Special Subcommittee on Energy


Minutes of the<MeetNo1> 4th Meeting

of the 2003 Interim


<MeetMDY1> October 17, 2003


The<MeetNo2> 4th meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> October 17, 2003, at<MeetTime> 9:30 AM, in<Room> Room 131 of the Capitol Annex. Representative Tanya Pullin, 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, Ernie Harris, Paul Herron Jr, Alice Kerr, Vernie McGaha, and Joey Pendleton; Representatives Rocky Adkins, Eddie Ballard, Carolyn Belcher, James Bruce, Buddy Buckingham, Dwight Butler, Bob DeWeese, J. R. Gray, Lonnie Napier, Fred Nesler, Tom Riner, Charles Walton, and Brent Yonts.


Guests:  John Davies, Kentucky Division of Energy; Aaron Greenwell, Andrew Melnykovych, Jeff Shaw, and William Bowker, Kentucky Public Service Commission; Paul Wilkinson, American Gas Association; Mike Gribler, Cinergy; Smitty Taylor, Capitol Links; and Rich Gates, Don Colliver, Robert Fehr, and Mike Montross, University of Kentucky.


LRC Staff:  D.Todd Littlefield, Dan Risch, Tanya Monsanto, and Sheri Mahan.


Representative Adkins moved that the minutes from the September meeting be approved as written.  Second by Representative Yonts.  Motion carried by voice vote.


Director John Davies of the Division of Energy discussed energy efficiency in Kentucky.  He provided background on the Division of Energy, including its mission and funding.  He defined energy efficiency and  provided examples.  Director Davies discussed the energy make up of Kentucky, detailing energy costs, consumption, and energy expenditures per capita.  He testified concerning the various energy consuming sectors and highlighted areas where energy efficiency measures would be most beneficial.  He discussed the energy and utility costs for state run facilities and noted where energy efficiency measures could impact state expenditures.  Finally, he discussed the next steps which might be taken to provide more efficient energy use in the state.


Representative Yonts stated that he was aware of a device that could reduce energy consumption and asked if the Division was aware of this technology.  Director Davies stated he was not, and would like to find out more about such technology.


Representative Pullin asked why Kentucky has the second highest per capita consumption and why school energy use is 10 percent higher than the national average. She asked what measures are being taken to lower these rankings.  Director Davies replied that Kentucky’s low energy rates have affected building practices.  Higher standards for energy efficiency and better building practices could lower consumption. 


Senator Boswell asked if the state promotes and markets advanced technologies which could aid in the marketing of Kentucky coal, and if the Division has an ongoing relationship with the Center for Applied Energy Research.  Director Davies replied that yes, the Division of Energy and the University of Kentucky’s Center for Applied Energy Research have a working relationship and do market these technologies.  He stated that their efforts could be better coordinated.


Representative Pullin asked if the Division was responsible for educating facility managers regarding energy efficiency.  Director Davies answered that Facilities Management in the Finance Cabinet is responsible for energy efficiency projects in state buildings.  He stated that state-run facilities could do better in implementing efficiency measures, and new construction could more include energy efficiency measures.  He mentioned the innovative efficiency projects being implemented in the new Transportation Cabinet building. 


Senator Stivers asked how much money is spent by the state in energy assistance programs.  Mr. Davies stated that the Low Income Heating and Energy Assistance Program (LIHEAP) uses only federal dollars.  Senator Stivers then asked if there is a method to review energy consumption in homes that receive LIHEAP funds.  Ms. Glenna Reed, Internal Policy analyst for the Cabinet for Families and Children replied that there is a weatherization component and an energy education component within the program.


Representative Gray asked if there are engineers on staff available to assist agencies with energy efficiency projects.  Director Davies said that the Division of Energy does have on engineer available for assistance, and the division is also trying to build outside partnerships to provide further assistance.           


Next, Mr. Paul Wilkinson of the American Gas Association provided a national overview of natural gas market conditions. Mr. Wilkinson provided a history of natural gas prices and discussed the price spikes of the last two winters.  He stated that the natural gas industry has 3 basic components:  production, the interstate pipeline system, and local gas utilities.  He outlined current market conditions, discussed current spot prices, the status of operating rigs, production output, and current stored gas supply. Mr. Wilkinson gave an overview of national gas consumption in the residential, commercial, industrial, and electricity generation sectors.  He gave statistics regarding national gas supply, discussing onshore, offshore, and Alaskan production. 


Mr. Wilkinson stated that new gas discoveries in the North American basin are getting smaller and new wells are declining faster.  He discussed the migration of the supply basin and stated that deep-water production is increasing.  He stated that the major portions of the gas resource base are not accessible, including the Rocky Mountains, west coast and east coast waters, and outlined the major annual gas drilling restrictions and how it affects the industry.   Mr. Wilkinson discussed the growth potential in the deep water of the gulf of Mexico, stated there needs to be more movement into this area for production, and provided a forecast for gulf of Mexico production. 


Representative Pullin asked if this production is in United States territorial waters.  Mr. Wilkinson replied yes.


Mr. Wilkinson outlined sources of national natural gas production in 2001.  These include onshore/conventional wells, federal offshore wells, and unconventional sources.  He stated that 27% of national production comes from unconventional sources, which include tight gas sands, coalbed methane, and gas shales.  These forms are now producible because of technology advances.  He stated that natural gas consumption in 2001 was 22 trillion cubic feet, but consumption by 2020 is projected to be approaching 33 trillion cubic feet.  He outlined worldwide gas reserves and the possibility of future dependence on liquefied natural gas importation, and discussed the economics of using liquefied natural gas imports.


Senator Stivers asked what environmental impacts are created by natural gas wells.  Mr. Wilkinson replied that the impacts are limited, but there are negative perceptions connected to gas wells.


Mr. Wilkinson discussed the natural gas supplies available in Alaska and the need for exploration, drilling, and a pipeline system from Alaska to the lower forty-eight.  He discussed the federal energy bill, its fiscal package make up, and tax credits for Alaskan gas transported to market.  He emphasized the need for new areas of development for gas production, including increasing deepwater drilling, and lifting the United States and Canadian moratoria on potential production areas for drilling and supply purposes.  


Representative Gray asked how natural gas is stored and how vulnerable would these storage areas be to terrorist attacks.  Mr. Wilkinson stated that most natural gas is stored underground in certain rock formations where it is injected and later extracted.  He said that he feels it is highly unlikely that terrorist activity would focus on a natural gas storage facility. 


Finally, Aaron Greenwell, Jeff Shaw and Andrew Melnykovych discussed natural gas pricing.  Mr. Shaw stated that the major natural gas companies in Kentucky rely on storage to meet a large portion of their customer’s needs during the natural gas season.  He stated that the companies have increased their depleted storage, and as of September they were at 94% of their total storage capacity. It appears that there will be adequate supply this winter, but the present gas stored is priced on average at $5.00 per million cubic feet.  This will have a significant impact on prices this coming winter.  He stated that projected customer costs for winter heating might be upwards of $9.00, and customer bills for that six-month period rising to $700.00.  Because of time constraints due to the funeral of Governor Breathitt, the testimony by the Public Service Commission regarding natural gas pricing was postponed until a later meeting.


Being no further business, the meeting was adjourned at 10:50 a.m.