Interim Joint Committee on Natural Resources and Environment


Minutes of the<MeetNo1> 5th Meeting

of the 2013 Interim


<MeetMDY1> November 7, 2013


Call to Order and Roll Call

The<MeetNo2> 5th meeting of the Interim Joint Committee on Natural Resources and Environment was held on<Day> Thursday,<MeetMDY2> November 7, 2013, at<MeetTime> 1:00 PM, in<Room> Room 149 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, John Schickel, Brandon Smith, Johnny Ray Turner, Robin L. Webb, and Whitney Westerfield; Representatives Tim Couch, Keith Hall, Stan Lee, Reginald Meeks, Marie Rader, John Short, John Will Stacy, Fitz Steele, and Jim Stewart III.


Guests: Ms. Cheryl Norton and Ms. Susan Lancho, Kentucky American Water; Mr. Jim Brammell, Louisville Water Company; Mr. Gary Larimore, Rural Water Association; Ms. Annette DuPont-Ewing, Kentucky Municipal Utility Association; Mr. Jeff Derouen, Mr. Gerry Wuetcher, and Stephanie Bell, Public Service Commission; Mr. Peter Goodman and Ms. Julie Roney, Energy and Environment Cabinet; Mr. John Covington, Kentucky Infrastructure Authority; Mr. Sean Byrne and Mr. Jason Young, Century Aluminum.


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


A quorum was present. After a motion and a second, the minutes from the October 3, 2013 meeting were approved.


Status of Water Issues in the Commonwealth: Water Utilities

Gary Larimore, executive director of the Kentucky Rural Water Association, gave an overview of the water and wastewater industry in Kentucky and the progress in delivering those services across the Commonwealth. Mr. Larimore listed several reasons why Kentucky has been successful in improving its delivery of water service, including favorable climate and geography, significant federal laws such as the Safe Drinking Water Act and the Clean Water Act, reasonable state regulation, federal funding via the United States Department of Agriculture (USDA), state funding and planning, and consolidation of water associations.


Annette DuPont-Ewing, executive director for the Kentucky Municipal Utility Association, described municipal utilities in the Commonwealth and the role those utilities play in delivering services to the public and generating economic development opportunities for local government. Kentucky’s municipal utilities provide water, waste water, natural gas, and telecommunications to areas that would otherwise be unserved because of smaller populations. Municipal utilities are governed by utility boards or legislative bodies which require reinvestment by the utility to continually upgrade aging infrastructure. Ms. DuPont-Ewing stressed the significance of municipal utilities in being engines for economic growth in the state. Rates, capacity, and service are what industries look for when determining where to locate or to expand.


After a question regarding why there is little service offered in certain areas of the state, particularly in Eastern Kentucky and the problems in finding money for Black Mountain after reductions in coal severance, Ms. DuPont-Ewing said she could provide a hard copy of a map that shows service across the state. Both water and wastewater utilities are hampered by geography in terms of rolling out service, which is the case in Eastern Kentucky. Also, there is still significant investment needed in these areas. Mr. Larimore responded that money for water line expansions and service has traditionally come from tobacco settlement dollars and coal severance.


In response to a question about the water quality of Kentucky’s lakes due to algae overgrowth, Mr. Larimore responded that Kentucky’s public water supplies draw from Kentucky lakes and rivers. Ms. DuPont-Ewing added that municipal water utilities are held to strict standards and the Kentucky Division of Water has been concern about algae blooms. The division can add to the discussion about the health of the lakes.


Cheryl Norton, President of Kentucky American Water Company, described the company as the largest privately-owned water utility in the state. It has grown from a Lexington area provider to a regional water provider that services 124,000 customers and 10 counties. The rates and service of Kentucky American Water Company is governed by the regulation of the Kentucky Public Service Commission. The biggest challenge for water utilities and Kentucky American in particular, is infrastructure investment. Other challenges include affordable rates and finding new entrants to the workforce after older employees retire. Utilities need to provide quality water service that is reliable and affordable. It is important for public health, economic development and overall quality of life. Kentucky American Utility encourages public-private partnerships to solve some of these issues.


In response to a question on how to sustain quality, reliable service in Kentucky, Ms. Norton said investment and flexibility in looking at retirements are important. Affordability is also a big issue in the United States. Communities are having trouble affording to run systems because public funding and grants may not be available in the future.


In response to a question about whether public-private partnerships work, unbundled services, and whether there will be more partnerships in the future, Ms. Norton said yes. There are numerous examples across the nation and between Kentucky American Water Company and smaller public utilities. Kentucky has been expanding service by rolling out lines but that infrastructure is difficult to continue without investment. Ms. Norton continued that service can be unbundled so that one aspect is provided through a public private partnership such as billing or sewage treatment plant operation.


In response to a question about whether meters are read electronically, Ms. Norton said yes. Almost all meters are radio reads. Another legislator asked for an update on the Owen County pipeline project. Ms. Norton responded by explaining that Kentucky-American Water Company built a plant on the Owen-Franklin County line and then ran 30 miles of pipeline to Lexington. This project has allowed Kentucky American to draw from various pools during low water events and provide water to central Kentucky.


Mr. James Brammell, President and CEO of Louisville Water Company, and Amber Halloran, CFO Louisville Water Company, described the water company from a historical perspective as the oldest in Kentucky. Established by charter in 1854, Louisville Water Company serves 850,000 people in the Louisville Metro area and in surrounding counties. Water is sourced from the Ohio River, and the average daily load is 121 million gallon of water per day. The company also provides public fire protection. The annual operations and maintenance budget for Louisville Water Company is $68 million dollars and another $75 million is in the capital budget. Capital budget is used for reinvestment in infrastructure. Louisville Water Company’s average annual investment in mains and large transmission lines is $7 million. Louisville Water Company has direct customers as well as wholesale water service. Water quality and regionalization are two very important topics for Louisville Water Company.


In response to a question about Lake Dreamland and the problem of straight pipes moving untreated sewage into the lake and about infrastructure collapse in older parts of Louisville, Mr. Brammell stated that Louisville Water Company’s pipes are a closed system. Questions about sewage would go to Louisville Metropolitan Sewer District. Infrastructure is prioritized by the company and $7 million is dedicated to pipe evaluation and replacement. No area is ignored, but higher priority areas which have a history of being the worst performers in terms of breaks will be addressed first. Older areas of Louisville, particularly the central business district, do have some planned infrastructure improvements.


In response to a question about the health of the aquifer under the city of Louisville, Mr. Brammell said that it has been studied, and pump tests show that the aquifer is recharged at a sufficient level to serve the Prospect plant’s needs.


Status of Water Issues in the Commonwealth: Water Regulation

Jeff Derouen, executive director of the Kentucky Public Service Commission, discussed state regulation of water service provides. The PSC regulates investor-owned, water associations and water districts, and municipals with respect to wholesale service contract furnished to a regulated utility. In 1936 municipals were removed from the PSC jurisdiction. The PSC authority derives from statues, regulations and court decisions. He described the functions of the PSC with respect to general rate making, alternative rate filing, and rate adjustments tied to construction projects and the wholesale rates and purchase water adjustments. The PSC regulates supply, reliability, adequacy and customer service, Certificate of public convenience and necessity for construction projects and removal of water districts. Most small utilities use the alternative rate filing while larger ones use the general rate making.


In response to a question about whether it is law or regulation to add water line for a customer that can be moved by the water company, Mr. Derouen said that he did not understand the question. The PSC addresses how far a line can be extended with no cost. Directing a utility to make an extension is not dependent on a particular footage. The PSC looks at the cost of the line and makes a determination on whether a certificate of public convenience and necessity is required. There also is a regulation that certain sized lines cannot be more than 250 ft in length. There is no PSC statute or policy that prohibits a water utility from making an extension. The only time there is a need to get PSC approval is when the construction will materially affect the finances of the water utility. Normally that financial benchmark is $500,000.


Peter Goodman, Acting director of the Kentucky Division of Water, and Julie Roney oversees the Safe Drinking Water program, discussed the regulation of water in terms of its drinking water quality. They discussed the number and location of public drinking water systems and differentiated them by those that produce and those that treat water. The Division of Water also regulates the quality of bottle water systems. The majority of the state is supplied by surface water rather than ground water. Only 23 percent of the systems serve populations greater than 10 thousand; therefore, Kentucky is a small system state. Kentucky is relatively well-served because 95 percent of the state has safe public drinking water. Infrastructure continues to be a serious need in the state. Based on a drinking water survey required by the United States Environmental Protection Agency, Kentucky’s needs $6.2 billion dollars for infrastructure over the next 20 years.


In response to a question about how a beauty shop qualifies as a public drinking water system and the problems with Lake Dreamland, Ms. Roney said that a beauty salon becomes a drinking water system if the shop has a well. Mr. Goodman said that there have been concerns about dumping at Lake Dreamland. The lake has reached its lifespan.


In response to a question about the decline in public water systems, Mr. Goodman said that the drinking water system must meet specific rules about quality and these systems will seek to reduce costs by tapping onto the public system. Regionalization becomes a sensible financial decision.


In response to a question about a new rule that will impact gasoline retailers Bruce Scott, Commissioner for the Department of Environmental Protection, Energy and Environment Cabinet said that a regulation requires tanks to have protection and controls. At least 300 tanks at 15 facilities have to switch the tank control, but some have not replaced the control and those facilities are out of compliance. The regulation is federal, and it is not known whether Kentucky’s interpretation is more onerous than the interpretation in other states.


John Covington, Kentucky Infrastructure Authority, discussed the methods for planning and development of drinking and wastewater infrastructure. Mr. Covington described the loan facilities in KIA that are used to fund infrastructure development and tools on the website that assist in proper planning of infrastructure needs.


Jason Young, plant manager of Sebree Plant, and Sean Byrne, plant manager of the Hawesville facility, discussed the economic impact of the primary aluminum industry and research performed by Dr. Paul Coomes. He gave statistics showing how important the aluminum is to the United States and the Kentucky economy, and discussed the agreement for purchase power at the Hawesville plant and the hope to extend the same treatment to the Sebree smelter.


In response to a comment by a legislator that Kentucky is a leading producer of aluminum in the country and a question about the agreement between Big Rivers and Century, Mr. Young responded that at Hawesville in September that the plant did not lose money. October was different due to the transmission and severe spikes in purchase power prices. A consultant hired by Century stated that lines were taken down by Big Rivers to do maintenance and then after an unplanned outage those lines were left down and this caused a dramatic increase the purchase power costs. In October, Century had a massive loss. There is live line maintenance not being performed per se on major lines that caused the transmission issue and the Midwest Independent System Operators (MISO) to curtail by 30 megawatts and drove a price spike in the system.


Mr. Young then stated there are instances where Big Rivers identified live line maintenance on 36 lines wholly-owned by Big Rivers over 116 events. Mr. Young further described events surrounding the outage at the Coleman plant and requests to not take a line down which went unreported to MISO causing an unprecedented spike in prices of several hundred thousand dollars. Mr. Young asked the committee to request that the PSC review this data and whether actions by Big Rivers were punitive toward Century Aluminum. Mr. Young indicated he would make the data available to the committee.


One legislator responded that the committee needs to hear from Big Rivers and asked that the PSC review whether the PSC approved the agreement or just the rates. Another legislator remarked upon the importance of coal to the aluminum industry, asked that all the members receive a copy of the documents regarding the live line maintenance, and said the members need to discuss this with the Kentucky Public Service Commission.


After a motion and a second the committee adjourned at 3:20 PM (EST).