Special Subcommittee on Energy


Minutes of the<MeetNo1> 2nd Meeting

of the 2015 Interim


<MeetMDY1> July 17, 2015


Call to Order and Roll Call

The<MeetNo2> 2nd meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> July 17, 2015, at<MeetTime> 10:00 AM, in<Room> Room 171 of the Capitol Annex. Representative John Short, Interim Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative John Short, Interim Chair; Senators Dorsey Ridley, and Robin L. Webb; Representatives Tim Couch, Martha Jane King, Sannie Overly, Tanya Pullin, Tom Riner, Kevin Sinnette, Fitz Steele, Gerald Watkins (via videoconference) and Brent Yonts.


Guests: Representative Terry Mills; Andrew R. Fellon, President and CEO, Fellon-McCord; Arthur Buff, Pipeline and Hazardous Material Safety Administration, United States Department of Transportation; and Tom Fitzgerald, Kentucky Resources Council.


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


Natural Gas Pricing

            Mr. Andrew R. Fellon, President and CEO, Fellon-McCord testified about natural gas prices and energy market forces expected to influence prices throughout the next decade. He gave an update on the forecast for state/regional natural gas and electricity prices. Energy prices are at or near a 15 year low. Coal and natural gas make up 70 percent of the cost of electricity in the United States. The increase in natural gas production has been supported in part by high oil prices and NGL prices. Forces expected to drive energy prices higher over the next decade are the regulation of hydraulic fracturing, coal and nuclear plants retirements, LNG exports, and manufacturing.


Mr. Fellon stated that a fracking study conducted by the Environmental Protection Agency indicated there was no widespread systemic threat to groundwater from hydraulic fracturing. The EPA acknowledged the study was limited in scope and that there have been instances of contamination. Fracking regulations are currently handled on a state and local level. If federal regulations are put in place, it would dramatically impact drilling economics.


He stated that the mounting federal regulations on coal-fired plants have led to a large build out of natural gas plants. Natural gas will continue to be the fuel of choice to replace retired coal-fired generation plants. In the global market, the U.S. natural gas prices are lower than prices in Europe and Asia. Mr. Fellon said that nine terminals have received Department of Energy approval for LNG exports to non-Free Trade Agreement countries. The U.S. continues to have a major competitive advantage in the manufacturing industry because of low energy costs and a reliable grid. The shale gas revolution has revitalized the U.S. manufacturing industry. Industrial consumption of natural gas is expected to continue to grow as new manufacturing facilities begin operation.


Mr. Fellon said that the long-term risks in the marketplace are expected to drive prices higher in the coming years. Managing the energy supply with demand needs at the producer level, as well as the point of consumption has become the new best practice. As to Kentucky’s market, Mr. Fellon said that coal-fired generation plants will continue to be replaced by natural gas-fired plants. As a result, electricity costs will trend higher over time, and switching to natural gas is a positive from an environmental perspective. There is ample supply and transmission of natural gas to Kentucky, but new pipeline capacity may be required in certain areas.


In response to Representative Short, Mr. Fellon said that the price of natural gas would have to be in the $2.00 range to be competitive with coal.


In response to Representative Watkins, Mr. Fellon said that the U.S. will see low prices for coal and natural gas for at least the next five years. The real issue facing the U.S. is the actual cost of putting in new generation facilities, which will drive up electricity prices not fuel costs in the future. The cost of converting a coal-fired plant to natural gas is more expensive than the fuel input costs. Mr. Fellon said that the U.S. has an adequate supply of natural gas which should keep prices low.


In response to Representative Couch, Mr. Fellon said he did not have the information regarding how many coal-fired plants had been shut down and how it relates to the tons of coal but will provide the information. Representative Couch said that, according to his figures, the U.S. has lost approximately 200 coal-fired plants with another round of closings in the near future. Mr. Fellon also stated that coal production will increase in order to serve countries like China and India. Foreign markets, and not domestic markets, will drive the demand for coal.


In response to Representative Yonts, Mr. Fellon said that the Marcellus Shale is approximately 2,000 to 4,000 feet underground. He did not know personally what type of energy sources, if any, could be found deeper than 4,000 feet. Mr. Fellon also said he did not know the specifics of the recent earthquakes and their relationship with fracking. Fracking has been around for more than 50 years. Experts should look at the data for determining if there is a relationship.


Natural Gas and Pipeline Safety

Mr. Arthur Buff, CATS Program Manager, Pipeline and Hazardous Materials Safety Administration (PHMSA), Southern Region, U.S. Department of Transportation spoke about federal pipeline safety regulations and the proposed Utica Marcellus Texas Pipeline Project. Mr. Buff said that there are five PHMSA regional offices across the United States: eastern, southern, southwest central and western. The southern region office in Atlanta covers Kentucky. The mission of the Office of Pipeline Safety (OPS) is to protect people and the environment from the risks of hazardous materials transportation. He stressed that pipelines are vital to the economy and security. Approximately two-thirds of all energy consumed in the United States flows through the pipelines. There are approximately 2,700,000 miles of pipelines in the U.S., and Kentucky has 36,417 miles of pipelines. For a ten year period through 2014, there were 2,710 significant incidents nationally, and Kentucky has had 39 significant incidents, less than four per year. Mr. Buff explained that significant incidents include one or more of the following characteristics: one or more fatalities; one or more injuries requiring hospitalization; or at least $50,000 property damage based on 1984 dollars. If it is a hazardous liquid pipeline, the release of five barrels or more of highly volatile liquid like propane or 50 barrels or more of other liquids are also characteristics of a significant incident.


Mr. Buff said that OPS is required to ensure compliance with Federal Pipeline Safety regulations; inspect pipeline operators facilities and records; investigate pipeline accidents; and take enforcement actions. OPS does not approve pipeline project or pipeline routes (rights-of-way); issue pipeline operation permits; or regulate commercial or residential development along pipelines. Once a project is ready for construction, then OPS gets involved. The Pipelines and Informed Planning Alliance (PIPA) is an excellent source of information for state or local officials as well as property developers.


Mr. Buff said that Pipeline Safety Enforcement Procedures and Regulations can be found at 49 Code of Federal Regulations (CFR) Parts 186-199. The main focus is with Parts 192 and 195. Part 192 involves regulations for gas pipelines, and Part 195 deals with hazardous liquids pipelines. Part 190 contains their enforcement requirements, and Part 191 has the reporting requirements for pipeline operators. Liquid natural gas (LNG) facilities are regulated under Part 193. Part 194 requires hazardous liquid pipelines and operators to have oil spill response plans. Part 196 is a new regulation which applies to pipeline operators and excavators. Anyone who digs in the ground near a pipeline has specific requirements to follow. Operators and Excavators are subject to civil and criminal penalties for failure to comply. Part 198 involves grants to state agencies to run PHMSA intrastate pipeline safety programs. Part 199 contains drug and alcohol testing requirements for personnel who work for pipeline operators.


In response to Representative Short, Mr. Buff said that the life of a pipeline can last indefinitely if the lines are well maintained.


In response to Representative Yonts, Mr. Buff said that new regulations take a while to be published. It can be a long process. Some incidents can spark new pipeline safety regulations. Mr. Buff said he did not know the number for gas line explosions, but the number one cause of pipeline incidents is human excavators.


In response to Senator Webb, Mr. Buff said that OPS has 123 inspectors. Mr. Buff said that repurposing lines would cost the state some money but how much would depend on the grant amount awarded to Kentucky. He did not have information regarding cost impact to the Public Service Commission (PSC) or other state agencies due to repurposing of lines.


In response to Representative Short, Mr. Buff stated that all lines are inspected within a one to three year timeframe. The inspectors do go out in the field for spot checks.


In response to Representative Riner, Mr. Buff said that OPS works closely with Homeland Security for above-ground security. Security has tightened over the last five years.


In response to Representative Mills, Mr. Buff stated that average age of pipelines nationally is between 50 and 60 years old. Mr. Buff stated that he did not know how many requests for reversing the flow had been submitted.


Mr. Tom Fitzgerald, Kentucky Resources Council, briefly described the concerns for pipeline safety. He said that there are issues regarding repurposing pipelines, including the diameter of pipeline, wall thickness, grade, age, service history, in line inspection history, and the type of product transported. He questioned whether there was enough OPS staff to inspect the lines. Other concerns include the fact that the PSC has no jurisdiction over routing or conversion of lines. The council recommends a statewide board to oversee the risks. He recommended that NGL pipelines be legislatively placed under the Electric Generation and Transmission Siting Board.


In response to Representative Yonts, Mr. Fitzgerald agreed that adverse possession was an interesting issue for NGL pipelines.


Representative Pullin stated that, in her opinion, NGLs raise more environmental issues concerning methane and explosion hazards.


Bob Pekny, a concerned citizen, stated that he was troubled for the safety issues of people living near a pipeline.


Pam Mitchell, a concerned citizen, said her concern was more about leakage from old pipelines.


There being no further business, the meeting was adjourned.