Interim Joint Committee on Natural Resources and Environment


Minutes of the<MeetNo1> 3rd Meeting

of the 2013 Interim


<MeetMDY1> September 5, 2013


Call to Order and Roll Call

The<MeetNo2> 3rd meeting of the Interim Joint Committee on Natural Resources and Environment was held on<Day> Thursday,<MeetMDY2> September 5, 2013, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Senator Jared Carpenter, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Jared Carpenter, Co-Chair; Representative Jim Gooch Jr., Co-Chair; Senators Joe Bowen, Chris Girdler, Bob Leeper, John Schickel, Brandon Smith, Johnny Ray Turner, Robin L. Webb, and Whitney Westerfield; Representatives Hubert Collins, Tim Couch, Keith Hall, Stan Lee, Reginald Meeks, Tim Moore, Marie Rader, John Short, Kevin Sinnette, John Will Stacy, Fitz Steele, Jim Stewart III, and Jill York.


Legislative Guests:  Representatives David Floyd, Dennis Horlander, James Kay, Kim King, Tom McKee, and Terry Mills.


Guests: Jim Scheel, Geordie Robinson, Williams; Allen Kirkley, Boardwalk Louisiana Midstream; Mike McMahon, Boardwalk; Jeff DeRouen, Public Service Commission; Secretary Len Peters, Energy and Environment Cabinet; Andrew McNeill and Bill Barr, Kentucky Oil and Gas Association.


LRC Staff: Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.


Noting the presence of quorum, the chair asked for a motion on the July 5, 2013 meeting minutes. After a motion and a second, the minutes were approved. Senator Carpenter stated that this is the first of several meetings on this topic.


The Bluegrass Pipeline by representatives of Williams and Boardwalk

Jim Scheel, Senior Vice President for Williams; Geordie Robinson, Lead Project Development for Williams; Allen Kirkley, President, Boardwalk Louisiana Midstream; and Mike McMahon, Senior Vice President and General Counsel for Boardwalk identified themselves for the record. Mr. Scheel stated the Bluegrass Pipeline will transport natural gas liquids (NGLs) from the states in the northeast to Texas and Louisiana. There will be three segments of pipe: new pipe from the northeast into an area near Hardinsburg, Kentucky; a segment of a repurposed Texas Gas Transmission line already situated in Kentucky; and a new segment of line into the petrochemical complexes in Sulfur Springs, Louisiana.


Natural gas liquids (NGLs) are the liquids in an enriched gas stream that contains hydrocarbons of ethane, butane, isobutene, propane, and pentane. The Bluegrass Pipeline will be an open access, common carrier engaged in interstate commerce. Natural gas liquids will be fractionated, meaning specific gases will be separated and then sold to the public. The Bluegrass Pipeline is important to energy independence and will be part of a process of increasing the supply of natural gas to the nation. The pipeline is the safest and best way to transport NGLs.


Williams and Boardwalk have a long history and vast experience with all phases of natural gas production and transport. Williams operates 1,500 miles of interstate pipe, 1,400 miles of NGLs, and 10,000 miles of gathering lines. Boardwalk Pipeline Partners, LC owns Texas Gas Transmission, which is headquartered in Owensboro, Kentucky. The company services over 30 gas utilities, municipalities, electrical power generation, and industrial customers. Combined, Williams and Boardwalk provide over 25 percent of the nation’s natural gas transportation.


Mr. Scheel described the general route of the pipeline, which has not been finalized, and how construction will impact the citizens. Williams and Boardwalk are looking to acquire 180 miles of right-of-way in the Commonwealth for new pipe. The company is talking to landowners, and payments to citizens for right-of-way are estimated to total between $30 million to $50 million. Other financial benefits to the Commonwealth include $136 million in new tax revenues over the next ten years. Jobs will be generated from construction and operation of the pipeline, and secondary economic benefits will accrue from increased NGL production nationally. The pipeline will be subject to federal and state regulations. Federal interface will be through United States Army Corps of Engineers, Kentucky Environmental Protection, Kentucky Historical Commission, and the Kentucky Department of Fish and Wildlife Resources. Karst issues are important, and the company will work with federal and state regulators to build a safe and effective system.


In response to a question about whether the company has the right of eminent domain, Mr. McMahon said the company is a common carrier that transports oil and gas products for public service under the Kentucky statutes. The public service is that the pipeline removes bottlenecks in the interstate system of transport of natural gas to the nation. The increased production and supply of natural gas improves the general welfare of the Commonwealth, and that is how Williams and Boardwalk define their public service.


In response to a question about how much the company will pay a landowner for the land and whether Williams and Boardwalk would be pursuing the pipeline project if Kentucky was still burning coal, Mr. Scheel said that the amount paid will be predicated on the conditions of the land. Mr. McMahon added that the company uses an appraisal process that will generate a value as the basis of the offer. Mr. Scheel said that the company would still pursue the project regardless of Kentucky’s coal use.


In response to concerns posed by a legislator over the way Williams and Boardwalk has approached landowners using aggressive tactics and trespassing on land and questions about land use, safety, and operation, Mr. Scheel stated that the company should ask permission to be on the land. There would be a 50 foot permanent easement and a 100 foot temporary work space easement. The easements can vary depending on the features of the land, but afterwards there would be likely restrictions on above ground structures and heavy equipment use. The line depth is three feet but might increase depending on mitigation and use of land afterwards. The line is expected to be in use by the summer of 2015. It should take two to three months to complete construction on a landowner’s parcel of land. Safety begins in determining the proper route, protecting the environment, water, and habitat, and ensuring that the design meets specifications.


In response to questions about where Williams and Boardwalk presently own lines, construction and safety, Mr. Scheel stated the company has lines around the nation. There are specifications on the project for compaction and grade to prevent settlement. He described a leak that occurred in Colorado as a quick company response to self-reported leak.


In response to a question about how the line would spur economic development and comments about how the company is a good citizen in Owensboro, Mr. Scheel stated that low cost energy will help Kentucky maintain its economic advantage and competitive position. West Lake has sought expansion and will be a new customer of Williams and Boardwalk.


Implications of the Bluegrass Pipeline by the Energy and Environment Cabinet

Len Peters, Secretary for the Energy and Environment Cabinet, and Jeff DeRouen, Executive Director for the Public Service Commission discussed the economic and environmental impacts and the regulatory controls and oversight of the Bluegrass Pipeline respectively. Secretary Peters commented on the interrelationship between the public anxiety over the NGL line and the needs of the nation for natural gas. Kentucky lacks wet natural gas liquids, which have lucrative commercial uses and spans all sectors of the economy, but companies will want to move it through Kentucky. EEC has an obligation to protect human health and environment via permitting, monitoring, inspections, and enforcement. Permitting is in the construction phase but what it will be used or carrying will not be under EEC authority. It is not certain what authority federal authorities have over the pipeline at the beginning of construction, monitoring, and intended use of the pipeline. Oversight could fall to multiple agencies at the state level but it would not eliminate risk, but there would be more transparency. Citizen response is overwhelming, and EEC has responded that it does not have authority to stop a legally allowable activity. Questions over transportation of these oil and natural gas products will grow in all areas of transportation infrastructure. The office of the General Counsel for EEC thinks that the pipeline does not have eminent domain under Kentucky statutes.


Regulation of natural gas lines by the Kentucky Public Service Commission

Jeff DeRouen discussed the role of the Public Service Commission and sources of state, local, and federal authority. The Public Service Commission has no role in the regulation of facilities proposed by the Bluegrass Pipeline. Conversion of existing facilities such as natural gas transmission lines falls under the purview of the Federal Energy Regulatory Commission (FERC). The PSC implements the statutes, rules and regulations passed by the General Assembly. There are three areas of concern: construction, rates and service, and safety.


Regarding interstate NGL lines, the PSC has no jurisdiction. With respect to construction of the NGL line, there is no PSC jurisdiction. Because the line is interstate, it falls under the United States Constitution’s Commerce Clause and is not subject to state-specific regulation. States can regulate some aspects if not unduly burdensome such as the Kentucky State Board on Electric Generation and Transmission Siting (Siting board). Mr. DeRouen then discussed the history and function of the Siting board. With respect to rates and service, the PSC does not have jurisdiction because the pipeline is not a utility. FERC does not determine the need, siting, abandonment, or conversion of the NGL line.


With respect to safety, primary responsibility for investigations and regulation rest with the federal pipeline and hazardous material safety administration (FMSA). The PSC is responsible for enforcing safety regulations through an agreement with FMSA for intrastate natural gas facilities in Kentucky both transmission and distribution. The PSC does not regulate the safety of interstate natural gas transmission lines or any pipeline carrying hazardous liquids such as NGLs. That jurisdiction rests solely with FMSA. The Bluegrass Pipeline does not fall under any regulatory jurisdiction of either the PSC or the Siting Board.


Senator Carpenter requested that the Secretary of the Energy and Environment Cabinet submit the research on eminent domain to committee staff. Secretary Peters agreed.


In response to a question about revenue from the Bluegrass project, Secretary Peters said that it is a better question to be posed to Williams and Boardwalk. However, the benefits from this project are diffuse. Mr. DeRouen added that FERC has responsibility over rates and service for some portions of the NGL line. Otherwise, the Interstate Commerce Act governs this project rather than the Natural Gas Act.


Opposition to the Bluegrass Pipeline by Kentucky Resources Council

Tom Fitzgerald, Executive Director the Kentucky Resources Council described the Kentucky Resources Council and the work that the council has been doing with landowners. While there are benefits to the pipeline, there are additional risks and burdens to specific areas depending on where the pipelines are located in the production and transportation process of NGLs. Mr. Fitzgerald addressed three areas of concern: the absence of any comprehensive advanced review of the routing of NGL pipelines; the need for clarity in who has eminent domain; and the lack of initiative taken by the Energy and Environment Cabinet to enforce statutes and regulations governing natural gas and natural gas products.


First, the argument that pipelines are the safest method of transporting hazardous liquids is incorrect because safety is predicated on counting the number of incidents rather than the severity of those incidents. NGL pipelines when breached have more severe public safety problems than any incidents by truck or rail. Second, the Kentucky Resources Council agrees with the Office of the Attorney General, EEC, and several state attorneys that the Bluegrass Pipeline does not have eminent domain under Kentucky law. However, the statutes need to be clarified so that the threat of the use of eminent domain is made clear to the public and citizens that non-utilities do not have the power of condemnation. Finally, EEC has failed to issue regulations on gathering lines which the General Assembly required in earlier sessions, and it reflects a reluctance to address the issue now. If EEC, acted then this situation might not have occurred because standards would be in place, and the EEC can act now.


In response to a question about options to move NGLs to markets and which is the safest, Mr. Fitzgerald said that NGLs can be moved by pipeline, railroad or truck. One can build fractionalization nearby, too. Rail is the safest. Safety must be measured by looking at both number of incidents and the magnitude of the incidents.


Bill Barr and Andrew McNeil with Kentucky Oil and Gas Association (KOGA) discussed recent research commissioned by KOGA on the oil and gas industry in Kentucky. Mr. Barr and Mr. McNeil discussed the economic benefits of the oil and gas industry and the way that the NGL line fits into that picture.


There being no further questions, after a motion and a second, the meeting was adjourned.