The7th meeting of the Special Subcommittee on Energy was held on Friday, December 16, 2005, at 10:00 AM, in Room 131 of the Capitol Annex. Senator Robert Stivers II, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Robert Stivers II, Co-chair; Representative Tanya G. Pullin, Co-chair; Senators Walter Blevins Jr, Charlie Borders, Denise Harper Angel, Ernie Harris, Vernie McGaha, Katie Stine, and Johnny Ray Turner; Representatives Royce W. Adams, Rocky Adkins, Eddie Ballard, Dwight D. Butler, Rick G. Nelson, Fred Nesler, Tom Riner, Brandon D. Smith, and Brent Yonts.
Guests: Andrew McNeill, Chief of Staff, Office of Energy Policy, Commerce Cabinet; Glenn Kettering, President, Columbia Gas Transmission Corporation; Michael Watson, Vice President of Pricing and Volume Management, NiSource Pipeline; Tom Brasselle, Manager of Customer Services, Columbia Gas Transmission Corporation; Jonathan Adler, Manager of Governmental Affairs, Columbia Gas Transmission Corporation; David Spigelmyer, Director of Government Affairs, Equitable Production Company; Tom Howard and Chuck Effinger, Finance and Administration Cabinet; Representative Mike Cherry; and Libby Marshall, Municipal Electric Power Association of Kentucky.
LRC Staff: D. Todd Littlefield, CSA; Bill Bowker, and Susan Spoonamore, Committee Assistant.
Minutes of the November 18, 2005 meeting were approved, by voice vote, without objection upon motion made by Rep. Pullin and seconded by Sen. Harper Angel.
Andrew McNeill, Office of Energy Policy, Kentucky Commerce Cabinet, said that the Office of Energy Policy (OEP) had drafted a comprehensive energy strategy for the state. He stated that there were six components to the energy plan: (a) Energy efficiency: saving energy, saving money and protecting the environment; (b) Renewable energy: sustainable commitment; (c) Kentucky’s low cost electricity: strategic investment; (d) Coal: Energy at Kentucky’s feet; (e) Kentucky’s Natural Gas: untapped potential; and (f) Kentucky’s Energy Future: a perpetual commitment. Mr. McNeill stated that $1.5 million had been allocated to the OEP to establish an energy research and development fund. He stated that OEP was focused on positioning the universities and research institutions to be aggressive in the pursuit of federal Department of Energy money through the Energy Policy Act as well as existing programs within the Department of Energy.
Rep. Nesler stated that he would like additional information regarding the expanded consumption of ethanol and bio-diesel vehicles. Mr. McNeill stated that he would furnish that information to the committee.
Sen. Stivers asked the OEP to provide a statement as to what type of match money would be needed from the state in order to draw down federal grant money.
Mr. McNeill said that $1 million was targeted towards matching funds. He stated he would provide committee members with information regarding federal grant dollars.
Rep. Adkins stated that Kentucky has the resources and technology to reduce the costs of energy through the development of biomass policies and incentives. Mr. McNeill stated that in order to reduce the costs of energy, Kentucky would have to make investments and think progressively.
Sen. Stivers introduced Glenn Kettering, President, Columbia Gas Transmission Corporation, Michael Watson, Vice President of Pricing and Volume Management for NiSource Pipeline, and Tom Brasselle, Manager of Customer Services, Columbia Gas Transmission Corporation and Jonathan Adler, Manager of Governmental Affairs for Columbia Gas Transmission Corporation.
Mr. Kettering discussed the status of pipeline capacity issues relating to eastern Kentucky. He stated that Columbia Gas, a member of the NiSource Group, operated lines in Kentucky. He said that the NiSource companies engaged in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution in northwest Indiana.
Mr. Kettering explained that Columbia Gulf Transmission, a large interstate pipeline company, transported natural gas from on-shore Louisiana and off-shore Gulf of Mexico up to the interconnection with Columbia Gas Transmission Corporation at the Kentucky/West Virginia border.
Mr. Kettering said that Columbia Gas Transmission transports and stores natural gas received from Appalachia and southwest to Midwest, Eastern and Northeast markets. It had more than 12,500 miles of pipeline, including 83 compressor stations and delivered 1.2 trillion cubic feet of gas annually. He stated that the system is operated to maximize the amount of gas transported. He stated that a number of factors determined how much and when production might need to be curtailed: scheduled or unscheduled maintenance, storage, injectability, limitations which are particularly acute in the summer time, system-wide flow and supply conditions, and local market conditions. He said that in 2001 the level of production in Eastern Kentucky and Southern West Virginia was about 390,000 cubic feet per day, with the vast majority of that gas flowing on an interruptible basis. Occasionally there would be a need to interrupt services, but the impact of the interruptions were shared universally.
Mr. Kettering stated that some producer shippers made the decision to purchase firm transportation capacity on the system in order to minimize or avoid the impact of any curtailments. Presently, production in the area exceeded the 500,000 mcf per day capacity limit. As a consequence, he said that any volumes that were not moved under a firm contract had effectively been interrupted for a large part of 2005. He stated that during the summer and fall months of 2006, it is expected that non-firm transportation will be interrupted to a significant degree. Mr. Kettering stated that Columbia Gas Transmission Corporation was working to expand capacity by approximately 600,000 mcf per day.
Sen. Borders asked if Kentucky’s low residential energy rates were competitive with rates of other states. Mr. Kettering stated that Columbia Gas Transmission’s rates were extremely competitive in the area of transportation and storage.
Sen. Borders asked if consumer rates in eastern Kentucky were comparable to other residential rates in the system. Mr. Kettering stated that he would defer that question to someone who had specific knowledge regarding residential rates.
Sen. Borders asked why some producers declined to enter into contracts. Mr. Kettering stated that service was based upon costs embedded in the existing infrastructure, which was built a long time ago when costs were much lower. He said that if the pipeline system were to be expanded now the costs would reflect the current market — the actual investment and resulting rate would be considerably more expensive.
Rep. Dwight Butler asked why the shut in occurred, and was there an incentive for more drilling. Mr. Kettering stated that “shut in” means unable to get into the pipeline grid —there is more production trying to get into the pipeline than there is capacity. Mr. Kettering stated that price incentives for developing resources would be good, but the infrastructure and capacity must be expanded in order to market the trapped production.
Rep. Dwight Butler asked how many years it would take to expand the existing infrastructure. Mr. Kettering stated that it could be 2008 before full expansion could be completed.
Sen. Blevins asked who owned the pipeline, and how many operators were from Kentucky. Mr. Kettering stated that several small operators and large regional companies held firm capacity on the system. He stated that he would provide a list of the firm contract holders to the committee.
Sen. Blevins asked if the recent hurricanes in the gulf region affected the ability to move gas to Kentucky, and if so, could the producers who did not have firm contracts be allowed to connect to the pipelines. Mr. Kettering stated that the problems in the gulf coast region had not impacted this region’s system. Mr. Kettering stated that a producer could release its firm contract to another party if the need arose.
Sen. Stivers asked if the total capacity of the pipeline was being used. Mr. Kettering stated that all available capacity was being used in the pipeline system. If a firm producer failed to utilize their capacity, then Columbia Gas Transmission would make interruptible capacity available. He also stated that more outlets were needed and more capacity created so the shut ins would not occur.
Rep. Pullin asked if the interruption of the natural gas supply on the gulf coast affected the amount of natural gas supplied. Mr. Kettering stated that it did not affect the Kentucky area. He stated that there was plenty of natural gas, but supply and demand dictated the price of gas.
Rep. Riner asked if there was a local and national strategic plan to prioritize residential and commercial gas use in the event of a terrorist attack. Mr. Kettering explained that the Public Service Commission of Kentucky was responsible for prioritizing services for human needs. He also stated that there is a protocol in place as to what services are provided when there is a limited ability to provide services to the entire universe of users of the system. He said that on the national level, the gas industry has a well organized security protocol. He noted that the transportation network is underground so the facilities are not visible targets.
Sen. Turner asked if firm capacity in the region ever became available. Mr. Kettering stated that it rarely became available.
Sen. Turner asked about the status of the Boldman line, and was there potential for another line being put into operation. Mr. Kettering stated that Boldman is an operating compressor station. He stated that he expected the capacity to expand.
Rep. Smith asked if gas shortages were created intentionally to prevent companies from being able to get their gas into the line. He also asked if NiSource was able to utilize other transmission lines in order to move the product when experiencing shortages. Mr. Kettering stated that on behalf of NiSource Companies, there was no intention of limiting the amount of gas supplied to the market. He said that their interests were aligned with companies who wanted to maximize the amount of gas to market.
Rep. Smith asked if natural gas could be shipped by train. Mr. Kettering stated that there was no physical means by which natural gas could be shipped by rail. He said that expanding pipelines or adding compressors were the alternatives for maximizing the amount of gas reaching the market.
Rep. Adkins asked who owned the line running parallel with Interstate 64. He said that small producers were facing a dilemma with not having revenue coming in to meet the payroll because of the shut in. Mr. Kettering stated that he thought Tennessee Gas Pipeline owned the line.
Rep. Adkins asked if the green line, indicated on the map, was owned by NiSource Companies. Mr. Kettering stated that the green line indicated transportation of local gas. It did not move gas from the southwest.
Rep. Adkins asked if the blue line, as indicated on the map, was coming up from the gulf. Mr. Kettering stated that was correct.
Rep. Adkins asked what type of infrastructure would be needed at Kenova in order to move the gas out of eastern Kentucky. Mr. Kettering stated that there were viable opportunities for building a new pipeline and connecting with Columbia Gulf or the Tennessee Gulf Pipeline.
Tom Brasselle, Manager, Customer Service, Columbia Gas Transmission stated that if a new line could be built from the Beaver Creek area up to either the Tennessee Gas Pipeline or the Columbia Gulf Pipeline, then no additional infrastructure would be required at the Kenova compressor station.
David Spigelmyer, Equitable Resources, addressed issues pertaining to the eastern Kentucky gathering systems and issues on natural gas supply, demand and price. He stated that a significant factor impacting the price of gas was the inability to drill because of drilling restrictions in certain areas of the country. He said that new wells were being opened but there were not enough gathering systems and pipelines to move the gas. He stated that Equitable Resources had approved funding for the Big Sandy Pipeline project that would help to alleviate some of the bottleneck in eastern Kentucky. The pipeline would allow Kentucky producers to move a great deal more gas to market. He said that the completion date is scheduled for early 2007.
Rep. Adkins asked if Equitable Resources would need federal approval before beginning the project. Mr. Spigelmyer stated that federal approval would be needed.
Rep. Adkins asked if Equitable had plans to replace old gathering lines. Mr. Spigelmyer stated that project plans included the addition of compression at the Kentucky HydroCarbon facility in Floyd County. He said that Equitable might have to ask for help from state government.
Rep. Adkins asked if right-of-way easements had been obtained for the project. Mr. Spigelmyer stated that 90 percent of the right-of-way easements were in place.
Sen. Turner asked if firm capacity would be available for anyone on the new line. Mr. Spigelmyer stated that the new pipeline would be open for subscription.
Sen. Stivers introduced Kristin Webb, Legislative Director, Finance and Administration Cabinet; Terri Fugate, Office of Financial Management, Finance and Administration Cabinet, Chuck Effinger, Executive Advisor, Finance and Administration Cabinet Energy Program.
Sen. Stivers asked if the Finance and Administration Cabinet had any objections to Administrative Regulation 200 KAR 26:010. Ms. Webb stated that the Finance and Administration Cabinet had no objections to Administrative Regulation 200 KAR 26:010.
Sen. Stivers asked if any of the committee members had any objections. No objections were raised.
Libby Marshall, Municipal Electric Power Association of Kentucky, explained that HB 82 (BR 316) would allow the 30 cities that currently own and operate municipal electric power systems to work together rather than individually. She said that increasing the capacity of the 30 municipal utilities would help to draw in significant investment capital through increased credit worthiness and bonding capacity. She explained that BR 316 included specific legislation relating to the bond market. It also contained provisions that the rating agencies wanted to see in order to give the least risk, greatest security, and best bond rate possible. She stated that Kentucky has the ability to help establish the assets and infrastructure that would enable Kentucky to be less dependent on giant corporations.
Sen. Harris asked if the Municipal Electric Power Association was outside the purview of the Public Service Commission. He also asked if there was a bill coming from the Municipal Association on broadband deployment. Ms. Marshall stated that HB 82 (BR 316) was strictly related to electric. She was not aware of any bill coming through the Association related to broadband.
Sen. Harris asked if there were other issues related to PSC and oversight that the committee needed to be aware of. Ms. Marshall stated that the issues were related to the degree of PSC regulation. She said the Association felt that Kentucky could not afford to lose the independence of being regulated by local government.
Sen. Stivers asked representatives of the investor-owned utilities to submit their comments to staff in time for the opening of the 2006 General Assembly.
Meeting adjourned at 12:20 p.m.