The 1st meeting of the Subcommittee to Study Competitiveness of Kentucky Coal of the Interim Joint Committee on Agriculture and Natural Resources was held on Wednesday, October 9, 2002, at 10:00 AM, in Room 125 of the Capitol Annex. Representative James Gooch, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Robert Leeper, Co-Chair; Representative James Gooch, Co-Chair; Senators Paul Herron Jr; Representatives Rocky Adkins, Hubert Collins, James Comer, Keith Hall, Tanya Pullin, and Johnnie Turner.
Guests: Mr. Carl Bauer, National Energy Technology Laboratory.
LRC Staff: Tanya Monsanto, D.Todd Littlefield, Hank Marks, Lynn Aubry, Perry Nutt, and Sheri Mahan.
Chairman Gooch welcomed the members and briefly discussed the purpose of the subcommittee. He commented on the importance of coal to Kentucky’s economy and future economic development. Chairman Gooch stated that the subcommittee should focus on several issues while studying Kentucky’s relative competitiveness in the coal industry: 1) Identifying present markets for Kentucky coal; 2) Identifying Kentucky’s primary competition in the industry; 3) Identifying the state’s fixed impediments to obtaining a competitive advantage in coal; 4) Identifying innovative marketing strategies utilized by other states; and 5) Identifying alternative markets for Kentucky coal. Chairman Gooch encouraged members to provide their insight and ideas as the study of coal competitiveness progresses. He then invited Senator Leeper, co-chair, to provide additional comments.
Chairman Leeper stated that Representative Gooch’s remarks addressed the primary focus of the subcommittee. He emphasized the importance of educating the members in these areas as a way to help the coal industry in the future.
Next, Mr. Carl Bauer, associate laboratory director of the National Energy Technology Laboratory, gave a presentation regarding coal competitiveness in the United States as a whole. He stated that electricity intensity tracks the country’s gross domestic product. Electricity is inexpensive in Kentucky, which encourages economic development and industry sustainment. He cited Kentucky’s remaining aluminum production industry as an example. The Northwestern states have ceased making aluminum because of ever increasing electricity costs, but Kentucky’s low energy costs allow the industry to survive in the state.
Mr. Bauer then discussed the various uses for coal, stating that new technologies are constantly being refined and developed providing new markets for the product. He discussed fluidized bed, gasification, and coal bed methane technologies.
Chairman Gooch asked if there is sufficient natural gas pipeline infrastructure to meet the projected 2020 demand for electricity generated using natural gas. Mr. Bauer replied that the capacity for natural gas transmission is not sufficient. He stated that there is also an overbuild of gas fired electricity generation plants which would make it undervalued economically. Florida has pressured coal fired plants to shut down and has encouraged companies to switch to gas generated electricity. Mr. Bauer cited environmental concerns as the reason for the switch. Mr. Bauer then discussed the possibility of producing coal bed methane gas in Kentucky, hooking Kentucky produced gas directly from the coal source into the gas distribution pipeline.
Chairman Gooch asked what effects the increasing demand on natural gas for generation purposes will have on the cost of home heating on the average consumer. Mr. Bauer responded that market forces are driving natural gas prices at present. As gas fired generation facilities increase, and gas reserves are depleted, gas prices will tend to increase across all market segments, including the private consumer sector.
Representative Adkins stated the potential downfalls of using natural gas as a baseload power system, and the need for balanced energy policy. He then asked what effects natural gas price spikes have on industry. Mr. Bauer stated that the impact is only partially recognized. Natural gas is clean burning and is less difficult to use, but it is too good a fuel to just be burned for electricity. Coal in its natural state is a much less flexible fuel to use for generation, so the industry must rethink how coal is used. Gas from coal beds, for instance, is another way coal can be utilized in a more accessible way.
Representative Adkins stated that he is enthusiastic about new clean coal technologies. The coal industry affects the economy of the entire state and new technologies offer new opportunities for coal usage. Mr. Bauer added that new technologies will prove key to sustaining the coal industry. He stated that coal gasification is very useful, giving examples and emphasizing the tax incentive offered by Illinois for gasification plants using Illinois coal. Mr. Bauer then briefly discussed the coal industry incentive program instituted by Illinois. He stated that the incentive program is for Illinois coal only, and has an educational component. Other states have programs, including Indiana, Wisconsin, Ohio, and Kansas.
Representative Collins asked Mr. Bauer to compare a like quantity of coal and natural gas on the electricity generation industry. Mr. Bauer stated that his response is a qualitative answer. A lot depends on amortization of investment. Insurance, fuel costs, investment capitol recovery, and environmental controls are all considerations for an electricity generation company when making fuel usage choices.
Mr. Bauer then discussed the impact emission regulation has and will have on the coal industry. He contrasted the physical property differences in east and west Kentucky coal, and Kentucky coal to Powder River Basin coal. He discussed the necessity for mercury and sulfur reductions and the positive and negative aspect of using Kentucky coal to try to meet these reduction requirements.
Next, Mr. Bauer discussed the need to think creatively when trying to stimulate the Kentucky coal industry. He mentioned the potential for Kentucky to produce coal bed methane, and potable water from this process.
Chairman Gooch thanked Mr. Bauer for his presentation, and briefly discussed potential topics for the next subcommittee meeting.
Being no further business, the meeting was adjourned at 11:55 a.m.
A copy of Mr. Bauer’s full presentation is available in the Legislative Research Commission library.