House Insurance & Commerce Committee
Video
Transcript
Bills discussed (5)
| Bill | Title | Sponsor | Status |
|---|---|---|---|
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SB5
· 3 mentions in chapter, transcript
Matched: “SB5”
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Pre-2017 bill | ||
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HB1416
· 2 mentions in chapter, transcript
Matched: “HB1416”
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Pre-2017 bill | ||
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HB1430
· 1 mention in chapter
Matched: “HB1430”
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Pre-2017 bill | ||
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HB1439
· 1 mention in chapter
Matched: “HB1439”
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Pre-2017 bill | ||
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HB1450
· 1 mention in chapter
Matched: “HB1450”
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Pre-2017 bill |
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the first item on the on the
Speaker 4
0:09
agenda that's a concurrent senate amendment by the level
you're recognized to come to the end of the table present the amendment
Speaker 13
0:44
yeah we have one i think you said i'm recognized i appreciate it mr chair
Representative Buddy Lovell
Unverified
1:03
it's uh it's my bill on uh on putting uh a fee on cell phones and it went to the senate and i agreed to an amendment
take it from up to three down to up to two so be happy to answer any questions Are there any questions from committee members?
Is there a motion on the floor? Mr. Wadlow, you're recognized. Motion to do pass
as amended. It's a concurrent Senate amendment to adopt it. You hear the motion?
All in favor, let it be known by saying aye. Aye.
Representative Buddy Lovell
Unverified
1:55
Motion carried. Congratulations. Thank
Speaker 55
2:08
you, Chair. Thank you, Committee. Vice Chair recognizes Chairman Allen for a presentation of his bill, HB 1416.
President Allen, you are recognized, and to introduce
your guest. Thank you, Mr. Vice Chair. I'll let
Shep Russell
Unverified
2:34
my guest introduce himself. All right. My name is Shep Russell. I'm with Friday
Eldridge & Clark Law Firm in Little Rock. Thank you. This bill is to remove the interest rate limit on bonds issued under the authority of Amendment 62. Amendment 2 of 2010, the Arkansas Constitution said in Section 1 governmental bonds and loans
that the maximum lawful rate of interest on bonds issued by governmental units in the state of Arkansas was set forth with various provisions and amendments. However, the Arkansas Code 1416431 imposed an interest rate limit of no more than 2 percent above the Federal Reserve rate, which today is practically zero. So municipal and county bonds cannot be sold at this low rate, and therefore bonds cannot
be financed for municipal and county buildings and other capital improvements. So this is basically cleanup language. And we would be happy to answer any questions. Any questions from
the committee? Representative Carnine, you're recognized for a question.
Motion at the appropriate time. Thank you, Mr. Carnine. Any other questions from the committee? Anyone want to speak against the bill from the audience for the bill? Representative Carnot, you're recognized for a motion. Motion do pass. Motion is made for do pass. All in favor by saying aye.
Aye. All opposed by saying the same. Representative Allen, you have passed your bill. Thank you. Yes, sir.
Speaker 44
5:18
I'm still a little surly. VICE CHAIR CURRY, YOU RECOGNIZE THE PRESENTIAL
BILL AND AMENDMENT.
Thank you, Mr. Chairman. I believe that we need to first address the amendment. This amendment basically adds an emergency clause to the bill. Any discussion
on the amendment? I'd like to move the... Go ahead. Representative Woods, you recognize? I'd like to make a
Representative Jon Woods
Unverified
6:07
motion to adopt the amendment. Okay. You heard the
motion? All in favor, let it be known by saying aye.
Aye. The amendment is adopted. Representative Kerr, present your bill. Thank you,
Mr. Chairman. I have with me Mr. Gene Eagle from the Arkansas Development Finance Authority. This bill has a little bit of a
Speaker 55
6:30
technical nature, but I'm going to let him put it in layman terms for us so we can understand exactly what we're voting on today. My name
Gene Eagle
Unverified
6:43
is Gene Eagle, Vice President for Development Finance at the Arkansas Development
Finance Authority. I'd like to thank Representative Kerr for agreeing to tackle this kind of technical amendment to the ADFA legislation. The federal government controls the amount of municipal bond debt, tax-exempt municipal bond debt that's issued for private purposes in this country, because the more tax-exempt death that's issued, the less money they have to spend. So it's a control feature that they have. And the way that they do it is by giving each state a cap.
And that cap is based upon the state's population. Private activity or private purpose bonds that would be used in Arkansas would be for single-family mortgages, for industrial development bonds, solid waste recovery facilities, student loans, docks, ports, airport improvements, and things like that. So that is what we're talking about today is volume cap that the state of Arkansas has
and an amendment to our legislation, which has been on the books since 87, and that legislation controls how volume cap is allocated to projects around the state. We're not changing how that process works with this amendment. What we're doing is trying to address a situation where the federal government gives Arkansas a special allocation of volume cap for things like recovery zones, for qualified energy
conservation bonds. Absent a legislative session, we want to be able to take a proactive role in making sure that the citizens, the businesses, and governments in the state know that this volume cap is available to the state. We lost some opportunity when the recovery zone bond allocation was given to Arkansas counties, and absent legislative session, we got an executive order from Governor Beebe to allow us to go ahead and start a plan which allowed us to make up some ground and get
some projects done. So that's the explanation that I have. We have a current allocation for the state of qualified energy conservation bonds, Midwest disaster bonds. These are going unused, and we want to start immediately on trying to put together a plan. The plan would be run through the rules and regulations committee and reviewed through that process.
So with that, I do have a gentleman here from the Arkansas Energy Office of the Economic Development Commission. He could also talk about the
Speaker 57
9:39
sense of urgency with the qualified energy conservation
Speaker 55
9:45
bonds if there are questions. Okay. Basically, in short, this allows us to react much quicker to funds that are available for projects within the state. now we're having to wait on the next legislative session in order to award these monies for
use. Unfortunately, most of them have a time limit on them, and by the time you get around to getting that done, time is either very short or passed for us to be able to use those funds. So this is not deregulating anything. It's simply speeding up the process and being more efficient in government. We're willing to take any questions if there are any. Are there any questions from the committee? Is there
anyone in the audience that will speak for or against the bill? Is there a motion from the committee?
I'd like to make a motion do pass. Do pass
Representative Jon Woods
Unverified
10:51
as amended. Do pass as amended. Thank you, Mr.
Chairman. All right. Thank you. All in favor, let it be known by saying aye. Aye. Opposed? Congratulations, Representative Kerr, you passed your bill. Our next item is House Bill 1439, Representative Barry Hyde.
You recognize to come to the end of the table and present
Representative Barry Hyde
Unverified
11:50
your bill. Mr. Chairman, I've got John Morris
from the Insurance Department of General Counsel,
and he'll provide some additional explanation to my brief explanation and be available for questions if that's okay with you as we move forward. And I'll try and make this relatively quick. I think many folks here at the table are familiar with this, and I'm going to start out by telling you that this is an industry bill, a business bill, and is supported by the associated general contractors, the associated building contractors, the home builders, the realtors, the independent insurance agents,
and I guess that's all I can remember, and that's a pretty good list. That's a group that's hard to get together a lot of times. This is to make a correction in an insurance commercial general liability that occurred several years ago from case law. Now, it created a problem in the definition of occurrence. And occurrence, as everyone here knows, is the trigger that makes an insurance policy come into effect or really triggers the contract of insurance.
Poor workmanship has been handled in these policies in the past by the use of exclusions. In terms of how the contracts are negotiated, the case law prevented the occurrence from ever starting, which means that we never got to the contract. We couldn't provide the coverage under the terms of the contract because we never triggered it. So what this basically does in a half page is set the minimum definition of occurrence
to include poor workmanship, thereby letting us get to the policy to use the exclusions and the ability of a business and an insurance company to negotiate a contract. Kind of a tough explanation, but I'm sure Mr. Morris can help us with that, and I'll try and add in. Is there any questions at this point? Mr.
Morris, you want to explain it?
Representative Jeff Wardlaw
Unverified
14:15
Thank you, Mr. Chairman, members of the committee. John Morris, general counsel for the Arkansas Insurance Department.
John Morris
Unverified
14:21
I actually think that Representative Hyde did a wonderful job of describing it. We agree with that, and that was the purpose of this, and we provided as much help as we could to try to make sure that there wouldn't be a disruption in the current market and to make clear that the ability for insurance companies to provide exclusions under a policy still exists and they can still write the policies the way that they have been with
the addition of the definition to provide for coverage for these types of incidents. Representative Kablitt, you're
recognized to ask the question. Thank you,
Speaker 79
15:07
Mr. Chair. Give me a scenario. Give me a test. Can I use you? There. Test, test, test.
Speaker 84
15:22
I don't need it. I want a practical scenario of what you're talking
Representative John Catlett
Unverified
15:30
about, okay? I'm a customer. I'm wanting an insurance policy. Now, you tell me,
Representative Barry Hyde
Unverified
15:37
give me a scenario of what you're doing here, how this could affect me. The easiest example is that you're a contractor, and you purchase from an insurance company a commercial general liability policy. And you construct a building, and you have an outside contractor.
who is the roofing contractor, and he provides or installs a defective roof that's not obviously apparent. You don't realize it's effective until we have the four-day monsoon, and it rains and water leaks in, and it ruins all kinds of stuff, the ceilings and furnishings and all kinds of stuff, creates this big claim. What has happened in the past up until three or four years ago when this case law came into place is when you bought your insurance policy from your agent and your carrier,
you would have negotiated on whether or not they would have put the exclusion in, and this is more common than not, that would have excluded your work. In other words, any work that you did with your direct labor that might have been defective would have been excluded from coverage. In other words, they wouldn't pay you to replace something you did wrong. And other policies might even exclude a subcontracted work provision, which means that they wouldn't have paid you for the actual replacement of the defective roof that your subcontractor put on.
You'd have to go back and subrogate and sue his insurance and all that stuff. But the collateral damage, if you will, would have been covered and taken care of under this policy. This court ruling that came down that basically said, and I guess one of the benefits of being a legislator is I get to talk like an attorney even though I'm not, and I can't bill you for that. What happened in the case is that a judge determined, contrary to what had been the policy to that point, that defective workmanship
wasn't an accident. It was to be expected. And if it was to be expected, then it didn't constitute an occurrence. It didn't make it to that bar of what triggered your policy or your contract. So you never were able to get into your contract with the insurance company to comply with the exclusion and collect the other part of the claim that would have been legitimate under it. So what really happens, I guess the easiest explanation or the short explanation I can give you,
is this piece of case law prevents the contract that you and I would have negotiated for insurance from ever coming into play, even though I paid you the premium. I bought the coverage from you, but I never got to enjoy the benefit of it because of a piece of case law. So all we're trying to do is revert back to what has been customary in the insurance and specifically for this case the construction industry. We've worked actually eight or nine weeks now with, I think in the end,
a team of 16 attorneys from the private sector, property and casualty over the insurance commission, the general counsel, some of the carriers' attorneys. There's been a tremendous amount of input. Obviously, you know, there are certainly some insurance companies that would like to see this maybe done a little differently or they'd like to just leave it the way it is for whatever benefits of their folks are. And there's, you know, one of the things I want to point out to you is that this is a broad piece of legislation.
This is going to apply to all commercial general liability, not just construction general liability policies. And that's at the request of the insurance department because, as they explained it in the first time we met on this issue before Christmas, that this case law is already permeating all the insurance industry, all policies. And as case law normally does, it's going to be used again and again in different industry segments, I guess, who also would carry these commercial policies, these liability policies.
easy one to explain. Thank you. Thank you, Mr. Chair. Representative Ward, you're recognized. Thank you, Mr. Chair. A motion at the proper time. Thank you. Okay.
Any further questions from the committee? Is there any?
MR. Representative Kerr, you're recognized for a question. MR. Representative Hyde, good morning. Help me understand a little bit here.
Speaker 55
20:15
I'm the contractor. I put the roof on. In your scenario, who is the policy being sold to, the contractor or the
Speaker 70
20:28
person that owns the building? MR. The policy we're discussing, the example I just gave, would be the entity or the contractor who
Speaker 33
20:38
is constructing the project, constructing the building. Okay. So this
policy is requiring the, I'm sorry, this change is
Speaker 55
20:48
going to be requiring the insurance
company to pay for the faulty roof?
Representative Barry Hyde
Unverified
20:54
No, sir. This has nothing to do with the exclusions. Actually, this bill will not touch the ability of the insurance company or the business to negotiate exclusions. So it's not going to force the insurance company. As a matter of fact, in the legislative intentions section of this, not to be codified in Section 1 here, We specifically make the statement as to alleviate that question that actually this act is not intended to restrict or limit the nature or types of exclusions from coverage that an insurer may include in a commercial liability insurance policy.
So we're specifically trying to make sure that we don't hinder the ability of the two parties to negotiate a contract. What we're doing is facilitating or we're getting over that hurdle of that recent case law to make sure that the contract we negotiate and I pay for
Speaker 33
21:59
can be executed. Okay, I see. And again, you touched on
Speaker 55
22:05
the fact that it was a broad policy.
I'm a little confused of why you or the insurance department didn't want to specify, since we're talking about workmanship, just a construction industry, rather than making it wide scope to include commercial liability for an office policy or a florist or something along those lines.
Representative Barry Hyde
Unverified
22:32
Now you're beyond the purchaser of insurance qualifications, and I'll have to let Mr. Morris answer that. Okay. Because it was not just the insurance commission attorneys, it was the private sector attorneys,
and even some of the carrier attorneys acknowledged that this piece of case law was not, you know, in being used to settle litigation in the recent past as well as going in the future, that that would affect determinations by courts going forward. So it was their recommendation and their request, mutually of this legal community, that caused us to write it to be broad, in other words, to include all commercial liability lines.
And I guess I forgot the length of folks who've worked on this and support this is so long. A couple that I did forget were the legal
Speaker 89
23:26
community. Both the trial lawyers as well as
John Morris
Unverified
23:32
the bar support this piece of legislation. Representative, when we looked at the issue and we saw the court cases, is we saw that the courts weren't really limiting their application of defining the word occurrence to just contracting cases.
And so what our suggestion was, why don't we just go ahead and broaden it to apply to all commercial liability insurance policies. The companies retain their ability to exclude, should they choose that that's appropriate. it, and that way, you know, if we make this fix today and there are still other issues out there, that they can be handled by the market instead of having to come back to this body and ask for another tweak to something that we're doing today. So that was kind of the theory, I think, behind why it should be expanded to commercial general
liability generally instead of just contracting-related claims. MR. Okay. Thank you, Representative. Thank you, Mr. Morris. Thank
Speaker 102
24:28
you, Mr. Chairman. Okay. Are there any
more questions from the committee? Is there anyone in the
audience that would like to speak for or against the bill? If not, Representative Hyde, you recognize. Motion do pass. Okay. All in favor, let it be known by saying aye. Aye. Opposed, no. Representative Hyde, you pass the bill.
Unknown speaker
24:53
Congratulations. Thank you, Mr. Chairman. Committee. Senate Bill 5.
Representative Barry Hyde
Unverified
25:23
Thank you, Mr. Chairman. Today I just want to put the amendment on
Speaker 47
25:42
Senate Bill 5. Representative Wilkins has proposed his amendment to Senate Bill 5. All
Speaker 55
25:50
in favor of the amendment.
Please make it known by saying aye. Aye. Ayes have it. Anyone against the amendment? All right, Mr. Welkins, you have passed your amendment. Okay. Okay, we're going to take
Speaker 12
26:15
a break. Okay, that's all right. Okay. Y'all bear with us for a second.
Unknown speaker
26:25
We're going to take about a three-minute break. Thank you.
.
.
.
Thank you.
.
Thank you.
We are going to go back to our agenda.
President, you are recognized to present House Bill 1450.
Representative Barnett, you are recognized to present
your bill and introduce your guest. Good morning. Thank you, Mr. Chairman, and thank you for your indulgence this morning. I'm here today to introduce this House Bill 1450.
I have circulated this bill for several weeks now. It's probably one of the better, most vetted bills that's been introduced this session, and it's, like I say, the bill we've tried to circulate it to several groups and have input for quite some time, and so I just wanted to say that. I have passed out to the members this morning a green folder, and you will see in there
some information about the Arkansas Carbon Deoxide Storage Act. There's some very helpful information in there that I wanted to point out that the Council of State Governments, and most of you are familiar with the Council of State they have passed a resolution concerning CO2 sequestration, capture, transfer and
storage. You will notice also in here that NCSL has discussed this at length, and you will also
Also note that there are like five states who have passed some CO2 carbon sequestration legislation at some point or time or the other. You'll also notice that there are 17 states that are looking at similar type bills at this time. So in my opening comments, I just want to tell you that this bill will provide a legal a legal framework that encourages the advancement of carbon capture and storage technology and
allows the state of Arkansas to effectively regulate it. Knowing the ground rules, electric utilities and other industries will be able to move forward with projects to reduce carbon dioxide emissions, and as that technology becomes available, we can be prepared to address EPA climate change regulations, stay competitive with neighboring states that already have similar legislation and create jobs and what may develop into an industry. The U.S. Environmental Protection Agency is considering new rules to limit greenhouse
gas emissions, and we're all familiar with that. It's happening right now. Many in the electric utility industry have been working to develop economically and environmentally effective technology to capture carbon dioxide. carbon capture technologies will remove carbon dioxide from fossil fuels, coal and natural gas that burn to generate electricity. The carbon dioxide would then be stored in deep underground reservoirs for the indefinite future. Or it may be sold and shipped to companies that will use it for enhanced recovery of
domestically produced oil or natural gas. And that would require a pipeline similar to those used in the transport of natural gas and petroleum today. Arkansas has an economic as well as an environmental stake in carbon capture and storage and can set its own course with this bill rather than wait on the federal government or other states to effectively set the rules. The state will benefit from public policy that will promote reductions in greenhouse
gas emissions from an important energy source. Most are looking for ways to reduce greenhouse gas emissions like carbon dioxide, and many industry leaders see restrictions on these emissions coming sooner or later, one way or the other, so they would like to know what the ground rules are. Issues surrounding the regulation of carbon dioxide are a political reality. This reality has implications for the future of electric power production in Arkansas,
sustainability of existing business and economic and general welfare of this state and for future economic development here in Arkansas. After several years of study, the Interstate Oil and Gas Compact Task Force on Carbon Capture and Geological Storage produced a report in 2007 that identified key state regulatory and legal issues that would need to be resolved in order to support carbon capture activities. And Arkansas, by the way, is a member of the Interstate Oil and Gas Compact.
This report has been used as a foundation for this carbon capture legislative proposal in several states and forms the basis for the legislative framework proposed here today. The Arkansas Carbon Deoxide Storage Act is Arkansas's answer to the Interstate Oil and Gas Compact's proposal and will call and will keep Arkansas in the forefront as a leader in climate change and all other energy issues. The Interstate Oil Compact CCS Carbon Capture Storage Task Force produced an issue report
in 2005 that analyzed and identified key building blocks for the effective carbon capture storage program. Two important conclusions of this report were that states were the best choice for regulating carbon capture storage and their history and experience in regulating the underground storage of natural gas and the use of CO2 injection for energy EOR. Existing state laws and regulatory programs for the underground storage of natural gas
were appropriate models for regulating carbon capture and storage. The state of Arkansas enacted a natural gas underground storage law in 1957 and has been administered by the oil and gas commission since then we're trying to update this of course I I want I would like for you all we're going to I'm going to do some desks and gas in just a second and we'll start this conversation but I would like for each member here today to feel free to ask any questions to to us and the panel here to try to gain insight and answers on this piece
of legislation. Is this a perfect bill? Probably not. Is it a good bill? Yes, it's a good bill. We're talking about a legal framework for the future. Most of us in this room probably won't be alive when most of this actually takes place one of these days. This is actually an emerging technology. It's futuristic. It's just recently have, you know, have they, they're starting to, there are CO2 technology
on the capture side that exists. We'll hear some testimony from that today. It's got a long ways to go. There's a lot of science here. And a lot of this science has yet to be developed out. And so, again, this is not a capture bill. This is a bill to transfer that CO2 energy and then to store it, and CO2 sequestration. So with that introduction, I want to introduce Brian Bond, and Brian's with SWEPCO.
Speaker 119
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And Brian, Mr. Chair, if it's okay with you, I would like for him to make some comments.
Speaker 121
39:29
MR. That's okay with it, Chair. Introduce yourself, sir. MR. There we go. Mr. Chair, committee members, thank you very much for the opportunity today to speak in support of House Bill 1450, the Arkansas Carbon Dioxide Storage Act. There are a number of reasons why this legislation is essential. First, EPA, with the blessing of the U.S. Supreme Court, is moving forward with CO2
regulations, regulating industry. Just last week, state environmental agencies met with EPA to start the process of establishing requirements for the new source performance standard rules, which is a technology-based program that would require and establish standards for industrial sources and electric utilities. In December of last year, EPA finalized regulations under their underground injection control program establishing standards for the design, construction, operation, and monitoring of
CO2 injection systems. Second, the United States relies heavily on fossil fuels, including coal and natural gas, to generate electricity in order to drive our nation's economy. Although we would all like to see our energy come from renewable resources, the reality is that for decades to come that coal-fired generation will be the backbone to a strong economy here in the U.S. and in Arkansas along with natural gas playing an important role. In order to meet our nation's energy challenges, timely deployment of carbon capture and storage
technology is essential. It's absolutely critical. House Bill 1450 is a comprehensive framework modeled after recommendations from the interstate Oil and Gas Compact Commission and legislation that was passed in 2009 in the state of Louisiana that was later adopted by the Council of State Governments. The legislation in Louisiana was passed unanimously without opposition from any stakeholder groups, some that you may hear from today, and it also included the environmental groups.
Similarly, in Texas, we have passed carbon capture and storage legislation in the state of Texas, and last year the Texas Railroad Commission developed rules governing the injection of CO2 in the state of Texas. CO2 has been injected underground for enhanced oil recovery for decades. I mean, it's not anything new. House Bill 1450, however, can play a key role in promoting the use of CO2 to increase domestic oil and gas production, which with everything going on in the Middle East that we see, the
threat to the oil reserves, it makes it even more important. And so we know where we are there. It also will manage to keep jobs here in the United States, and we know how we need that. While Mark is here, Mark Allison, who will be introduced by Representative Barnett in a second to address legal considerations with the bill, I want to mention two components that are absolutely needed in the legislation, which may be somewhat controversial, but I
think it's good to have the dialogue on it and for us to have that discussion. The bill includes authority to exercise the power of eminent domain if necessary just like any other infrastructure projects like highway, rail, and utility projects. Property owners will be compensated if eminent domain has to be exercised and their judicial remedies remain intact under existing law today. The other component is the long-term liability and responsibility for management of CO2 that
is injected. CO2 injected will be stored for hundreds of years, making it necessary for the state to monitor and maintain these sites. As we know, most companies don't last for hundreds of years. There's a trust fund that is enabled in the legislation, if passed, that would allow the resources in order for the State to accomplish those tasks. We appreciate the consideration this morning. At this time, I'll turn it back over to Representative Barnett. Representative Barnett Barnett? Thank you.
May we continue, Mr. Chairman? You sure can. Okay. At this time, I would like to introduce and recognize Gary Spitznagel. Gary is with American Electric Power. He's out of Ohio. In fact, he's a chemical engineer, and if you don't hold it against him, he graduated at Ohio State University.
I think we've had some contact with him recently. But he is in charge of new technology development policy support and is currently focused on providing engineering and geosequestration support for CO2 capture and storage development,
R&D for generational environmental control technologies, and he's the technical lead on state and federal policy issues pertaining to power generation. And anyhow, and his resume is
also included in your package. So if I could introduce Gary, thank you very much. Gary?
Speaker 126
44:35
MR. Thank you, Mr. Chair, for giving me a time to
Speaker 127
44:39
share some of our experiences and the perspective on CCS. I put in your packet a slide presentation that has just a few pages that kind of goes
over the history of a kind of a CCS project from the beginning to end. So you can see where, first of all, the rigor that goes into designing and specifying a CCS project and all the science that is behind the scenes in making it successful. What AEP started back in 2002 was really very much at the forefront of the industry in adopting concepts that
were used for decades in the oil industry as far as exploration, identifying different types of formations and how they would behave, and taking those concepts and moving them into this new field of application, which is to ultimately store carbon dioxide deep beneath the ground, and we teamed up with the U.S. Department of Energy, DOE, and Battelle Memorial Institute and some others that are on this second page here in this handout that
kind of show you that we had some input on that, and what we were looking to do was to characterize the geology, understanding that in the region where these power plants are located up along the Ohio River is the densest area for coal-fired generation in the entire world. So if CCS were, in fact, going to be something that had to be deployed in the future, this was the area that really needed to determine whether it was viable and applicable at a
power plant setting and also to help answer some of those unknown questions. into this, so we certainly had the expertise from these other industries, but because it's not a direct transfer of knowledge in every way, there were certainly going to be some things that we needed to learn along the way, so it made a lot of sense to do that. And we began by drilling a 9,200-foot deep well at the mountaineer site in New Haven, West Virginia, right along the Ohio River, and we characterized each layer of rock from the top all the way down 9,200 feet to the bottom of the sedimentary layers.
with the purpose of looking for rock formations that are suitable for storing CO2 and also formations that are suitable for containing that CO2 underground. As you can see on the third page, I have some cutaway views of the different types of rock to explain, to kind of show and illustrate how you store CO2 in rock. And one of the misconceptions I find as I speak with people about this is CO2 and natural gas and oil are not in existence in large open caverns underground.
They're stored in the small, tiny pores of what appear to the eye as solid rock. And I'll hold up here and I'll pass it along for you to see. This is a sample of Rose Run sandstone out of the well that was drilled at the Mountaineer Plant. And as you'll notice, it seems to be a very solid piece of rock. under magnification and what these pictures show, particularly the two rock cutaways, the bottom right and the middle picture, are magnifications of this very rock with blue
dye injected. And what you see is the grains of rock, which are the beige or brown rock pieces of this picture. And then the blue is the actual open spaces in the rock. And that's where oil and gas exist in oil formations and oil wells. And that's where we propose to inject CO2 into those same rocks. Equally important is not just the capacity of the rock, but to be able to hold the CO2 underground. And that's shown here in this other rock I'll pass around to.
And you can see underground exists kind of in this formation where you have storage zones and then you have confining cap rocks. And you're looking for thicknesses of the storage zone, maybe dozens of feet or hundreds of feet thick, sandwiched beneath literally thousands of feet of impermeable rock that don't allow for the CO2 to pass through. So you want pores in your rock that have volume capacity for CO2 and permeability, so you can, permeability means kind of the resistance to flow.
If those pores aren't interconnected, you can't push fluid through them. So we're looking for rock that has the pores connected. That's known as permeability, and we're looking for the opposite of that, to confine it. In other words, seal rock, seal layers of cap rock that don't have permeability, don't have pores, and aren't fractured so that there's no pathways for the CO2 to escape. So it's very specific conditions that are necessary to store CO2. Those conditions do not exist everywhere.
There's very specific locations where they do exist, and they require this type of rigor to drill wells and do specific testing to identify them. So I'll pass these along, and you'll notice as you handle them, the storage permeable rocks feel kind of rough. You're feeling those pores in the rock versus the cap rock that's very, very smooth, and you'll even notice the density. The cap rock is much heavier rock. Another example that may be familiar to all of you are thirsty stone coasters that you
set your drink on a table on top of a rock, it looks like a rock that the sweat drips down the outside of the glass and seems to disappear into the rock. That's this sandstone rock that has that capacity to hold fluids. So all of you have probably experienced that in your travels, but that's the same kind of rock. So those are the conditions for storing CO2, and as I said, they don't exist everywhere. It takes very sophisticated, expensive, and time-consuming technology and efforts to identify
those exact conditions. I thought I'd also just give you a quick overview of how CO2 is captured, just so you understand when we're talking about CCS here, we're talking about capturing CO2 from a flue gas and pumping it underground either for storage or enhanced or recovery. And it's very expensive and takes a lot of energy. So I just thought I'd take a minute and show you this cartoon. The gas that comes from the power plant is known as flue gas. It has about 10, 11 percent carbon dioxide in that gas.
And that's the piece of the gas that we need to remove before we vent the flue gas when we're focused on capturing CO2. So we take that flue gas and as we travel from left to right across this diagram, we cool the flue gas to the right temperature so that the chemical reactions will occur. Then it goes into an absorber where we spray the flue gas with a chemical solvent or reagent that dissolves the CO2 or carbon dioxide out of the flue gas and literally there's a chemical
reaction where it binds the carbon dioxide into another form so that it can be removed from the gas. And then the gas then can be vented to the atmosphere minus the CO2. Now that reagent that we react creates a new chemical compound that then we send over to a regenerator where we heat it up and drive off the CO2, essentially reversing that initial reaction and creating a pure stream of CO2 then that's prepared for compression and sequestration. then that reagent is recycled and reused in the process.
So this is kind of a closed, it's known as a closed loop. You cycle this reagent, and you capture the CO2, and you create a pure stream of carbon dioxide that then can be compressed, and then it can be injected into the ground. There's more details on here, and I'd be glad to go into more detail if you'd like to, but that's really not the focus of this discussion, so I wanted to move on. As you can see on the next page, it's just an overview of the project that AEP began, and like I said, began really in 2002 with this effort to drill down into the ground
and take rock samples and do a whole spectrum of tests, nuclear magnetic resonance, to determine the permeability of the different rocks and many, many sophisticated instruments lowered down into this well to study that rock formation. When we determined there was zones, and the one that you guys are handling as we're passing it around, zones for storage capacity and also zones for holding it down, we decided to do a demonstration at a small scale of this capture technology, combine it with the
storage, and literally establish the world's first integrated capture and storage project to demonstrate CCS at one site at a power plant. And notice we're starting small, and I really need to emphasize that. This is not the case where you take something that's known in the oil industry and you just adapt it at commercial scale and jump right in at full scale and say it's ready to go. We really have a very deliberate approach to do it in small stepwise fashion to verify the technology's work at a sizable and reasonable scale before we go to commercial scale.
So with about a $100 million investment that was funded through private funds that included AEP and some other partners, we built a small 100,000 ton per year CO2 capture plant and started it up at the end of 2009, and we've been injecting CO2 under the plant property into these deep 8,000 feet deep formations for over a year now and have been monitoring that CO2 and verifying that it is staying put where it's intended to.
We've got computer models that simulate that injection, and we're tuning and verifying those models as well to ensure that the knowledge we gain from here, then, can be applied at larger scale. This next page really shows conceptually how a sequestration system may be designed, and in fact, this is an exact drawing representing what's done at the Mountaineer plant. We have two wells in this picture that are pictured as red lines.
They're the two injection wells independently pumping CO2 under pressure into these lower formations. When I say pressure, we're talking about down here at these formations, when you drill down, there's pressure because of the weight of the earth pushing down on the formation to the point where it's about 4,000 pounds per square inch pressure right now. And in order to put CO2 into those formations, we have to increase the pressure enough to drive the CO2 into the rock.
So we're injecting at about 4,200 PSI pressure, so about 200 additional PSI to create the flow of CO2 into the rock. Now, some of the tests that were done before we designed injection were to determine the fracture gradient. In other words, at what pressure do you fracture or crack the rock? And in many tests, we determine that, and then we set the design of this system such that we never approach that fracture pressure.
So we have, and it's part of the permit, a range of pressures we can inject at, and we don't exceed that. And then you can see there's other wells, these blue wells. There's actually three of them that are monitoring wells where we've drilled full depth, and we're taking fluid samples, measuring pressure and temperature, and verifying exactly what's going on in those formations at different distances away as we inject CO2. And then you can see other various types of testing that's being done to ensure the CO2 is confined where it's put
and that we understand how far it spreads underground over time. And all those instruments then and all this technology is really wrapped up and what was put into the EPA's Class 6 regulation on regulating injection of CO2. Moving on then, to date we've put over 15,000 metric tons of CO2. That was at the one-year anniversary. We're well beyond that now. We have over 25,000 tons of CO2 in the ground, and the process that does this, the capture
system started out as an R&D scale project, so it started out very unreliable when it was up and down capturing. It's now very reliable. We've worked out the kinks and the bugs, and we have a system that's very reliable, essentially 100 percent of the time, and we're capturing 90 percent of the CO2 from this small test facility and putting it into the ground. And building upon that, as I've tried to emphasize, we take it in sizable, reasonable steps to maintain a good understanding of the technology as we scale it up.
We have proposed to the DOE and received a 50 percent grant from the U.S. Department of Energy to scale it up to commercial scale, capturing a million and a half tons of CO2 a year and sequestering it in the ground. That project, as I said, these are expensive projects. This one is estimated at just short of $700 million, and the DOE is committed to $334 million to cost share match that project. And as you can see towards the bottom, I think it was really important to the DOE that we
did this, and it's important for your panel to realize that we're not doing this alone. It's not just a utility doing something new that utilities don't normally do. We've involved experts from literally around the world to come in and advise the design, the concepts behind it and how we do it. And we have an expert team with Battelle and Consol and a number of universities, including University of Texas and MIT and Ohio State and West Virginia and Virginia Tech. We have the national labs, geological surveys.
We have a group of gas explorers from Germany, RWE. We've also involved the Clean Air Task Force, so we have some environmental representatives that can weigh in on how this is done, help with the strategy, and also understand more realistically how technically you do a project like this, and we meet periodically face to face, and that's a big part of our project. So that project's underway. We expect to be up and operational in 2015.
With that, there is one other handout I just want to reference for your review later, and it's this one. It shows the map of the U.S. It's just listing the different DOE projects that are being funded at commercial scale so that you can get an idea that it's not just coal plants. We have, let's see, ethanol plants and other industrial processes that produce CO2, and they're testing both the reservoir, saline reservoir that AEP does, and they're also testing enhanced oil recovery practices.
And for your information, you can look through it at your leisure, is a map on the next page of the natural gas pipeline network as it exists today and 305,000 miles of major pipelines. And it is said that as CO2 becomes, sequestration becomes more and more prominent that the CO2 pipeline network that would be required to move CO2 from the sources to the good saline sites may resemble this in scope and scale, so it kind of gives you an idea.
The next slide shows you a map of the U.S. with existing CO2 pipelines to illustrate that this is not a new concept. There's over 3,600 miles of CO2 pipeline in existence today, and some of that has been operating for longer than 30 years. So the pipelining and transporting of CO2 and compression is nothing new. It's been used in oil recovery for years and years. And finally, for your perusal at your leisure, it's just a breakdown of the cost of CCS added to different types of power plants just so you can get an understanding of what goes
into it and the cost associated. With that, I'd certainly appreciate your time and be glad to answer additional questions and turn it over to Mark at this point. Thank you very
Chair
Unverified
1:01:18
much. MR. Representative Woods, you'll recognize the question. MR.
Representative Jon Woods
Unverified
1:01:22
Thank you, Mr. Chair. Representative Barnett, and I'd like to say to all the utility companies, I applaud what you're doing and that you're taking it upon yourself and making it your own initiative. But I do have a couple questions here.
I saw on page 14 and 15 that it talks about eminent domain, and that phrase in the state of Arkansas is about as popular as wearing an LSU t-shirt to a Razorback football game. I just wanted to, in your case as an out-of-state as far as the compensation to landowners, Who all, from what you've seen in other states, are the individuals that would have most of the pipe going through and whose land and where would these storage facilities mostly be concentrated?
Are we talking about through the shale, through mostly central Arkansas? That's a two-part question. Where would most of these be located, where eminent domain would be used? And then what's your experience in other states as far as fair compensation? is I'm probably watching out more for other legislators' constituents rather than mine. I don't think I'm going to have a big issue in my neck of the woods, but I do think it's fair just for all our Arkansans to know what this will do as far as a land issue and a property rights issue.
Speaker 127
1:02:45
I guess I can handle as far as the physical location of the storage reservoirs, and we have in the packet here also an excerpt from the U.S. Department of Energy's CO2 Atlas. that describes the potential storage areas around the U.S. And as far as Arkansas is concerned, most of those zones in this state are in the southern portion of the state. So if CO2 were to be transported and stored within the state, they would be in the southern portion. But more than likely, some of the early movers would be able to take advantage of business opportunities
to work with oil producers for enhanced oil recovery, and I know those would direct pipeline that CO2 into down southern regions and towards Texas and those areas. I
Speaker 121
1:03:36
would also add that there's a naturally produced carbon dioxide that Dinberry is capturing, and they're transporting that from Mississippi across Louisiana into Texas where there's oil reservoirs that they're using it for enhanced oil recovery.
To the extent possible, I know they used a lot of existing highway right-of-way. You could see as you go along 190 in Baton Rouge, they used that. But without a doubt, there probably were private contractual issues with property owners to try to route that line much like you would any kind of transmission line for an electric utility facility to the extent that you could work out the arrangements and work with property owners to define a route that was, if you will, less controversial. It's obviously in your best interest to do that.
But to the extent that you might have one property owner out of several that maybe didn't want to go along with it, didn't like it, then in those rare exceptions we have the eminent domain like we do now for existing infrastructure. And then you would work through the Oil and Gas Commission to work those issues out. And, of course, those property owners also have their judicial rights under existing law that they would be able to execute on. So as far as compensation, I'm unaware of what any dollar value that's been assigned to that.
I don't – most of that's been probably private contracts between a company like Denberry or the oil company that's trying to get the CO2 to another location. So I don't have that information. Right,
Representative Jon Woods
Unverified
1:05:14
and I understand that. I appreciate you answering that. I had a call from a constituent, and I can't find it anywhere in the bill, but is there the phrase, a 10-year period, ring a bell, as far as in here, as far as liability, or can you, where is that?
I'm trying to find, I picked this bill apart, and I'm trying to,
page 19. Representative Woods, if you would indulge us just a second more, we have one more presenter here. It's Mark Allison, who's an attorney here in Little Rock, and he's been practicing various aspects of environmental law for the last 20 years, and he's going to address some of these legal concerns, and some of this may be answered, and if it's not, you can ask it again here in just a second, but if you would indulge,
Speaker 119
1:06:04
Mr. Chairman, I've got one more person here to go ahead and give some testimony, if that's
Speaker 131
1:06:11
okay. Okay. Mr. Allison, you'll recognize, state your name and who you'll represent. Thank you. My name
Mark Allison
Unverified
1:06:17
is Mark Allison, and I'm an attorney. I practice for the law firm of Dover Dixon Horn here in Little Rock. I've been practicing law in Arkansas since 1985. I'd say for the last 20 years, a substantial part of my practice has involved various issues of environmental law. I was asked some time ago to take the Interstate Oil and Gas Compact Commission model statute
and try to see how that would work in Arkansas and develop an Arkansas statute based on that model. And that's what House Bill 1450 is. In thinking through that, we need to understand that what we're trying to do here is to develop a legal framework for how you capture carbon dioxide, how you transport it, and then how you inject it underground and store it.
Why are we doing this? Well, we're doing it because these regulations are coming down the pike, And at some point, this is going to have to be done. The Interstate Oil and Gas Compact Commission, as Representative Barnett and Mr. Bond mentioned, is a group of 34 state oil and gas commissioners. It also includes three Canadian oil and gas provincial commissioners. And they started several years ago recognizing that the techniques that could be used,
that were being used for enhanced oil recovery, where you take carbon dioxide and inject it to produce additional oil, that those techniques could also be used possibly for injecting CO2 and storing it indefinitely. and that that would be a good solution to the issues of reducing carbon emissions into the atmosphere. In fact, I think there are reports that say that CCS is probably the most viable and promising technology for doing that.
So the IOGCC, and there are lots of abbreviations, but the IOGCC began studying this. They produced an initial report in 2005 to try to determine can we, in fact, move forward with this project. They decided that they could because this regulatory and legal framework builds on existing statutes and regulations that were already in place for enhanced oil recovery.
They had lots of experience in that. They determined that states were the best choice for regulating this because of their experience and that those laws and regulations could be adapted for carbon capture and storage. After that 2005 report, they had another task force where they actually added folks from the EPA, the Department of Energy, and also from the Environmental Defense Fund. And they produced a larger report in 2007 that actually had a model statute, which is what I took and used to try to produce House Bill 1450.
In that 2007 report, the Interstate Oil and Gas Compact
Speaker 131
1:09:43
Commission said there are several principles that are critical in order to be able to do this process, critical to the legal framework for this process. First of all, they
Mark Allison
Unverified
1:09:57
said it's important that the state recognize that carbon dioxide is a resource and not a waste. In their example, carbon dioxide has uses all over the place.
You wouldn't believe some of the things I found out in studying this. They use carbon dioxide to make decaffeinated coffee. Your soft drinks are going to have carbon dioxide in it. When you bake bread, the yeast in the bread produces carbon dioxide and causes the bread to rise. If you've got little pop guns, they'll have carbon dioxide canisters that you can go to Walmart and buy. And, of course, they use it for enhanced oil recovery.
But these kinds of things are all over the place, so they recognize that it's important to recognize this as a resource and not as a waste. A second principle was that the states are best suited for regulating this because of the presence of state law issues, including the issues of eminent domain, who owns the poor space, and those kinds of things. They said it was also important to determine a lead regulatory agency so that you can have a coordinated effort.
That doesn't mean that you necessarily exclude other agencies, and in this bill we've preserved the jurisdiction of the Public Service Commission and the Arkansas Department of Environmental Equality and the Pollution Control and Ecology Commission. Another principle that was critical was that there had to be a method to gather together all the property rights for the transport and storage of the carbon dioxide.
These facilities, especially the storage facility, is probably going to be large, and in order to successfully do it, you're going to have to have a way to gather the property interest in that pore space, gather that together so that you can inject the carbon dioxide into this rock and spread out horizontally. They said it was critical to develop a long-term monitoring and liability scheme.
Now, one of the things that they also mentioned, and I believe there are some other reports from EPA and others, that people are going to have to have incentives to do this. And Gary has already talked about how expensive it is. People are going to have to have incentives to do this. And some of those incentives include what's going to happen ultimately with the operation and monitoring of the facility after the injection is complete.
I mean, the intent here is to store this stuff dozens, hundreds of years. And there has to be an answer, a mechanism for allowing that to happen, to have someone who can monitor that. And the answer was the state, the sovereign ought to have that. So there's a provision that after a period of time, the ownership and operation and monitoring is transferred over to the state. Well that raises the question of who's going to pay for it.
And so the Interstate Oil and Gas Compact Commission said, well, you can create a trust fund. And that's what we've done in this act as well. As the carbon dioxide is injected, there's going to be a fee charged on every ton that's injected. That money is going to go into a trust fund that will exist after the site is closed to buy insurance, to take care of issues that might arise, to continue with monitoring. And then they also recognized that these storage facilities are not going to honor state boundaries.
I mean, they're going to not stop at the state line. And so they felt it was important to have the ability to have cooperative agreements with other state governments so that if you had a storage facility that perhaps went into three different states, you would have some coordinated method to regulate that facility. So those were the principles that came out of the 2007 report. Those are the principles that are in 1450, and I can go through that in a minute and kind of show you where those show up.
I did want to talk a little bit about some of the developments since the 2007 report. In your packet, there's a resolution from the Council of State Governments that said, recommended the model statute that the Interstate Oil and Gas Compact Commission had adopted. You've heard discussion about Act 517 of Louisiana, which also was modeled on the principles that came out of that 2007 report.
Last year, the Federal Interagency Task Force for Carbon Capture and Sequestration issued a report in November, and we've had three important rulemakings which really drive what's going on here. First, last year, the EPA adopted its mandatory greenhouse gas reporting rule. That became effective in Arkansas and every other state in January of 2010, and at the
end of next month, industrial facilities are going to have to submit their first reports to the EPA about their greenhouse gas emissions during 2010. The EPA also issued its greenhouse gas tailoring rule, which became effective in Arkansas in January 1st of this year and under that rule industrial facilities and power plants are going to have to start considering ways to limit their greenhouse gas emissions and so
facilities are having to take steps to address those issues now. In December of last year EPA issued its underground injection control class six well program. The underground injection control program is a program under the Federal Safe Drinking Water Act. It regulates the injection of materials into the earth to protect underground drinking water or underground water sources from contamination.
There are several classes of wells, this program has been around for some time, and last year in December EPA issued a new rule regulating what are known as class six wells, which are specific wells for the injection of carbon dioxide. And that rule has got a number of stringent requirements. The bill as drafted would authorize the Arkansas Department of Environmental Quality and or the Oil
Speaker 131
1:17:24
and Gas Commission to seek approval to operate that program in Arkansas.
Just for example, the EPA Class 6 rule has requirements for site characterization,
Mark Allison
Unverified
1:17:41
for area of review and corrective action, for injection well construction, for Class 6 injection Injection depth for injection well operation, for testing and monitoring, a testing and
monitoring plan, carbon dioxide stream analysis, mechanical integrity testing, corrosion monitoring, groundwater geochemical monitoring, pressure falloff testing, CO2 plume and pressure front monitoring, tracking, surface air, soil, gas monitoring, well plugging, post-injection Injection site care and site closure, injection well plugging, post-injection site care, site closure, financial responsibility, emergency and remedial response. So it's a pretty comprehensive and stringent regulation that would, and that regulation
is going to go into effect and is incorporated into House Bill 1450. One of the things, so the point is that
Speaker 131
1:18:56
EPA regulations are driving this project, this statute. So we've got the bill. I'll just go
Mark Allison
Unverified
1:19:07
through the sections real quick.
I think Brian mentioned that there's been an underground natural gas storage act in Arkansas since 1957. The purpose is to allow gas companies to store natural gas. It has eminent domain provisions that have been there since 1957, so what we did was we took this bill and stuck that right in behind that section in the Arkansas Code. Section 1102 of the bill has legislative findings, says it's prudent to allow carbon dioxide
geologic storage, it's feasible to store carbon dioxide for long periods of time. It recognizes there's going to have to be implementation of the Class 6 well under the Safe Drinking Water Act, and it recognizes that liability issues would have to be addressed. Section 1103 has several definitions, including for a transmission pipeline to get the CO2 the facility to, I'm sorry, from the source of the CO2 to the storage facility.
It's got a definition of storage operator and several others that are important. Section 1104 is the jurisdictional section. It recognizes the oil and gas commission as the primary regulatory authority, but also recognizes that ADEQ and the Public Service Commission, as far as pipeline safety is concerned, have a role to play in this and preserves their jurisdiction. Section 1105 requires a certificate to be issued by the Oil and Gas Commission before
one of these storage facilities or a pipeline can be built. And there are several criteria that have to be shown. One thing that I think needs to be pointed out is that before the commission can issue a permit, it would have to find either that there are no remaining oil and gas or minerals in the storage facility or that the
Speaker 131
1:21:22
owners of the facility have agreed to that use.
There's also a – I'm sorry. It's fine. That's
Mark Allison
Unverified
1:21:30
fine. There are several other provisions in here. There's a, in your packet, there's a summary, and I'll be glad to answer any questions about the bill. Thank you so much. Are there any questions?
Representative Woods, you recognize because you were at a continuation of your question. Thank you very much, Mr. Chairman. And I
Representative Jon Woods
Unverified
1:21:51
want to thank you for going into detail. Well, I didn't mind you going as long as you did because every time I had a question, you hit it.
But there was, let's see here on the 10-year part, the transfer of ownership, page 19. You were explaining that once the CO2 is going in the ground, there will be a fee on the amount, and then that amount goes into a trust fund to help sustain the cost of the facility. Is that for the period of 10 years?
Speaker 131
1:22:28
Well, the way it's supposed to work is that as the CO2 is injected,
Mark Allison
Unverified
1:22:34
during the injection period, the operational costs are going to be carried by whoever the operator is. But as part of that cost, there's going to be a fee charged for each ton that's injected. That fee will go into the trust fund. So after the injection is complete, there's going to be an additional period, and the default here is 10 years, but there's going to be an additional period during which there's going to be monitoring of the facility to make sure it's okay and stable.
And then after that 10-year period, the operator can apply to the Oil and Gas Commission for a certificate of closure. And they're going to have to have a closure plan. They're going to have to show that they've done it. and if the commission is satisfied that the facility is okay, at that point it would issue a certificate of closure. The ownership would be transferred then to the state, and that trust fund would then be there to pay for the monitoring that would be done at that point. Sure, and
Representative Jon Woods
Unverified
1:23:38
I think this is one of my last questions at this time.
The closure time period application of 10 years, is it longer in other states? I mean, 10 years seems like a short period of time. I mean, do our other states, do they have a 20-year, I mean, it's kind of like after 10 years, it's not our
Mark Allison
Unverified
1:24:00
problem anymore, it's the states and the taxpayers. The statute, I'm sorry, the statute says the storage facility may apply no earlier than 10 years. Now, I believe that the EPA rule actually has a much longer period.
I think it has, it may be a 50-year period. But the EPA rule also recognizes that that could be, you could have less than 50 years if there was a
Speaker 133
1:24:20
proper demonstration made that the facility was stable. Sure. I just think, my concern is just that I feel like a
Representative Jon Woods
Unverified
1:24:26
decade is just a really short period of time right now, but that's all the questions to have for right now. Thank you.
Representative Warlow, Representative Wren, do you recognize the question? Thank you,
Representative Jeff Wardlaw
Unverified
1:24:53
Mr. Chairman. My question goes back
Speaker 139
1:24:56
to what Mr. Woods asked. My concern is that if you apply for closure of this, you're basically telling the state then, well, it's your liability now, but we've got some funds set aside to monitor that. And then on page 19, line 4, it says,
In no event shall money in the storage fund be transferred to the general revenue fund account. So basically you're telling the state we've got a trust fund, but that money has to stay in there, and it can only be it's
Speaker 131
1:25:36
at our discretion. So could you comment on that, please, sir? I think the intent there
Mark Allison
Unverified
1:25:41
was that the money that was intended to be used for the trust fund to deal
Speaker 131
1:25:48
with monitoring and any other maintenance that needed to occur after the facility was closed
would stay in the trust fund, and it wouldn't be used for any other purpose. And
Speaker 139
1:26:02
I understand that, sir. But, you know, basically, and I see why you're doing that, but then you're also saying, well, we want to close this, and we want you to be, we want the state to be, to have the liability now of that. So I don't see how you can say, well, we're going to close this,
and we want it to be your liability, but that money can only be, can only stay in that fund. Well, I
Speaker 131
1:26:34
think the answer to that is that the money in that fund is not just for monitoring,
Mark Allison
Unverified
1:26:41
but also if there was some sort of claim that was made, the money in that fund could be used to buy insurance to pay for those claims. That money could be used to pay for those claims directly. And even though the liability is transferred at the closure, if there was liability that arose or existed before closure, that would still stay with the operator.
The liability that the state would have is only the liability that arose after the certificate of closure was issued. I don't know if that answered your question or not, but thank you. All
Speaker 133
1:27:18
right. Representative Hyatt, do you reckon I asked for a question? Thank you, Mr. Chairman. We're kind of
Representative Barry Hyde
Unverified
1:27:33
stuck in one area here, but I'm going to ask a couple of questions, too, and I'm trying to read through this as quickly as I can.
You've made reference several times now on a certificate of closure or
an application. Is that what the bill refers to as a certificate of completion? Yes. Okay, so the accurate term is certificate of completion. You're just interchanging the two.
Speaker 131
1:27:59
And I think the EPA rule may actually use a closure plan, and that's my fault. But we're
Representative Barry Hyde
Unverified
1:28:05
talking about the same thing. Yes, sir. Okay, so I'm trying to get a little better idea of this timeline. And if I'm reading this right, is so you, you know, you find this area that's favorable to do this storage
and you do all this work that's involved of running pipelines to feed the material into the reservoir, so to speak. And that could easily or probably likely be a long span of time that you would be pumping into this facility, I'm assuming. Is that correct? I mean, is this generally a three-month
operation, or is this a three- to 12-year operation? No, I mean,
Speaker 127
1:28:47
you would design these systems for the life of the facility. So you would inject for multiple years, either until you've filled up that local reservoir
and have to drill a new well some distance away, or you continue to feed into that well the whole time. But these are operated for long periods
Representative Barry Hyde
Unverified
1:29:06
of time. And so a long period of time being 50 years? Could be 50
years, yes. Okay. When we talk about a certificate of completion, we talk about each well or the facility. Because it sounds like it's a field. It sounds like it's a series of wells in a close proximity, geographical proximity.
Is that correct? And I'm assuming you would because you would find these formations would be likely in the same general area. Plus, you'd have the equivalent of
Speaker 127
1:29:39
collection lines or collection pipelines that have to feed these things, right? Each well in the system would be operated independently and closed independently, but the facility would encompass currently operational wells and already closed wells throughout the life of the injection project.
Okay. Okay, so we'd have the lifespan
Representative Barry Hyde
Unverified
1:30:00
of well A, so to speak, that would be some period of time, at least several years, and it would be after you had filled that to capacity and had monitored it for some period of time. Then you would apply for a certificate of completion for that well, and it would be 10 years before
that would be granted or your liability would run out another 10 years. That's what I'm trying to figure out. I mean, the 10-year time clock doesn't begin the day you show up and start drilling, does it?
Speaker 127
1:30:34
No, it's post-injection, post-stabilization. So you have to show that the CO2, it will move for some period of time outward until all the pressures stabilize, and then the CO2 that you put in will stop moving. And the time starts after that stabilization period. Okay, so
Representative Barry Hyde
Unverified
1:30:57
the 10-year starts after that point of stabilization. Is that right? And generally, I'm...
Speaker 121
1:31:05
That's the intent, is that after you've completed, you're no longer injecting CO2 into a facility, that 10 years, after 10 years, the injection operator may apply for the certificate of completion. So it's after you basically terminate all activities at the site as the way it's envisioned, you know, for that particular injection site.
Speaker 133
1:31:34
And even though there's a 10-year period,
if the Oil and Gas Commission was not satisfied that the stabilization was not complete, they wouldn't have to issue the certificate of closure. Right, and I understand that. And I'm
Representative Barry Hyde
Unverified
1:31:49
just trying to get a picture of what this time frame is. And so it's after you
satisfy the Oil and Gas Commission that this 10-year period begins, right? Doesn't it say a minimum no earlier than 10 years? Am I misreading
Speaker 133
1:32:04
that? It says no earlier than 10 years you may apply for a certificate.
And then at that point you would make that application. The Oil and Gas Commission would have to decide whether the facility was ready to be closed and if it was satisfied that it was, then the certificate of
Representative Barry Hyde
Unverified
1:32:24
closure would be issued. Okay, so you may pump into that facility or that well for some period of several years, then let it migrate to whatever extent I guess it's going to migrate. Then you'd make that application, but in no case would you own the liability of that well
for any less than 10 years after you were finished with that particular well.
Speaker 136
1:32:50
That's right. The liability is going to stay until the certificate of closure
Representative Barry Hyde
Unverified
1:32:54
is issued. One more quick question, if I can. Go right ahead, Mr. Kyle.
Somewhere else in here, and I should have marked it better, something. You know, the fee you're going to collect is going to accumulate to a max of $5 million. Did I get that right?
Speaker 144
1:33:10
The fault is $5 million per storage facility. Okay. So is per storage facility means per well?
Speaker 159
1:33:16
No, I think that's per storage facility. Meaning per field of wells. Yes. Is that consistent with other states who have
Representative Barry Hyde
Unverified
1:33:30
already maybe approved these laws? And the only reason I say that is being involved in development projects a little bit and stuff and having grown up also in Ohio. Go Bucs. I can remember some of the Superfund sites that we had up there from heavy metal manufacturing and whatnot.
You know, boy, I don't think $5 million opened the gate. I
mean, and, you know, I'm assuming there's still some uncertainty to
Speaker 121
1:33:59
what we're doing. I mean. In Louisiana, $5 million was what was included in the legislation. in the legislation that you have before you, there are provisions where if it's determined by the commission that that's not sufficient, that they can require additional money in the trust fund through regulatory rulemaking.
So it's set up to be flexible. And, you know, once you get into these operations and we know more about it, But I'm as sure as we're sitting here today, I'm sure there will be many amendments to the law to address issues that we maybe don't envision today that we see in the future. Is there any state you know of that has a trust fund amount of more than $5
Representative Barry Hyde
Unverified
1:34:41
million? Not that I'm aware of. Okay. Thank you. I appreciate it. Thank you, Mr. Chairman. Representative Carmine, do you recommend I ask for a question?
Representative Les "Skip" Carnine
Unverified
1:34:56
Thank you, Mr. Chair. At least as I've tried to listen to this and I've read the bill, there's no question in your mind that with the EPA regulations that we have to come up with a carbon capture technology. Did I, is that part of what you've said? I mean, I want to make that clear, but it looked like to me it was, the point was that EPA envisions, not just envisions, but not just suggest, you're going to have to come
up with something for carbon capture. Is
Speaker 147
1:35:37
that? Yes. Absent a solution, all fossil fuel usage would have to end. Well, that's
Representative Les "Skip" Carnine
Unverified
1:35:44
what I understood. I thought I understood that before you made your presentation, but I wanted to make that fairly clear. You also used a term on several occasions, you said this was going to be expensive. In other words, without this, it's also going to be expensive, correct?
Speaker 127
1:36:04
Yes, and I didn't bring that graphic. I did provide a graphic that shows the added cost to the power plant and the cost of electricity, but the Electric Power Research Institute published a study that showed two scenarios out into the future. One is with CCS as an option, and one is without CCS, which means use of coal and fossil fuels diminishes dramatically and nuclear and other things take their place. And the solution with CCS proposes a long-term cost of electricity increase of roughly 90 percent.
Without CCS, roughly 250 percent. So the analysis that we have seen always shows CCS as being the most economical, yet still expensive
Representative Les "Skip" Carnine
Unverified
1:36:51
solution. MR. Well, I wanted to make that point. I guess I had understood that this was probably the most economical in terms of the consumer, as that aspect of it. And then finally, when do you envision, let's say that we have already got this passed,
the governor signed it. When do you suspect that all of this is going to transpire or at least be part of the Arkansas solution? Is it 2015? Is it 2018? Where are we with this?
Speaker 121
1:37:35
You want me to take a step? My opinion is that probably within the next five years we will have a need to apply for
either a permit and or the ability to transport carbon dioxide through the state in order to get it to oil fields for enhanced oil recovery. And I would say that as far as the technology being commercially available so that industrial sources are actually installing it, you're probably looking at anywhere from, I would say, 8 to 10 years out. And, Gary, would you
Speaker 127
1:38:10
agree with that? Yeah, I would agree with that. I mean, assuming, and that's all assuming that the current set of projects that are designed to commercialize the technology get completed.
You know, if there's delays in that funding from the DOE or other reasons, that number may
Speaker 164
1:38:27
move out. But on the current trajectory, 2020 timeframe for commercialization is
Representative Les "Skip" Carnine
Unverified
1:38:32
probably reasonable. Okay. Okay. And that, again, I thought I understood that aspect of it that we're talking some time out, which would give the legislature and others opportunities like you. We always talk about unintended consequences. We've not been able to envision all aspects of it. Since this is enabling legislation, there will be opportunities to fine-tune it, correct?
Yes, sir. Thank you. Thank
you, Mr. Chair. Representative Warnlow,
Representative Jeff Wardlaw
Unverified
1:39:05
you recognize the question. Thank you, Mr. Chair. Let's go back to intimate domain for a minute. Why would a storage operator of this carbon storage underground need to take surface rights and subsurface? Well,
Speaker 154
1:39:23
the actual facility itself is going to require some footprint to hold
Speaker 121
1:39:28
the equipment that's used for the injection process, you know, right of ability to get in to deliver the, you know, be a pipeline, have a pipeline coming into these sites where there it will be injected underground. So imagine a natural gas pipeline and associated fields like you see throughout the state, and you're probably looking at something like that. Okay. Thank you.
Any further questions from the committee? No. Representative Wesson, you
Representative Bruce Westerman
Unverified
1:40:09
recognize the question. Thank you, Mr.
Chair. Representative Barnett, I'd just like to take a moment to say thank you for bringing this legislation to us. I'm a co-sponsor on
this bill because I think it's exciting that we're actually looking at technology and using American ingenuity to solve a problem, and I know that currently
pollution control equipment on flue gases is usually just a sunken cost, but you're looking at ways to use the CO2 that you capture in other processes, and I think that's a good thing. I do have several technical questions and actually a whole few sheets of questions here that I've had as I've been trying to understand this bill better. But first off, on the technical side, what's the recovery factor of this technology?
You've got so much fixed carbon in the coal. How much do you actually
Speaker 127
1:41:11
capture out of the flue gas when you scrub it? Well, the technologies seem to find 90% to be a reasonable number. Once you start getting much above 90, the costs go up substantially from where they
Representative Bruce Westerman
Unverified
1:41:24
are at 90. And how pure is the CO2
Speaker 127
1:41:27
that you get out of the? Oh, it's very pure. What comes out of the process we're running is about 99.7% CO2, so it's very pure.
There are a number of small systems around the world that capture CO2 from coal, flue gas, to use it in the food industry. So it doesn't take much to go from where we are up in West Virginia to food-grade CO2. It's just another step of a little
Representative Bruce Westerman
Unverified
1:41:54
bit of cleaning. But that would be a very small volume compared to the, I think you took a
Speaker 127
1:42:00
20% slipstream. Yeah, ours is about 1.5% now, and we would expand it
Representative Bruce Westerman
Unverified
1:42:05
to close to 20%. So even with a large volume, you can reach those levels with the scrubber technology?
Yes. Okay. what's the pressure that you store the material in the underground wells? Well, it has
Speaker 127
1:42:19
to exceed the pressure in the formations now. And in most cases, you're looking at 4,000 to 4,500 pounds per square inch is going to be the required pressure to get it underground. And at those pressures, the CO2 exists as a liquid, kind of like a liquid. It's called supercritical because the temperatures down there are high enough
in the pressure that it's actually kind of a compressible liquid, but it's a liquid, and it would stay at that
Representative Bruce Westerman
Unverified
1:42:50
pressure and condition indefinitely. Okay, so in the pipelines for transporting, what pressures are you running
Speaker 127
1:42:56
in those pipelines? The national network that exists now, kind of on this map I showed, they're around 2,000 to 2,200 pounds per square inch. So that would probably be a fairly standard pressure. Some injection wells might require a little bit higher than that, But that's order of magnitude, 2,000 is probably a reasonable number.
Representative Bruce Westerman
Unverified
1:43:15
And is that in line with, like, natural gas transmission lines?
Speaker 127
1:43:19
It's very similar, yeah. So you have the same
Representative Bruce Westerman
Unverified
1:43:22
types of materials. So all the safety standards and codes that would apply to natural gas lines would apply to these transmission lines as well? They're
Speaker 127
1:43:30
very similar. I mean, the 3,000 miles that exist today have their own set of standards, and they're very similar to natural gas. Okay.
Representative Bruce Westerman
Unverified
1:43:40
And if we're talking about bringing this CO2 in from various sources, do you have an idea of how much we would be storing in Arkansas from in-state sources and how much from out-of-state
Speaker 127
1:43:51
sources? That's a really good question. I haven't done that analysis
Speaker 121
1:43:56
to see how that breaks down. In South Arkansas, there is the storage potential for CO2, not in all parts of the state. However, you'd have to go in under the EPA rules and under the rules that would be established by the Oil and Gas Commission here to define, you know, what is suitable for storage. In other words, it's got to have the right geology before you operate a facility there.
So you'd have to go through a study to determine, first of all, does it meet the standards? Is it viable? So there are, right now, within the state of Arkansas, there is the potential for several sites. I forget how many thousand million metric tons it is, but it's a lot. But each site would have to go through its own rigorous analysis to determine if it was suitable. A typical power plant would emit, an average-sized coal plant would emit probably in the area of 5 million metric tons of CO2 in a given year.
And so, you know, you've got along the Gulf Coast, Texas and Louisiana, you probably have 500 or plus years of storage capacity to take all of the CO2 that would be generated by the power plants today in the U.S. and store that in the saline aquifers along the Gulf Coast. Okay, so
Representative Bruce Westerman
Unverified
1:45:23
do most states have the rock formation that you could use to store the carbon dioxide, or do
we have something in Arkansas that's unique from other
states that might create an economic opportunity for us?
Speaker 127
1:45:37
MR. Certainly a lot of states have none at all, and then others have a little bit. So it is unique to certain regions of the country, and this particular piece of the packet that you have from the U.S. Department of Energy, National Energy Technology Lab has an assessment of the different storage zones and it compares them to the sources. So there could be opportunity to bring CO2 into the state if that were something you
Representative Bruce Westerman
Unverified
1:46:06
wish to do. So I'm assuming if you're building a large cross-country transmission line, are you targeting areas that already have oil since this could
be used in the oil drilling? In the ideal scenario, you
Speaker 152
1:46:24
would find a power plant or industrial plant.
Speaker 121
1:46:28
You would install the carbon capture technology, and then you would be in the proximity of an existing oil or gas reservoir
where you could pipeline the CO2 in for underground injections. So some of the first areas that will be looked at probably will be those power plants that are closest to reservoirs that are known oil and maybe depleted oil reservoirs reservoirs where it will provide for the ability to come in and extract additional oil from those reservoirs at previous technology and or the lack of having the CO2 and the ability to get it there
Representative Bruce Westerman
Unverified
1:47:06
are not available. Okay. Back to the eminent domain question on page 22.
It says, if the commission enters into a reciprocity agreement with another state or government entity under this section, a person holding a permit, certificate of public convenience and necessity. So you could obtain a permit in another state, and that would give you eminent domain rights in Arkansas, if
Speaker 131
1:47:36
I read that correctly. Well, this section has really two types of agreements. So one is a cooperative agreement, and then it also has a reciprocity agreement.
And the reciprocity agreement is the scenario under which there would be reciprocity between both states. And you could have the reverse where there might be a facility that was permitted here that through a reciprocity agreement would have the right in the other state. But that just simply authorizes the Oil and Gas Commission to enter into that. And I suspect there would be a lot of study before it did such an agreement. And
Representative Bruce Westerman
Unverified
1:48:16
you mentioned some Canadians on the commission.
Would there be Canadian companies
Speaker 131
1:48:25
involved in this, possibly? There were three Canadian oil and gas regulatory authorities on the Interstate Oil and Gas Compact Commission. Conceivably, under this language, that could be, but I think it anticipates other states, neighboring states. Okay.
Representative Bruce Westerman
Unverified
1:48:53
How do you monitor, well, let me back up a second, on the subsurface storage rides? Does the landowner sell those rights and be paid a royalty for storing the gas over time until the well is full, or how does that actually
Speaker 188
1:49:17
work? Well, that's one option. Okay. All right.
Speaker 131
1:49:20
Yeah. Well, I think the concept is that if you had a site that was suitable,
then you would try to go and purchase whatever rights you needed to the poor space. Now, the way this is set up, actually the Oil and Gas Commission, when an application was made, would either have to determine that there's no oil or gas or minerals remaining or if there was, then the owners would have to agree to the use of the facility for that.
And presumably that agreement would be pursuant to some agreement with the operator who was wanting to develop the facility. So there's going to have to be some agreement in terms of what's going to be paid for that
Speaker 55
1:50:16
poor space. Representative Westerman, if you don't mind, the time is getting late and we don't have a
quorum left in here. I think Representative Woods has a motion. I'd like
Representative Jon Woods
Unverified
1:50:31
to just make a comment before.
It's been asked to be by several of the other members and I
am in favor of this legislation and this is not hostile, this is just a recommendation to you, Representative Barnett. The recommendation from a lot of committee members is, would you mind bringing this back later this week and us voting on it and having a little bit more discussion? I think it's healthy for the committee and healthy for the state, and is that okay with you? It's fine by me.
I'm prepared to go to 1, 1.30. I'm kind of a ñ I like to work long hours, but ñ I said. That's what you said. But anyhow, I mean, obviously we want this particular subject to be as discussed as possible, and we want every committee member here to have their questions properly answered and maybe they need some time to do that even between the time that we meet again. And I know there's probably some people here that want to speak against the bill as well,
Speaker 55
1:51:36
and I'm sure you want to hear that. Yes. Well, we want to make sure that everyone gets their information out on both sides. So in the interest of that, I think we probably should adjourn to pick this up in another session. Mr. Chairman, give
Speaker 190
1:51:52
me suggestions of the – we will entertain
Representative Jon Woods
Unverified
1:51:58
your motion. Since we have a quorum now, I was just – we actually have 11
Speaker 192
1:52:02
now. Representative Barnett, would you care to just pull your – properly pull your bill down?
Well, why don't I, why don't I ask the
Representative Jon Woods
Unverified
1:52:12
chairman what's the proper, I'm sorry, or continue, I'm not sure
the proper, we have a quorum, so we can continue now, if you'd like to. Okay. Why don't we just continue this at the next meeting, if that's
okay, we'll, with the members. Okay. Would, would all the members here promise they show up and stay? Okay, and bring everybody else back with you.
I want everybody to be here. I'm looking for consensus and proper debate, and, you know, I want to talk about liquid hydrocarbons and stuff like that, too. Well, we want a proper debate also,
Representative Barnett, but we want to make sure that everybody
Speaker 55
1:52:54
has enough time when they're not all squiggling in their seats, answering to get out, and we want them to hear the information. Okay. Okay. That's fine by
me. If that's the desire of the committee, then I guess I'll yield to whatever you've got to do for the motions.
Speaker 196
1:53:12
Representative Wood. So moved. I would like to continue for our next meeting discussion on the legislation.
Representative Jon Woods
Unverified
1:53:18
It would be my recommendation. Thank you, Mr. Chair. Okay. All in favor, let it be known by
saying aye. Representative Bundang, two recognized. MR. Okay. Now, since you're going to do that,
I would request that you do a special order of business and tell us when it's going to be. Is it next Wednesday? We want a special order
of business. MR. So are you going to represent all this again, or you just want a special order of
business to continue? MR. Well, I think we ought to present it all over again. Some of you ought to hear this twice for repetition
purposes. We'll just pick up where we've left off. MR. to continue the agenda. So that's what we'll do on next week. You'll be first on the list. Do you
Speaker 129
1:54:02
anticipate this to be Wednesday of next week? Yes. Thank you. Thank you,
Speaker 46
1:54:09
sir. Thank you very much. Thank you, Mr. Washington. Thank you, guys. Thank you.
Agenda
Call to Order
HB1416
HB1430
HB1439
SB5
HB1450
Adjournment
Documents
No documents posted.
Speakers
Representative Fred Allen Chair
Unverified
Speaker 4
Speaker 13
Representative Buddy Lovell
Unverified
Speaker 55
Shep Russell
Unverified
Representative Allen Kerr Chair
Unverified
Speaker 42
Speaker 44
Representative Jon Woods
Unverified
Representative Jonathan Barnett Chair
Unverified
Gene Eagle
Unverified
Speaker 57
Representative Barry Hyde
Unverified
Representative Jeff Wardlaw
Unverified
John Morris
Unverified
Speaker 79
Speaker 84
Representative John Catlett
Unverified
Speaker 89
Speaker 70
Speaker 33
Speaker 102
Speaker 47
Speaker 12
Speaker 119
Speaker 121
Speaker 126
Speaker 127
Chair
Unverified
Speaker 131
Mark Allison
Unverified
Speaker 133
Speaker 139
Speaker 136
Speaker 144
Speaker 159
Representative Les "Skip" Carnine
Unverified
Speaker 147
Speaker 164
Speaker 154
Representative Bruce Westerman
Unverified
Speaker 152
Speaker 188
Speaker 190
Speaker 192
Speaker 196
Speaker 129
Speaker 46