Special Subcommittee on Energy


Minutes of the<MeetNo1> 2nd Meeting

of the 2013 Interim


<MeetMDY1> July 19, 2013


Call to Order and Roll Call

The<MeetNo2> 2nd meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> July 19, 2013, at<MeetTime> 10:00 AM, in<Room> Room 131 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; Senators Joe Bowen, Ernie Harris, Jimmy Higdon, Ray S. Jones II, Bob Leeper, Dorsey Ridley, Johnny Ray Turner, and Robin L. Webb; Representatives Rocky Adkins, Dwight D. Butler, Hubert Collins, Leslie Combs, Tim Couch, Jim Gooch Jr., Keith Hall, Tanya Pullin, Tom Riner, John Short, Kevin Sinnette, John Will Stacy, Fitz Steele, Gerald Watkins, and Brent Yonts.


Guests: Bill Bissett, President, Kentucky Coal Association and Dr. Len Peters, Secretary, Energy and Environment Cabinet.


LRC Staff: Janine Coy-Geeslin and Susan Spoonamore, Committee Assistant.


Representative Pullin moved that the minutes be changed to correct a typographical error. Following a second by Representative Steele, the motion passed without objection. The June 19, 2013 minutes were approved, as amended, upon motion made by Representative Steele and seconded by Representative Hall.


Kentucky’s Coal Industry Looking Forward

Mr. Bill Bissett, President, Kentucky Coal Association, explained that the Association provides a voice for Kentucky Coal. The Association represents more than 90 percent of Kentucky’s coal production, with 23 member companies in addition to 148 associate member companies.


Mr. Bissett said that Kentucky ranks third in the United States for the most coal production, fifth for energy production, and has one of the lowest electricity rates. Coal provides more than 90 percent of Kentucky’s electricity. Since 2010, the demand for coal has been decreasing while the demand for natural gas has been increasing. The decrease in demand has resulted in significant job loss that has had an adverse fiscal impact on coal producing counties.


Mr. Bissett stated that several negative changes were ahead for Kentucky coal. The low price for natural gas has had a negative impact on coal prices. The warm winters and mild summers have affected the demand for coal. The anti-coal administration in Washington, D.C. wants to move away from coal, and the lack of a true economic rebound has negatively impacted the industry. The future of coal depends on how coal is extracted, how much is mined, and who would be the end user. Exporting of coal has significantly increased, and Kentucky needs to be able to ship coal out of state.


Mr. Bissett stated that the Sierra Club measures its success on how many coal plants it can retire. The federal administration’s war on coal is frustrating and costly. The solution has become more political than legal.


In response to Representative Collins, Mr. Bissett stated that the method of mining in eastern and western Kentucky has affected the demand for underground and surface mined coal. After coal-fired plants have been converted to gas, it will be difficult to revert.


In response to Representative Watkins, Mr. Bissett said that over 5,000 jobs have been lost in the eastern Kentucky mine fields.


In response to Representative Adkins, Mr. Bissett stated that there are thirty-nine 404 permits waiting for review, and there are approximately one hundred seventy 402 permits waiting for review. Of those, 100 permits are for individuals and 60 are general permits. General permits are slowing movement through the process.


Representative Riner stated that the United States should not be the only nation to regulate its coal industry. The United States should insist on a level playing field with other countries.


Representative Couch said that his counties of Clay, Leslie, and Harlan are facing high employment rates and loss of coal severance money. It has already started to affect the daily operations of local governments.


Dr. Len Peters, Secretary, Energy and Environment Cabinet, discussed the energy landscape for Kentucky. Coal production in eastern Kentucky decreased from 2011 to 2012 by 27.6 percent, making it the lowest level since 1965. Coal production has fallen 52 percent since its peak in 1990, thereby causing employment to drop 30 percent from 13,608 in 2011 to 9,540 in 2012.


Secretary Peters explained that on the national energy landscape coal production declined by five percent. Even though coal-to-gas switching slowed in 2013, Appalachian coal remains uncompetitive because of the price differential between coal and gas. Unlike natural gas, federally imposed regulations and other market forces are not in coal’s favor. Coal plant retirements will continue in the North American Electric Reliability Corporation and South Electric Reliability Corporation regions, which account for most of eastern Kentucky’s out-of-state coal shipments.


Secretary Peters said that regulatory pressures will not lessen and will become greater. There is concern that once coal plants are converted to natural gas, and if natural gas prices increase, the United States will be locked in to using only natural gas. Even if the coal market were to rebound, Appalachian coal would still be the least cost-competitive relative to all other coal basins.


Secretary Peters suggested that there were several things that could be done to help the coal industry: (a) make coal-fired generation more efficient to reduce emissions; (b) a boiler efficiency study to help serve as a guide for policymakers, utility companies, and the public; (c) work with the federal government to ensure flexibility and rational compliance timeframes with greenhouse gas rules; (d) continue supporting carbon capture and storage research and development; and (e) identify projects for possible cost-share to leverage funding under $8 billion loan guarantee. Kentucky might have good projects that would qualify for the loan guarantee program.


Secretary Peters said that Kentucky has no ability to affect what happens in other states. Affordability and price certainty for Kentucky’s manufacturing base and for it citizens are paramount. Switching from coal to natural gas nationally makes the loss of coal a state-wide issue. Meaningful discussions about the changes occurring in eastern Kentucky would be helpful. The results of a Boiler Efficiency Study are due in November, and he will be available to report the findings if requested.


Senator Leeper stated that his senatorial district moves a lot of coal via barge. The decrease in coal production has impacted his district significantly. Employees at the Uranium Enrichment Plant were recently sent notices that the plant will be closing and their jobs terminated. Losing highly skilled and highly paid employees will have a significant negative economic impact to Paducah and surrounding counties.


Senator Carpenter stated that closing the Paducah Gaseous Diffusion Plant is a serious problem that will affect community projects and local income.


In response to Representative Adkins, Secretary Peters said that the reasons for the 11 percent increase in coal consumption during the first quarter of 2013 were demand and need for coal due to economic rebound and weather conditions. The United States should be careful about locking itself into a single fuel source.


In response to Representative Steele, Secretary Peters stated that more time is needed to examine chemical looping. It could be a viable alternative.


Representative Short stated that the 92nd House District is first in coal severance money decrease, first in unemployment and first in the number of unemployed miners. Eastern Kentucky needs help from the Commonwealth of Kentucky.


In response to questions from Senator Jones, Secretary Peters said that coal’s main issue is at the federal level. The EPA and each cabinet work independently. Kentucky needs all government agencies working together to bring value-added industries to the state. Secretary Peters said Kentucky needs to use its natural resources to create value-added jobs. For example, hardwoods can be used to make numerous products, and those products could be made in Kentucky. Only two voices speak on coal regulations: the Environmental Protection Agency and the Department of Energy. Secretary Peters said that Governor Beshear has met with federal agency officials and Kentucky’s congressional delegation in Washington, D.C.


Several legislators commented that decreasing the use of coal will have national adverse implications and that the Environmental Protection Agency must be reined in.


The meeting was adjourned at 12:10 p.m.