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Kentucky legislators hear from the natural gas industry.

June 18, 2014

Goodbye coal, hello fracking

Natural gas companies woo Kentucky’s legislature in bid to push aside King Coal

Natural gas companies are positioning themselves for a greater share of the state’s energy portfolio as impending federal regulations from the Environmental Protection Agency loom over Kentucky’s coal industry.

The Kentucky Gas Association, whose membership consists largely of distributors and pipeline builders, hosted their annual meeting at the Owensboro Convention Center on June 5. The event coincided with a joint meeting of Kentucky’s Special Subcommittee on Energy and the Interim Joint Committee on Natural Resources and Energy.

At the meeting, natural gas companies got the chance to flash their wares and court the legislative committees composed of mainly coal-backed candidates. Committee members received presentations from KGA members, who then provided lunch for the lawmakers.

Sen. Jared Carpenter, R-Berea, is co-chair of both committees and chair of the Senate Natural Resources and Energy Committee. Sen. Brandon Smith, R- Hazard, is vice chair of that committee. Both have received campaign contributions from Atmos Energy, EQT Corporation, EcoPower Generation, Duke Energy, and Kentucky Oil and Gas, among others — all of which had company representatives at the June joint committee meeting.

Both senators have also received campaign contributions from LG&E-KU, which is one of five primary corporate sponsors of the KGA. But neither Carpenter nor Smith believes this presents a conflict of interest when natural gas companies testify before the committees.

“It’s not a concern to me, because the amount of money they can give any of us is not a substantial enough amount to sway your vote,” said Carpenter. “But we definitely appreciate the participation in the process, because, unfortunately, it takes money to operate a political business.”

Smith argued that while other committee members have criticized him in the past for allowing some groups to testify, every organization gets a fair shake before his committees, regardless of how much or little they’ve donated to his campaign.

“It’s great when the people on your team contribute,” he said. “And we’re not going to say we’re not excited about the possibility of contributions, but our record shows that it is not a prerequisite to get in front of these committees.”

With already 25 gas distribution companies, 51 intrastate pipeline gas companies and 170 municipal, college or housing authority providers, total annual consumption of natural gas in Kentucky equals nearly 224 billion cubic feet. Kentucky’s natural gas prices are also ranked fifth lowest in the U.S., and about four out of every 10 households in Kentucky use natural gas as their primary fuel source for heating their homes, according to the Cabinet for Economic Development.

Natural gas, which accounted for 29 percent of the U.S. electricity mix in 2012, is expected to gain another 40 percent in the next 30 years, particularly as more coal-fired power plants (which produce 40 percent of the country’s electricity and 93 percent of Kentucky’s) are being retired in favor of the now-cheaper gas.

Asked whether he expects to see an increase in lobbying from the KGA in the coming year, Carpenter said that while the natural gas industry “is going to be a major player,” there’s no reason to think lobbying efforts will increase.

However, KGA executive director Matt Tackett said that in the coming legislative session, lawmakers are likely to see “an increased communication effort from our end, absolutely.”

Communication efforts from other interested parties could also include lunch at the popular Owensboro restaurant Moonlite BBQ.

Carpenter and Smith were seen dining there with Sherman Brown, the former advisor to the Beshear administration who turned lobbyist and now works for, among other companies, Boardwalk Pipeline Partners.

Boardwalk Pipeline Partners has an office across the street from the Owensboro Convention Center, where the committee meeting took place, as well as offices and holdings in Texas. Boardwalk is part of a consortium of companies who are lobbying for natural gas (and natural gas liquid) infrastructure, including the controversial Bluegrass Pipeline, proposed to run through central Kentucky.

Boardwalk has a dubious safety record, however. They and their subsidiaries had the fifth-highest rate of pipeline incidents from 2006 to 2011, and have been fined more than $778,000 by safety regulators since 2009 for violations related to natural gas transportation. Most of those fines went uncontested by Boardwalk.

An increase in natural gas production and distribution would also mean opening the door to more fracking, the controversial natural gas extraction process using high-pressure and potentially dangerous chemicals to force gas out of the ground. Aside from ongoing accusations of being poisonous to water supplies, fracking is a major source of accidental methane leaks. Methane makes up about 80 percent of natural gas products, and its accidental loss reportedly costs the industry up to $2 billion a year in lost profits.

While the EPA’s call to reduce greenhouse emissions from coal-fired plants by 30 percent has lawmakers looking to natural gas options, federal air standards for fracking could — in terms of environmental damage — take Kentucky out of the frying pan and into the fire.

Multiple U.S. studies also say the shift from coal to natural gas would not slow down climate change, particularly if natural gas companies fail to monitor for leaks and safety hazards.

A 2011 report from the National Center for Atmospheric Research (NCAR) found a “partial shift from coal to natural gas would slightly accelerate climate change through at least 2050, even if no methane leaked from natural gas operations, and through as late as 2140 if there were substantial leaks.”

Notably, EPA studies have shown the leakage rate for switching from coal to natural gas is roughly 3.2 percent.

Methane leak percentages have become the key question in the natural gas debate. Leak more than just 1 percent, and you could do as much damage as coal. With such a narrow margin for error, precision is important in determining whether a pro-natural gas policy will positively impact climate change.

But the NCAR urges caution: “With more than half-a-million natural gas wells, hundreds of thousands of miles of pipeline, and thousands of processing plants and compressor stations — plus the huge amount of variation between individual producers — we will never have perfect data.”

The EPA air standards for fracking appear optimistic on the surface. They estimate that when the air standards for fracking are fully implemented over the next two years, “they will result in an annual reduction of between 1 and 1.7 million tons of methane, equivalent to 19 to 33 million metric tons of CO2.”

Even so, a 2013 Harvard study also warned that the EPA may be underestimating fracking methane leaks by nearly 50 percent, which they believe could be up to 15 percent of total natural gas production.

These findings, if consistent with other forthcoming studies, could prove that a switch to natural gas — even if used just to get off of coal — may be no better for the bluegrass’ environment.  

Smith is concerned that, even with new EPA fracking standards, the new coal regulations are playing fast and loose with Kentucky’s shifting economic infrastructure.

“Thirty percent of 93 is huge for us,” he said. “You take 30 percent of the coal away and you say we’ve got to come up with some sort of mix that we’re not ready for. That’s reckless.”

Carpenter echoed Smith’s concern, pointing out that emission reductions stand to increase consumer prices and a shortfall in jobs.

“Some people’s electric bill is gonna be as high as their mortgage, and that affects people’s lives,” he said.

The American Petroleum Institute estimates that increased natural gas production and distribution could bring as many as 33,000 jobs to the state. Most of those jobs would be located in eastern Kentucky’s Big Sandy region, which has the largest natural gas field in the Appalachian Basin.

Smith’s description of the upcoming coal regulations is far more generous than House Speaker Greg Stumbo’s. While Stumbo, D-Prestonsburg, has called the plan “a dumbass policy,” he cautioned that the enthusiasm over natural gas as a cheap energy source for the state may be overstated. Noting a recent uptick in consumer natural gas prices, he predicted prices would continue to increase.

“New drilling techniques have caused a glut in the market right now,” said Stumbo. “And a lot of what you hear about it being lower cost is true at the moment. But the moment will soon pass.”

Despite reservations, Stumbo agrees with Senate President Robert Stivers, R-Manchester, who emphasized the role of natural gas in creating a useable mix of natural resources to create energy independence for the state.

“Let me quote the Speaker: It was a dumbass policy,” said Stivers.

“The legislature has generally been open to look at all types of scenarios,” he said, noting the 2006 special session of the General Assembly that sought to establish a state infrastructure for coal-to-gas production methods.

“It’s gonna take all of our energy. We need everything we can get if we’re gonna stay competitive,” said Stumbo. “I think it’s gonna require some different technology. And solar is just in its infancy.”

Looking ahead to the 2015 session of the General Assembly, Smith agrees that change is coming to the way Kentucky’s legislature handles the state’s energy policy.

“They have backed us into a place where we have nowhere else to go,” said Smith. “You may see us getting aggressive with doing some stuff like an energy council, like what Texas did. That was the first shot for their revolution of energy with what they’re doing, and I’m putting together language right now for Kentucky to have an energy council that will be appointed, and that will be a diverse mix of people moving our energy policy forward to be aggressive, because we’re a great state — we have so many different resources out there.”

Smith said his proposal would allow industry officials to be appointed beside legislators, in a small group, which he said would allow “efficient decisions to be made quickly.”

When questioned about possible ethical concerns when it comes to having an energy council composed of industry people who donate to the legislators they’re on the council with, Smith said Texas hasn’t had any problems there.

“Say (an industry representative) went in there and gave to every legislator up to the max. They’re not gonna have enough votes in there to change or sway the committee. That’s why they’re so diverse.”

The Texas Energy Council describes itself as a nonprofit, non-partisan organization of professional and educational societies that serves the energy industry in Texas. The TEC is much larger than the proposed Kentucky Energy Council, including members representing more than 5,000 energy organizations. It provides scholarships for students in the energy field and works with academic institutions to produce a yearly symposium on the state’s energy needs.

“Texas has a fantastic energy policy, and we don’t have one,” said Smith. “We would like to have a chance to put all the people in a room and move forward with an energy council like the Kentucky Energy Council, and then the General Assembly would be putting forth legislation.”

When looking to model a Kentucky energy council after Texas’ own, some of the state’s other energy organizations might serve as a warning to Kentucky. Competition for an expanding market could make smaller-scale decision-making bodies ripe for exploitation.

One such organization is the Electrical Reliability Council of Texas. It’s a nonprofit organization regulated by the Public Utility Commission of Texas, and manages the grid for most of the state. In addition to recent accusations of directly manipulating energy prices, the ERCT has also been the target of an investigation by Texas Attorney General Greg Abbot on corruption charges.

In 2005 a grand jury handed down 23 criminal indictments on six of the members of the council. The charges included commercial bribery, fraud, theft and misappropriating funds. In total, members of the ERCT paid more than $2 million of state money to “shell” companies.

While coal-fired energy production faces a significant drop-off in Kentucky’s shifting energy policy — the natural gas industry continues to wrangle for a greater share of legislative attention — Carpenter and Smith don’t see the inevitable expansion of natural gas as a threat to coal jobs, or to the environment.

“Coal’s not going anywhere,” said Carpenter. “Everybody understands the importance of coal in Kentucky to provide a cheap energy source, but I think (coal and gas) can work hand in hand together.”

Smith agreed. “My argument is always the same: How can I ever expect to move this thing forward if we’re not willing to listen to each other?” he said, turning toward the KGA’s lunch spread. “Now, let’s eat.” 

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