SPECIAL SUBCOMMITTEE ON ENERGY

Minutes of the Eighth Meeting

of the 1998-99 Interim

April 15 and 16, 1999

The eighth meeting of the Special Subcommittee on energy was held on Thursday and Friday, April 15 and 16, 1999 at Jenny Wiley State Park. Representative Tom McKee, Chair, called the meeting to order, and the secretary called the roll.

Present were:

Members: Representative Tom McKee, Senator Paul Herron, Representatives Eddie Ballard, Lonnie Napier, Chris Ratliff, Tom Riner, and Jim Gooch, Jr.

Guests: Mike Musulin and Bill Caylor, Kentucky Coal Association; Jack Sykes, Summit Engineering; and Tom Mattox, Lodestar Energy.

LRC Staff: Linda Kubala, D. Todd Littlefield, Barbara Rhoads, and Sheri Mahan

The meeting began on April 15, 1999 at 7:00 PM at Jenny Wiley State Park. Chairman McKee introduced the new Special Subcommittee on Energy staff member, D. Todd Littlefield. He then asked all staff members present to introduce themselves to the committee and to those present.

Chairman McKee then invited Mike Musulin of the Kentucky Coal Association to give a presentation on Kentucky coal industry information and issues. Mr. Musulin discussed current coal prices for east and west Kentucky coal and discussed the reasons behind coal price and production declines. He then discussed coal production trends, comparing historical coal production for Kentucky, West Virginia, and Wyoming. Kentucky production has declined since 1990. He stated that Kentucky should produce about 136 million tons of coal in 1999. Employment within the coal industry has fallen steadily to about 19,000 in 1996, down from 47,000 in 1979.

Mr. Musulin stated there are many factors effecting the declines in the Kentucky coal industry. Federal regulatory actions, such as NOx emission standards, are having and will continue to have an effect on coal usage nationwide. It is not know how electricity deregulation will effect the Kentucky coal industry.

Representative Ballard asked how the upcoming presidential election will effect the coal industry. Mr. Musulin answered that the employees placed at the Environmental Protection Agency (EPA) and other federal agencies by Vice President Gore have been difficult to deal with. He said he thinks it will be detrimental to the coal industry to have Vice President Gore elected as president.

Senator Herron asked what steps must be taken in Kentucky to meet the EPA's NOx standards. Mr. Musulin stated if the 85% reduction goes into effect for NOx, more of the smaller, gas fired peaking generation units will be used on a continual basis. It would be very difficult and costly to meet the 85% reduction standards in Kentucky coal fired generation units.

Representative Ratliff asked if coal fired generation units in Kentucky could start using western United States coal to help meet the NOx standards. Mr. Musulin answered yes, western coal can be used to help meet the reduction standards. The Tennessee Valley Authority and Kentucky Utilities have been test burning western US coal.

Mr. Musulin then discussed Senate Joint Resolution 118, which calls for the Kentucky Coal Council to conduct a study of economically difficult coal seams to mine. They are investigating what other states are doing to help their coal industries mine thin seams and low sulfur seams.

Representative Ratliff discussed tax incentives used by West Virginia and Virginia to help their coal industries stay competitive. He said he filed a bill in the 1998 Regular Session regarding this issue which did not pass, but he will file the bill again for the 2000 Regular Session. He discussed the major provisions of his proposed bill.

Representative Napier asked if the proposed bill has a fiscal impact. Representative Ratliff stated there was a fiscal note attached to the bill, but it was misleading.

Next, Mr. Bill Caylor of the Kentucky Coal Association discussed mountain top removal. He discussed federal laws regarding reclamation and mountain top removal and explained the mountain top removal mining process. Mountain top removal has been used for the last 30 years, but only recently has it become controversial. He discussed the different steps in the process, and mentioned several sites the committee would visit the next day. He also detailed various reclamation projects being used in conjunction with mountain top removal sites. Mountain top removal reclamation projects create level land which has many uses.

Representative Ballard asked how thick is the Spratlin coal seam. Mr. Caylor answered that the seam is 10 feet thick, which is unusual. Most seams mined by mountain top removal are 4 feet thick or less.

Next, Mr. Jack Sykes of Summit Engineering described in detail the Spratlin mountain top removal site which the committee would be touring. He discussed the development plans for residential and industrial areas at the Spratlin reclamation site. He also discussed the financing for the reclamation site development plans.

Senator Herron asked what the price will be for planned residential lots. Mr. Sykes said that most of the residential lots are owned by the original property owners, but the estimated selling prices for each lot is at least $50,000.

Chairman McKee asked how many acres of land are involved in the development plan and whether there are there enough buyers for the property. Mr. Sykes said the permit is just under 1,100 acres, with about 150 acres devoted to a golf course. About half of the remaining acreage in Phase 1 will be developed into residential lots. Mr. Sykes then said that property out of the flood plain sells very rapidly in Floyd county and the lots will be easily sold.

Senator Herron asked how many acres are set aside for industrial development. Mr. Sykes stated 60 acres will be developed as industrial.

Representative Napier asked if money from the Department of Transportation and the coal severance tax fund has been used on this site. Mr. Sykes answered that money from both has been used to provide roads and infrastructure to the industrial development site.

Senator Herron introduced and explained a resolution concerning the Peabody Coal Company and use of its coal by the Tennessee Valley Authority. Senator Herron moved the resolution be passed. Second by Representative Ratliff. Resolution was passed by voice vote.

Being no further business, the meeting was adjourned at 8:25 PM.

On April 16, 1999, the Special Subcommittee toured surface and underground mining sites. During the morning, the committee toured the Spratlin, Ivy Creek, and Law Heirs surface mining sites. Following lunch, the committee toured Lodestar Energy's Miller's Creek underground mining operation.