Judge's Rejection of Kentucky Coal Company Settlement Points to Bigger Issues

A settlement between the Kentucky Energy and Environment Cabinet and a coal company won’t be allowed to go forward after a Franklin County Circuit judge’s rejected the proposal Monday.

The commonwealth had proposed a fine of $310,000 for Frasure Creek Mining, after environmental groups uncovered numerous violations of the Clean Water Act. Some of these violations centered on Frasure Creek submitting months' worth of identical pollution reports to the state—something the Cabinet didn’t act on until environmental groups pointed out the duplicates and threatened a lawsuit.

These actions apparently weren’t resolved after they were brought to light; Frasure Creek was in the news again last week, after environmental companies once again threatened to sue because of similar, ongoing problems. The groups cited nearly 28,000 new violations, committed after the state had already stepped in to try to resolve the first batch of incidents.

But here’s what’s interesting about this first case (let’s call it Frasure Creek #1). Environmental groups have for years complained that they can’t sue these companies that have allegedly violated federal pollution laws. They say whenever they try, the state Energy and Environment Cabinet steps in with a too-low settlement, and they’re blocked.

So now, in a case that’s unusual for Kentucky, a judge has agreed that the Cabinet’s proposed settlement for Frasure Creek # 1 is inappropriate. And in this case, he should know. Judge Phillip Shepherd has been in the Franklin Circuit Court since 2006, but he used to be the cabinet secretary (under what was then called the Natural Resources and Environmental Protection Cabinet) from 1991 to 1995.

Judge Shepherd’s order, issued Monday,is a compelling read for anyone who’s interested in pollution issues in Kentucky. Here are a few takeaways:

• There were a total of 1,520 violations, assuming each was one incident and not ongoing. This could have resulted in a possible penalty of $38 million—or more than 12,000 percent more than the Cabinet proposed.
• The Cabinet lacks the necessary budget and personnel to enforce the Clean Water Act. Kentucky Department for Environmental Protection Commissioner Bruce Scott testified that the cabinet has “fewer staff today than it did in 1990, and far more responsibilities than it did in 1990.” Judge Shepherd later wrote: “Based on Commissioner Scott’s testimony, the Court finds that the Cabinet lacks the personnel and budget [to] conduct more vigorous oversight of the systematic regulatory violations that are at issue in this case.”
• This lack of resources led the Cabinet to investigate Frasure Creek’s administrative violations, not the environmental harm. This is despite indications that there was environmental harm caused by Frasure Creek’s ongoing pollution violations.
• The Cabinet was relying on a lab, S&S, to take water quality samples from Frasure Creek’s operations, despite the fact that the lab didn’t appear qualified. “The Court finds as a matter of fact that S&S laboratory was incapable of performing, monitoring and reporting tasks as contracted for by Frasure Creek.” Frasure Creek eventually had to switch to another lab, which cost the company $30,000 a month more. Judge Shepherd determined that the company saved more than $310,000 (the state’s proposed penalty) by using a company that cut corners.

All signs point to a Cabinet that is so stretched for resources that it can’t perform its basic duties as delegated by federal law. The budget argument was reiterated in a statement released Monday by Cabinet spokesman Dick Brown:
We agree that the Commonwealth has an obligation to monitor and enforce regulations and laws related to mining.  The EEC has funding needs as do many state programs, and the process for considering all the needs of state programs is in the biennial budget process, in which the requests for funding always exceed the state's available capacity.  The Governor and legislators weigh those requests during the budget process so that all areas can be thoughtfully considered in the development of a balanced budget. On multiple occasions, Sec. Peters and representatives of the EEC have relayed to the legislature that the impacts of continued cuts to the Cabinet will eventually manifest in ways that would affect personnel and programs.  Additionally, demand for services is increasing, which further strains limited resources. The Cabinet will continue to manage available resources to fulfill critical service needs.  Ultimately, the funding challenge reinforces the need to reconsider how to pay for state services.
So, here’s a look at the past few years of the Department for Environmental Protection’s budget.
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As you can see, in many cases, Gov. Steve Beshear served as the budget-slasher (his budget recommendations are in the "recommendation" column). He recommended less money than the state DEP asked for each year. And each year, the General Assembly restored some of that money (represented by the "enacted" column), but sometimes not very much of it. (In 2010, that "enacted" number is actually the revised and updated figure).

The documents only provides figures of actual spending by the DEP for two years, 2012 and 2013. In 2012, the DEP had a budget of $116,627,100. It spent only $107,042,760, according to the state budget office. That year, DEP revenue, which includes general and federal funding, amounted to about $1.5 million more than what the legislature originally budgeted. 

The federal government delegates to Kentucky the enforcement of certain federal laws like the Clean Air Act, the Clean Water Act and the Surface Mining Control and Reclamation Act. If Kentucky can’t enforce these law, the federal government technically has the option to step in. It's unlikely the EPA would have the will and resources to take over these programs, according to sources familiar with the matter.

Now that the proposed settlement between Frasure Creek and the Kentucky Cabinet has been rejected, what's next?

The Cabinet can appeal or possibly start again with another hearing that includes the environmental groups. The judge has ordered the state to allow these groups to participate in the case. 

The state Cabinet has until Dec. 24 to announce its intention. And there’s still the question of what actions—if any—the Cabinet will take to resolve the second Frasure Creek case.