Special Subcommittee on Energy


Minutes of the<MeetNo1> 3rd Meeting

of the 2004 Interim


<MeetMDY1> August 20, 2004


The<MeetNo2> 3rd meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> August 20, 2004, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Robert Stivers, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Robert Stivers, Co-Chair; Representative Tanya Pullin, Co-Chair; Senators Charlie Borders, David Boswell, and Joey Pendleton; Representatives Royce Adams, Eddie Ballard, Carolyn Belcher, Buddy Buckingham, Dwight Butler, Bob DeWeese, Lonnie Napier, Tom Riner, Charles Walton, and Brent Yonts.


Guests: Mark David Goss, Andrew Melnykovych, Greg Coker, Garnett Thurman, Public Service Commission; Annette Coffey, Jay Hoskins, Tom Schomaker, Chuck Knowles, Brent Sweger, Transportation Cabinet; and Greg Howard, Vehicle Enforcement.


LRC Staff: D.Todd Littlefield, Tanya Monsanto, and Rhonda Carter.


Senator Boswell moved that the minutes from the previous meeting be approved as written.  Second by Representative Pullin.  Motion carried by voice vote.


Representative Pullin spoke about the preparations for the committee trip to northeast Kentucky in October and advised the members concerning Representative Bruce's hospital stay and current outlook. Senator Stivers recognized Public Service Commission chairman Mark David Goss who introduced newly appointed commissioner Greg Coker.


Andrew Melnykovych, Communications Director of the Public Service Commission explained the structure of the natural gas industry. The natural gas stored for winter consumption is at normal levels but, because it cost more to put it there, consumers cannot expect any moderation in prices. High prices are likely to persist for several years.


Representative Ballard asked how long natural gas supplies could be expected to last. Melnykovych answered that gas supplies exist but, like coal, will become more difficult and expensive to access. Senator Borders asked what home heating source was being most widely used in new construction. Melnykovych said that natural gas still predominates in new home construction. He further stated that electric generating facilities are beginning to back off natural gas as a fuel. Because almost all of Kentucky's electricity is generated by burning coal, increases in natural gas prices are not likely to result in higher prices for electricity.


Chairman Pullin asked if there would be any difference in the market if a cold snap were to arrive early in the heating season as opposed to late in the season. Melnykovych said that a period of unseasonably cold weather late in the season would find gas reserves at a lower ebb.


Senator Boswell inquired about the impact of brokering on today's markets and about the number of companies and wellheads currently in production. Melnykovych was unaware of the statistics on ownership but said that trading natural gas as a commodity has had some impact on prices.


Representative Gooch asked if being limited to one transportation method (pipeline) tended to increase the cost of gas. Melnykovych said that current constraints on pipeline capacity are a factor.


Chairman Stivers asked about PSC regulation of drilling (there is none) and gathering lines (PSC does regulate intrastate pipelines). The chair also inquired about developing additional storage capacity. Melnykovych stated that the ability to store gas underground is limited by geology.


Senator Boswell asked Mr. Melnykovych to investigate if it was possible for small natural gas wells to add their output into existing, larger, cross-country gas pipelines.


Chairman Stivers introduced the next agenda topic, he stated his concern that deterioration of infrastructure would become a barrier to trans-shipment of coal mined in Kentucky.


Chuck Knowles, Deputy State Highway Engineer for Operations, told the committee that the state's highways were not built to accommodate the large loads they are being asked to carry and that the result is accelerated deterioration, putting strain on the maintenance budget. Jay Hoskins, Division of Planning Branch Manager, tracks and reports on coal tonnage hauled and over what routes it travels. The goal is to allocate maintenance resources to the roads which are receiving the greatest amount of wear.


Senator Stivers pointed out that extended weight limits for truckers were available only to coal haulers and excludes other product such as gravel. Representative Belcher commented that the legislature had limited the application of that law to coal only and offered that the rationale for that may have had something to do with concerns over load-shifting.


Tom Schomaker, Director of the Division of Maintenance, reported that the revenue from over-weight decals and enforcement are split between state and local maintenance departments. Revenues raised are insufficient to cover the increased maintenance costs to haul-damaged roads. He stated that the coal haul system needs a million extra dollars per year for additional bridge maintenance and that roads on the system require an extra 3 to 4 hundred dollars per mile for maintenance.


Brent Sweger, Division of Multi-Modal Programs, stated that the Department's jurisdiction and funding in the area of rail and barge is limited but that some studies have been undertaken. Chairman Pullin asked about the extent of state oversight of rail and river traffic. Sweger said that the state has some authority over public riverports but not much over rail. Representative Pullin expressed concern that transport companies may have disposed of barges and rail cars during the years when the coal market was depressed.  Chairman Stivers invited industry representatives present in the room to respond to this concern.


Senator Boswell mentioned overland conveyor belt transport of coal and asked about regulation of them. Hoskins replied that they are not state regulated.


Sweger reported that 164 million tons of coal were transported in, through, or out of Kentucky in 1999. Senator Stivers noted that today's numbers would likely be substantially higher. The latest figure for barges was 45 million tons being shipped on Kentucky waterways but not all this coal originated in the state. Federal regulations predominate in the area of barge and rail.


Representative Ballard asked if a permit was required for a conveyor belt to cross a state highway. Knowles replied that an airspace agreement was required.


Representative Belcher asked for further comments from the speakers on the impact of the increased enforcement of weight limits for coal trucks. Knowles pointed out that the resurge in coal prices has been an incentive for increased mining activity and that some roads in eastern Kentucky that have not seen mining activity before were now carrying trucks because of new mines being opened.


Chairman Stivers expressed his ongoing interest in being informed of any way in which the legislature can be helpful in ensuring that coal-hauling infrastructure is maintained.


Representative Belcher suggested that the committee hear from coal companies concerning their choice of transportation methods.


Being no further business, the meeting was adjourned.


All meeting materials and a tape of the meeting are available in the Legislative Research Commission Library.