Fracking Boom Hushes Ky. Oil and Gas Action

A “pumpjack” is used to mechanically lift oil to the surface of this BlackRidge Resource Partners’ well.

A “pumpjack” is used to mechanically lift oil to the surface of this BlackRidge Resource Partners’ well.

Kentucky’s oil and gas industry has had a rough several years. Activity has been trending downward for over a quarter of a century, although promising new drilling targets were discovered just a few short years ago and hopes were high. That all came crashing down in late 2014, when the prices of oil and gas plummeted.

Experience shows the market shifts, but for now, with oil prices sitting at about $45 a barrel and projected to drop even lower, and natural gas prices at about $3 per million BTU, Kentucky permits for oil and gas drilling are at a record low and are likely to stay that way for some time.

Kentucky ranks 20th in the nation for crude oil production, and 18th for natural gas, according to 2012 U.S. Energy Information Administration data, the latest available. But the oil and gas industry is overshadowed by its behemoth cousin, coal, for which – along with horse racing and bourbon – Kentucky is synonymous. (The commonwealth is the nation’s fifth largest producer of coal.)

The fact that Kentucky has an oil and gas industry at all comes as a surprise to many people, said Brandon Nuttall, a geologist in the energy and minerals section at the Kentucky Geological Survey (KGS) at the University of Kentucky. It is much smaller than the coal industry, and doesn’t get nearly as much press.

“Kentucky has been so focused on coal,” he said. “A lot of people have no idea that we have commercial (oil) wells that date all the way back to the 1800s.”

The footprint of oil and gas activity in Kentucky is small compared to coal, agreed David Harris, head of the energy and minerals section at KGS, but more than half of Kentucky’s 120 counties produced either oil or gas, or both, in 2016. The activity, occurring mostly in eastern and western Kentucky, can be easy to overlook, though.

“After the rig is gone, there is a very little evidence of an oil and gas well,” Harris said. “There may be a small pipe sticking out of the ground, a few tanks sitting on the location to collect the oil, but other than that, there’s not big evidence of the wells there. It is a bit hard to tell sometimes.”

The industry may be small, but it is still important to Kentucky’s economy, said Bill Barr, managing partner at BlackRidge Resource Partners and member of the Kentucky Oil and Gas Association (KOGA) board of directors. It pays millions in state taxes, employs thousands of workers, and for every dollar produced, it pays 12.5 cents of that to royalty landowners, he said. In 2015, that amounted to about $40 million.

In 2014, the industry directly employed more than 3,000 workers and paid them an average annual salary of $75,000, according to KOGA. That number is likely to be lower now, though, because drilling activity has all but stalled.

Although it is resilient, and things could turn around quickly if oil and gas prices increase or the geopolitical climate changes, the Kentucky oil and gas industry is “very stressed at the moment,” Nuttall said.

Just how bad is it?

“The oil and gas situation is not good,” Harris said.

Drilling permits issued by the Kentucky Division of Oil and Gas have been steadily declining since 2008 when oil peaked at over $130 a barrel, but the past few years have been particularly low.

So far this year, only 59 permits for oil and gas drilling have been issued. KGS predicts the total number of permits for 2017 will be 50 percent less than the number issued in 2016, making it the third year in a row permitting will have declined by 50 percent or more.

“The production numbers will typically lag behind the permitting numbers,” Harris said. “As soon as permitting goes down, you’re almost always guaranteed to see a decline in production. It’s been a pretty devastating change for the oil and gas industry.”

There are 250 to 300 small producers in Kentucky. In 2016, 2.59 million barrels of oil were produced statewide, a 9 percent drop from 2015, Nuttall said. The total value of oil produced in 2016 was $96.8 million, a 28 percent drop from 2015’s $136.3 million. There was, however, a slight increase in the number of wells in 2016, up to 12,425 from 12,019 in 2015.

Last year, there were 16,074 natural gas wells, a 6 percent increase over 2015, but the amount of gas retrieved from those wells was down 15 percent. The total value of the gas produced in 2016 – $107.3 million – was down a whopping 53 percent.

In 2015, the industry paid $16.3 million in taxes. That amount dropped to $9.1 million in 2016.

“Drilling activity is down, and here’s why,” Barr said. “We’re no different from any other business. We are market-commodity-price driven. If oil is at $100 a barrel, you’re going to spend more capital because you are going to have a better, quicker return on your investment. If oil is at $30 or $40, you’re going to have a slower return, you’re going to be more cautious, and your bank is going to require you to spend less money.”

A short-lived boom

Kentucky oil production has been declining steadily for the past 30 years, with a few small spikes here and there. Things seemed to be looking up in 2013, however, when new drilling techniques were used to access natural gas and oil stores in the Devonian Berea sandstone in Lawrence County.

The Berea had been vertically drilled extensively since the 1920s, primarily for gas, but it had “nuisance oil” associated with it. The oil was considered a nuisance because it didn’t produce enough to be commercially drilled. Horizontal drilling and hydraulic fracturing changed that, in a big way. Oil production numbers went up to 4.1 million barrels in 2014 from 2.9 million in 2013.

“This little ‘play’ in Lawrence County actually turned around our production numbers, and we saw a significant increase in oil production in 2013 and 2014, which got a lot of people really excited,” Harris said. “It was a small boom there in northeastern Kentucky and the industry was feeling pretty good about it.”

A play is group of hydrocarbon fields or prospects in the same region that are controlled by the same set of geological circumstances.

Almost as quickly as it started, the boom was over. In 2013 and part of 2014 oil prices were nearly $100 a barrel. Not long after the oil play in Lawrence County began, prices dropped to $48 a barrel.

“Unfortunately, (drilling) that play is not economic at those prices, and so we’ve seen essentially all drilling in that area come to a halt because of the low oil prices,” Harris said. “That little bump has now started to decline again. We’re back on our downward trend, unfortunately, because nobody can make money at current prices.”

No new horizontal wells at the Berea sandstone have been permitted in 2017, Barr said, but there has been some drilling this year for wells that received permits in 2016. His company plans to drill up to four wells there later this year.

Natural gas had a similar boost in production that began in 2008, which “was really the beginning of a big shale gas boom,” Harris said. It lasted until 2014, when growing U.S. natural gas supplies pushed prices below the profitability floor for Devonian drilling. Production has steadily declined ever since.

Gas production involves much more than drilling, and isn’t economical at such a low price. The gas produced at the well often is a mixture of methane, ethane, propane, butane and other gases, Nuttall said.

“These other gases will increase the heating value of the natural gas. What you have to do is remove that because it interferes with transportation. The gas is too ‘hot’ for use in a lot of equipment,” he said. “Because of processing fees to take the raw natural gas to a (refined) product that can actually be sold into the pipeline and used, and then the transportation costs, you can actually lose money producing a natural gas well in certain parts of Kentucky.”

Improved technology leads to controversy, new targets and regulations

Both booms were the result of drilling reservoirs using two controversial techniques: horizontal drilling and hydraulic fracturing, or “fracking” as it has come to be known.

“The combination of those, drilling a hole horizontally into a formation rather than vertically and then using hydraulic fracturing to release the oil and gas from the rock, have really been the game-changer in the U.S.,” Harris said.

Conventional drilling involves inserting a vertical pipe into the ground to extract hydrocarbon liquids flowing between rock formations underground. The natural underground pressure is all it takes to pump the oil from the well to the surface. These formations have high permeability, meaning the fluids move easily through the rock.

Hydraulic fracturing was developed by Halliburton in the mid-1900s to extract oil and gas from geological formations with low permeability. Fracking involves injecting a high volume of water, chemicals and fine sands to “fracture” a deep rock formation to enhance the flow of oil and natural gas produced from a horizontal well, according to KOGA literature. Tens of thousands of wells have been hydraulically fractured in the U.S. in the last decade, boosting domestic production and driving down gas prices.

“Hydraulic fracturing started off with low volumes of water,” KOGA’s Barr said. “We learned that you could add surfactant, which is nothing other than dish soap, or similar items, to slicken the water. It allows it go into the rock easier. Over the years, we’ve added more and more chemicals, although it is still less than a couple of percent chemical, and the rest is water. We’ve learned to add nitrogen to the water and foam it to allow it to carry sand.”

That “recipe” was developed over the years, primarily in Texas, and those techniques have moved across the country. In Kentucky, he said, most natural gas wells have been fracked with nitrogen, an inert gas that has zero impact on the environment.

And Kentucky’s “fracks” are small compared to those used in larger oil and gas production areas. A huge slick water frack in Kentucky would be 1 to 1.2 million gallons. In the Utica and Marcellus shales in Pennsylvania, a 12 million-gallon frack is considered small, Barr said.

The use of fracking has prompted environmental concerns across the country. An organization based in Berea, Ky., called Frack Free Foothills, formed in 2014 to protest fracking in Madison and its surrounding counties.

“Fracking produces large amounts of wastewater polluted with brine, toxic chemicals, hydrocarbons (oil and gas byproducts), and even radioactivity that has been known to pollute drinking water wells, streams and land,” according to the organization’s website. “Our water treatment facilities cannot handle this type of waste.”

In addition, Frack Free Kentucky claims being near fracking wells can reduce the value of property and that the process itself is linked to earthquakes.

The group’s efforts to fight fracking in Madison County helped encourage the state legislature to review and update Kentucky’s oil and gas drilling laws, which had not been updated since the 1960s, Nuttall said.

“A lot of the issues related to hydraulic fracturing and horizontal drilling in Kentucky’s regulations have been updated,” he said. “We now require pre-treatment and post-treatment monitoring of water wells. We now require there to be reclamation plans in place, and we require public disclosure of all of the chemicals used in hydraulic fracturing.”

Where do we go from here?

There are some potential new, unconventional oil and gas drilling targets being explored now, including the Rogersville shale, a very deep formation in Eastern Kentucky. Those new targets “could turn into significant increases in production in the state,” Harris said. “But it’s too early to tell.”

The Rogersville shale, located in Lawrence and Johnson counties, is attracting much interest, but little is publicly known about the exploratory wells that have been drilled there, Nuttall said. Economic viability of the Rogersville shale will depend on the production rates established there, along with higher commodity prices.

“There have been a couple of hundred thousand acres leased, and the players that leased it were major companies like Continental, Cimarex, EQT and some other larger companies,” Barr said. “It is an expensive play. The wells are 12- to 14,000-feet deep, and the stakes are high.”

If it is successful, he said, it will be transformative for that part of northeastern Kentucky, in terms of royalties paid to landowners, severance taxes paid to county and state governments, job creation and wealth creation.

“If you do the math, for every 1,000 barrels, 125 go to the landowners. At $50 a barrel, that’s $6,000 a day. That’s $180,000 a month,” Barr said. “That has happened in the Marcellus and Utica (shales) in Pennsylvania, northern West Virginia and eastern Ohio.”

To survive, Kentucky’s oil and gas industry must be ever-evolving, he said.

“We’ve got to be flexible, look for evolving play and apply technology,” Barr said. “The Rogersville could be a major example of that.”

Other factors could help boost the U.S. oil and gas industry, said Scott R. Smith, senior consultant with Smith Management Group, which specializes in energy project development and environmental permitting. A number of power plants are coming online that will be fueled by natural gas instead of coal, he said, and that will impact demand.

“A lot of people don’t realize how much gas those facilities are going to consume,” he said. “They may have underestimated that demand.”

The Trump administration has made approval of natural gas exports a significant part of its energy strategy. New U.S. Secretary of Energy Rick Perry said he wants to make the U.S. a “dominant energy force” by exporting oil, gas and coal to markets around the world. In April, Perry approved the first permit to export liquefied natural gas overseas. The first shipment was delivered to Poland in June.

Natural gas is the backbone of the petrochemicals industry, Smith said. Because Kentucky’s natural gas is not pure methane, the other gases have to be processed out and transported to the petrochemicals industry in other parts of the country. The commonwealth could benefit greatly by working to establish its own petrochemicals industry here, he said. Kentucky already has at least one company, a PVC manufacturing facility in Calvert City called Westlake Chemical Corp.

Barr remains optimistic about Kentucky’s future oil and gas prospects, even as the industry waits for prices to climb and demand to grow.

“So how do we continue on?” he asked. “The industry has to be selective as we look at our new prospects, we have to embrace new technology, and we have to do things better and smarter.”

“I still think there is a room for robust oil and gas fossil fuel industry in the state,” Barr said. “There are thousands of wells that have produced and will produce for decades to come.”

Lorie Hailey is a correspondent for The Lane Report. She can be reached at editorial@lanereport.com.

Features, One-On-One

One-On-One: Central Bank President/CEO Luther Deaton

Luther Deaton

Luther Deaton

Mark Green: What sets the most successful bankers apart from their peers? Skill, hard work (more due diligence), luck, the ability to assess character?

Luther Deaton: Hard work, integrity and service are the keys I stress to our team of Central Bankers. There is no way to short-cut success. It takes time, dedication, long hours and a service mentality.

MG: What’s your best advice to those who manage banks large and small?

LD: Our greatest asset is our human capital. We can’t accomplish anything without a great team of smart, dedicated, service-oriented people. That’s where it all starts.

MG: What are Kentucky banking’s biggest challenges today?

LD: Finding the right people who want to build a banking career. We need talented people and will need even more of them in the years to come. We can deal with all the other issues if we have folks who can develop creative solutions to customer needs.

MG: What is the most common form of lending in Kentucky?

LD: Commercial lending is our largest category. Our mortgage business is really good due to the demand for homes and favorable interest rates.

MG: Are home buyers having problems qualifying for mortgages?

LD: It’s more a question of how long it takes to meet all the requirements to satisfy the regulators. I think it’s harder for first-time borrowers because the process has become so cumbersome and difficult to understand.

MG: What is the rate of non-performing loans today versus in the past, and are there any surprises here?

LD: Our non-performing assets have declined to the lowest point in years, just 1.3 percent of assets. This has been a steady improvement as the recovery has progressed. We’re finding that more borrowers have regained confidence in the economy and are planning for growth in the future.

MG: We hear sometimes that today’s “digital native” young adults have different expectations about banking relationships versus those of previous generations. Do you see that?

LD: You bet they do. They want service, now! They want it wherever they are, and they want it round the clock. Mobile banking is our fastest-growing product, especially for millennials. Mobile deposit is especially interesting due to the convenience it provides. We’ve recently developed round-the-clock service for credit and debit cards, because that’s where most customers have questions. We would never have done that a few years ago. The fact that our population is so active and so connected to their mobile phones makes customer support a critical service for us.

MG: The impacts of evolving technology on banking are diverse. Direct deposit and online banking have reduced the number of face-to-face interactions. Do banks need fewer physical locations? Do you foresee this changing appreciably in the next five to 10 years?

LD: Most customers still prefer to establish new relationships in a branch, even if they use mobile banking for transactions. Frankly, a lot depends on whether the customer sees the bank as a place to do transactions or as a place they go to for advice and assistance with more complex financial questions. Many aspects of banking require discussion and advice to ensure the relationship is structured to meet all of the customer’s needs. We’re involved in insurance, investments and wealth management in addition to banking. Most people still prefer to have those types of discussions face-to-face.

MG: Where do we stand in the business cycle? Still expanding? Stuck in low gear?

LD: It all depends on where you are. Lexington is just emerging from the recession, and growth is just beginning to ramp up. We’ve seen much more business expansion in our markets in Northern Kentucky and Louisville. They seem to be ahead of us in that regard.

MG: What are your expectations regarding Federal Reserve interest rate policy this year and next? What will the impact of rising interest rates be for business and individuals in the long run?

LD: The Fed is concerned about inflation and is monitoring rates very closely. They are poised to raise rates if they detect any signs the economy is heating up. I think we need to be really careful with that. Higher rates could really affect the mortgage industry and expansion by small business.

MG: The appearance seems to be that fewer banks are domiciled in Kentucky but more banks are competing for business, especially in the larger markets. Is this, in fact, true? If so, why?

LD: Banking in our markets is strong. We have 97 bank charters with $37 billion in deposits in our markets. In Lexington, we have 38 bank charters and $8 billion in deposits. And we now have 137 banking offices in Fayette County. Other banks are opening offices here because Lexington is such an attractive market, really the most attractive in Kentucky.

MG: What are the key issues for businesses looking to establish a good relationship with a bank?

LD: They want several things. Will this bank be here to serve me when I need them? Are they large enough to have the resources to meet my technology needs, my borrowing needs and other services such as insurance, investments and wealth management? Do they know about my business, and are they willing to learn more? It takes a dedicated service attitude to make a banking relationship work. Our bank was founded on that concept and it’s even more true today, 71 years later.

MG: What are today’s top community banking lines of business? Which are generating the most business and revenue for banks today?

LD: Obviously, commercial lending and commercial real estate lending are very important, because those relationships can uncover other needs such as cash management, insurance, retirement plans, investments, etc. Mortgage is a good area for us, and we stress it in all our markets. Insurance is one of our fastest growing areas that fits our high-service business model.

MG: How big today, to both banks and bank customers, is the threat of cyberattack?

LD: The risk is there because customers want convenience and ease of use without it being slowed by safeguards. We are continuously adding more systems to protect the bank and our customers. We are constantly risk assessing our systems and our customers’ use of them. We monitor our website constantly for any hint of a cyberattack. We are using social media to help educate our customers on what they can do to protect themselves and their money. Still, it’s always a worry.

MG: Does Kentucky business have enough access to capital, or might the state need bigger banks to finance projects? Is syndicated financing adequate?

LD: We’ve got some syndication, what we call participation loans. We put the loans together, just in Kentucky, to give you an example, $75 million to $100 million. Our lending limit is almost $40 million; then we get banks out there that have a pretty good-sized lending limit and bring them into the credit, if it takes that. We’ve got six or seven banks that we work with and we trust each other; we do the analysis of the credits, and we all buy in, and we participate it out to the other banks. So this bank has never had a problem handling any type of credit. We’ve always been able to accommodate the customer.

As far as bigger banks go, I guess they’re OK. But we’ve just never looked at it that way. We look at business in terms of what can we do with our local banks that’s home-grown here in Kentucky.

MG: How often are participation lending projects done? Is that common?

LD: That happens pretty regularly. And the good part about that is that if we participate in some bank, and they are over their line on one of their credits, they call us and ask, “Will you participate in that credit with us?” And we participate in that. So we go back and forth on different credits and different banks, and we reciprocate to them, they do for us as well.

MG: Does it make it more complicated to finance a project if you’re doing participation financing?

LD: No.

MG: Does a lead bank handle all of the qualification?

LD: We lead it. But the other banks have to do their own enquiries. They have to do their own credit analysis and all that, too. Because the regulators, when they come in, ask, “Did you take theirs, or did you do yours?” And so they have to do theirs, too.

MG: So you are actually backing each other up with double, triple due diligence?

LD: Right.

MG: The banking community has been asking for repeal or revision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act since 2011. Do you support repeal or reform of Dodd-Frank, or specific parts of it?

LD: I don’t think they should repeal it. I think they should fix it. It’s far too complicated and has provided very little benefit for consumers. Congress has attempted to control the large banks while restricting how community banks serve the needs of their customers. There is no question it has become more challenging for community banks to operate and to meet the needs of their markets. They have made it so difficult on the consumer.

Is credit hard to get? Yes, because you have to do so many things in order to take care of a customer. Before, you didn’t have to do a lot of those things. On a mortgage loan, we used to close one in 15-30 days; now it’s 45-60 days. And it means nothing to the customer, who just wants to know how much is my payment and what’s my interest rate? That’s what they’re worried about.

And we didn’t get into this subprime lending stuff (that caused the 2008 financial crisis, prompting Dodd-Frank’s passage). Banks in Kentucky didn’t get into any of that. Mortgage lending in our small towns, in small community banks, that’s our bread and butter. But now they have no comparable sales (information to use in qualifying the loan); people won’t appraise their properties, so they have a hard time with this. It didn’t help the consumer. It’s hurt the consumer. And it didn’t do anything to fix Wall Street, either.

MG: Should the more-difficult mortgage qualification regulations be rolled back?

LD: Yes; they have to do that. I don’t blame the regulators. I blame Congress. Congress passed the law, and the regulators have to do the regulation within the law. They can’t change what Congress said, so the regulations that are interpreted and put into effect have to match up with what Congress says you have to do. I don’t blame the regulators at all. A lot of banks blame them. I do not. They’re doing their jobs.

MG: Has Dodd-Frank produced any benefits to the industry?

LD: None.

MG: You are on the state’s pension system review and advisory board. Any repair or fix for Kentucky’s now worst-in-the-nation unfunded pension liability is going to be costly and painful. Is there any least worst way to begin to take on this problem? 

LD: The first thing they need to do is tax reform: How much money can we come up with that can go toward the pension obligations, if any? It’s going to be a hard fix. Everybody says that has to be paid for before anybody else can be paid a pension, which I guess it’s true. Who’s going to be able to write the checks if they don’t have the money? The state employees’ pension fund is spending more money than they’re taking in.

So No. 1, they’ve got to find out how much money they need to fix this pension. I think what they have to do is they need to freeze it. I think they’ve got to do it like a 401k, and then they’ve got to fund it. I’m not putting the blame on anybody. Gov. Matt Bevin has a tough road ahead of him. He didn’t create this, but he owns it. He’s governor, and he’s going to have to take a stand to fix it. If I were him, I would do tax reform first, see how much money I could come up with, and then I would say, OK legislature, we don’t have enough money so here’s my proposal to fix the pension.

I will tell you I think there has to be a tax increase. There’s gotta be. You’ve got the Medicaid expansion health care thing they say is going to take $500 million in the next year or so to fund. You’ve got this pension thing that they’ve already put a billion-some dollars toward, plus they’re putting more in. And it’s not helping; they don’t have enough money. So they’ve got to come up with more revenue.

Now, can we grow jobs fast enough to increase existing tax revenue? No, I don’t think we can. What they need to look at, once they do the tax reform – and they need more revenue – I think they’ve got to look at an increase in sales tax of 1 or 2 percent and say this is going toward the pensions. Once we get them stabilized where they’re supposed to be, then that sunsets and that tax comes off. I don’t believe anybody who says they can fix this pension without tax reform and without a tax increase. I think it has to happen.

MG: The governor is aiming to reform the state tax system and fund the pension shortfall later this year. Is there any kind of low-hanging fruit to go after?

LD: Gov. Brereton Jones had a tax reform commission, and Gov. Steve Beshear did as well. And I sat on the one for Gov. Beshear, and I went to all the meetings. There is some low-hanging fruit. A cigarette tax; they could do that. They could put a tax on dry cleaners or whatever – not food or drugs, but other things – and see how much they could come up with. What they need to do is take those two tax reform commissions’ recommendations and look at them. Take the good and leave out the bad. That’s one place where they could start.

But (state Budget Director) John Chilton is a pretty smart guy. I think he’s got the right guy doing the budget, and the right guy looking at tax reform, and the right guy looking at pension reform. I think he’s a guy that understands the numbers, and I think they’ve got to listen to him.

MG: What will be the obstacles to overcome if Kentucky attempts to shift from an income-based tax revenue to consumption-based revenue, such as Tennessee’s, which is sometimes cited as a successful model?

LD: Our income tax is a big portion of our budget. I don’t have the numbers, but if they try to eliminate income taxes to do that right now the sales tax would go out the roof. I think it’s almost impossible.

MG: The phrase “business-friendly tax code” has been used for years to describe the most desirable outcome. What is the business community’s preference for a tax base structure that best supports economic growth, job growth and personal income growth in Kentucky?

LD: I think any good, well-run business would be willing to accept a tax increase if it would fund the right things: education, number one. The business community has proven that it wants to fund education. And education has been neglected. There are some kids right now who cannot go to school because of the tuition. The state has to come up with something to fund education; it has to happen. If that means a tax increase, it means a tax increase.

But the problem we have in this state and in this country is you’ve got the Tea Party and you’ve got the liberal Democrats, and they’re so far apart. They’re so far apart that they can’t come in the middle and sit at the table and say, look, let’s do what’s best for our state, for our kids, our industry, and see what we can do that’s both fair, whether it’s raising taxes or lowering taxes or whatever it might be. But make the right decision for the people of the commonwealth. I don’t see that happening.

Last year they elected twenty-some new Republicans to the state House of Representatives, and they now control the House. I would hope the people who came in there say, I’m willing to look at what’s best for this state and not what’s best for me as a Republican or Democrat or Independent. I want to do what’s right for the state; I want to do what’s right for our people. I want to educate our kids, create jobs for our kids, so they don’t have to leave home.

But I don’t think that’s possible. I hope I’m wrong.

MG: How do you make time and what methods do you use to stay informed about what’s happening in the fields that you have to keep up with?

LD: Well, it’s a passion I have. This bank has grown with small businesses; we’ve provided the capital for them to grow, and we’ve grown. That’s where I get satisfaction. I’m very involved with the Kentucky Bankers Association. I’m on the board of the American Bankers Association. I go to all the conventions, all the seminars. I get involved in the state, like the pension shortfall issue – somewhere down the line, it’s going to come down to the people to pay for this pension. It’s gonna happen; I don’t care what they say, how they slice the cake. But how do we do it so that it’s fair, and how do we do it to make sure it’s a win-win for everybody?

That’s why I do it. Very few nights do I get home early, but I love what I do. I love taking a person that’s got a dream, that’s got a great plan, and helping fund that person and watching that person grow. We’ve done so many of those. I could tell you story after story. And that’s where I get my satisfaction.

MG: Do you do any mentoring? What best practices you can share?

LD: Well, it starts with – and I tell everybody I try to mentor, whether it’s internal or external – I say, honesty and integrity means everything. We’re not all perfect. We all make mistakes. Admit your mistakes. If you’ve got those two qualities, which creates character, just stay focused. When you think you’re right, take a stand. But if somebody says, hey, let’s talk about this, I think you’re wrong, be able to admit that you’re wrong on an issue and say, I’m wrong, and I agree with you. I’ve seen so many people, during the time I’ve been in this business – not in banking, in every business – who think they can do no wrong; and they think it’s my way or the highway. You can’t have that attitude.

In this recession that we just went through, one worst word says it all: It was greed. Greed put us where we’re at. They forgot what makes this country and this state better, which is small businesspersons helping their businesses, creating jobs and educating our kids.

MG: Do you have a closing comment?

LD: I’d like to say something more about education. Last week we learned that UK only receives about 15 percent of its budget in state funding while other comparable universities in more prosperous states get 40 percent of their funding that way. We can’t hope to grow our economy and our state if we can’t afford to educate our youth and create jobs that will offer a successful future. That’s a benefit of tax reform that should be placed near the top of the list. We’re talking about a better future for our children and grandchildren to enjoy this wonderful place we call Kentucky.

Mark Green is executive editor of The Lane Report. He can be reached at markgreen@lanereport.com.


Workforce Development | A Living Lesson in Economics

After preparing in their classrooms for a day in the simulated town, Biz Town students get to work soon after arriving at Junior Achievement of the Bluegrass.

After preparing in their classrooms for a day in the simulated town, Biz Town students get to work soon after arriving at Junior Achievement of the Bluegrass.

At first glance, it looks like elementary students having fun on a field trip with their classmates. But a trip to Biz Town at Junior Achievement of the Bluegrass is so much more than that.

JA Biz Town serves fifth-grade classrooms with a series of in-class lessons on entrepreneurial and personal finance skills that culminate in a day-long visit to a fully interactive, simulated town. There, they put their new business knowledge to the test, launching and working in businesses, opening bank accounts, paying their employees, voting in an election, and learning about the importance of philanthropy.

“If they call it a field trip, I am usually pretty quick to point out to them that Biz Town is not a field trip,” said Ron Wigglesworth, a former high school principal who serves as senior education manager at JA of the Bluegrass. “This is a culminating event. This is where the kids actually get to put into practice what they have been learning.”

The simulated town, which resembles a small shopping mall, opened its doors in January, and has already served more than 2,500 students. It is located inside the old Linlee Elementary School building on Spurr Road in Lexington, where JA of the Bluegrass is leasing nearly 13,000 s.f. from Fayette County Schools to operate their programs.

Biz Town is designed for fifth-grade students, but the program also can be utilized by fourth- and sixth-grade classes. Participating classrooms are provided with curriculum and supplemental materials, including a 250-page teacher guidebook, a classroom kit with games and posters, and student workbooks. Each student also receives a checkbook, debit card and health card, Wigglesworth said.

“The lessons center around financial literacy, how a community economy works, workforce habits and being a team member, how you run a business, entrepreneurship,” Wigglesworth said.

The curriculum correlates with Kentucky’s Core Content for Asssessment in math, social studies, and practical living while focusing on 21st-century job skills, including soft skills such as being a team player, communicating with others, problem solving, and thinking critically.

“Unfortunately, we hear time and again that many students are lacking the basic skills to successfully engage in the workforce and economic community,” said Lynn Hudgins, president of JA of the Bluegrass.

One of the biggest challenges Kentucky employers face is finding qualified workers with the right skills for the jobs they have available. Less than 10 percent of Kentucky employers believe the overall workforce has good skills, according to a 2015 survey by the Kentucky Chamber of Commerce. More than a quarter of those employers said they have trouble finding jobseekers with good soft skills.

“This is both a crisis and an opportunity for Central Kentucky,” said David Royse, chairman of the JA of the Bluegrass board of directors.

Junior Achievement, founded in 1919, is the world’s largest organization dedicated to educating students about work readiness, entrepreneurship and financial literacy through experiential, hands-on programs. The Bluegrass chapter, founded in 1963, reaches more than 20,000 students per year with its classroom curriculum and volunteer programs, which show them “how to generate wealth and effectively manage it, how to create jobs which make their communities more robust, and how to apply entrepreneurial thinking to the workplace,” according to the JA website.

The addition of Biz Town to the Bluegrass chapter’s lineup has created a unique opportunity to introduce key life skills to young students.

“Young people who have been exposed to the various Junior Achievement classroom programs and the ‘real-life’ experiential learning experience at JA Biz Town gain an early understanding of the concepts and values that are crucial to attaining career success and fulfillment in a rapidly changing world,” Royse said.

A day at Biz Town

Biz Town is intricately designed to teach students about what it means to own and operate a business on a day-to-day basis. Local companies – including Chick-fil-A, Forcht Bank, Kentucky Utilities, UPS, iHeart Media, Keeneland, Scanlon Family Philanthropy Center, Toyota, UK Healthcare, Kentucky Society of Certified Public Accountants, the University of Kentucky, LEX 18, and Lexington Herald-Leader – sponsored and decorated storefronts where the students “work.” There is also Biz Town City Hall and one open storefront, for which JA is still seeking a community partner/donor.

“Our storefront partners have made a significant investment in our young people because they recognize the importance of introducing students to the ‘real world’ of work, business and personal finance, early and often,” Royse said. “Additionally, we are hopeful that those organizations will benefit from their exposure to the students, parents, teachers and volunteers who come to ‘live and work’ in Biz Town for a day.”

After attending orientation, students elect a mayor, launch their businesses, discuss business loans and banking, participate in job training, conduct staff meetings and make marketing plans, deposit their paychecks, go to lunch, shop at the businesses, and participate in other activities. It is a full day of learning and fun, but is also a lot of work, Wigglesworth said.

At the end of the day, when asked how they feel, students often say they are tired, he said. “We say that’s how your parents feel, too, at the end of a long day,” Wigglesworth said.

Experiencing Biz Town often opens doors for students and helps them realize their potential, Hudgins said. The program helps students connect the dots between what they learn in school and the real world, and sometimes it opens up career options they had never before considered.

“JA Biz Town/JA Finance Park is a very focused experience that we believe will be a ‘game changer’ for our students and the entire Central Kentucky community,” said Melissa Bacon, board chair for Fayette County Public Schools. “Our kids will enjoy an opportunity of lifetime in which they can truly make adult decisions and actually learn first-hand how an economy works.”

Five years in the making

Biz Town opened Jan. 10 after a five-year fundraising and planning campaign. Many businesses got on board right away, Hudgins said, and others needed to see the JA of Kentuckiana’s Biz Town in Louisville before making a commitment. The Lexington Biz Town is modeled after Sam Swope Biz Town, as the Louisville program is officially named. It opened in 2004.

JA of Kentuckiana, founded in 1949, also operates a JA Finance Park program, where middle school students are immersed in a reality-based, decision-making process that addresses individual and family budget considerations such as housing, transportation, food, utilities, health care, investments, philanthropy and banking, according to JA. They learn about the implications of financial decisions, consider the options available, and construct and live within a budget.

Since the two programs began, more than 250,000 students have participated in JA of Kentuckiana’s Biz Town and Finance Park programs.

JA of the Bluegrass is currently planning its own Finance Park program. It will be housed in the same structure as Biz Town, but the curriculum will change to accommodate middle school students during certain weeks of the year. Finance Park will open to students in December of 2017, Hudgins said.

Junior Achievement has a host of other programs designed to prepare young people to succeed in the global economy. To learn more about how your business can donate to or volunteer, visit juniorachievement.org/web/ja-bluegrass or juniorachievement.org/web/ja-kentuckiana.

Lorie Hailey is a correspondent for The Lane Report. She can be reached at editorial@lanereport.com.


Energy & Entrepreneurship | Genscape Created Global Energy Market Analytics

Genscape provides highly accurate storage level measurements using aerial photography.

Genscape provides highly accurate storage level measurements using aerial photography.

Where do traders in the energy industry go to find global power market forecasts for electrical, wind and solar?


Where do shipping magnates go to find real-time maps, showing how many supertankers are currently carrying crude oil on the world’s oceans?


Where do bidders for crude go to find out background on the oil supply chain, like transportation delays, refinery outages and oversupply?

Kentucky, again.

Why? Because Kentucky is the home of Genscape, a nimble and innovative company that boasts the world’s largest monitoring network for the entire energy spectrum, from electrical power to oil, natural gas, petrochemicals and NGL, agriculture, biofuels and maritime crude freighters.

When Genscape puts together the results of all that monitoring, it can provide thousands of subscribers high-quality, real-time access to that data. That means traders can make better trades, the markets can set better pricing for commodities based on real-time data, and utility companies can make perfectly pitched investments in their businesses based on real-world business models. Genscape brings a transparency to the global energy market where none existed before.

Company founders created a business and a demand for this data, essentially building their own market. And they did it all here, with their headquarters in the Old Louisville section of Louisville, Ky., employing around 100, with an additional 350 employees in offices across the globe, including Boston, Houston, Amsterdam, San Francisco, New Jersey, Hamburg, Calgary, London, Singapore and many others.

Co-founders Sean O’Leary and Sterling Lapinski received an Ernst & Young Entrepreneur of the Year award in 2003 for their early success, even before Genscape’s expansion into other countries and other energy markets.

O’Leary has a University of Michigan bachelor’s in finance and economics and a University of Louisville MBA in entrepreneurship. Lapinski has a bachelor’s in finance from the Wharton School of Business at the University of Pennsylvania, and has extensive experience in energy trading. As Genscape’s chief development officer, Sterling created and managed the technology and intellectual property core of the business.

“There are three things that dictate price in the energy markets: supply, basically how much you have; demand, or now much is needed; and transport, which is how it’s delivered,” said Dierdre Alphenaar, chief research and development officer at Genscape headquarters in Louisville. “Our founders back in 1999 were in the business of trading electric power. And as volatile as that market was, they realized that they were basically making educated guesses and operating in the blind.

“Prices moved up and down, and they had no visibility as to why. They asked themselves, what would it take to get the hard information we needed to buy and sell?” Alphenaar said. “They realized they had to have visibility across all supply, demand and transport for that to happen. And Genscape was born out of that.”

Creating better power industry data

Genscape started by developing the tech to monitor the flow of electricity throughout the grid, according to Alphenaar. This presented certain problems, as it would be difficult to get permissions from every power plant to install monitoring devices. Instead, the team patented a remote monitoring device that could be set outside the plants, nearby to the central power lines that exited
the plants. These small, inexpensive devices served as remote sensing meters, measuring the magnetic field coming off those lines.

“Those sensors beam back information every five minutes,” she said, “and we can apply math to take the magnetic field value and translate that to the megawatt power flow. We combine that with our satellites, which allow us to read thermal imagery on the power plants, showing us if they are running, or closed, or broken down. Put that all together, and we have a true visibility to the market. If the market needs to make pricing decisions based on the supply of power, they have all the information they need to make those calls, in real time.”

Over the years, Genscape has deployed this technology to monitor 1,000 power plants across the globe. Its clients pay for that information as part of a subscription service. The present client base includes the majority of the top global commodity and energy trading hedge funds, banks, producers and marketers, as well as numerous government entities, including the U.S. Department of Energy and the Federal Energy Regulatory Commission.

And it’s not just the big players who are signing on. The company says it has picked up numerous small and medium-sized clients that find having the right information pays them dividends that justify their investment.

Tracking oil, gas and shipping

Genscape’s market intelligence began but doesn’t end with the monitoring of electricity. It’s applied much of its expertise to tracking the oil and gas industry as well. In many respects it’s a much harder job, as the company has to track not just the refineries themselves but the pipelines that carry the product.

But in this case, Alphenaar said, the original proprietary tech helps because the remote power-flow-sensing monitors track energy current to the motors that pump gas through pipelines.

“We can take that data and extrapolate it, so we can calculate how fast crude is being pumped through the pipelines,” she said.

Genscape monitors more than 130 key U.S. and European oil refining and processing facilities. Its subscribers can get reports on the status of the ethanol supply chain and global biodiesel imports as well.

But it doesn’t stop there. After all, they may be able to tell how much crude is being produced, but that information means little if the crude doesn’t get to its destination. To address that question, Genscape also tracks the movement of crude oil over the open seas.

All ships above a certain size engaged in sea transport are required to have a collision control beacon that transmits information such as the ship’s manifest data, the country where it is chartered, its destination and the like, Alphenaar said. Genscape’s technology follows roughly 144,000 commercial ships daily, aggregating the beacon data all ships use. Additionally, Genscape’s Vesseltracker technology monitors activity in ports.

“Who’s coming in? Who’s waiting to offload? Where have there been shipping accidents? Whose shipments are delayed due to weather? All these things are very, very important to know, not just to oil and gas, but to traders, shipping companies, insurers and a broad spectrum of industries,” Alphenaar said.

Clients using the system are able to access an interactive global map that shows the exact location of all the ships on the seas, and allows them to run reports based on type of cargo, point of origin, destination and more.

Genscape has continued to keep clients coming back by continuing to dive deeper into all the data and all the factors surrounding an industry. For instance, the company recently developed a product they call Digital H2O, which collects data regarding the use and flow of wastewater in the oil and gas industry.

“That may seem like a small detail, when you first look at it,” Alphenaar said, “but you have to have water if you want to drill a well for oil or gas. And you have to have a way to dispose of that water after it has played its part in the drilling process. If you’re going to run a drilling project, you have to answer the question: What is the load on the local wastewater disposal wells? Can I open a well in another county and have access to the water I need? Who else is using the wastewater system in this area? If I use water, where will I have to dispose of my wastewater?”

Through Genscape’s system, clients are able to aggregate the public domain water management documents to get a total picture of what everyone around them is doing with their water – how it’s sourced, where it’s disposed, and how much is being used. They add in big data to aggregate the information, slice it into manageable reports, and add in analytics.

Tracking the growing solar industry

Think it’s impossible to monitor the flow of electricity being generated by all the solar panels in solar farms and on rooftops? Not surprisingly, Genscape has found a way to monitor this new flow of energy, too. In fact, by its estimates, the global production of solar grew by 53 percent in 2016 alone.

Genscape acquired Locus Energy, a solar monitoring company, to help it quickly get its arms around the global trade in solar power. Using remote sensing technology similar to that for traditional power plants, Locus has deployed more than 150,000 sensors worldwide, resulting in more than 80 billion data points collected, with most of that coming from the U.S.

The information can come from sensors embedded in the panels themselves, or through sensors monitoring the output on the lines. Even with but 13.5 percent of U.S. solar capacity covered through Locus, the information generated is invaluable to larger utilities, capital providers, equipment manufacturers and asset managers.

Born in Louisville, staying in Louisville

Though Genscape’s business is focused on tracking the energy industry, it theoretically can follow any supply chain for any industry. The company has already branched into following soybean processing, and U.S. fertilizer production and transportation.

And in the future? Expect to see Genscape offer tracking on supplies of lithium ion or any other feed stock going into the supply of batteries and solar panels.

Whatever the company does, it can be counted on to keep its commitment to staying headquartered in Louisville. In fact, the company recently relocated to 1140 Garvin Place, the former site of a dairy operation in Old Louisville. The company signed a 10-year lease after Garvin Place Properties LLC invested $3 million in renovating the property. The location is large enough to allow the company to increase its workforce significantly.

“Genscape has made a commitment to preserving Louisville’s infrastructure by moving into Old Louisville. They have truly made it a modern-day office environment,” said Deana Epperly-Karem, vice president of economic development at Greater Louisville Inc. “Their leadership knows how to engage employees, and their office space reflects that, with a creative modern space offering employees opportunities to work together, relax, play and be their most productive. They are a leader in recruiting the best and the brightest to our region. We’re proud to have them here,” she said.

As a native of Ireland and Cambridge, England, Alphenaar can personally attest to the city’s ability to attract the right candidates.

“So many of the people we employ are Ph.Ds, and highly educated people. We hold open houses here for business owners who are considering a move to Kentucky pretty often. And they always ask us, do you have the talent pool you need here? And we say ‘yes’ every time, because we got our start here, and we’ve grown here,” she said. “The people we’ve attracted here are happy, and like to stay. We’re looking forward to what the future will hold for us here.”

Susan Gosselin is a correspondent for The Lane Report. She can be reached at editorial@lanereport.com.


Economic Development | Right-To-Work Might Be Working

Employees of companies that have unions are no longer required to join the union and pay dues since the Kentucky General Assembly passed and Gov. Matt Bevin signed right-to-work legislation in January 2017.

Employees of companies that have unions are no longer required to join the union and pay dues since the Kentucky General Assembly passed and Gov. Matt Bevin signed right-to-work legislation in January 2017.

There’s debate about how critical “right-to-work” status is when a state tries to convince a company – especially a major employer – to build a plant inside its borders.

There was nothing ambiguous, however, in one recent case near Ashland in Greenup County when Braidy Industries decided to invest $1.3 billion in an aluminum rolling mill in South Shore, where the population was — at last count — 1,122.

Braidy Industries said at the time of the April 26 announcement and continues to say today that it would not have given Kentucky any consideration as a site for the project unless the state had adopted right-to-work legislation.

“Braidy Industries supports right-to-work,” CEO Craig Bouchard said in an email from Europe, where he was meeting with prospective customers of the mill, which will supply auto body sheet aluminum, plate and ultra-high-strength alloys for the aerospace industry. “Our board of directors considered 24 towns and municipalities. We did not begin a dialogue with the Commonwealth of Kentucky until the law was enacted. As a point of fact, we would not have chosen any site in Kentucky without its passage.”

That mirrors what he said in late April when the project was announced and supports comments by Gov. Matt Bevin, who had made right-to-work legislation a top legislative priority once his Republican Party controlled the governor’s mansion, the House and the Senate. Last November’s elections delivered the House to the GOP for the first time since 1921.

While some pieces of legislation get shuffled around longer than a bus ride from Paducah to Pikeville, House Bill 1 rocketed through both chambers of the legislature and Bevin signed it on a Saturday, Jan. 7, with its effective date only two days later.

Kentucky became the 27th state to pass right-to-work legislation, which allows employees to work in a union shop without becoming a union member or paying union dues. Previously, employers with union shops were required to make employees join the union and pay its dues to get and retain a job. Throughout the country, the legislation has been considered anti-union and part of a strategy to diminish their power by shrinking their bank accounts.

In late May, Louisville-based Teamsters Local 89 and the Kentucky AFL-CIO sued the state, the governor and the Labor Cabinet in Franklin Circuit Court in an effort to overturn the right-to-work legislation, claiming the new law was an “arbitrary exercise of power” that is “a pretext for anti-union discrimination and political gains.”

The suit contends the law violates the state constitution by taking the union’s right to represent workers and collect dues – union property, it argues – without providing any compensation for that property. Dues-paying members are subsidizing “free riders” who don’t pay because the union is required by federal law to represent all of the employees who do similar work even if they don’t pay dues, said Louisville attorney Irwin H. Cutler Jr., who represents the AFL-CIO in the lawsuit.

“Right-to-work is way down on the list (of factors that influence site selection),” said Cutler, who doubts that the legislation was, in fact, pivotal to Braidy’s decision.

In his email from Europe, Bouchard – the Braidy Industries CEO – made it clear that he disagrees strongly about mandatory union dues.

“Regarding right-to-work, there is much confusion on this topic and many people miss the key point. Any individual has the right to choose how to spend his or her income. No one is empowered to take away this right,” he wrote.

Bevin and his Cabinet for Economic Development have trumpeted the long-term impact of the aluminum mill, the first greenfield U.S. aluminum mill in 30-plus years, which is expected to create 1,000 construction jobs and 550 advanced manufacturing jobs once the project is completed in 2020.

When the project was announced, Bevin said it had “…the potential to be as significant as any economic deal ever made in the history of Kentucky. … This $1.3 billion investment will create enormous opportunity for people in the region, and would not have been possible without our recently passed right-to-work legislation. … The ripple effect of this investment will be significant and will produce positive change in the region for generations to come.”

Record year for projects … by June

The state’s news release said the Braidy deal, which will break ground next spring, “marks a turning point in bringing economic development to Eastern Kentucky” a little more than 53 years after President Lyndon B. Johnson declared the country’s War on Poverty in Appalachia.

The opening page of the Economic Development Cabinet’s website shows a photo of Bevin signing the right-to-work legislation next to a headline that says “KY IS NOW RIGHT TO WORK.” Three highlighted project announcements beneath a photo of the governor focus on the aluminum mill, the $1.5 billion Amazon.com shipping hub at the Cincinnati-Northern Kentucky International Airport, and Toyota’s decision to invest another $1.3 billion in its sprawling plant in Georgetown.

“Kentucky’s right-to-work status matters tremendously in getting us that initial seat at the table. The volume of inquiries and leads we’ve been getting since January certainly supports this,” according to an email from Jack Mazurak, a spokesman for the cabinet.

By late May, Mazurak pointed out, the state had already “shattered the state’s all-time, full-year (business) investment record,” which provides “more supporting evidence of the importance of right-to-work.”

Braidy Industries played no role in pushing right-to-work legislation through the House and the Senate, Mazurak said.   

“Chronologically, it was not an if-then situation. The General Assembly passed right-to-work legislation in early January. Mr. Bouchard was first connected with our cabinet and the Governor’s Office in early February,” according to Mazurak.

“However, Gov. Bevin, our cabinet’s leadership and other state officials knew (from site-selection consultants, who work on behalf of companies looking to expand) that Kentucky had previously been eliminated from consideration for other, unrelated economic development projects due to not being right-to-work. It’s likely there have been many other projects from which we were initially eliminated but, in that regard, we don’t know what we don’t know. Now we have a seat at the table. We’re in the ballgame and on the field, so to speak,” Mazurak said.

Leveling the project playing field

There is no simple formula that determines what factors are most important to a company searching for a plant site, according to Mazurak and others familiar with the process. And right-to-work isn’t always a key factor in a corporate decision. “…Each project is different and each company’s lineup of factors is different,” Mazurak said.

Hal B. Goode, president and CEO of the Kentucky Association for Economic Development for the last five years and a 28-year veteran of the economic development profession, said his organization has pushed right-to-work legislation for many years.

“We want to make sure that everything is on a level playing field when companies come in,” Goode said. “They’re coming in looking for reasons to eliminate you, and that (an absence of right-to-work legislation) was one of the things that would come up to eliminate Kentucky.”

During meetings of Kentucky United, right-to-work legislation routinely emerged as being vitally important to making Kentucky more competitive, Goode said. His association and Kentucky United, a public-private economic development organization, sometimes work together.

The Kentucky Chamber pushed passage of right-to-work legislation for decades, said President and CEO Dave Adkisson and Ashli Watts, vice president of public affairs for the organization.

“The Kentucky Chamber, representing thousands of businesses across the state, has advocated right-to-work legislation for at least 30 years,” Adkisson said when the legislation was approved. “The Kentucky General Assembly made a bold and historic decision to pass a right-to-work law, to guarantee workers a choice about joining a union and to tell the world that Kentucky is open for business. We congratulate the General Assembly and Gov. Bevin for having the courage to pass this legislation and to make Kentucky an even better place to do business. We are confident this will lead to more jobs and more opportunities for Kentuckians.”

Studies show that private-sector employment grew by more than 17 percent in right-to-work states in recent years, the chamber said. That was just over double the growth rate for states that had not passed similar legislation.

Prevailing wage law repealed as well

Accompanying right-to-work was repeal of Kentucky’s “prevailing wage” requirement, which mandated that projects funded publicly could not pay construction workers less than average union wages in the area where work was to be done.

Just six months after the legislation was signed, prevailing wage repeal has had no obvious impact on highway construction in the state, said Chad LaRue, executive director of the Kentucky Association of Highway Contractors, which is based in Frankfort.

However, he said the overwhelming majority of the more than $700 million in highway work done recently by the Kentucky Department of Transportation includes federal funds, which require that contractors pay “prevailing wages.”

“Our industry is supportive of paying a living wage and regardless of the changes in the law, we have not seen the wages dip,” said LaRue, whose membership is overwhelmingly non-union. KAHC did not take a stance on the issue.

While it’s far from the driving force behind a billion-dollar project and it won’t create a single job for the City of Fort Mitchell in Northern Kentucky, the right-to-work legislation and a companion bill that repealed the state’s prevailing wage law have found a fan in Jude Hehman, mayor of the upscale suburb in Kenton County.

City administrator Sharmili Reddy confirmed that the city received bids to repair three streets last December and that Fort Mitchell was prepared to spend about $897,000 for the work.

After prevailing wage repeal legislation passed in early January, the city decided to seek bids again and one contractor said his company would do the work for $823,000.

“This legislation not only saved us $75,000 on a road project which we have invested back in our infrastructure, but will also save taxpayer dollars for future public projects by putting them on a level playing field with private projects,” Hehman said.

Greg Paeth is a correspondent for The Lane Report. He can be reached at editorial@lanereport.com.


Transportation & Logistics | Playing Catch Up with Infrastructure Needs

With Kentucky Transportation Cabinet officials having identified a need for an additional $205 million in revenue annually to keep up with maintenance of existing roads and bridges, and any new construction adding to the total, state House Speaker Jeff Hoover appointed a bipartisan Transportation Task Force in late June to examine options and make recommendations in December, ahead of the 2018 General Assembly session.

With Kentucky Transportation Cabinet officials having identified a need for an additional $205 million in revenue annually to keep up with maintenance of existing roads and bridges, and any new construction adding to the total, state House Speaker Jeff Hoover appointed a bipartisan Transportation Task Force in late June to examine options and make recommendations in December, ahead of the 2018 General Assembly session.

State officials and members of the private transportation infrastructure sector are searching for a strategy not only to catch up to Kentucky’s needs but get ahead of the curve.

As the June issue of The Lane Report detailed in the cover story, gasoline tax rates and collections that keep the state road fund filled have fallen with prices in recent years. The General Assembly added a floor of 26 cents a gallon to the tax formula last year and the Kentucky Transportation Cabinet’s Pause 50 program suspended new projects for a year so the road fund could rebuild to the $100 million minimum believed appropriate to manage the financial Grand Central Station of payment traffic the cabinet oversees. This month, the commonwealth will begin new project spending for fiscal 2018 at $50 million, less than a third of typical years recently.

“The Cabinet did the right thing in enacting Pause 50,” said Juva Barber, executive director of Kentuckians for Better Transportation (KBT). “They had to right-size the ship. This gave them a chance to know that they can pay the bills that they have before they do more.”

Allowing the road fund to fall so low the state couldn’t pay its highway construction and maintenance bills would have started a chain-reaction of problems for the entire sector. Avoiding it, though, caused the state to fall further behind in maintaining its multimodal transportation infrastructure, including not only roads but bridges, ports, railroad crossings and more.

Pause 50 is considered a short-term success.

“That doesn’t take away the need. People need those projects to go forward. It just takes longer for it to happen,” Barber said. “We still fell a(nother) year behind.”

Transportation spending had exceeded revenue by nearly $500 million for the 2014-16 biennium, Transportation Secretary Greg Thomas told legislators in testimony a year ago. Gas tax rates are tied to the wholesale price of gasoline, which had steadily declined. Revenue in 2015 was $195 million less than 2014.

Wholesale gasoline prices run roughly 20 cents a gallon below retail, according to the National Association for Convenience and Retail Fueling, whose members well about 80 percent of U.S. gasoline. The cost of retailing is 12 to 16 cents a gallon, and sellers make about 5 cents profit a gallon.

Under Kentucky’s current formula, gasoline taxes will not begin to rise off the 26 cents a gallon floor until wholesale prices top $2.17 a gallon

In late June, retail prices were bouncing around at levels at or below $2.17.

Founded in 1978, KBT is a multimodal trade association with 303 members across a variety of sectors, from contractors to construction engineers, chambers of commerce, railroads, airports, some counties and cities, and even important system users like UPS and Toyota, Barber said, “because they can’t do what they do without a multimodal transportation system.”

KBT advocates for a safe, sustainable transportation network, which means there must be adequate long-term financial support to keep Kentucky competitive, she said. Roads and bridges get most of the political attention, but members want all of the elements maintained and improved because all the pieces impact each other.

“It’s so Kentucky can maintain its competitive edge, which is where we are located in the country,” Barber said. The state has attracted the UPS Worldport, a DHL air freight global hub and soon the first-ever Amazon Prime hub because their sites are within a day’s drive of the majority of the U.S. market. “But you have to actually be able to drive there. You have to have the infrastructure support” for the logistics sector to function.

Beyond its roads and its bridges, she said, about 70 of which are now closed for safety reasons, Kentucky has some 2,000 railroad crossings, eight public ports and public transit on its responsibility checklist.

All of it is part of an international supply chain for manufacturers, commerce and consumers, raw product producers and users, including agriculture as well as public service systems such as education.

“It is a national and international process,” she said. “We don’t buy all the Camrys we manufacture here in Kentucky.”

According to Barber, the Transportation Cabinet has identified a need for an additional $205 million a year just for road resurfacing and bridge maintenance. Additions to the system that are being sought across the state add to the total.

There is no obvious answer. The gas tax funding model that has been a mainstay for states and the federal government has been losing traction over the past decade, especially after the 2008-09 recession as Americans drove fewer miles, their vehicles have grown more fuel efficient and a small but growing number of electrics and natural gas-powered cars and trucks use no gasoline at all.

Gasoline taxes increased 4 cents a gallon in Tennessee on July 1 and will increase another 1 cent each of the following two years, adding up to 6 cents total. Tennessee’s tax on diesel fuel is going up 10 cents over the next three years. Tennesseans also are paying an extra $5 to register cars, but their sales tax on groceries dropped from 5 percent to 4 percent.

Indiana’s gas tax increased 10 cents a gallon July 1 and its diesel tax 31 cents. Registration fees increased $15 for gas vehicles, $50 for hybrids and $150 for electrics.

In Kentucky on June 28, House Speaker Jeff Hoover appointed a bipartisan transportation task force to examine state roads and bridges needs and options. The task force will make recommendations by December, in advance of the 2018 General Assembly that convenes in January.

Rep. Sal Santoro, R-Florence, and Rep. John Simms, D-Flemingsburg will co-chair the group. Santoro said it will look at all aspects of the road fund, including planning and funding.

Others on the task force are Marie Rader, R-McKee, who chairs the House Transportation Committee; Matt Castlen, R-Petrie; Jeff Greer, D-Brandenburg; Bart Rowland, R-Tompkinsville; Phil Moffett, R-Louisville; Chad McCoy, R-Bardstown; and Attica Scott, D-Louisville.

“Everything is on the table,” Santoro said. “Don’t think we’re not going to shake the bushes because we are.”

Barber encourages Kentucky’s business community to support making changes in funding for transportation infrastructure.

“They need to understand that transportation is important to all of us,” she said, not just to the road and bridge builders. “Manufacturing, mining, agriculture, service providers – it matters to all of us. We need to be supportive of infrastructure, and be supportive of making changes to fund it.”

Mark Green is executive editor of The Lane ReportHe can be reached at mark@lanereport.com.

Exploring Kentucky, Features

Exploring Kentucky | Team Up and ‘Wined’ Down

Baker-Bird Winery is set on 300 acres along the Ohio River near Augusta, which in the 1850s was the source of nearly half of all the wine consumed in the United States.

Baker-Bird Winery is set on 300 acres along the Ohio River near Augusta, which in the 1850s was the source of nearly half of all the wine consumed in the United States.

The first, Baker-Bird Winery, personifies the state’s rich grape-growing and wine-producing history. Set on 300 fertile acres along the Ohio River, it’s the oldest commercial estate winery with its original land in America and one of only 22 wineries – of about 6,000 in the country – on the National Historic Register.

In 1797, the first commercial vineyard in the U.S. was planted in Kentucky’s Bluegrass Region. German immigrants from the great wine area of Baden flocked to the Ohio River Valley in the mid-1800s and established “America’s Rhineland,” including the Abraham Baker wine cellar, which is now Baker-Bird Winery. By the late 1800s Kentucky had become the country’s third-largest grape and wine-producing state.

“Not a lot of people realize what an important role Kentucky played in the country’s wine business historically,” says owner Dinah Bird. “Our 1850s records show that about half of the wine consumed in America came from Augusta.”

These days, her winery boasts 12,000 s.f. of meeting space for up to 200 people, including Baker’s historic, hand-dug wine cellar – great for multimedia presentations. The space also includes double parlors and breakout rooms in the 1850s house, and there’s the tasting room, for sampling award-winning bourbon-barrel wines.

Historic tours feature learning about the winemaking process then and now, viewing the estate’s original vineyards, rolling a barrel in the cellar and corking a bottle with your own message inside. At Wine is Wonderful University, Bird teaches guests how to use all five senses in drinking and appreciating wine and what character to look for while tasting. She even rewards “students” with a completion certificate.

Baker-Bird is open year round on Saturdays, Sundays and by appointment.

Bird also owns a second business that goes hand-in-hand with the other two. Perched on a hill 400 feet above the Ohio River, Hawk Wood Hall is a seven-bedroom, French Tudor home built as a bed and breakfast. With a property buyout, the B&B can easily host a corporate retreat only seven miles from the winery. As a meeting spot, the house can accommodate up to 30 people in a spacious room and up to 100 on a large patio and porches that overlook the river.

The B&B is surrounded by acres and acres of timberland and farms, and bedrooms have luscious views of nature.

“It’s wonderfully quiet,” says Bird. “Our most popular spot is the back porch with rockers overlooking the river. Our biggest problem is that no one wants to leave!”

She adds that Hawk Wood will be right on the Northern Kentucky Bourbon Trail, due to open in January 2018.

The third business, also on the Ohio, offers playtime for corporate types and groups of any age, heavenly spa services for girlfriend getaways – and guys’ retreats – plus a “we-do-it-all” locale for weddings.

Just a mile from the winery, Potato Hill Farm is an 1850s-era farmstead tucked in a private, 86-acre “holler.” Owners Celine and Ron Quinn began restoring the property in 2005, creating a comfy balance between old-fashioned and upcycled with modern amenities. Over 18 months, Ron and a few neighbors transformed the barn, retaining its hand-hewn beams and vintage wood and metal, while hauling creek rock for its floor and adding a “donkey bar” (read on). The destination opened for business in 2010 with sustainability as its byword.

Both Quinns bring experience from years of teaching to create customized team building. Games that focus on goals of cooperation through strategy and/or competition include Ron’s custom-made box hockey and giant Jenga, i.e. wood stacked crosswise from which a participant must remove a piece without tumbling the stack; tether ball; croquet; giant checkers; and balloon-tower building.

With views of hayfields, meadows and a creek, the gorgeous event barn can seat up to 75 for a corporate function (there’s wireless access throughout) or a wedding, complete with catering, music, changing rooms and a trolley to accommodations.

As a retreat, Celine, herself a yoga practitioner, offers a “farmhouse spa.” Participants revel in relaxing massages, chill on the riverview porch, sip icy cucumber water, then nibble on a delicious healthy salad and quiche made with farm-laid eggs.

In addition, three donkeys reside in the barn. All are available for treks, i.e. hiking with a donkey; picnics, accompanying a donkey to a creekside lunch on a table with white linen, fine china, and live Irish fiddle ditties; and donkey therapy.

“I’m not a psychotherapist, the donkeys are,” Celine affirms. “They’re ancient souls that have carried everyone’s burdens over time. They understand. It’s so nice when they nuzzle you.”

The clever, flop-eared animals can even ring a bell for a carrot treat.

If you can tear yourself away from this beautiful spot, the town of Augusta is but a short, three-mile bike ride or car jaunt away. Here you can hear about the town’s part in the Civil War, stroll along the Ohio, grab a burger at the Corner Café, and hop aboard the Jenny Ann, one of the river’s oldest operating ferries. Vehicles pay only $5 one way, while pedestrians ride free.

Check out your options at bakerbirdwinery.com (859-620-4965), hawkwoodhall.com (937-108-1020), and potatohillfarm.com (513-833-6938).

Katherine Tandy Brown is a correspondent for The Lane Report. She can be reached at editorial@lanereport.com.

Emerging Lane, Features

Emerging Lane | Tapping into a New Market

Celebrating the 150th anniversary of DDWilliamson, event planner Lauren Chitwood called it “the pencil party” after creating centerpieces with thousands of pencils.

Celebrating the 150th anniversary of DDWilliamson, event planner Lauren Chitwood called it “the pencil party” after creating centerpieces with thousands of pencils.

The high-profile Louisville-based wedding planner Lauren Chitwood is launching a new corporate entity to utilize her event-planning skills in new ways.

“I am creative while being a big-picture problem solver; I thrive in the complex-event environment whether it’s on the social or corporate side,” Chitwood said. “Being an entrepreneur is a daily roller coaster with little consistency; high risk and high reward, I wouldn’t have it any other way.”

This skillset has given Chitwood incredible success in Louisville and beyond, and only grows with the recent launch of Olio Event Group, which takes a focus on corporate events.

Chitwood has a decade of experience under her belt and plans 15-20 weddings per year in the southeastern United States. She’s been featured on outlets like Martha Stewart Weddings, Style Me Pretty and BRIDES.com.

“I believe we are only as good as our last event,” Chitwood said. “We take that statement very seriously. We apply the same attention to detail and skill to every event: large or small, social or corporate.”

That attention to detail has set Lauren Chitwood Events apart, and continues to be a trademark of all her endeavors.

“Corporate and social events share an important characteristic: They both seek to deliver an experience for their guest or user. Whether it’s a bridal shower or a corporate retreat, the guest experience should be impactful and memorable.”

With this consistently in mind, Chitwood saw the opportunity to grow her business and took it, noting that with Louisville’s addition of 1,500 hotel rooms and a remodeled convention center nearly completed, corporate business planning was a market with largely untapped potential.

As the business grows, she is focusing on the relational aspects of event planning, especially how her team and her vendors can improve the efficiency of her two events operations.

“While I am the face and visionary behind these two companies, there is a robust team of highly qualified event professionals alongside me,” Chitwood said. “Our business is strong because we do our piece of the puzzle well, and rely on the expertise of other professionals to complement our services,” she said. “For every event, we leverage our relationships with our premium vendor partners to deliver memorable experiences for our clients.”

Despite the problem-prone nature of event planning, her team has proven to be agile in its ability to handle the unexpected, Chitwood said, adding that she encourages others starting out to expect the same and to grow from each experience.