2007 Session: Grant Agreements Show There Is No Need For Special Session

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Documents obtained from the Governor's Office of Energy Policy by the Kentucky Resources Council, Inc. raise questions about the need for a special session to create new incentives for coal-to-liquids plants.

On June 20, 2007, the Governor's office released letters from four companies which the office claimed support the need for energy legislation. The press release quoted the Governor as stating that [s]everal companies are looking for the best state in which to build new alternative fuel facilities. For Kentucky to have a seat at the table when these decisions are made, it is imperative that the General Assembly address this issue immediately rather than wait for the 2008 Session.”

Yet documents provided in response to an Open Records Act request filed by the Kentucky Resources Council, Inc. with the Governor's Office of Energy Policy indicate that three of the four companies, Peabody, Rentech and EnviRes, LLC, have already applied for and received grant approvals from the Governor’s Office of Energy Policy to support projects in Kentucky.

A May 1, 2007 Grant Agreement between Peabody Electricity, LLC and the Office of Energy Policy approved $400,000 in grant monies to partially fund the feasibility study for a proposed 30,000 Barrel per Day FT Fuels Facility. Appendix A of that Grant Agreement states that:

"Peabody Energy Corporation and Rentech, Inc. signed a joint development agreement to pursue a 30,000 barrel per day to Fischer- Tropsch fuel project in the state of Kentucky, near [location redacted]."

According to the Executive Summary of the Grant Agreement, the $400,000 requested “would assist in completing the feasibility technical overview and finalizing the specifications for utilizing Kentucky coal feedstock.”

The grant agreement describes three phases that would occur "before project financing is sought" – scoping, feasibility and front-end engineering design or FEED. The feasibility phase, which the $400,000 was requested to support, will continue until April 2008, and would be followed by the engineering design phase at a cost of $26 million, from July 2008 to December 2009.

Rentech is identified as a partner in the project application. The application states that the Project will be located in Kentucky and will utilize Kentucky coal. Results from the feasibility phase “will determine whether or not the Kentucky Project will proceed” according to the application. The application for grant funding did not state that the choice of Kentucky for locating the project is contingent on further funding commitments from the state; rather the application indicated that the development agreement is for a project in Kentucky.

EnvirRes LLC received a $2,000,000 grant under a February 1, 2007 agreement with the Governor’s Office of Energy Policy based on an application stating that EnvirRes had entered into an agreement to build and operate a gasification and Fischer-Tropsch liquid fuels demonstration plant, which would be located in Kentucky. The funding was requested to support site evaluation of a specific property in Ashland, Kentucky and preliminary engineering design work. According to the application, the next phase is testing of the gasification process in Sweden, to be followed by engineering design of a demonstration plant that is estimated to cost $300,000,000.

Given these commitments and the status of the projects for three of the four signatories of letters released by the Governor’s office, the justification for calling the General Assembly into a special session this summer is that much more questionable. The claimed need by the Administration to create such incentives to attract these companies to the Commonwealth appears to be at variance with the representations contained in the applications on which the grant funds were approved.

KRC believes that state incentives for coal-to-liquid or other emerging technologies for both fuel and power generation should be strategically targeted for research, chemical and geophysical investigation, development and demonstration of technologies to meet our energy needs while addressing the need to manage carbon dioxide and other greenhouse gas emissions.
By Kentucky Resources Council on 06/27/2007 5:32 PM
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