit Programs at Department of Social Services (DSS), provided an overview of the Low-Income Home Energy Assistance Program, and Floris Weston, Program Manager at the Department of Housing and Community Development, presented data on funding for the Weatherization Assistance Program. Both programs provide assistance to low-income Virginians in meeting energy-related needs.

    Chairman Kilgore noted that the statutory requirement in Virginia Code § 63.2-805 that the DSS report annually to the Governor and the General Assembly on the effectiveness of low-income energy assistance programs in meeting the needs of low-income Virginians is scheduled to expire on October 1, 2007. The Commission members agreed that the reporting requirement should continue beyond 2007 and after some discussion agreed to endorse legislation that would extend the reporting requirement indefinitely on a biennial basis.

    Delegate Janis asked whether the Commonwealth had entered into any contractual relationship with Citizens Energy Corporation, a nonprofit energy company founded by Joseph Kennedy that has provided low-cost oil from Venezuela to low-income families. Steinhauser responded that while social services agencies may provide information to clients about affordable fuel sources, the Commonwealth did not have direct relations with Citizens Energy.

    January 11, 2008, Meeting

    The Virginia Energy Plan legislation directed DMME to review energy research and development in Virginia. As part of the agency's preparation of the Plan, DMME retained the Center for Innovative Technology to conduct an inventory of energy research and development at state public universities, the federal laboratories in Virginia, and private industry. Other components of the study include identifying states' best practices, opportunities for Virginia, and potential benefits to the Commonwealth from energy research.

    The inventory addresses research projects in areas of energy generation and sources, energy use and its impacts, and energy policy and economics. Walz identified several opportunities for strengthening energy research and development in Virginia, including the development of a state road map, a cost-sharing funding commitment, and funding for a state-level initiative to build capacity.

    Virginia's strengths in this area include the breadth of research expertise among institutions and individual faculty, ties to coal and other industries, and proximity to federal facilities. Possible weaknesses include the lack of overall vision, lack of cross-university coordination, and the lack of a state matching fund program that could allow institutions to apply for federal research grants.

    One step identified by Walz, and expanded upon by Dr. Phil Parrish of the University of Virginia, was a proposal developed by the University and Federal Laboratory Subcommittee of the Virginia Research and Technology Advisory Commission (VRTAC) for funding a grant program to boost research capacity in the area of energy, conservation, and the environment at a level of $15 million per year for five years. Parrish outlined a consortium structure to manage and oversee the grant program. The funds would be used to help land research projects through a two-step process. First, institutions would be able to develop the capacity to conduct the research. Second, they would have access to resources required to respond quickly to take advantage of opportunities, such as providing matching funds required to bid on specific grant proposals.

    Parrish, Dr. Jonathan Miles of James Madison University, and Dr. Bradley Fenwick of Virginia Tech summarized energy research initiatives at their universities. Fenwick underscored the importance of additional state funding to place Virginia's institutions in a position to win competitive federal energy research grants. One goal mentioned was a dedicated source of funding at a level of tens of millions of dollars annually. The benefits of landing such grants include economic development resulting from the implementation of the research findings.

    Miles discussed one example of a grant that is being pursued by Virginia with huge potential for economic development. Virginia has submitted an application to the Department of Energy for a grant for a national large-scale blade test facility. Members of the partnership submitting the grant proposal include James Madison University, Virginia Tech, and the DMME. The state has offered $2 million for the proposal from the Technology Research Fund, which will be retained if the grant is not awarded. If Virginia is awarded the Cooperative Research and Development Agreement grant, the facility will test blades used in offshore wind power towers.

    Recommendations

    The Commission unanimously endorsed a proposal to extend, but reduce the frequency of, the reports required from the DSS regarding the effectiveness of low-income energy assistance programs in the Commonwealth. Currently, reports are due by October 1 of each year until October 1, 2007, on which date the reporting requirement is scheduled to cease. The proposal provides that after October 1, 2007, reports will be due biennially. Chairman Kilgore has introduced House Bill 1692 to implement this recommendation.

    Additional information regarding the Coal and Energy Commission's activities is available through its website at http://dls.state.va.us/cec.htm. The Commission does not intend to submit a further report for publication.