Second Annual Kentucky Environmental Law CLE Seminar

The Kentucky Bar Association Environment, Energy & Resources Law Section presents:

This program has been approved in Kentucky for 6.00 CLE Credits including 0.00 Ethics Credit.

Compiled and Edited by: The Kentucky Bar Association Office of Continuing Legal Education for Kentucky Bar Association Environment, Energy & Resources Law Section

Editor’s Note: The materials included in this Second Annual Kentucky Environmental Law CLE seminar handbook are intended to provide current and accurate information about the subject matter covered. The program materials were compiled for you by volunteer authors. No representation or warranty is made concerning the application of the legal or other principles discussed by the instructors to any specific fact situation, nor is any prediction made concerning how any particular judge or jury will interpret or apply such principles. The proper interpretation or application of the principles discussed is a matter for the considered judgment of the individual legal practitioner. The faculty and staff of the Kentucky Bar Association disclaim liability therefor. Attorneys using these materials or information otherwise conveyed during the program, in dealing with a specific legal matter, have a duty to research original and current sources of authority.

Second Annual Kentucky Environmental Law CLE Seminar

Table of Contents

Agenda...... i

Speakers ...... iii

Environmental Protection Legislative Update ...... 1

KDEP Regulatory Update ...... 11

Environmental Protection Case Law Update ...... 17

Louisville Metro Air Pollution Control District ...... 29

Current Issues in Permitting and Enforcement in the Kentucky Division of Waste Management ...... 35

Greenhouse Gas Litigation Update ...... 43

Natural Resources Legislative Update for the 2012 Kentucky General Assembly ...... 49

Natural Resources Regulatory Update ...... 63

Natural Resources Case Law Update ...... 73

Department for Natural Resources: Trends in Permitting and Enforcement: Overview of the Department for Natural Resources ...... 81

Natural Resources Roundtable: Current Issues in Permitting and Enforcement ...... 95

A Look at Kentucky's Renewables: Opportunities & Challenges ...... 105

Not Up to Standard? HB 167 and Kentucky's Reluctance to Adopt a Renewable Portfolio Standard ...... 113

Electric Utility Industry Update: Transition or Train Wreck? ...... 119

Practice before the Office of Administrative Hearings ...... 123

Second Annual Kentucky Environmental Law CLE Seminar April 10, 2012 Thomas D. Clark Center for Kentucky History Frankfort, Kentucky

8:15-8:45 Registration and Continental Breakfast

8:45-9:00 Welcome Section Chair Jennifer Cave Bingham Greenebaum Doll, LLP

9:00-9:30 Environmental Protection Legislative Update (.50 CLE credit) Tom FitzGerald Kentucky Resources Council

9:30-10:00 Environmental Protection Regulatory Update (.50 CLE credit) Kenneth J. Gish, Jr. Stites & Harbison, PLLC

10:00-10:30 Environmental Protection Case Law Update (.50 CLE credit) Kelly D. Bartley Bingham Greenebaum Doll, LLP

10:30-10:45 Break

10:45-11:45 Environmental Protection Roundtable: Current Issues in Enforcement and Permitting (1.00 CLE credit) Commissioner R. Bruce Scott Department for Environmental Protection

Virginia Baker Gorley Division of Waste Management

Mary Stephens Division of Water

Jacquelyn A. Quarles Division for Air Quality

Lauren Anderson, Executive Director Louisville Air Pollution Control District

Moderated by: Ronald R. Van Stockum, Jr. Law Offices of Ronald R. Van Stockum, Jr.

i 11:45-12:45 Lunch (on your own)

12:45-1:15 Natural Resources Legislative Update (.50 CLE credit) Stefan W. Kasacavage Legislative Research Commission

1:15-1:45 Natural Resources Regulatory Update (.50 CLE credit) Clay Larkin Bingham Greenebaum Doll, LLP

1:45-2:15 Natural Resources Case Law Update (.50 CLE credit) Dennis J. Conniff Frost Brown Todd, LLC

2:15-2:30 Break

2:30-3:30 Natural Resources Roundtable: Current Issues in Permitting and Enforcement (1.00 CLE credit) Commissioner Steve Hohmann Department for Natural Resources

Joseph J. Zaluski ECSI, LLC

Scott Smith Smith Management Group

Professor Anthony E. Chavez Salmon P. Chase College of Law

Robert J. Ehrler, Jr. LG&E and KU Energy, LLC

Moderated by: Vice Chair Philip J. Schworer Frost Brown Todd, LLC

3:30-4:30 Practice before the Office of Administrative Hearings (1.00 CLE credit) Chief Hearing Officer Robert Layton Hearing Officer Matthew L. Mooney Hearing Officer Susan Rose Green Office of Administrative Hearings Energy and Environment Cabinet

Moderated by: Chair-Elect Cathy Franck Real Food Watchclub, LLC

ii SPEAKERS

Tom FitzGerald Kentucky Resources Council Post Office Box 1070 Frankfort, KY 40602 502.875.2428 [email protected]

Tom FitzGerald is the Director of Kentucky Resources Council, Kentucky’s only environmental advocacy organization offering legal and strategic assistance without charge to individuals, community groups and local governments statewide. Mr. FitzGerald previously served as a staff attorney at the Appalachian Research and Defense Fund of Kentucky. He received his B.A. from Roger Williams College in 1976 and his J.D. from the University of Kentucky College of Law in 1980. Mr. FitzGerald is a member of the Kentucky Bar Association and its Public Interest Law and Environment, Energy & Resources Law Sections.

Kenneth J. Gish, Jr. Stites & Harbison PLLC 250 West Main Street, Suite 2300 Lexington, KY 40507-1758 859.226.2300 [email protected]

Kenneth Gish is an associate at Stites & Harbison, PLLC in Lexington, where he is a member of the firm's Environmental, Natural Resources and Energy Service Group. His practice focuses on complex facility permitting, renewable and alternative energy development, sustainability, hazardous waste remediation, compliance with regulatory requirements and environmental litigation. He received his B.A. from Georgetown University in 1995 and his J.D., cum laude, from the University of Michigan in 2003. Prior to joining Stites & Harbison, Mr. Gish practiced in the Seattle office of K&L Gates, LLP. Prior to law school, he served as a watch and division officer on the USS San Juan (SSN-751), a nuclear-powered fast attack submarine. He is a former Director of the Northwest Environmental Business Council (2009-10) and a former vice chair for technology and membership of the American Bar Association's Water Resources Committee. Mr. Gish is a member of the Washington and Kentucky Bar Associations.

Kelly D. Bartley Bingham Greenebaum Doll, LLP 300 West Vine Street, Suite 1100 Lexington, KY 40507 859.231.8500 [email protected]

Kelly D. Bartley is member of the Environment, Energy & Natural Resources Practice Group at Bingham Greenebaum Doll, LLP in Lexington. Her practice involves consulting with and representing firm corporate clients with respect to a broad range of state and federal environmental law compliance, permitting and litigation issues, including issues

iii relating to air emissions, solid and hazardous waste, and wastewater treatment. Ms. Bartley is editor of the firm's quarterly newsletter on Kentucky air emission regulation issues, the Bingham Greenebaum Doll Air Quality Letter. She received her B.S., magna cum laude, from Morehead State University in 1996 and her J.D. from the University of Kentucky College of Law in 2000. Ms. Bartley served as Section Chair for the Kentucky Bar Association's Environment, Energy & Resources Law Section (2004-2005), and as a member of the Executive Committee of the Fayette County Local Emergency Planning Commission (2001-2007). She is currently a member of the Kentucky and Fayette County Bar Associations.

Commissioner R. Bruce Scott Kentucky Environmental and Energy Cabinet 300 Fair Oaks Lane Frankfort, KY 40601

R. Bruce Scott has served as commissioner of the Kentucky Department for Environmental Protection (DEP) since January 2008. Scott has served for nearly twenty- nine years in the Department for Environmental Protection. Scott began work with DEP in August 1983, as an environmental engineer in the Division of Water. He holds a Bachelor of Science degree in chemical engineering from the University of Kentucky and is a registered professional engineer. During his career with DEP, Scott served as manager of the Kentucky Pollutant Discharge Elimination System (KPDES) Branch from 1994 to 2004. He served as director of the Division of Waste Management (DWM) from 2004 to January 2008. As commissioner of DEP from January 2008 to present, Mr. Scott provides leadership and oversight of the six divisions within DEP, including all aspects of the Department’s environmental programs for the protection of human health and the environment via the enhancement and protection of the Commonwealth’s air, land and water. During his time as Commissioner, the Department has consolidated the central office work space, instituted strategic planning and annual reporting, eliminated the backlog of enforcement and permitting actions, along with several other initiatives to protect and enhance the Commonwealth’s environment … all while managing a 32 percent general fund budget reduction and reduction in staffing to a twenty year low.

Virginia Baker Gorley Energy and Environment Cabinet 200 Fair Oaks Lane, First Floor Frankfort, KY 40601 502.564.6716 [email protected]

Virginia Baker Gorley is currently an Attorney Manager for the Kentucky Energy and Environment Cabinet and primarily serves the Division of Waste Management. She received her B.S. from Northern Kentucky University in 1994, her J.D. from Northern Kentucky University Salmon P. Chase College of Law in 1998, and her Masters in Public Administration from Northern Kentucky University in 2002. Ms. Gorley is a member of the Ohio and Kentucky Bar Associations.

iv Mary A. Stephens 209 South Madison Avenue Louisville, KY 40243-1361 502.564.3410 [email protected]

Mary A. Stephens works as an attorney in the Kentucky Energy and Environment Cabinet's Division of Water. She received her undergraduate degree from the University of Kentucky and her J.D. from the University of Kentucky College of Law. Ms. Stephens is a member of the Kentucky Bar Association.

Jacquelyn A. Quarles Energy and Environment Cabinet 200 Fair Oaks Lane, First Floor Frankfort, KY 40601 502.564.3999 [email protected]

Jackie A. Quarles works as an attorney for the Kentucky Division for Air Quality in Frankfort. She received her B.A. from Vanderbilt University in 2001 and her J.D. from the University of Kentucky College of Law in 2004. Ms. Quarles is a member of the Kentucky Bar Association.

Lauren Anderson, Executive Director Louisville Air Pollution Control District 1412 East Breckinridge Street Louisville, KY 40204 502.574.6009 [email protected]

Lauren Anderson is the Executive Director of the Louisville Air Pollution Control District. She received her B.A. from Columbia University and her J.D. from the University of Louisville Louis D. Brandeis School of Law. Following graduation, she worked with the Kentucky Court of Appeals, as a staff attorney for the Kentucky Natural Resources and Environmental Protection Cabinet, and for the Legislative Research Commission in Frankfort. In 2003, Ms. Anderson began working for the Jefferson County Attorney's office representing the Louisville Metro Air Pollution Control District, where she was involved in the passage of Louisville's STAR regulations to control air toxics. After five years as counsel to APCD, she became its Executive Director in 2008. Ms. Anderson is a member of the Kentucky Bar Association.

v Ronald R. Van Stockum, Jr. 4163 Zaring Mill Road Shelbyville, KY 40065 502.568.6838

Reggie Van Stockum has been a solo practitioner since 1981, and has focused his practice in environmental law for approximately thirty years. Prior to entering private practice, Mr. Van Stockum worked as a staff attorney for the Kentucky Department for Natural Resources and Environmental Protection from 1979-1981. He also previously served as an adjunct faculty member at the Louis D. Brandeis School of Law at the University of Louisville and as a biology instructor at Indiana University Southeast in New Albany and at Jefferson Community College in Louisville. He received his B.S. from Santa Clara University, his M.S. and Ph.D. from the University of Louisville, and his J.D. from the University of Louisville Louis D. Brandeis School of Law. Mr. Van Stockum has been rated AV Preeminent by Martindale-Hubbell continuously since 1996. He is a member of the Nature Conservancy, Chairman for the Kentucky Chapter (1997-2000), the Filson Historical Society (Board of Directors 2000-2006; Vice-President 2005-2006), and the Kentucky and Louisville Bar Associations. Mr. Van Stockum served as the 2010-2011 Chair of the Kentucky Bar Association’s Environment, Energy & Resources Law Section.

Stefan W. Kasacavage Kentucky Legislative Research Commission 701 Capitol Avenue Frankfort, KY 40601 502.564.8100 x475 [email protected]

Stefan Kasacavage is a legislative analyst with the Kentucky Legislative Research Commission, where he concentrates in natural resources and environmental law. He received his undergraduate degree from Transylvania University in 2003 and his J.D. from the University of Louisville Louis D. Brandeis School of Law in 2008. He is a member of the Kentucky Bar Association.

R. Clay Larkin Bingham Greenebaum Doll, LLP 300 West Vine Street, Suite 1100 Lexington, KY 40507 859.288.4660

Clay Larkin is an associate with Bingham Greenebaum Doll, LLP in Lexington, where he is a member of the firm's Environment, Energy & Natural Resources Practice Group. He received his B.A. from Western Kentucky University in 2004 and his J.D., Order of the Coif, from the University of Kentucky College of Law in 2007. While in law school, Mr. Larkin was a member of the Moot Court Board and the National Moot Court Team, and served as a staff member for the Kentucky Law Journal. He currently serves as Secretary and a member of the Executive Committee for the Fayette County Local Emergency Planning Committee (2009-present). Mr. Larkin is also a member of the Energy & Mineral Law Foundation, Kentucky Oil and Gas Association, the Federalist Society and the Kentucky Bar Association.

vi Dennis J. Conniff Frost Brown Todd, LLC 400 West Market Street, 32nd Floor Louisville, KY 40202-3363 502.589.5400 [email protected]

Dennis Conniff is a member of Frost Brown Todd, LLC in Louisville, and serves as vice- chair of the firm's environmental department. He represents clients with respect to issues concerning permitting and compliance in the waste, air and water programs. Mr. Conniff previously spent nine years with the Department of Law (now Office of Legal Services), Kentucky Natural Resources and Environmental Protection Cabinet (now Environmental and Public Protection Cabinet), where he served as manager of the Solid and Hazardous Waste Legal Branch and Director of Environmental Protection Legal Division. He also served as the Cabinet's representative on the Environmental Crimes Workgroup. Mr. Conniff received his B.A., with honors, from the University of Louisville in 1975, his J.D. from the University of Louisville Louis D. Brandeis School of Law in 1978, and his M.P.A. from Kentucky State University in 1988. He serves as Chair of the Greater Louisville, Inc. Environmental Affairs Committee's Air Toxics Task Force. He is also a member of the Louisville Bar Association and the Kentucky Bar Association and its Environment, Energy & Resources Law Section.

Commissioner Steve Hohmann Kentucky Department for Natural Resources 2 Hudson Hollow Frankfort, KY 40601 502.564.6940 [email protected]

Steve Hohmann serves as Commissioner for the Kentucky Department for Natural Resources in Frankfort, where he is responsible for overall department management. The Department for Natural Resources regulates all mining operations, forestry, oil and gas development, and conservation efforts in the Commonwealth. From 1995 to 2011, he served as Director of the Kentucky Division of Abandoned Mine Lands (AML), which is responsible for implementing the federally approved abandoned mine land reclamation program in Kentucky. From 1992 to 1995, he served as Director of the Division of Field Services in charge of reclamation enforcement on all coal mining sites for Kentucky's surface mining regulatory program. From 1989 to 1992, he served as Mining Section Supervisor in the Division of Field Services in charge of the program support section for the surface mining regulatory program. Commissioner Hohmann received his B.A. from Morehead State University in 1988. He served as President of the National Association of Abandoned Mine Land Programs in 2003 and 2004, and served as the Association's representative on the federal Office of Surface Mining's Steering Committee for the National Technical Training Program.

vii Joseph J. Zaluski ECSI, LLC 350 South Broadway, Suite 200 Lexington, KY 40508 859.233.2103 [email protected]

Joseph J. Zaluski serves as Executive Vice-President of ESCI, LLC in Lexington, where he is responsible for the management of environmental projects. Prior to joining ECSI, LLC, Mr. Zaluski served as Co-Chair of the Mineral and Energy Law Practice Group and Chair of the Regulatory Compliance Subgroup for Wyatt, Tarrant & Combs, LLP. His law practice was concentrated in all areas of mineral and environmental regulation, litigation and administrative practice including SMRCA, CERCLA, and TSCA. Prior to joining Wyatt, Tarrant & Combs, LLP, Mr. Zaluski served as senior attorney for the Kentucky Natural Resources and Environmental Protection Cabinet where he was active in the drafting of the Kentucky Surface Mining statute and associated regulations. He has also served as an adjunct professor of environmental and mineral law at Northern Kentucky University Salmon P. Chase College of Law and as a guest lecturer at the University of Kentucky College of Law. Mr. Zaluski received his B.S. from Transylvania University in 1971 and his J.D. from the University of Kentucky College of Law in 1975. He is a member of the Energy & Mineral Law Foundation, the National Mining Association, the Kentucky Coal Association (Mine Safety & Health Committee Member), Rocky Mountain Mineral Law Foundation, and the American, Kentucky, Wyoming, Louisville, Franklin County and Fayette County Bar Associations.

Scott R. Smith Smith Management Group 1405 Mercer Road Lexington, KY 40511 859.231.8936

Scott Smith serves as Senior Consultant with Smith Management Group, where he focuses on environmental and energy management/development. He received his B.S. from Marshall University in 1968 and his M.S. from West Virginia College of Graduate Studies in 1974. Mr. Smith is currently a registered legislative and administrative branch lobbyist and serves as Chairman for the Kentucky Environmental Quality Commission. He formerly served as Chief of Staff of the Kentucky Environmental and Public Protection Cabinet. Mr. Smith is a member of the Kentucky Chamber of Commerce, Kentucky Homebuilders’ Association, Commerce Lexington, and Greater Louisville, Inc.

viii Professor Anthony E. Chavez Salmon P. Chase College of Law Northern Kentucky University Nunn Drive Highland Heights, KY 41099 859.572.5355 [email protected]

Professor Anthony E. Chavez is an Assistant Professor of Law at Northern Kentucky University Salmon P. Chase College of Law, where he teaches Civil Procedure and Environmental Law. He has previously taught Contracts, Corporations, Election Law, and Legal Research and Writing. Professor Chavez received his B.S. from Loyola Marymount University in 1982 and his J.D. from Yale Law School in 1986. Prior to teaching, Professor Chavez primarily litigated cases under the Voting Rights Act of 1965. He received a Special Achievement Award from the U.S. Department of Justice for his work in the Civil Rights Division's Voting Section. Professor Chavez subsequently served as the director of voting rights litigation for the Mexican American Legal Defense and Educational Fund. As a result of his work, the Secretary of Commerce appointed him to serve on an advisory committee to help reduce the minority undercount for the 2000 Census. He has also testified regarding voting rights issues or census issues before the U.S. House Judiciary subcommittee and the California Assembly, as well as before local governments, community groups, and professional organizations. Professor Chavez is licensed as both an attorney and a certified public accountant in California. He left his position as the Director of Legal Research and Writing at the University of California at Davis to teach at Chase.

Robert J. Ehrler, Jr. LG&E and KU Energy LLC 220 West Main Street Louisville, KY 40202 502.627.2305 [email protected]

Robert J. Ehrler serves as Senior Counsel and Environmental Policy Manager at LG&E and KU Energy LLC in Louisville. Mr. Ehrler has more than twenty years of experience as in-house and outside counsel for Fortune 500 energy companies. In his current position, he handles a broad range of work including environmental rulemakings, compliance, permitting, enforcement, litigation, and the environmental aspects of transactions. He received his B.A., with high distinction, from the University of Kentucky and his J.D. from George Washington University. He is a member of the Kentucky Bar Association and its Corporate House Counsel and Environment, Energy & Resources Law Sections.

ix Philip J. Schworer Frost Brown Todd, LLC 7310 Turfway Road, Suite 210 Florence, KY 41042 859.817.5903 [email protected]

Philip J. Schworer is a member of Frost Brown Todd, LLC in Florence, where he represents business and industry in all aspects of environmental, health and safety, and toxic tort issues. His practice includes environmental litigation, environmental due diligence and negotiations associated with corporate acquisitions and divestitures, and compliance counseling. Mr. Schworer is a certified Professional Environmental Auditor. He received his B.S. from the University of Cincinnati in 1977, his M.S. from the University of Cincinnati College of Medicine in 1980, and his J.D. (1986) and LL.D. (2009) from Northern Kentucky University Salmon P. Chase College of Law. Mr. Schworer is a member of the Defense Research Institute and the American, Ohio State, Tennessee, Kentucky, Cincinnati (President, 2008-09), and Northern Kentucky Bar Associations.

Chief Hearing Officer Robert G. Layton Office of Administrative Hearings Kentucky Energy & Environment Cabinet 1470 North Forbes Road Lexington, KY 40511-2012 502.564.7312 [email protected]

Robert G. Layton has been employed full time as a Hearing Officer since 1997, first with the Board of Tax Appeals and then with the Cabinet for Health and Family Services. He presently serves as Chief Hearing Officer for the Office of Administrative Hearings in the Energy & Environment Cabinet. He has served in several volunteer capacities for the Kentucky Association of Adjudicative Administrators and the National Association of Administrative Law Judges, and has presented continuing legal education topics for a number of administrative law conferences. Mr. Layton received his B.S. from the University of Kentucky in 1982, and his J.D. from the University of Kentucky College of Law in 1991. From 1991-1993, Mr. Layton was in general private practice, and from 1993-1997, he served as a prosecutor and assistant Fayette County Attorney. He also founded Catalog Update and Catalogue Update (GB), which provide statistical sales supplements for thoroughbred horse auctions in North America and Europe.

x Hearing Officer Matthew L. Mooney Office of Administrative Hearings Kentucky Energy and Environment Cabinet 35-36 Fountain Place Frankfort, KY 40601 502.564.7312 [email protected]

Matthew Mooney is a hearing officer with the Kentucky Energy and Environment Cabinet's Office of Administrative Hearings in Frankfort. He received his undergraduate degree from the University of Kentucky and his J.D. from the University of Kentucky College of Law. He is a member of the Kentucky Bar Association.

Hearing Officer Susan Rose Green Office of Administrative Hearings Kentucky Energy and Environment Cabinet 35-36 Fountain Place Frankfort, KY 40601 502.564.7312 [email protected]

Susan Rose Green is a hearing officer with the Kentucky Energy and Environment Cabinet's Office of Administrative Hearings in Frankfort. She received her B.B.A. from Georgetown College/Eastern Kentucky University in 1986 and her J.D. from the University of Louisville Louis D. Brandeis School of Law in 1989. Ms. Green previously served as an attorney for the Cabinet and as Director for the Department for Environmental Protection's Division of Enforcement. She is a member of the Kentucky Bar Association.

Cathy W. Franck Real Food WatchClub, LLC Post Office Box 314 Peewee Valley, KY 40056 502.271.5177

Cathy W. Franck is the founder and managing member at Real Food WatchClub, LLC, a biodiversity project designed to educate consumers regarding GMOs in the open environment and in the food, feed, and biofuel supply specifically. She received her B.A. from Brown University and her J.D. from the University of Kentucky College of Law. Ms. Franck is a member of the Louisville Bar Association and the Kentucky Bar Association, where she serves as Chair-Elect of its Environment, Energy & Resources Law Section.

xii ENVIRONMENTAL PROTECTION LEGISLATIVE UPDATE Tom FitzGerald, Director Kentucky Resources Council, Inc.

I. INTRODUCTION

On April 12, the Regular Session of the 2012 Kentucky General Assembly will end. While it is not anticipated that any of the bills and resolutions identified below as not having passed will be taken up, there is always that possibility. Among the measures that are anticipated to be considered on the “veto day,” under suspension of the rules, are a bill addressing overprescription of pain medication (HB 4), the “road bills” (HB 266, 267), and a number of Senate confirmations that are awaiting action.

This outline is divided in two sections: first, the bills and resolutions that were adopted are identified and generally described, and then the bills and resolutions that were filed and were heard and approved by at least one committee. The bills are provided in order, from lowest to highest bill number, first in the House and then the Senate.

For a more detailed description of the environment, energy, and general government bills that were introduced but which did not gain approval by any committee, visit www.kyrc.org and click on “2012 GENERAL ASSEMBLY REGULAR SESSION: Bills We’re Watching: The Eleventh Edition.”

II. ENVIRONMENTAL PROTECTION MEASURES THAT PASSED

A. HB 123 (Riggs) (To Governor)

Would allow a city of the second class in Metro Louisville (pronounced Jeff-er-son-town) to establish an independent board of zoning adjustment with exclusive jurisdiction within the city's territorial jurisdiction.

B. HB 148 (Combs) (Law)

Amends state pipeline safety law to delete the $25,000/$500,000 maximum penalties for violations of federal gas pipeline laws and regulations, and replace with civil penalties contained in federal code, which allow imposition of individual penalties for violations of $100,000 for each day of the violation, up to an aggregate of $1,000,000 for related violations.

C. HB 255 (Adkins and others) (To Governor)

Would have created a Kentucky Green Schools Authority to promote energy efficiency in school buildings through technical assistance, expertise, and financing to undertake guaranteed energy savings performance contract projects; provide bonding authority, amend state law to clarify that industrial revenue bonds may be issued to assist with increasing energy efficiency in manufacturing facilities.

Senate changes gutted the text of the original bill and instead adopted provisions intended to provide assistance to tornado victims.

D. HB 265 (Rand and others) (To Governor)

Executive Branch Budget for FY 2012-2014. As far as environmental protection programs are concerned, the budget has these impacts:

1. $17 million provided in the out year to install a permanent cap on the Maxey Flats nuclear waste site.

2. Waste tire fee reauthorized for two more years.

3. Loss of general funds in both years, particularly in 2013-2014.

4. Staffing at twenty-year low, wages stagnant and losing ground in real dollars.

5. Rather than “sweeping” PSTEAF and bonding back $25 million over the biennium for underground storage tank remediation, final budget transferred less to General Fund ($13.5 million each year compared with $35.5 million in the Governor’s budget and $37.5 million in House-passed budget).

E. HB 344 (Rudy and Nesler) (To Governor)

Will prohibit releasing a feral or wild hog into the wild.

F. HB 390 (Pullin) (To Governor)

Will establish a registration system for secondary metal recyclers to be administered by the Public Protection Cabinet. Among the provisions of the program will be:

1. An obligation for “secondary metals recyclers” who obtain or process used ferrous or nonferrous metals other than cities to submit to a background check, to register with the Public Protection Cabinet, to pay for annual registration.

2. Prohibition against cash transactions for purchasing any restricted metals, which include manhole covers, light poles, guardrails, street signs, funeral markers or vases, railroad equipment, condensing or evaporating coils, coaxial cable and copper wire, stainless steel beer kegs, catalytic converters and storm drain covers. Checks are mailed, rather than presented.

3. Daily digital reporting of purchases of restricted metals to county sheriff and police.

4. Requirement that recycler obtain reasonable proof that the seller is or is agent for owner of metals.

5. Purchases from nonprofit organizations and pursuant to a contract with an entity that generates restricted metals, and purchases of vehicles pursuant to title are exempted.

6. Violation is a Class B misdemeanor for up to $3,000 in injury to property or cost of repairs, Class D felony if over $3,000.

G. HB 399 (Thompson) (To Governor)

Will amend existing law to require the Public Service Commission to determine interest rates paid by utilities on an annual basis.

H. HB 440 (Denham) (To Governor)

Will clarify common law liability provisions and protections for those providing agritourism activities to the public. As amended, the bill merely restates the common law liability with respect to invitee liability, but also includes a posting requirement and a requirement that the participant signs a release indicating the receipt of written notice that the owner of the agritourism facility is not liable for death or injury resulting from “the inherent risks” of the activity in the absence of negligence, willful disregard, or failure to warn of dangerous conditions.

I. HB 465 (Nesler, Gooch) (To Governor)

Creates a new section of Subchapter 1 of KRS Chapter 224 to establish a Brownfields Redevelopment Program to be administered by the Energy and Environment Cabinet. Among the salient features of the bill:

1. Exempts property owners where a release of petroleum, pollutants, or contaminants has occurred from the obligation to perform characterization and corrective action for the release, provided that the person certifies and the Cabinet finds that the release occurred prior to acquisition of the property, that “all appropriate inquiries” were made, that all legal notices have been made regarding the presence of the hazardous substances on the property, that the property owner complies with all land use restrictions and doesn’t impede or compromise any institutional controls, that the property owner is not affiliated with any person potentially liable for the release (both business and familial) and that the person has not caused or contributed to the release;

2. Establishes criteria for the protection from liability for property owners and allows the cabinet to promulgate administrative regulations to establish standards and procedures for implementing the Brownfields Redevelopment Program;

3. Amends KRS 224.60-135 to provide that property owners are not required to take corrective action where a release from a petroleum storage tank occurred if the property owner is not the tank owner or operator;

4. Amends KRS 224.60-138 to provide notice that no further action is needed regarding residual contamination on property where a release has occurred from a petroleum storage tank if the contamination is below standards established by the cabinet under the Brownfields Redevelopment Program.

J. HB 518 (McKee) (To Governor)

Will add to the membership of the Waste Tire Working Group, one member who is a magistrate or commissioner and one member who is a county judge/executive. Senate floor amendment would add retailer as well, and second Senate floor amendment addresses overdimension farm equipment.

K. HB 559 (Adkins and several others) (To Governor)

Will clarify that the moratorium on construction of new nuclear fission power plants does not preclude several nuclear-related technologies, including closed loop fuel cycle plants designed to assist in conversion of coal and gas to fuel. Among the activities to which the current moratorium is not to be construed as applying or precluding are:

1. Enrichment of depleted uranium hexafluoride tails;

2. Processing of metals contaminated with radioactive materials;

3. Recycling or reprocessing of spent nuclear fuels; or

4. Nuclear-assisted coal or gas conversion processes;

provided that electricity is not the primary output of any of these processes.

The current moratorium would not, even in the absence of the bill, have applied to the first three categories of activities. The final category is intended to allow Paducah to compete for siting of a high-temperature gas-cooled modular reactor used for conversion of coal to syngas or synthetic fuel. Waste output from the HTG units, which do not generate electricity as a primary output, is 99 percent less than a conventional plant.

L. HJR 11 (Steele) (Became Law)

Joint resolution that would encourage incorporation of improvements to sewer infrastructure and elimination of straight pipes into mitigation under the Section 404 program, and would require the Energy and Environment Cabinet to work with the University of Kentucky and University of Louisville to develop a method of evaluating the value of straight pipes and sewer projects to the overall mitigation requirement.

M. HCR 29 (Graham) (To Governor)

Establish a Kentucky Children's Outdoor Bill of Rights and declare it to be the public policy of the Commonwealth. Senate Committee Substitute softened the language into an expression of sentiment for “promoting, as a public policy goal, enhanced opportunities for outdoor activity for Kentucky’s children.”

N. HR 99 (Stone and McKee) (Adopted)

Simple resolution urging the Corps of Engineers to consider changing its policy on farmers' access and use of lake water for emergency crop irrigation during drought conditions.

O. SB 150 (Buford) (To Governor)

Will extend to independent sewer entities the power to discontinue sewer service for nonpayment of water bills.

P. SB 157 (Bowen and Givens) (To Governor)

Will revise current law on administrative regulation development by agencies to address electronic formatting, and make other changes to existing procedures.

Q. SB 162 (Bowen) (To Governor)

Comprehensive revision of statutes governing registration of geologists, including conferring additional investigative powers on registration board.

III. ENVIRONMENTAL BILLS AND RESOLUTIONS OF INTEREST THAT DID NOT PASS

A. HB 30 (Mills) (S. Ed)

Would allow school boards to approve billboards on school buses, except that political, alcohol and tobacco advertising would be prohibited. Quite possible that the attempted “content-based” restrictions on the advertising would be struck if challenged, and bill provides that program would end if the content-based restrictions are deemed unconstitutional.

B. HB 115 (Nesler) (S. Ag)

Would require retail food establishments to notify consumers of the country of origin of catfish sold in their establishments by means of a label, menu, or other sign and allow sampling by state to verify species.

C. HB 124 (Wayne) (S. Eco Dev.)

Would amend KRS Chapter 100 to allow a planning unit to incorporate airport noise overlay districts within its zoning texts and maps and to incorporate guidelines on building techniques and materials that are designed to provide acoustical insulation benefits to structures within the overlay.

D. HB 146 (Rollins)(S. A&R)

Would require the Kentucky Department of Education to consult with the Department for Environmental Protection and the Kentucky Chapter of the U. S. Green Building Council in promoting green cleaning programs in schools.

E. HB 226 (Bell) (H. Rules, recommitted to H. A&R)

Would allow billboard owners to apply for a permit to “trim” public right of way trees in order to assure the motoring public would be exposed to billboard messages. Would allow both legal and nonconforming boards to participate in the program.

F. HB 230 (Wayne and others) (H. Rules, recommitted to H. A&R)

Would create a mechanism for public financing of judicial elections, funded with voluntary designations of income taxes and bar dues.

G. HB 238 (Jenkins) (S. Rules, recommitted to S. Veterans)

Would create a prescription drug drop off and recycling program.

H. HB 245 (Hall and Henderson) (H. Rules)

Would advance the use of compressed or liquefied natural gas by allowing Division of Air Quality to mandate some portion of vehicle fleets to be converted to “alternative transportation fuels,” which is defined to include CNG and LNG. Would also create tax credits for converting vehicles to natural gas or purchasing new vehicles that do so.

I. HB 246 (Adkins and others) (S. A&R)

Would expand the types of alternative and renewable energy qualifying for state incentives, and would exempt sales of some geothermal drilling supplies and tools from sales and use tax.

J. HB 252 (Short and others) (S. Veterans)

Would require Department of Fish and Wildlife Resources to hold a postseason elk quota hunt.

K. HB 253 (McKee and Denman) (S. Ag)

Would amend law governing agricultural districts to include agricultural land of five acres of more when used to form an agricultural district and to add the local comprehensive plan and the 401 facilities plan to the county development patterns considered by the board of supervisors as one of the factors when considering the formation of an agricultural district.

L. HB 289 (Westrom and Adams) (H. Rules, recommitted to H. A&R)

Would prohibit indoor smoking in businesses, places of employment, and other listed public places.

M. HB 352 (Jenkins and Thompson) (H. Tourism Dev. & Energy) (posted)

Would create a new section of KRS Chapter 148 to define "metal detector" and "public area"; allow use of metal detectors in public areas; require registration of use of metal detector within state park or monument office; amend KRS 148.991 to provide a penalty for violation. House version of SB 105.

N. HB 356 (Sinnette) (S. A&R)

Would establish standards for marinas and boat dock owners and operators to prevent electrical shocks to persons in boats, in water, and on docks around the marina and would prohibit swimming within 100 yards of a boat dock or marina, except for reasons of search and rescue.

O. HB 357 (Rader) (H. Rules) (Recommitted to H. A&R)

Would require the Cabinet for Health and Family Services to annually inspect local school buildings for mold and roofs for leaks and to report findings.

P. HB 418 (Ford) (S. Judiciary)

Would require a notice of methamphetamine contamination to be filed by the county attorney with the county clerk who attaches the notice to the deed of the property when properties are declared to be contaminated with chemicals used in methamphetamine manufacturing; require a notice of decontamination to be filed when the property is properly cleaned.

Q. HB 427 (Hall) (S. Rules) (Consent)

Would allow Kentucky Heritage Land Conservation Board to adopt regulations with procedures for providing grants to nonprofit conservation organizations as well as agencies.

R. HB 450 (Combs, Lee, Bell) (H. State Gov.)

Would declare public policy that the costs of administrative regulations shouldn’t exceed the public benefit, and amend KRS Chapter 13A relating to administrative regulations to clarify the review authority and duties of the Administrative Regulation Review Subcommittee and authorize a nonbinding determination that an administrative regulation is deficient if the administrative regulation appears to be against public policy; amend KRS 13A.240 to change the regulatory impact analysis by deleting questions regarding the costs and benefits to regulated entities; amend KRS 13A.280 to require administrative bodies to file an in-depth costs- benefit analysis with each statement of consideration and authorize a person or entity to submit an alternative costs-benefit analysis to the regulations compiler.

S. HB 521 (Thompson) (H. Rules, Recommitted to H. A&R)

Would allow agencies to use any form of notification – governmental, commercial, or electronic, to provide notice except for notice relating to legal rights, for which certified or registered mail must be used.

T. HB 550 (Stumbo, Riner) (S.Rules) (consent)

Would create a new section of KRS Chapter 246 to implement a pilot project for healthy nutrition that addresses needy population areas, and provide for program expansion statewide.

U. HB 561 (Combs and Stumbo) (H. Rules, Recommitted to H. A&R)

Would allow the Energy and Environment Cabinet to develop regulations under the Water Well Certification Program to establish standards for drilling geothermal boreholes and installing geothermal systems; require the administrative regulations to include annually recurring certification requirements for geothermal borehole drillers.

V. HCR 64 (Combs) (S. Judiciary)

Would establish a Timber Theft and Trespass Reduction Task Force to study issues regarding timber theft and trespass, to develop consensus recommendations to address those issues, and to name the membership of the task force.

W. HCR 76 (McKee and others) (S. Ag)

Resolution would urge a study of the growth of wild pig populations in Kentucky, addressing in particular, the dangers and problems that wild swine present for the state's environment, farmers, landowners, and citizens.

X. SB 4 (Carpenter) (H. State Gov.)

Would place a moratorium of one year on any new regulations other than emergency regs and those required by 2012 session. Would sunset all regulations within two years unless they are repromulgated within that time (between one and two years). Would require an “economic impact analysis” and a ”small business and consumer impact analysis.” Would prohibit state regulations from imposing stricter requirements on regulated entities than “those required by the federal mandate” unless specifically authorized by statute.

Y. SB 10 (Bowen) (H. Elections)

Proposed constitutional amendment that would alter the current balance of power among the branches of government by reversing the Legislative Research Com'n. by and through Prather v. Brown1 decision and empowering the General Assembly to authorize interim committees to

1 664 S.W.2d 907 (Ky. 1984).

reject proposed administrative regulations when the General Assembly is not in session.

Z. SB 12 (Hornback) (S. Rules, recommitted to Sen. Eco. Dev.)

Would complete the deregulation of telecommunications service in Kentucky, altering the 2006 legislative decision that basic telephone service would remain regulated by the Public Service Commission. Would exempt electing utilities from prohibitions on discrimination in rates and service, and eliminate the requirement to file and display rates and conditions of service. Would also eliminate obligation to provide service where any other voice service was available. Would also curtail significantly PSC jurisdiction over complaints. Repackaged version of SB 135.

AA. SB 47 (Schickel) (H. Ag SB)

Original bill would allow the sale of raw milk at a farm site. Committee substitute removed original provisions and provided for “shared ownership” arrangements for livestock and poultry without permits. While not intended, the effect would be to remove any environmental permitting requirement from an industrial livestock or poultry operation provided that there was “shared ownership” of the animals.

BB. SB 62 (Thayer) (H. State Gov.) (posted)

Would lower percentage of voter signatures needed on petition to dissolve an area planning commission from 25 percent of voters in last presidential election to 10 percent of registered voters who voted in most recent election. Senate Committee Substitute Floor amendment filed by sponsor would increase percentage to 15 percent of registered voters.

Bill was intended to facilitate placing on the ballot a referendum to eliminate the Northern Kentucky Regional Planning Commission.

CC. SB 83 (Palmer) (S. Rules, consent, recommitted to S. Trans.)

Would create a water vessel removal assistance fund to be administered by the Kentucky River Authority.

DD. SB 105 (Seum and Hornback) (H. Tourism Dev. & Energy) (posted)

Would allow use of metal detectors in state parks and monuments, with no ability of the land manager to prohibit or restrict their use. Only protection is that they cannot be used in areas restricted as “primitive trails or ecologically sensitive areas.” Individuals who work with civil war site preservation are very concerned that SB 105 will increase the incidences of collectors damaging battlefield sites in search of buckles, bullets, and other metal objects. Others are concerned that archaeological sites from historic and prehistoric times might be damaged, and that allowing metal detectors on public lands will encourage collectors to excavate sites in order to recover metals in a way that violates the Kentucky Antiquities Act of 1962, which prohibits the

willful damage or destruction of archaeological sites on lands owned or leased by the state, state agencies, counties, or municipalities, and requires a permit from the University of Kentucky's Department of Anthropology to explore or excavate archaeological sites on these lands.

EE. SB 135 (Hornback, Kerr, Carpenter) (S. Eco Dev.)

Would complete the deregulation of telecommunications service in Kentucky. Would exempt electing utilities from prohibitions on discrimination in rates and service, and eliminate the requirement to file and display rates and conditions of service. Would also eliminate obligation to provide service where any other voice service was available, and would eliminate any obligation to serve after June, 2013. Would also curtail significantly PSC jurisdiction over complaints.

KDEP REGULATORY UPDATE Kenneth Gish

The past year was a fairly light year for regulatory changes at the Kentucky Department of Environmental Protection. According to KDEP, the following regulations were revised or added in the past year:

Kentucky Division for Air Quality (KDAQ)

 401 KAR 51:052. Review of new sources in or impacting upon nonattainment areas

 401 KAR 51:001. Definitions for 401 KAR Chapter 51

 401 KAR 52:001. Definitions for 401 KAR Chapter 52

Kentucky Division of Water (KDOW)

 401 KAR 5:006. Wastewater planning requirements for regional planning agencies

 401 KAR 8:020. Public and semipublic water systems; general provisions

 401 KAR 8:100. Design, Construction and Approval of Facilities

 401 KAR 10:030. Anti-degradation policy implementation methodology

Kentucky Division of Waste Management (KDWM)

 401 KAR Chapter 42 – Underground Storage Tanks

 401 KAR 47:205. Contents of the application for petroleum contaminated soil treatment facilities

 401 KAR 47:207. Public information procedures for petroleum contaminated soil treatment facilities

 401 KAR 48:205. Technical requirements for petroleum contaminated soil treatment facilities

 401 KAR 48:206. Petroleum contaminated soil treatment facility liner soil layer quality assurance and quality control

 401 KAR 48:207. Petroleum contaminated soil treatment facility liner geosynthetic quality assurance and quality control

 401 KAR 48:208. Petroleum contaminated soil treatment facility liner high- permeability layer quality assurance and quality control

 401 KAR 49:080. Solid waste grant funds and solid waste collector and recycler registration

Many of these changes were minor in nature; however, several are worth noting in additional detail.

I. NOTABLE DIVISION FOR AIR QUALITY AND DIVISION OF WATER REGULATORY CHANGES

A. 401 KAR 10:030

Changes made to the anti-degradation policy implementation were limited in scope, but necessary to respond to regulatory language change requests made by EPA in approving KDOW’s revised anti-degradation policy. On November 9, 2010, EPA approved Kentucky’s revised policy, but requested additional clarification regarding no-significant-impact discharges and how anti-degradation analyses occur in general and municipal stormwater permits. The 2011 revisions to 401 KAR 10:030 address EPA’s concerns.

B. 401 KAR 51:010

KDAQ amended the definitions sections for its new source review regulations. These revisions were required to comply with EPA’s Tailoring Rule and SIP call. KDAQ amended the definition of “Regulated NSR Pollutant” to include greenhouse gases and included a definition of “subject to regulation” that includes greenhouse gas emissions thresholds to trigger prevention of significant deterioration (PSD) review.

II. NOTABLE DIVISION OF WASTE MANAGEMENT REGULATORY CHANGES

The agency with the most significant regulatory changes in the past year was the Kentucky Division of Waste Management (KDWM). On October 6, 2011, KDWM issued amended regulations covering its underground storage tank (UST) program and issued new regulations governing petroleum-contaminated soil treatment facilities.

A. Revised UST Regulations

After four years of development, KDWM’s revised UST regulations became effective on October 6, 2011. KDWM initiated the revision process to make changes required by the Energy Policy Act of 2005. KDWM also made changes to expedite the cleanup process and streamline reimbursement procedures. An excellent overview of the changes to the UST regulations can be found in Volume 3, Issue 3 of KDWM’s UST Quarterly Publication. Key changes to the regulations are as follows:

1. Operational compliance changes.

a. New or replaced tanks, piping or spill buckets (installed after April 1, 2012) must have double walled construction, liquid tight sumps and under-dispenser containment. 401 KAR 42:020.

b. Delivery of liquids to tanks that are out of compliance with the requirements for spill prevention, overfill prevention, release detection, corrosion protection or for replacement of leaking components is prohibited. 401 KAR 42:045.

c. Owners of UST systems must designate an operator to complete training as the designated compliance manager for the facility. The training program will result in the preparation of a facility-specific management plan. 401 KAR 42:020.

d. Owners must submit a verification of installation, including photos, within thirty days of installing new UST systems or entire piping runs. 401 KAR 42:020.

e. Internally lined tanks must be upgraded with external corrosion resistance or closed by December 22, 2013. 401 KAR 42:030.

2. Closure, site assessment and remediation.

a. The number of classification categories in the Classification Outline has been reduced to two – Class A and Class B. Classes A and B correspond to the former classes III and IV. Classes I and II have been eliminated.

b. The classification process has been changed to include soil and groundwater “screening levels” for permanent closure and site investigation assessments. Site specific final cleanup goals will be determined after the assessments. 401 KAR 42:060, 070 and 080.

c. The Corrective Action Outline has been amended to include the development of a conceptual site model (CSM) that accounts for local geological conditions, groundwater uses, plume stability, and fate and transport in relation to exposure pathways and usable groundwater. The CSM will inform the final cleanup goals. 401 KAR 42:060.

d. Statistical analysis may now be used to evaluate whether residual soil contamination requires further remedial actions on soil-only (i.e. no groundwater impacts) sites. 401 KAR 42:060.

3. Petroleum Storage Tank Environmental Assurance Fund claims and payment.

a. The UST facility ranking system has been amended to incorporate the applicable groundwater table and the ranks have been reduced from six to five. All UST facilities will be re-ranked. 401 KAR 42:290.

b. All written directives issued after October 6, 2011, will identify the reimbursable amount in the directive. 401 KAR 42:250.

c. Optional soil removal outside the excavation zone is no longer reimbursable. 401 KAR 42:330.

d. Certified contractors are no longer required; however, each company looking to become an eligible company or partnership must have on staff or contract with a Professional Engineer or Professional Geologist licensed in Kentucky. 401 KAR 42:316.

There are also several administrative changes and new and revised forms that must be completed, including a revised UST facility registration form and new address change form.

B. New Petroleum-Contaminated Soil Treatment Facility Regulations

In addition to issuing revised UST regulations, KDWM issued new regulations governing petroleum-contaminated soil treatment facilities. Prior to the issuance of these new regulations, soil treatment facilities were permitted as landfills or landfarms. The new regulations are summarized briefly below.

1. 401 KAR 47:205 and 210.

These new regulations set forth the application requirements and public notice process for new petroleum-contaminated soil treatment facilities. Importantly, existing facilities, operating under a Class III landfarming permit, need not apply for a permit under the new regulations unless they are required to perform a groundwater corrective action, a major modification is filed to expand the waste boundary or a renewal application is not approved.

The application process is extensive and includes a geologic site investigation, preparation of a groundwater and surface water monitoring plan and a description of the soil treatment processes.

2. 401 KAR 48:205, 206, 207 and 208.

These new regulations establish the technical criteria for petroleum-contaminated soil facilities, including siting requirements (setbacks) and design requirements for various treatment techniques. 401 KAR 48:206-208 establish, in detail, the technical requirements for soil, geo-synthetic and high- permeability layers of the liner for biopile treatment facilities.

ENVIRONMENTAL PROTECTION CASE LAW UPDATE Kelly D. Bartley, Esq.

I. AIR

A. American Electric Power Co. v. Connecticut, 131 S.Ct. 2527 (2011). Greenhouse gas emissions; nuisance; displacement of federal common law.

1. Background.

Several states, New York City, and three private land trusts, sought injunctive relief setting a cap on carbon dioxide emissions from the defendants’ power plants, with a request for an annual percentage decrease in emissions for at least the next decade. The district court dismissed the lawsuit in 2005, holding that the claims were nonjusticiable political questions that could not properly be adjudicated by federal courts. In 2009, the Second Circuit Court of Appeals reversed. The U.S. Supreme Court subsequently accepted review.

2. Ruling.

The Supreme Court held that any potentially viable federal common law nuisance cause of action for GHG emissions had been displaced by the Clean Air Act, which the Supreme Court, in Massachusetts v. EPA, 549 U.S. 497 (2007), held authorizes EPA to regulate GHG emissions. The Court concluded that the various statutory provisions of the Clean Air Act governing pollutant emissions from existing stationary sources covered the very type of emitters that plaintiffs had sought to enjoin in the case. In reaching its decision, the Court determined that federal judges lacked the scientific, economic, and technological resources available to EPA in regulating GHG emissions. Additionally, the Court stated that if federal judges were allowed to rule on all matters concerning the regulation of emissions, the courts would be overcome with requests for controls. Ultimately, the Court held that EPA was in a far better position than the federal courts to regulate GHG emissions. The initial complaints filed by the plaintiffs in the District Court also included state law based tort claims. The Court of Appeals did not reach the state law based tort claims because the court held that tort action for public nuisance could be brought under federal common law. On appeal to the Supreme Court, the state law tort claims were also not addressed.

3. Other pending cases of significance on related issues.

The ruling in AEP limits the avenues through which an entity may bring suit for injunctive relief for GHG emissions impacts under federal common law but leaves open the questions of whether claims can be brought under state tort law and whether claims for money damages are viable.

a. Native Village of Kivalina v. ExxonMobil Corp., 9th Cir., Case No. 09-17490. Village brought a suit against two dozen defendants (including some of the AEP defendants) alleging that severe weather generated by climate change caused injuries related to coastal erosion. Unlike AEP, the Kivalina plaintiffs seek damages rather than injunctive relief. The district court dismissed the case as involving a nonjusticiable political question and for lack of standing. The village appealed. The Ninth Circuit heard oral argument in the appeal Nov. 28, 2011. As of the date of these materials no decision has yet been rendered.

b. Comer v. Murphy Oil, S.D. Miss., Case No. 11-220. Lawsuit involving claims for money damages for GHG emissions under state nuisance law was re-filed in the Southern District of Mississippi before the AEP decision. The outcome of this case may ultimately provide an answer to the question of whether state law nuisance claims are also displaced by the Clean Air Act’s delegation of regulatory authority to EPA. As of the date of these materials no decision has yet been rendered.

B. Sierra Club v. Jackson, 648 F.3d 848 (D.C. Cir. 2011). EPA discretionary acts; judicial review.

1. Background.

The Clean Air Act provides that EPA shall take actions “as necessary” to prevent the construction of new sources subject to PSD review if the resulting PSD permit does not meet the requirements of the Clean Air Act. Environmental interest groups filed suit alleging that PSD permit authority was issued in violation of the Clean Air Act to: (1) East Kentucky Power Cooperative’s J.K. Smith Generating Station; (2) Conoco Phillips and Peabody Energy’s Kentucky NewGas Synthetic Natural Gas Production Plant; and (3) Cash Creek Generation LLC’s coal-fired Cash Creek Generating Station. Plaintiffs argued that at the time the permits were issued, Kentucky’s state implementation plan was deficient because it failed to incorporate the 1997 National Ambient Air Quality Standard (NAAQS) for NOx or regulate NOx as a precursor to ozone. Plaintiffs argued that as a result, the permits for the facilities were deficient and thus, the Clean Air Act required

the EPA Administrator to issue an order halting construction of the facilities.

2. Ruling.

Affirming the district court’s ruling, the Court of Appeals held that decisions committed to an agency’s discretion are not subject to judicial review. The court held that what action is deemed “necessary” to prevent construction of a facility as provided for under the Clean Air Act is left to the discretion of the EPA Administrator and that the Administrator is entitled to weigh multiple factors in making that determination, including the scarcity of agency resources and the likelihood of success.

C. Sierra Club v. Two Elk Generation Partners, 646 F.3d 1258 (10th Cir. 2011). Full faith and credit statute; issue and claim prelusion; res judicata; diligent prosecution.

1. Background.

Two Elk Generation Partners, L.P. (“Two Elk”) obtained a PSD permit to build a coal-fired power plant in Wyoming in 1998. On two separate occasions, the Wyoming Department of Environmental Quality (WDEQ) declared the permit invalid alleging that Two Elk failed to commence construction of the plant within the permit mandated timeline. On each occasion, Two Elk appealed the decision to the Wyoming Environmental Quality (WEQ) Council, an administrative tribunal. Both appeals were resolved by settlement agreements resolving WDEQ’s claims that were approved by the WEQ Council after hearing in 2005 and 2007, respectively. Following resolution of the second matter, the Sierra Club intervened and appealed the WEQ Council’s approval of the settlement agreement to state court. The state court rejected Sierra Club’s arguments and affirmed the Council’s order. Thereafter, Sierra Club filed a Clean Air Act citizen suit in federal court. The federal district court dismissed the citizen suit, holding that it was precluded by the WEQ Council’s determinations in 2005 and 2007. Sierra Club appealed.

2. Ruling.

The Tenth Circuit affirmed, holding that prior court and administrative proceedings may preclude citizen suits under the Clean Air Act, even where the plaintiffs in the citizen suit did not participate in prior cases. Specifically, the Tenth Circuit held that the Two Elk PSD permit was the central issue among the WEQ Council decisions, the state court decision, and the citizen suit, and that both the WEQ Council and the state court reached decisions based on the merits of each case. Moreover, the Sierra Club had a full and fair opportunity to intervene and participate in previous WEQ Council proceedings but declined to do so. The

Tenth Circuit held that the Sierra Club’s interests in the prior cases were represented by DEQ, because DEQ was acting on behalf of the citizens of Wyoming and for the benefit of the public welfare in earlier cases. Because Sierra Club’s position was previously represented by DEQ, and all claims raised by Sierra Club had been resolved in the earlier cases, the Tenth Circuit affirmed the dismissal of Sierra Club’s claim.

D. Sierra Club, Inc. v. Sandy Creek Energy Associates, LP, 627 F.3d 134 (5th Cir. 2010). Clean Air Act Section 112(g).

1. Background.

Section 112(g) of the Clean Air Act prohibits construction of a major source of hazardous air pollutants without a case-by-case determination that the maximum achievable control technology (MACT) emission limitation for new sources will be met. In 2005, EPA issued a rule removing coal and oil-fired electric utility generating units from the list of sources regulated under Section 112. In February 2008, that rule was vacated leading to a series of lawsuits against EGU facilities that had previously begun construction without a case-by-case MACT determination and had continued construction after vacatur of the rule. Sandy Creek Energy received a permit to construct a coal-fired power plant in 2006. Relying on the 2005 de-listing rule, the Texas regulatory authority did not make a case-by-case MACT determination in the permitting process. Construction of the plant commenced in January 2008, one month prior to judicial vacatur of the EPA rule. Construction continued after the EPA rule was vacated. Environmental interest groups filed suit alleging that Sandy Energy’s continued construction violated Section 112(g).

2. Ruling.

The Fifth Circuit found that the date construction commenced was irrelevant to the current applicability of the requirement for a case- by-case MACT determination because a plain reading of the Clean Air Act prohibits the act of construction itself and not just the commencement of construction. Thus, the court found that ongoing construction without a case-by-case MACT determination is in violation of Section 112(g) of the Clean Air Act and that the facility must comply with Section 112(g)(2)(B). The court noted that any construction undertaken prior to the date the EPA rule was vacated should not be considered a violation since it was undertaken in reasonable reliance on now-vacated rules. On April 26, 2011, Sandy Creek requested that the U.S. Supreme Court accept review of that decision. On December 16, 2011, the request was denied.

3. Related case decision.

Wild Earth Guardians v. Public Service Company of Colorado, d/b/a Excel Energy, 805 F.Supp.2d 1134 (D. Colo. 2011). The district court refused to apply civil penalties, attorney fees or costs against Xcel in a similar case where the facility: 1) submitted a case-by-case MACT analysis with its original permit application in 2004; 2) complied with a permit requirement under the Clean Air Mercury Rule and complied with the limit set in the initial case-by- case MACT determination; and 3) complied with EPA and Colorado directives in 2009 to update the 2004 case-by-case MACT analysis which resulted in a more stringent mercury limit. The court held that under such circumstances retroactive application of Section 112(g) requirements would be inequitable. WildEarth has appealed the decision to the Tenth Circuit Court of Appeals where briefing was concluded January 30, 2012. As of the date of these materials no decision by the Court of Appeals had yet been rendered.

E. U.S. v. Detroit Edison Energy Company, Civil Action No. 10-13101, 2011 WL 3706585 (D. Mich. August 23, 2011) (Appeal pending). New source review enforcement.

1. Background.

For over a decade, EPA has pursued a focused enforcement initiative regarding the utility sector’s compliance with Clean Air Act new source review (NSR) requirements. In Detroit Edison, EPA alleged that defendants violated the Clean Air Act by renovating electric utility steam generating units at a Michigan power plant without first obtaining a NSR permit. As required by Michigan regulations, Detroit Edison had submitted a letter to the state agency regarding the intended project and documenting the company’s analysis that a projected increase in future, post- project actual emissions were unrelated to the project and thus did not trigger NSR review. (See 401 KAR 51:017 Section 16(5) for Kentucky requirements for documentation of this analysis.)

2. Ruling.

Among other claims, EPA alleged that Detroit Edison’s analysis regarding whether the renovation would trigger NSR was incorrect and thus, by commencing construction without undergoing pre- construction NSR, Detroit Edison violated the Clean Air Act. In response, the company argued that as long as pre-project requirements were met (i.e., an emissions analysis was performed in accordance with regulatory requirements), an NSR violation could be found only if the project actually causes an emissions increase and that such a determination could not be made until after the first year of post-construction monitoring. The court

agreed with the company, holding that NSR rules “provide source operators with greater flexibility by giving them a post-construction opportunity to fulfill their obligations under the Clean Air Act. They allow source operators to pursue necessary maintenance work without the expensive, burdensome and potentially unnecessary permitting requirements, while ensuring that Plaintiff will maintain its opportunity to pursue an enforcement action if post- construction monitoring detects an increase in emissions of regulated pollutants that are a result of such projects.”

Further, EPA alleged that Detroit Edison’s analysis regarding whether NSR was triggered was deficient. The court rejected this claim as well, holding that while the company’s explanation of the emissions exclusion was “not very specific” and the accompanying table did not provide backup for the calculation results, Michigan regulations did not require further specificity. In 2010, EPA Region III widely circulated a letter conversely stating detailed documentation requirements for sources using the projected actual emissions test. EPA appealed the decision to the Sixth Circuit Court of Appeals on October 20, 2011. As of the date of these materials, briefing in that matter was not yet complete.

F. Sierra Club, Ursuline Sisters of Mountain Saint Joseph and Valley Watch, Inc. v. EEC and Cash Creek Generation, LLC, File No. DAQ-41001-046 (Secretary’s Order issued February 3, 2011) (Henderson Circuit Court Order affirming entered Sept. 6, 2011). Best available control technology; potential to emit; enforceability of Clean Air Act permit provisions; state administrative review

1. Background.

Petitioners filed an administrative challenge pursuant to KRS Chapter 224 to the final PSD/ proposed Title V Permit issued by the Kentucky Division for Air Quality (DAQ) for construction and operation of a coal gasification facility in Henderson County.

2. Ruling.

Hearing Officer Susan Green was assigned to the case. Petitioners dismissed twelve of the counts in their petition prior to the commencement of the formal hearing. The formal hearing on the remaining eight counts was held in September, 2010. Petitioners’ claims presented at the hearing were: (1) the potential to emit (PTE) VOCs and hazardous air pollutants were underestimated and resulted in the unlawful avoidance of best available control technology (BACT) for VOCs and maximum achievable control technology (MACT) for HAPs; (2) Improper BACT determinations were made for the acid gas removal unit, the flare, and equipment leaks; (3) PM emissions were underestimated causing the analysis of compliance with National Ambient Air Quality Standards to be flawed (focus was on

emissions from paved and unpaved haul roads, material storage piles and the cooling tower); (4) Certain permit conditions were unenforceable, including the source wide limit on VOC emissions, flare emission limits and PM conditions.

The Hearing Officer recommended that the permit be upheld as issued. Secretary Peters adopted the Hearing Officer’s Report without change and upheld the permit by Order issued February 3, 2011. By Order entered September 6, 2011, the Henderson Circuit Court affirmed. Holdings/statements of general interest include: (1) When DAQ requires something of an entity, the basis or authority for that requirement must be in the law and not simply from guidance documents EPA or anyone else issued. EAB decisions may be helpful in a Cabinet matter but often rely on EPA guidance and thus are not authoritative. (2) Malfunctions emissions are properly excluded from the potential to emit calculations for a new source such as Cash Creek.

G. Sierra Club and Valley Watch, Inc. v. EEC and Kentucky Syngas, LLC, File No. DAQ-41111-039 (Secretary’s Order issued May 31, 2011). Best available control technology; potential to emit; enforceability of Clean Air Act permit provisions; state administrative review.

1. Background.

This case presented a challenge under KRS Chapter 224 to the issuance of a final PSD/proposed Title V permit for the construction and operation of a coal gasification facility in Muhlenberg County which will produce substitute natural gas, as well as elemental sulfur and ammonia biosulfate.

2. Ruling.

Hearing Officer Steve Blanton was assigned to the case and, following a formal evidentiary hearing, recommended that the permit be upheld with a few corrections. By Order filed May 31, 2011, the Secretary adopted the Hearing Officer’s Report and Recommended Order with certain minor changes. The Secretary’s Order was not appealed.

Following an amended petition that dismissed several original claims, the claims presented at the hearing were: (1) Erroneous determinations of BACT for the flare and equipment leaks; (2) Failure to establish permit conditions that are enforceable as a practical matter; (3) Underestimation of PTE by using emission limits that are not enforceable, exclusion of malfunction emissions, use of unsupported control efficiencies and emission of pollutants; (4) Error by not performing BACT analyses for pollutant emissions from fugitive emission sources; (5) Underestimation of PM10 and PM2.5 emissions from roads, the cooling tower and coal and slag

piles; and (6) Error in the evaluation of NAAQS compliance for PM10 and PM2.5.

H. Sierra Club, et al. v. EEC and Kentucky Syngas, LLC, File No. DAQ- 41792-039 (Secretary’s Final Order issued July 18, 2011) (Muhlenberg Circuit Court Order affirming entered February 9, 2012) (Motion to Alter, Vacate or Amend pending). Clean Air Act public notice requirements.

1. Background.

This case presented an administrative challenge under KRS Chapter 224 to the final Title V permit issued for the Kentucky Syngas facility. Petitioners claimed that the final permit was improperly issued because DAQ did not subject the permit to a second round of public notice and review when certain changes were made to the proposed permit in response to a limited objection to the permit by EPA during the agency’s forty-five-day review of the proposed permit.

2. Ruling.

Following cross-motions for summary disposition, the Hearing Officer recommended that Petitioners’ claims be dismissed. In a Final Order issued July 18, 2011, the Secretary adopted the Hearing Officer’s recommendation. The Secretary held that there was no regulatory requirement for a second, additional public notice and comment period where EPA objects to a Title V permit. The Secretary stated that only where the final permit is not a “recognizable outgrowth” from the draft permit or proposed permit would a requirement for additional public notice and comment potentially be triggered. The Circuit Court affirmed and also ruled that regardless, any error was harmless as the subject changes strengthened the permit. As of the date of these materials, a motion to alter, vacate or amend the Circuit Court’s ruling was pending. II. WATER

A. Sackett v. EPA, U.S. Supreme Court, Case No. 10-1062 (Pending). Judicial review of EPA administrative orders.

1. Background.

Section 404 of the Clean Water Act prohibits the discharge of fill material into wetlands without a permit. In 2007, the Sacketts filled a portion of their previously undeveloped property without a Section 404 Clean Water Act permit. EPA determined that the fill violated the Clean Water Act because the parcel contained a jurisdictional wetland and issued an administrative compliance order requiring the Sacketts to remove the fill and restore the parcel to its original condition. The Sacketts petitioned EPA for a hearing to challenge the compliance order and, after EPA refused,

filed suit in district court. The district court dismissed the Sacketts’ suit for lack of jurisdiction finding that review of an agency order was barred unless the agency first sued. On appeal the Ninth Circuit Court of Appeals affirmed. The U.S. Supreme Court granted cert review June 28, 2011. Oral argument was held January 9, 2012.

2. Issue presented.

The Supreme Court will determine whether pre-enforcement review is available for EPA administrative orders other than Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) orders. “Pre-enforcement review” refers to the ability of a defendant to obtain judicial review of an administrative compliance order without having to wait to be sued by EPA in an enforcement action. CERCLA has an express provision prohibiting pre-enforcement review. The Clean Water Act, the Clean Air Act, and RCRA do not. EPA has long made the argument that these statutes contain an “implied bar” to such challenges and most courts have agreed. The Supreme Court has never decided the issue. As of the date of these materials the Supreme Court had not yet rendered a decision in the matter.1

B. United States v. Lexington-Fayette Urban County Government, 2011 WL 1097755 (E.D. Ky., March 22, 2011). Clean Water Act citizen suits; attorney fees.

1. Background.

The United States and Kentucky initiated a Clean Water Act enforcement suit against LFUCG pursuant to the Clean Water Act for sanitary sewer overflows and KPDES permit violations relating to LFUCG’s municipal separate storm sewer discharges. Environmental interest groups gave notice of their intent to initiate a Clean Water Act citizen suit relating to the same alleged violations before the United States commenced its enforcement suit but the United States initiated its lawsuit within the sixty day notice period thus precluding their suit. Citizens intervened in the enforcement action as a matter of right pursuant to Section 505(d) of the Clean Water Act. The intervenors were not a party to the ultimate Consent Decree that was negotiated among the United States, Kentucky and LFUCG and in fact had opposed its entry.

1 The Supreme Court issued its opinion on March 21, 2012 (2012 WL 932018), unanimously reversing and remanding. “We conclude that the compliance order in this case is final agency action for which there is no adequate remedy other than APA review, and that the Clean Water Act does not preclude that review.” Id. at *7. Justice Alito, in concurrence, wrote “The position taken in this case by the Federal Government -- a position that the Court now squarely rejects -- would have put the property rights of ordinary Americans entirely at the mercy of Environmental Protection Agency (EPA) employees.” Id. at *8.

Following entry of the decree, Intervenors moved for recovery of attorney fees and costs.

2. Ruling.

The court found that mere intervenors in a government initiated Clean Water Act enforcement case are not entitled to attorney’s fees under Section 505(d) of the Clean Water Act. Regardless, to be a prevailing or substantially prevailing party, the court found that the entity must obtain an enforceable judgment or comparable relief through a Consent Decree or settlement, citing Buckhannon Board & Care Home, Inc., 532 U.S. 598 (2001). The court noted that the intervenors had opposed entry of the Consent Decree and that therefore they did not obtain this necessary relief.

C. Adams et al. v. Sharp et al., Kentucky Court of Appeals, Case Nos. 2009- CA-002190, 2009-CA-2325, 2009-CA-002283, 2009-CA-002326 (Pending).

1. Background.

Farmers with operations located in western Kentucky entered into agreements with Tosh Farms to raise hogs owned and supplied by Tosh Farms in exchange for monthly compensation. The Division of Water issued No-Discharge Operational permits to farmers for the operations on July 7, 2006. Thereafter, individuals that own land near the farmers’ proposed operations filed Petitions for Hearing pursuant to KRS Chapter 224 challenging the Cabinet’s issuance of farmers’ No-Discharge permits on various grounds. After a fourteen-day evidentiary hearing and Report and Recommendation by the Hearing Officer, the Cabinet Secretary issued a Final Order rejecting in part and granting in part the Petitioners’ claims. Petitioners appealed the Secretary’s Final Order to the Franklin Circuit Court.

2. Ruling.

By Opinion and Order entered November 17, 2009, the Circuit Court reversed in part and affirmed in part the Secretary’s Order, and remanded the case to the Cabinet. The Circuit Court reversed the ruling of the Secretary on four issues, holding that the Cabinet erred: (1) in failing to require farmers to obtain KPDES permits rather than No-Discharge permits; (2) in failing to require Tosh Farms to sign farmers’ permit applications as co-permittee; (3) in failing to exercise discretionary “special condition” authority to perform an air emissions risk assessment and/or impose conditions relating to air emissions in connection with farmers’ permits; and (4) in failing to exercise discretionary “special condition” authority to impose effluent or other limitations relating to pathogens in the permits.

On the first issue, the court held that it was error for the Secretary to interpret the KPDES permit program to only apply to animal farming operations that resulted in discharges of pollutants to waters of the Commonwealth. Relying on a general Kentucky statute prohibiting water pollution (KRS 224.70-110), the Circuit Court held that the KPDES permit program was “far broader” than its federal counterpart (the NPDES permit program) and applied to both “direct” and “indirect” discharges that “cause or contribute to the pollution of the waters of the Commonwealth.” On this basis, the Circuit Court found that federal law interpreting the scope of the federal NPDES permit program has “no application” to the issue of whether farmers were required to obtain KPDES permits and, as a result, it was error for the Secretary to rely on federal case law under the NPDES permit program to support the Cabinet’s construction of the KPDES permit program.

Both farmers and the Cabinet appealed the court’s four holdings reversing the Secretary. Oral argument was held in July 20, 2011. As of the date of these materials, no decision had yet been entered on appeal.

3. Related decision of significance.

National Pork Producers Council v. EPA, 635 F.3d 738 (2d Cir. 2011) (holding that an actual discharge into regulated waters is required in order to trigger Clean Water Act NPDES permit requirements).

D. EEC et al. v. Frasure Creek Mining, LLC et al., Franklin Circuit Court, Civil Action Nos. 10-CI-01867 and 10-CI-01868 (Consolidated) (Pending).

1. Background.

Environmental interest groups gave notice of their intent to file a Clean Water Act citizen-suit action against coal mining companies based on alleged false discharge monitoring reports submitted to the Division of Water pursuant to the mining operations’ KPDES permits. Subsequently, the Energy and Environment Cabinet filed enforcement actions in Franklin Circuit Court pursuant to KRS Chapter 224 relating to the alleged violations. Concurrently, proposed consent judgments resolving the claims were lodged with the court. Environmental interest groups moved to intervene to contest the consent judgments and bring federal Clean Water Act Section 505 citizen suit claims. Over the companies’ objection, intervention was granted. [Note that a related subsequently-filed administrative enforcement action and federal court citizen suit are also pending.] Currently the parties are in mediation.

2. Issues presented.

Key legal issues that could potentially be addressed in the litigation include: (1) Can a Clean Water Act citizen suit be heard by state court?; (2) Is the Franklin Circuit Court the proper venue for a Clean Water Act citizen suit claim?; (3) Can citizens intervene in a KRS Chapter 224 enforcement case?; (4) Must there be public notice of state consent judgment settlements?; and (5) What is the standard, if any, for court entry of consent judgments in Kentucky? With regard to the third question, the Kentucky Court of Appeals, on petition for writ of prohibition, held on July 19, 2011, that the Circuit Court had jurisdiction to allow Petitioners to intervene in the proceeding but did not squarely address any of the other issues. 2011 WL 3586410. Defendants have appealed that decision to the Kentucky Supreme Court and are awaiting decision.

LOUISVILLE METRO AIR POLLUTION CONTROL DISTRICT Lauren Anderson, Executive Director

I. BACKGROUND

A. Prehistory

1. Formed in 1945 as the Louisville Smoke Commission.

2. Became a district in 1952 pursuant to KRS Chapter 77.

3. Now: the agency that implements the Clean Air Act in Louisville/Jefferson County.

B. Deals Directly with the U.S. EPA for:

1. Grants.

2. Title V permitting.

3. Emissions inventory submittals.

C. Works with the State of Kentucky on:

1. State Implementation Plan (SIP) submittals, including regulations.

2. Monitoring including precision and accuracy checks.

3. Share concurrent jurisdiction pursuant to KRS 224.20-130.

4. Can be more stringent than state in recognition of local needs.

D. Part of Louisville Metro Government

1. New mayor, new administration.

2. Part of Economic Growth and Innovation (EGI) Department (formerly Economic Development).

3. EGI is taking on more functions related to sustainability.

E. Resources – APCD Is Funded by:

1. Three renewing grants – CAA 103, 105; CMAQ.

2. Permit and emission fees – per District Regulation 2.08.

3. General Fund – less than 10 percent of our budget.

F. Essentially Five Parts of the Agency

1. Information and Administration.

2. Engineering.

3. Enforcement.

4. Environmental Programs.

5. Air Monitoring.

II. WHAT'S NEW AT APCD

A. Information and Administration

1. The IT staff has been busy with:

a. Conversion to new data management system used by Metro government and MSD – called Hansen or MIDAS.

b. Creation of Document Manager.

c. Creation of new emissions inventory program for reporting to NEI.

2. Public information.

a. New Public Information Officer, Tom Nord.

b. KAIRE – CMAQ-funded outreach program.

c. Idle Free.

B. Engineering

1. Permitting.

a. Title V permits – Still have backlog of expired Title V operating permits that need to be renewed.

b. Permitting engineers' time is taken up by:

i. Construction permits.

ii. STAR.

2. Regulations on which we are working:

a. Lining up our insignificant activities list to match DAQs.

b. Providing real exemption for de minimis emitters (PTE <5 tpy of criteria pollutants, <.5 tpy of HAPs).

c. Designing a registered permit-by-rule for certain classes of numerous small sources:

i. Parts washers.

ii. Dry cleaners.

iii. Waste oil furnaces.

iv. Printers.

v. Body shops.

vi. Other small surface coating operations.

3. Reworking our fee structure to add:

a. Registration fee – for registered permits-by-rule.

b. Application fee/deposit.

4. RMP.

a. Not fully funded; Title V cos. exempt for no reason anyone can think of.

b. RMP fee brings in about $9,000/year; program costs $45,000/year.

c. Will amend Regulation 2.08 to include TV companies.

C. Enforcement

1. Field Services group includes asbestos and Stage II permitting.

2. Citizen complaints -- APCD received 551 complaints in 2011.

a. Odor – 254.

b. Dust – 141.

c. Open burning – sixty-four.

d. <100 miscellaneous.

3. LG&E/Cane Run – ash handling and disposal.

a. APCD has sent LG&E two Notices of Violation (NOVs) for off-site particulate matter from the Cane Run Electric Generating Station.

b. Have not settled as of 3/15/12.

D. Environmental Programs

1. Idle Free businesses.

2. Lawn Care for Cleaner Air.

3. Air quality reviews of development plans.

4. Energy efficiency.

E. Air Monitoring

1. Lead (Pb) – in attainment.

a. Largest source is LG&E's Mill Creek Generating Station.

b. Working with EPA on lead analysis.

2. Carbon monoxide (CO) – reached attainment before 1990 amendments.

3. Oxides of nitrogen (NOx) – whole country is "attainment/unclassificable."

 Challenge will be siting near roadside monitor.

4. Ozone (O3).

a. EPA finalized 2008 standard of 75 ppb over eight hours.

b. Louisville's current design value is 75 ppb.

5. Fine particles (PM2.5).

a. Meeting twenty-four hour standard.

b. For annual standard, clean data determination in 2011 recognized attainment based on 2007-2009 monitoring data.

c. Public hearing on redesignation held 2/3/12; comments received from CART and others.

d. Have worked with KY DAQ on responses. 6. Sulfur dioxide (SO2).

a. Proposed nonattainment boundary encompasses Mill Creek.

b. Largest local emitter until last year was Gallagher plant.

c. In 2011 Gallagher installed baghouses on all four units along with dry sorbent injection for SO2 control.

d. Not one violation at the New Albany or Firearms Training monitors in 2011.

e. As of February 1, 2012, Duke Energy was planning to shut down Units 1 and 3.

III. RECENT REGULATORY CHANGES

A. Greenhouse Gases

1. November 2010: Air Pollution Control Board passed incorporation by reference of 40 CFR 52.21 (federal PSD) and conforming changes to APCD's Title V regulation.

2. EPA has not reviewed SIP submission.

B. STAR

1. June and July 2011: Board passes amendments to STAR regulations that:

a. Consolidate STAR definitions in new Regulation 5.00.

b. Clarify that "modified" has the same meaning here as in 1.02, i.e., it is a change that either increases emissions of a TAC, or causes the emission of a TAC not previously emitted.

c. Drop out: sources that have submitted an application for a synthetic minor permit but do not have an issued permit yet; twenty-five ton sources; all dry cleaners.

2. January 2012: Board passes amendments to 5.22 and 5.23 to "delist" ethyl acrylate as a carcinogen for purposes of determining the BAC.

CURRENT ISSUES IN PERMITTING AND ENFORCEMENT IN THE KENTUCKY DIVISION OF WASTE MANAGEMENT Virginia Baker Gorley

The Kentucky Division of Waste Management (DWM) regulates solid waste, hazardous waste, hazardous constituents, pollutants and contaminants, petroleum releases and petroleum underground storage tanks. There are many issues that arise within the permitting programs in each of these areas as well as in the DWM’s daily enforcement of each of these programs. However, this paper will focus on two of the most relevant issues facing the Division and the regulated community today.

The first is the proposed federal regulation of coal combustion residuals from electric utilities and by independent power producers. At this time, coal combustion residuals are considered a special waste under Kentucky law.1 A special waste permit is required for the disposal of these wastes.2 The proposed federal changes could have a significant effect on this permitting process in the future.

The second is the regulatory change to the Underground Storage Tank Program which came about as a result of the Federal Energy Policy Act of 2005.3 These changes will have a significant effect on the enforcement powers of DWM and the obligations of the tank owners and operators.

I. EPA’S PROPOSED REGULATION ON THE DISPOSAL OF COAL COMBUSTION RESIDUALS

On December 22, 2008, a dike on a coal ash dredge cell failed at the Tennessee Valley Authority Kingston Fossil Plant in Harriman, Tennessee, releasing an estimated 5.4 million cubic yards of coal ash to the environment.4 The release impacted the Emory River as well as “ruptured a natural gas line, disrupted power and transportation, rendered three homes uninhabitable, and resulted in the evacuation of a nearby residential area.”5 As a result of the coal release, the federal Environmental Protection Agency (EPA) determined there was a need to revisit its existing regulatory determination with respect to the disposal of coal combustion residuals (CCR).6

1 KRS 224.50-760.

2 401 KAR Chapter 45.

3 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 STAT 598.

4 “TVA Fact Sheet Kingston Ash Recovery Project,” December 7, 2011, http://www.tva.com/kingston/pdf/KIF_Fact_Sheet.pdf.

5 Id.

6 “Hazardous and Solid Waste Management System; Identification and Listing of Special Wastes; Disposal of Coal Combustion Residuals from Electric Utilities,’ 75 Fed Reg. 35128, 35132 (June 21, 2010).

A. Proposed Federal Regulatory Change

On June 21, 2010, EPA for the first time proposed to regulate the disposal of CCR generated from the combustion of coal at electric utilities and by independent power producers under the Resource Conservation and Recovery Act (RCRA).7 EPA proposed two different options to regulate CCRs. The first proposed to regulate CCR as special wastes subject to regulation under subtitle C of RCRA when they are destined for disposal in landfills or surface impoundments.8 The second proposed to regulate disposal of CCR under subtitle D of RCRA by issuing national minimum criteria for all states to follow in their solid waste programs.9 Under both alternatives, EPA proposed to establish additional dam safety requirements to address the structural integrity of surface impoundments to prevent catastrophic releases.10 Public comments were due on the proposed rule on November 19, 2010.11

On November 16, 2010, the Kentucky Department for Environmental Protection submitted its comments to the proposed rulemaking. See, Attachment A.12 Kentucky identified in its cover letter to EPA the following facts about the generation of coal ash in the state:

Electrical generation in Kentucky uses approximately forty- two million tons per year of coal at twenty power plants. Approximately thirteen million tons per year of CCR is generated in Kentucky. Kentucky has twenty facilities with fifty-seven units that use coal as the primary fuel for electrical generation and over twenty gigawatts of generation. The facilities have forty-three impoundments and thirteen landfills for management of CCR. Based on data collected by the Department, 46 percent of CCR in Kentucky is landfilled, 34 percent is managed in ash ponds, and 20 percent is beneficially reused.13

7 “Hazardous and Solid Waste Management System; Identification and Listing of Special Wastes; Disposal of Coal Combustion Residuals from Electric Utilities,” 75 Fed Reg. 35128 (June 21, 2010).

8 Id.

9 Id.

10 Id.

11 “Hazardous and Solid Waste Management System; Identification and Listing of Special Wastes; Disposal of Coal Combustion Residuals from Electric Utilities,” 75 Fed Reg. 51434 (August 20, 2010).

12 Attachments A-F referred to in this paper are available on the KBA Environment, Energy & Resources Law Section website at http://www.kybar.org/331.

13 See, Exhibit A, Letter to Environmental Protection Agency from R. Bruce Scott, P.E., Commissioner, KY Department for Environmental Protection, November 15, 2010.

While DEP agreed that additional controls were warranted for the management of CCR, it recommended that the management of CCR be handled under Subtitle D consistently between all states at the state and local level. More specific comments about various parts of the proposed regulation can be found in the fifty-one page document attached to this paper in Exhibit A.

On September 28, 2010, EPA held a public hearing on the proposed CCR rule in Louisville, Kentucky.14 A copy of DEP’s public comments as provided by Commissioner R. Bruce Scott has been attached as Exhibit B.

On October 12, 2011, EPA requested additional comments on information to be used to update and enhance the risk assessment and the regulatory impact analysis supporting the development of the final CCR rule.15 Comments were due on November 14, 2011.16 On November 10, 2011, DEP submitted its comments. See, Exhibit C.

A complete list of all actions regarding the CCR proposed regulation can be found at the following EPA website: http://www.epa.gov/wastes/ nonhaz/industrial/special/fossil/ccr-rule/index.htm. At the time of this paper, no formal action by EPA has been taken on the proposed federal regulation.

B. Congressional Action

In response to the proposed Federal regulation of CCR, two different bills have been introduced in Congress.

1. H.R. 1391.

On April 6, 2011, Representative David McKinley introduced H.R. 1391 (Recycling Coal Combustion Residuals Accessibility Act of 2011) into the House of Representatives.17 The bill was forwarded to the House Committee on Energy and Commerce and no further action has been taken on the bill to date.18 The bill attempted to

14 “Hazardous and Solid Waste Management System; Identification and Listing of Special Wastes; Disposal of Coal Combustion Residuals from Electric Utilities,” 75 Fed Reg. 41121 (July 15, 2010).

15 “Notice of Data Availability and Request for Comment,” 76 Fed. Reg. 63252 (October 12, 2011).

16 Id.

17 Bill Summary and Status, H.R. 1391, 112th Congress, 1st Sess. (2011) http://thomas.loc.gov/home/gpoxmlc112/h1391_ih.xml.

18 Id.

amend the Solid Waste Disposal Act to “exempt fly ash waste, bottom ash waste, slag waste, and flue gas emission control waste generated primarily from the combustion of coal or other fossil fuels from regulation as hazardous waste under such Act.”19

2. H.R. 2273.

On June 22, 2011, Representative David McKinley introduced H.R. 2273 (Coal Residuals Reuse and Management Act) into the House of Representatives.20 The bill would have amended the Solid Waste Disposal Act to “authorize states to adopt and implement coal combustion residuals permit programs.”21 It establishes minimum requirements for coal combustion residuals permit programs and sets forth revised criteria for such programs with respect to: (1) design, groundwater monitoring, corrective action, and closure and post-closure for structures; (2) location restrictions for new structures in floodplains, wetlands, fault areas, seismic impact zones, and unstable areas; (3) criteria for air quality, financial assurance, surface water, and record keeping; (4) criteria for run-on and run-off control systems for landfills and other land-based units, other than surface impoundments that receive coal combustion residuals; and (5) run-off control systems for surface impoundments.”22 It also “authorizes states to determine that such criteria is not needed for the management of their coal combustion residuals permit program.”23

However, the bill provided for EPA to have the authority to implement the program if a state is unable or unwilling to do so, as well as, if a state failed to remedy a program deficiency identified by the EPA.24

The House of Representatives passed the bill on October 14, 2011.25 It was received in the Senate on October 17, 2011.26 At

19 Id.

20 Bill Summary and Status, H.R. 2273, 112th Congress, 1st Sess. (2011) http://thomas.loc.gov/home/gpoxmlc112/h2273_pcs.xml.

21 Id.

22 Id.

23 Id.

24 Id.

25 Id.

26 Id.

the time of this paper, no additional action has been taken by the Senate at this time.27

C. Current Status of CCR Regulation

With no federal action being taken by either EPA or Congress at this time, CCR will continue to be regulated in the Commonwealth of Kentucky as a special waste pursuant to KRS 224.50-760 and 401 KAR Chapter 45.

II. NEW UNDERGROUND STORAGE TANK REGULATIONS

On October 6, 2011, changes to the Underground Storage Tank (UST) regulations became effective in Kentucky. See Exhibit D. These regulations were modified as a result of the Federal Energy Policy Act of 2005.28 The regulations made changes to secondary containment, delivery prohibition and operator training. The regulations were also modified to streamline the reimbursement process and expedite corrective action activities. This paper will explore three of the changes that are considered more significant from an enforcement standpoint.

A. Delivery Prohibition Tag

One of the most significant changes to the UST regulations is the ability for the regulator to place a delivery prohibition tag (red tag) on the fill ports of the tank(s) that are in noncompliance of certain regulations.

Under the regulations, if a Notice of Violation (NOV) is issued to the owner or operator for being out of compliance with spill prevention, overfill prevention, release detection, corrosion protection, or failure to repair or replace a defective UST system component that “has caused a release of a regulated substance into the environment or allowed a regulated substance to infiltrate into the interstitial space of the UST system,”29 and

27 Id.

28 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 STAT 598.

29 The cabinet shall determine that a UST system is ineligible for delivery, deposit, or acceptance of regulated substances upon confirmation of one of the following conditions:

(a) In accordance with 401 KAR 42:020, 42:030, and 42:040, required spill prevention equipment is not installed, operational, or maintained; (b) In accordance with 401 KAR 42:020, 42:030, and 42:040, required overfill prevention equipment is not installed, operational, or maintained; (c) In accordance with 401 KAR 42:020 and 42:030, required corrosion protection equipment is not installed, operational, or maintained; (d) In accordance with 401 KAR 42:040, required release detection is not performed; (e) In accordance with 401 KAR 42:020 and 42:040, required release detection equipment is not installed, operational, or maintained; or (f) A defective UST system component, confirmed by UST system testing or visual observation by the cabinet, and for which the owner or operator has not documented a repair or replacement, has:

the owner or operator fails to correct the violation within thirty (30) days, then the Cabinet shall issue a second NOV and place a delivery prohibition tag on the dispenser to prohibit delivery, deposit or acceptance of regulated substances into the UST system.30

The delivery prohibition “shall remain in effect until the non-compliant UST system is returned to compliance for the violation that caused delivery prohibition to be invoked.”31 Once the violation has been corrected, the Cabinet has two days to remove the tag.32 Since going into effect, the Division of Waste Management field inspectors have placed red tags at four facilities.

In addition, the regulations also provide DEP the power during a declared environmental emergency for UST systems to have the authority to “prevent delivery, deposit, or storage of regulated substances and require all actions necessary to protect human health and the environment.”33 This power enables the DEP to not only stop delivery of the regulated substance but also to prevent further storage of the substance in the tanks. Thus, the changes would allow the DEP to pump the tanks if necessary.34

As of March 15, 2012, the Cabinet’s Emergency Response Team has placed tags at seven facilities.

B. Upgrading Interior-lined Steel Tanks with External Corrosion Protection

By December 22, 2013, all steel tanks that are equipped with interior lining as the sole method of corrosion protection shall be upgraded by the addition of an impressed current cathodic protection system or be permanently closed in accordance with 401 KAR 42:070.35

Prior to upgrading an interior lined steel tank with an impressed current cathodic protection system, a manned entry, not an electronic entry is required.36 The manned entry shall be conducted by a contractor certified

1. Caused a release of a regulated substance into the environment; or 2. Allowed a regulated substance to infiltrate into the interstitial space of the UST system. 401 KAR 42:045 Section 2.

30 401 KAR 42:045.

31 Id.

32 Id.

33 401 KAR 42:050 Section 2.

34 Id.

35 401 KAR 42:030 Section 12.

36 Id.

by the State Fire Marshal’s Office pursuant to 815 KAR 30:060 utilizing a method certified by an independent third party evaluator.37

The manned entry shall document the average tank metal thickness.38 If it is less than seventy five (75) percent of the tank’s original metal thickness, then the tank is not eligible to be upgraded and must be permanently closed in accordance with 401 KAR 42:070.39 Documentation of the manned entry assessment and results must be submitted on the Manned Entry Integrity Assessment, DEP 8050 form and provided to the cabinet within thirty days of the assessment being conducted.40

DWM identified 187 facilities that had steel tanks registered with internal lining as the sole method of corrosion. DWM sent a letter to all of these tank owners in December of 2011 advising them of the new requirements. In addition, DWM has also provided a list of known contractors who can perform the manned inspection entry for these tanks. A copy of that list has been attached as Exhibit E.

C. Streamlined Classification

Pursuant to 401 KAR 42:080, any owner or operator of a UST system for which a Notice of Intent to Permanently Close and Underground Storage Tank System containing petroleum or who is confirming a UST system release of petroleum after April 18, 1994, is required to submit a Classification Guide, DEP 8056. The UST regulations modified the Classification Outline to reduce the number of classifications. Previously there were four classes (Class I, Class II, Class III, and Class IV). Now there are only two classes, Class A and Class B. Classes I and II have been eliminated. The Cabinet issued Directive Letters to all UST owners/operators that submitted a Classification Guide after April 18, 1994, where the tanks were not yet permanently closed or corrective action completed, to re-classify under the new regulations.

D. Additional UST Regulation Changes

The UST Quarterly attached as Exhibit F goes through all of the other changes made to the UST regulations in detail.

37 Id.

38 Id.

39 Id.

40 Id.

III. CONCLUSION

Both the CCR regulation and the changes to the UST regulations are the result of either proposed federal action or of an actual federal action. As additional federal requirements come about, the Cabinet’s permitting and enforcement programs could or will be affected in the future. Therefore, it is always important to not only be apprised as to the issues at the state and local level, but at the federal level as well.

GREENHOUSE GAS LITIGATION UPDATE Jacquelyn A. Quarles

I. D.C. CIRCUIT -- CHALLENGES TO RULE MAKING

The number of lawsuits filed relating to EPA Greenhouse Gas (GHG) regulations after the Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497 (2007) is overwhelming. Initially, companies and industry associations, members of Congress, and fifteen states filed ninety-four (94) separate lawsuits challenging EPA’s rulemaking. Those ninety-four lawsuits are now consolidated into four cases before the D.C. Circuit Court (Coalition for Responsible Regulation et al. v. EPA, No. 10-1073, 2010 WL 5509187). On February 28 and 29, 2012, the D.C. Circuit Court heard oral arguments and decisions from the panel are expected later this year.

A. The Endangerment Finding

The ultimate outcome of the Massachusetts Supreme Court case directed EPA to determine if GHG emissions posed a danger to public health or welfare. Under Section 202(a) of the CAA, EPA issued proposed findings on April 17, 2009, that emissions of GHGs from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.

During the sixty-day public comment period and two public hearings, EPA received over 380,000 public comments. After reviewing the comments, EPA issued its Final Findings, the final technical support document, the eleven-volume Response to Comments document, and other supporting materials on December 7, 2009. On December 15, 2009, EPA published the final findings in the Federal Register with an effective date of January 14, 2010.

In the findings, the Administrator identified and found that six key well- mixed GHGs [carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)] threaten the public health and welfare of current and future generations. The Administrator further determined that “the combined emissions of these well-mixed greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas pollution which threatens public health and welfare.”

It is important to note that the Endangerment Finding does not establish or impose any statutory or regulatory requirements on stationary sources, such as power plants. However, the findings are required to implement GHG standards on vehicles under Section 202(a) of the CAA.

After the findings were published and became effective, U.S. EPA received ten petitions to reconsider the Endangerment Findings. Nine of

those petitions questioned the underlying science used to make the endangerment findings and one petition questioned regulating GHG emissions from stationary sources. On July 29, 2010, EPA denied the petitions to reconsider the Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act.

As the oral arguments began, the Petitioner’s challenge to EPA’s Endangerment Finding did not appear to persuade the panel of judges. Judge Sentelle commented that, “Reading some of the briefs, I’d gotten the impression that Massachusetts was not decided.”

B. Subject to Regulation

Soon after the Massachusetts decision, EPA issued a Prevention of Significant Deterioration (PSD) permit to Deseret Power Electric Cooperative authorizing the construction of a new waste-coal-fired electric generating unit at an existing facility. The construction permit and EPA’s determination issued on August 30, 2007, did not require the Best Available Control Technology (BACT) for CO2 emissions. In the permit record, EPA acknowledged the Massachusetts decision; however, EPA found that the decision did not require PSD permits to include limits on CO2 emissions.

As a result, the Sierra Club challenged the Deseret permit. On November 13, 2008, the permit was remanded to EPA by the Environmental Appeals Board (EAB) to reconsider “whether or not to impose a CO2 BACT limit in light of the ‘subject to regulation’ definition under the CAA.” In an attempt to address both the Petition to the Deseret permit and the Massachusetts ruling, Administrator Stephen Johnson issued a nineteen-page interpretative memorandum titled, “EPA's Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program.”

In the memo issued on December 18, 2008, Administrator Johnson explained:

This memorandum contains EPA's definitive interpretation of 40 C.F.R. 52.2 1 (b)(50) and is intended to resolve any ambiguity in subpart (vi) of that paragraph, which includes "any pollutant that otherwise is subject to regulation under the Act." As of the date of this memorandum, EPA will interpret this definition of "regulated NSR pollutant" to exclude pollutants for which EPA regulations only require monitoring or reporting but to include each pollutant subject to either a provision in the Clean Air Act or regulation adopted by EPA under the Clean Air Act that requires actual control of emissions of that pollutant.

The memorandum focused on whether EPA regulations actually required control of the emissions of a pollutant to determine whether the pollutant is “subject to regulation.” If the regulation only requires monitoring or reporting, then the pollutant is not subject to regulation under Section 165 and 169 of the CAA. Thus, without a regulation actually controlling GHGs, GHGs would not be considered a “regulated NSR pollutant” and would not be subject to the PSD permitting program.

On December 31, 2008, the Sierra Club and fourteen other organizations filed a petition for EPA to reconsider the Johnson memo. On February 17, 2009, Administrator Jackson granted a Petition for Reconsideration of the interpretative memo. EPA completed its reconsideration on March 29, 2010, affirming “that PSD permitting is not triggered for a pollutant such as GHGs until a final nationwide rule requires actual control of emissions of the pollutant.”

During the oral arguments, EPA argued that the Petitioners’ legal arguments were untimely considering that the PSD regulations have been in effect for over thirty years and EPA has interpreted the regulations consistently over time. However, Judge Sentelle stated that, “They didn’t have a ripe claim until they were injured.”

C. The Light-Duty Vehicles Rule

Next, EPA and NHTSA developed a national program to reduce greenhouse gas emissions and improve fuel economy of light-duty vehicles. On April 1, 2010, the agencies issued a final rulemaking that established GHG emissions standards for 2012-2016 model year vehicles.

It is interesting to note that the auto industry (the industry actually subject to the standards under the rule) intervened in support of EPA’s regulation for consistency among state and federal regulations; however, the challenge to the rule is due to the fact that the rule triggers GHG permitting requirements for power plants and other stationary sources once GHGs became “subject to regulation” under the Clean Air Act. As discussed previously, once an actual control regulation is applied to a pollutant, that pollutant becomes “subject to regulation” under Section 165 and 169 of the CAA.

Judge Sentelle noted that two of the gases (PFCs and SF6) listed in the Endangerment Finding are not emitted by light duty vehicles and questioned the limits on EPA’s authority. His questioning centered on using Section 202 of the CAA to establish limitations for pollutants that are not emitted by vehicles.

D. The Tailoring Rule

Finally, the arguments closed with a discussion of EPA’s “tailoring rule,” which increased the regulatory threshold for new and modified stationary sources from 250 tons to 100,000 and 75,000 tons of GHGs per year. This is generally considered to be the most vulnerable of EPA’s rules, since lower thresholds are expressly set forth in the CAA itself. EPA’s tailoring rule rests upon its authority to interpret the statute in a way that avoids the “absurd results” of regulating thousands of smaller emitters. Judge Sentelle, however, questioned the petitioners’ challenge of the tailoring rule, stating to counsel: “The harm you allege is a regulatory burden. The remedy you seek is a heavier regulatory burden.”

II. NSPS FOR GHGS

Over the years, a host of lawsuits have been filed attempting to compel EPA to use its authority under the CAA to address GHGs, including suits against EPA for failing to adopt standards for CO2 under the New Source Performance Standard (NSPS) for fossil fuel-fired electric generating units. After the Supreme Court’s decision in Massachusetts v. EPA, the parties to these various lawsuits reached a settlement and agreed to a schedule for issuing NSPS regulations addressing GHG emissions from petroleum refineries and electric generating units. Specific information about the settlements and rules can be found at http://www.epa.gov/airquality/ghgsettlement.html. The settlement agreements establish an aggressive rulemaking schedule, under which EPA was to issue proposed rules setting forth NSPS for GHG emissions from new and modified EGUs, and emission guidelines for existing EGUs by July 26, 2011 and take final action on the proposed rule by May 26, 2012. The proposed NSPS for GHG emissions from new and modified refineries and emission guidelines for existing refineries was due by December 10, 2011, and the final rule was due by November 10, 2012. Since EPA has yet to issue its proposed rules, final rules may not be expected until late 2012 or early 2013.

III. PUBLIC NUISANCE

In a more novel approach to climate change, various groups have initiated lawsuits seeking to use the common law of public nuisance to require facilities to reduce their GHG emissions.

A. American Electric Power Co. v. Connecticut, 131 S.Ct. 2527 (2011)

At issue was whether states and private parties can sue power companies under federal common law for contributing to global warming and compel them to cap CO2 emissions. The district court granted Defendants’ motion to dismiss the case. However, the Second Circuit reversed and remanded the case finding that the facts did not differ significantly from other complex nuisance cases and that judicial resolution would not contradict decisions made by other branches of government. The Second Circuit concluded that not every case with

political ramifications raises a nonjusticiable political question. In an 8-0 opinion, the Supreme Court reversed the Court of Appeals for the Second Circuit, finding that the Clean Air Act and EPA’s rulemaking under the Act displaced any federal common law right to seek abatement of carbon dioxide emissions. The Court rejected the Plaintiffs’ claim that federal common law is not displaced until EPA actually exercises its regulatory authority (i.e. sets standards governing emissions from defendants’ plants). It is interesting to note that the Obama administration filed a brief on behalf of Tennessee Valley Authority that sides with industry arguing that the case involves political and public policy matters that should be left to the legislative and executive branches of government to address. The Court explained that the relevant question is “whether the field has been occupied, not whether it has been occupied in a particular manner.” Id. at 2531.

B. Comer v. Murphy Oil USA, 607 F.3d 1049 (5th Cir. 2010).

In the Comer case, Mississippi property owners harmed by Hurricane Katrina brought suit against oil, coal, and chemical companies for GHG emissions. The district court dismissed the suit holding that the plaintiffs had no standing and that the suit presented nonjusticiable political questions. A three-judge panel of the Fifth Circuit reversed and reinstated the case. According to the panel, “[t]he most that the defendants legitimately could argue is that in the future Congress may enact laws, or federal agencies may adopt regulations, so as to comprehensively govern greenhouse gas emissions and such laws or regulations might preempt certain aspects of state common law tort claims.” In a strange twist, issues of disqualification and recusal arouse, leaving the appellate court without the necessary quorum. Therefore, the appellate court dismissed the appeal, leaving the district court’s decision dismissing the action standing.

C. Native Village of Kivalina v. ExxonMobil Corp., 663 F.Supp.2d 863 (N.D. Cal. 2009).

An Eskimo village brought a federal common law public nuisance action against a host of oil, energy and utility companies alleging that GHG emissions contributed to global warming which caused the melting of arctic sea ice and threatened the village. The Plaintiffs requested $400 million dollars to relocate their village. The District Court granted Defendants’ motion to dismiss, holding that the case presented political questions not suitable for decision by the judicial branch and that the Plaintiffs lacked standing to bring the suit because they failed to show that climate change was fairly traceable to the Defendants’ conduct. Therefore, the court came to the opposite conclusion reached by the Second Circuit in American Electric Power Co. The Plaintiffs have appealed the decision to the Ninth Circuit. The appeal was stayed pending the Supreme Court’s decision in American Electric Power Co.

Now the Ninth Circuit must decide the impact of the Supreme Court’s decision in American Electric Power Co. in Kivalina.

NATURAL RESOURCES LEGISLATIVE UPDATE FOR THE 2012 KENTUCKY GENERAL ASSEMBLY Stefan Kasacavage Current through March 19, 2012

I. INTRODUCTION

A. General Session Information

The Kentucky legislature convenes in regular session for sixty days in even-numbered years and for thirty days in odd-numbered years. It convenes in special sessions at the call of the governor. The Kentucky Constitution mandates that a regular session be completed no later than April 15 in even-numbered years and March 30 in odd-numbered years.

B. Special Issues for the 2012 General Assembly

1. Redistricting -- of House, Senate, and Congressional districts. States must adjust district lines every decade to account for population changes or shifts identified by the most recent (2010) U.S. Census. On February 24th, the Kentucky Supreme Court found that the House and Senate redistricting plans passed in HB 1 violated Section 33 of the Kentucky Constitution because they allowed some districts to vary by more than 5 percent from the ideal population size and divided more counties into separate legislative districts than necessary.

2. Biennium Budget – Even-numbered sessions are also when the biennium budgets are passed. The $19.5 billion executive branch budget passed by the House included 8.4 percent cuts to most executive agencies in order to close a $742 million gap between projected revenues and expenditures over the biennium.

C. Natural Resources Committee Information

1. The House Standing Committee on Natural Resources and Environment is chaired by Rep. Jim Gooch (D-Providence) and has jurisdiction over legislation regarding: forestry, mining, fish and wildlife resources, soil and water conservation, flood control and water usage, drainage and irrigation, geology and water resources, waterways and dams, oil, gas and salt water wells, state and national parks, drainage districts, water pollution, air pollution, management of waste, protection of the environment, Energy and Environment Cabinet.

2. The Senate Standing Committee on Natural Resources and Energy is chaired by Sen. Brandon Smith (R-Hazard) and has jurisdiction similar to the House committee, except for the inclusion of energy-related issues. Energy issues in the House are heard by the House Standing Committee on Tourism

Development and Energy, which is chaired by Rep. Leslie Combs (D-Pikeville).

D. Types of Legislation

1. Simple Resolutions only require action from one chamber and solely deal with the affairs of that chamber. They are used to: express an opinion or principle of the chamber, express an opinion or request to another branch of government, regulate procedure or conduct of the body, or convey a request for service or recommendation for action from the Legislative Research Commission.

2. Concurrent Resolutions express the principles or opinions of both chambers of the legislature, but they are without force outside of the confines of the General Assembly. They are used to: authorize the expenditure of legislative funds, authorize interim committees, authorize joint rules, sessions, or committees, express the General Assembly’s recognition of service or sorrow, memorialize Congress or a federal agency, call upon Congress to propose an amendment to the U.S. Constitution, notify the Governor of the organization or adjournment of the General Assembly, receive messages, or direct the Legislative Research Commission to conduct a study or investigation.

3. Joint Resolutions generally have the force and effect of law and are treated as bills in the parliamentary process. However, unlike regular bills, they deal with individual, unusual, temporary, or subordinate legislation and are used to: accept gifts and grants made to the state, designate a state poet laureate or other honorary position, give specific directions to some state officer or agency, refer a matter to the people for referendum, ratify a proposed amendment to the US Constitution, call for a U.S. Constitutional Convention to be convened, or direct an executive agency to conduct a study.

3. Bills have the full force and effect of law and either create new codified sections of the KRS, amend existing sections of the KRS, repeal existing sections of the KRS, or create new non-codified language.

II. NATURAL RESOURCES LEGISLATION INTRODUCED IN THE 2012 KENTUCKY GENERAL ASSEMBLY

A. Coal and Coal Mining

1. HCR 12 -- A CONCURRENT RESOLUTION expressing concern about the Office of Surface Mining Reclamation and Enforcement’s stream protection rule – Rep. Fitz Steele (D- Hazard).

a. Summary -- Expresses concern about the scope, justification and substance of the United States Office of Surface Mining Reclamation and Enforcement's stream protection rule; recommends that the agency provide objective and scientific data to determine whether regulatory changes are necessary; urges the Representatives and Senators representing Kentucky in the U.S. Congress to withhold funds from the agency enforcing the stream protection rule until justification is provided.

b. What it does – Questions the justification and rulemaking process for OSM’s forthcoming “stream protection rule” which will likely include additional monitoring requirements, tougher reclamation procedures, and more expansive definitions of streams and damage.

2. HJR 11/GA – A JOINT RESOLUTION regarding the criteria for selection and approval of Clean Water Act 404 mitigation plans for out-of-kind water quality improvements – Rep. Fitz Steele (D- Hazard).

a. Summary -- Expresses a need to undertake stream restoration to improve the chemical and biological characteristics of the water; identifies improvements to sewer infrastructure and straight pipes as a method of undertaking stream restoration via mitigation; expresses concern that the Appalachian region is subjected to a more rigorous conductivity standard that reduces the eligible waters in that region for mitigation awards; encourages section 404 permittees that engage in permittee responsible mitigation with a 25 percent set aside for sewer infrastructure and straight pipes; requires the Energy and Environment Cabinet to work with the University of Kentucky and University of Louisville to develop a method of evaluating the value of straight pipes and sewer projects to the overall mitigation requirement; requires a report be sent to the Legislative Research Commission by June 15, 2013, and every year thereafter; requires a copy be sent to the U.S. Army Corps of Engineers, the Energy and Environment Cabinet, and members of the Kentucky congressional delegation.

b. What it does – Encourages the use of a portion of money that has been paid by permittees for stream and wetland mitigation to be used for sewer and straight pipe projects to help improve the quality of water resources in Eastern Kentucky.

3. HB 231 – AN ACT relating to surface mining – Rep. Jim Wayne (D-Louisville).

a. Summary -- Amends KRS 350.450 to require coal mine permittees for all types of mining practices to dispose of remaining overburden in the mined area, areas under the abandoned mine land program, or areas approved by the cabinet; requires use of lifts and compacted fills; prohibits disposal of overburden in streams; amends KRS 350.440 to prohibit disposal of spoil or overburden in intermittent, perennial, and ephemeral streams or any other waters of the Commonwealth; prescribes areas where spoil may be disposed; amends KRS 350.410 to make internal reference corrections and specifies that restoration to approximate original contour includes configuration and elevation of the area prior to mining and require disposal of remaining overburden in the mined area, areas under the abandoned mine land program, or areas approved by the cabinet and the use of lifts and compacted fills; and prohibits deposition of overburden in streams.

b. What it does – The “Stream Saver Bill” prohibits the disposal of overburden from mining operations in streams, whether intermittent, perennial, or ephemeral.

4. HB 385/GA – An ACT relating to coal mine safety – Rep. Jim Gooch (D-Providence).

a. Summary – Amends KRS 351.010 to add definitions for "probation" and "final order of the commission"; amends KRS 351.120 to establish notification requirements for failure of an alcohol or drug test required for certification or licensing relating to mining; provides for notice of right to appeal of certification or licensing suspension; allows for deferral from certification or licensing revocation for medical treatment; establishes consequences for failure to appeal or complete the deferral program; amends KRS 351.122 to require the Commissioner of the Department for Natural Resources to impose analogous sanctions against the Kentucky licenses or certifications of a miner who has violated corresponding drug and alcohol testing requirements in reciprocal states with Kentucky; amends KRS 351.182 to replace methaqualone with buprenorphine in the panel urine test required to establish drug-free status; allows the Mine Safety Review Commission to set additional panels for the urine test by order; amends KRS 351.183 to conform; amends KRS 351.184 to conform; establishes the rights of appeal or deferral for certification denial for failure of a drug or alcohol test; provides for consequences for failure to appeal or successfully complete deferral; amends KRS 351.990 to establish

penalties for first, second, and third offenses for failure of a drug or alcohol test required for a mining certification or license.

b. What it does – Makes changes to the drug-free certification program by: requiring Kentucky to impose analogous sanctions against the licenses and certifications of a miner who violates the drug-testing requirements of a reciprocal state; allowing first-time offenders to enter a deferment program for drug treatment; establishing a notice and appeal process; establishing penalties; and allowing the Mine Safety Review Commission to establish additional drug testing panels by order.

5. HB 404 -- AN ACT relating to the disposal of coal combustion wastes – Rep. Joni Jenkins (D-Shively).

a. Summary -- Creates new sections of KRS Chapter 224 to define "CCR or coal combustion residual," "EAP," "encapsulated CCR," and "unencapsulated CCR"; expresses sentiment favoring a balanced approach to disposal of CCRs that protects the health and safety of the public and the environment and the need for beneficial reuse of CCRs; requires disposal of CCRs as solid waste or in impoundments permitted by the Energy and Environment Cabinet and prohibit permit-by-rule or registered permit-by-rule for disposal of CCRs; requires liners, groundwater monitoring, and toxic substance monitoring; requires emergency action plans for surface CCR impoundments that are deemed as high hazard potential by the United States Environmental Protection Agency; requires the cabinet to promulgate administrative regulations for coal ash CCR emergency action plans within 180 days of the effective date of the Act; establishes specific contents of the EAP; amends KRS 109.012 to include CCR as a solid waste; amends KRS 151.250 to prohibit exemption for surface CCR impoundments regardless of size or type and prohibit use of permit-by-rule or registered permit-by-rule for surface CCR impoundments; amends 224.50-760 to delete utility wastes and wastes from coal gasification facilities approved by the cabinet from the definition of special wastes.

b. What it does – Implements more stringent state requirements for the disposal of coal combustion residuals ahead of forthcoming federal regulations.

6. HB 411/GA – AN ACT relating to coal truck drivers – Rep. John Short (D-Hindman).

a. Summary -- Amends KRS 2.237 to designate the Monday of the fourth week of August each year as Coal Truck Driver Appreciation Day.

b. What it does – Creates Coal Truck Driver Appreciation Day.

B. Natural Gas

HB 148/GA -- AN ACT relating to gas pipeline safety – Rep. Leslie Combs (D-Pikeville).

1. Summary -- Amends KRS 278.992 to delete the $25,000 maximum penalty and replace with civil penalties contained in federal code; makes technical corrections.

2. What it does – Makes the penalties in the KRS conform to penalties for violations of relevant federal natural gas pipeline safety regulations and statutes.

C. Timber and Forestry

HCR 64/GA -- A CONCURRENT RESOLUTION establishing a Timber Theft and Trespass Reduction Task Force – Rep. Leslie Combs (D- Pikeville).

1. Summary - establishes a Timber Theft and Trespass Reduction Task Force; provides that the purpose of the task force is to study issues regarding timber theft and trespass and to develop consensus recommendations to address those issues; names the membership of the task force; requires the task force to meet three times before submitting its final report; requires its final report to be submitted to the Legislative Research Commission by December 7, 2012; and provides that the Legislative Research Commission has authority to alternatively assign the issues identified in the Resolution to interim joint committees or subcommittees thereof.

2. What it does – Establishes a task force composed of nineteen stakeholders to agree to consensus measures to curb timber theft and trespass in Kentucky.

D. Fish and Wildlife

1. HB 252/GA** – AN ACT relating to elk hunting permits – Rep. John Short (D-Hindman) (**Not referred to either Natural Resources Committee – House TD& E and Senate VMA&PP).

a. Summary - Defines "elk management unit" and "elk restoration zone"; requires the Department of Fish and Wildlife Resources to hold a postseason elk quota hunt for each year that a regular season elk quota hunt is held; requires all of the hunters drawn to participate in the postseason elk quota hunt to be drawn from the pool of applicants who were not drawn for the regular season elk quota hunt and who live in the elk restoration zone; requires the number of permits drawn for the postseason elk quota hunt to be evenly distributed based on county of residence within the elk restoration zone; requires at least two permits to be awarded per county; requires hunters in the postseason elk quota hunt to comply with the hunting requirements for the regular season elk quota hunt in 301 KAR 2:132, Section 5, except restrict each hunter to one elk management unit; allows a hunter to also hunt on land that the hunter owns in the opposite elk management unit from the one to which the hunter was assigned.

b. What it does – Requires a postseason elk quota hunt for every year that there is a regular season elk quota hunt. Participants for the postseason hunt are to be drawn from the pool of applicants not drawn for the regular season hunt and who live in the sixteen-county elk restoration zone in southeastern Kentucky. The permits must be evenly distributed among residents of the elk restoration zone counties, with a minimum of two permits issued per county.

2. HB 334 – An ACT relating to special permits – Rep. Fitz Steele (D-Hazard).

a. Summary -- Repeals KRS 150.177.

b. What it does – Repeals KRS 150.177, which allows the Department of Fish and Wildlife Resources Commission to promulgate administrative regulations regarding the issuance of special game permits for non-profit wildlife conservation organizations. The organizations then auction or sell the permits to raise funds for wildlife management.

3. HB 344/GA - AN ACT relating to swine – Rep. Steven Rudy (R- West Paducah).

a. Summary – Creates a new section of KRS Chapter 150 to prohibit the release of all hogs or pigs from the family Suidae into the wild; prohibits the importation, possession, or transportation of any wild or feral pig or boar in Kentucky; allows exception for the accidental escape of animals of the porcine species raised as livestock; changes the penalty for violation of the bill to a Class A

misdemeanor and prohibition on hunting, fishing, trapping, or being a commercial guide for a period of ten years.

b. What it does – Establishes statutory restrictions on and penalties for releasing pigs and wild hogs in Kentucky as well as importing, possessing, or transporting wild hogs. These restrictions and penalties are more stringent than the prohibitions and penalties that currently exist in administrative regulations.

4. SB 119 – AN ACT relating to elk hunting permits – Sen. Ray Jones (D-Pikeville).

a. Summary -- Creates a new section of KRS Chapter 150 to require the Department of Fish and Wildlife Resources to allow applicants for the regular season elk quota hunt to apply in writing at any location that sells hunting licenses; requires the department to hold a physical, randomized drawing to determine who shall be awarded the elk hunting permits for the quota hunt; requires the drawing to be done in public in a different wildlife district each year; requires 10 percent of the total number of permits awarded to be drawn from a pool of applicants solely composed of holders of senior/disabled combination hunting and fishing licenses.

b. What it does – Allows hunters to apply for elk hunting permits at physical locations where hunting licenses are sold, requires physical drawings for elk hunting permits in different wildlife districts each year, and gives a preference for holders of senior/disabled hunting licenses.

5. SB 164 – AN ACT relating to hunter education – Sen. Robin Webb (D-Grayson).

a. Summary -- Creates a new section of KRS Chapter 150 to require the Department of Fish and Wildlife Resources to establish hunter and bow hunter education certification requirements; defines terms; requires the department to promulgate administrative regulations establishing course requirements; allows for hunter education course completion in other states that meet Kentucky's minimum requirements to satisfy the hunter education course requirements in Kentucky; requires hunters born on or after January 1, 1975, to carry course completion cards while hunting or bow hunting; allows the department to use computerized or electronic formats to administer and award hunter education certification; provides for exemptions for the hunter and bow hunter education course requirements for persons under twelve and persons exempt from hunting license requirements; provides for

temporary exemptions from the hunter and bow hunter education course requirements; requires the department to promulgate administrative regulations establishing hunter education instructor certification requirements.

b. What it does – Basically codifies the existing hunter education requirements in the Department of Fish and Wildlife Resources’ administrative regulations except that it allows for three temporary exemptions from the requirements instead of one.

6. SB 196 – AN ACT relating to hunting – Sen. Mike Wilson (R- Bowling Green).

a. Summary -- Amends KRS 150.010 to add definitions; creates a new section of KRS Chapter 150 to establish hunter education course completion card requirements; provides for exemptions from course completion card requirements; allows for those born before January 1, 1975, who are exempt from hunter education course completion card requirements to accompany up to two children under the age of twelve; amends KRS 186.675 to conform.

b. What it does – Also codifies hunter education course requirements that currently exist in the Department of Fish and Wildlife Resources’ administrative regulations, but adds some clarifications regarding exemptions from the requirements.

E. Waste Management

1. HB 518/GA – AN ACT relating to waste tires – Rep. Tom McKee (D-Cynthiana).

a. Summary -- Amends KRS 224.50-855 to add to the membership of the Waste Tire Working Group one member who is a magistrate or commissioner and one member who is a county judge/executive.

b. What it does – Adds a county judge/executive and a magistrate or commissioner to the Waste Tire Working Group.

2. SB 34 - AN ACT relating to recyclers and dealers in metal – Sen. RJ Palmer (D-Winchester).

a. Summary -- Amends KRS 433.890 to provide for the identification of sellers of nonferrous metals and for the payment of nonferrous metal purchases.

b. What it does – Requires purchasers of nonferrous metals to include in their registry the physical address and fingerprints of the seller. Also prohibits payment to the seller at the time of purchase; payment must be mailed to the seller’s physical address.

F. Regulated Utilities and the Public Service Commission

1. HB 399/GA - AN ACT relating to utility interest rates – Rep. Tommy Thompson (D-Owensboro).

a. Summary -- Amends KRS 278.460 to require the Public Service Commission to determine interest rates paid by utilities on an annual basis.

b. What it does – Currently, utilities are required to pay 6 percent interest annually on funds required to be deposited by patrons to secure utility service. This bill would require the PSC to set the interest rate each year by averaging the one year constant maturity treasury rates for the months of September, October, and November of the previous year.

2. SB 87 -- AN ACT relating to accessible electronic information services to the blind and disabled and making an appropriation therefor – Sen. Alice Forgy Kerr (R-Lexington).

a. Summary -- Amends KRS 163.489 to require a competitive bidding process for providing electronic information services to the blind and disabled; requires contracting entities to submit annual reports to the Office for the Blind; creates a new section of KRS Chapter 278 to require all local exchange telecommunications companies to impose periodic surcharges on bills to support the program providing electronic information services to the blind and disabled; requires the Public Service Commission to annually determine in consultation with the Office for the Blind the amount of funding necessary; limit the surcharge to no more than two cents per line each month.

b. What it does – Creates a surcharge not to exceed $0.02 per telephone line per month to fund electronic information services for the blind and disabled.

3. SB 202 – AN ACT relating to electric power rates for industrial customers – Sen. Carroll Gibson (R-Leitchfield).

a. Summary -- Creates a new section of KRS Chapter 278 to require the General Assembly's best efforts in retaining low electric power rates for aluminum smelters.

b. What it does – States that the General Assembly shall make every effort to ensure that electric power rates for aluminum and other industrial customers remain as low as possible.

G. Miscellaneous Natural Resources-Related Legislation

1. HCR 29/GA -- A CONCURRENT RESOLUTION declaring a Kentucky Children’s Outdoor Bill of Rights as public policy of the Commonwealth – Rep. Derrick Graham (D-Frankfort).

a. Summary -- Establishes a Kentucky Children's Outdoor Bill of Rights and declares it to be the public policy of the Commonwealth.

b. What it does – Statement of general policy.

2. SB 13 – AN ACT relating to state government – Sen. Robert Stivers (R-Manchester).

a. Summary -- Amends KRS 56.005 to make a technical correction and to specify that material composted on state lands be used for projects, including roadway construction, reconstruction, maintenance or restoration of sites.

b. What it does – Changes the location of an “or” in a list of uses for composted materials on state lands.

3. SB 162 – AN ACT relating to registered geologists – Sen. Joe Bowen (R-Owensboro).

a. Summary -- Amends KRS 322A.010 to remove the definition of "qualified geologist," an outdated term from the initial formation of the geologist board; amends KRS 322A.020 to authorize the state geologist to designate a person to represent him or her at meetings of the board; amends KRS 322A.030 to grant the board specific investigatory powers so that it may enforce the chapter, investigate complaints or suspected violations, and notify law enforcement; hears appeals of board actions in the Circuit Court of the county where the person resides or where the person has his or her principal office; amends KRS 322A.040 to allow a local or state government geologist to become a registered geologist by meeting the education and experience requirements; amends KRS 322A.060 to establish biennial registration renewal rather than annual registration renewal; amends KRS 322A.080 to end the registration exemption for local or state government geologists; amends KRS 322A.100 to allow the board to discipline a licensee by imposing an administrative fine of up to $1,000 per violation; permits

discipline against a licensee who is convicted of a felony involving sexual misconduct or a crime where dishonesty is a necessary element; deletes several references to the transitional period surrounding the initial formation of the board; amends KRS 322A.030 to hear an out-of-state resident's appeal of a board action in the Franklin Circuit Court; amends KRS 322A.040 to allow a local or state government geologist to become a registered geologist by meeting the education, experience, and examination requirements by July 31, 2015; amends KRS 322A.080 to end the registration exemption for local or state government geologists after July 31, 2015.

b. What it does – Probably the biggest change is that geologists who work in state or local government would no longer be exempt from the registration requirements that all other geologists in the Commonwealth were already subject to.

4. HB 427/GA – AN ACT relating to land conservation and making an appropriation therefor – Rep. Keith Hall (D-Phelps).

a. Summary -- Amends KRS 146.560 to increase membership on the Kentucky Heritage Land Conservation Board from eleven to thirteen members by adding a member from the Kentucky Horse Council and a member from the Kentucky Land Trusts Coalition; allows the grant funds expended by the board to be made to private nonprofit land conservation organizations and requires those organizations to match grants dollar for dollar; amends KRS 146.570 to require private, nonprofit land conservation organizations to match grants made by the board 100 percent.

b. What it does – adds two members to the Kentucky Heritage Land Conservation Board (one from the Kentucky Horse Council and one from the Kentucky Land Trusts Coalition) and loosens the restrictions on how grant funds are expended, including allowing private nonprofits to receive grants from the board.

5. HB 441/GA** – AN ACT relating to business entities – Rep. Mike Denham (D-Maysville) (**Not referred to either Natural Resources Committee – House Agriculture and Senate Judiciary)

a. Summary -- Establishes KRS Chapter 272A and creates new sections of various subchapters thereof to provide that the chapter may be cited as the "Kentucky Uniform Limited Cooperative Association Act."

b. What it does – Creates a new business structure, the limited cooperative association, by combining the traditional cooperative structure with modern financing mechanisms used by limited liability companies. Proponents believe that the new business structure will be advantageous to cooperatives that produce agricultural products, including biomass feedstocks, that hope to attract investment to create value-added products. Existing cooperative law would remain unchanged by the Act.

H. Environmental Protection and Remediation

1. HB 465/GA – AN ACT relating to brownfield redevelopment – Rep. Fred Nesler (D-Mayfield).

a. Summary -- Creates a new section of Subchapter 1 of KRS Chapter 224 to establish a Brownfield Redevelopment Program to be administered by the Energy and Environment Cabinet; extends nonliability to property owners where a release of petroleum, pollutants, or contaminants has occurred to the extent of performing characterization or corrective action for the release; establishes criteria for the protection from liability for property owners and allow the cabinet to promulgate administrative regulations to establish standards and procedures for implementing the Brownfield Redevelopment Program; amends KRS 224.60-135 to provide that property owners are not required to take corrective action where a release from a petroleum storage tank occurred if the property owner is not the tank owner or operator; amends KRS 224.60-138 to remove from general cabinet authority residual contamination on property where a release has occurred from a petroleum storage tank if the contamination is below standards established by the cabinet under the Brownfield Redevelopment Program; clarifies that the future use of a property in the Brownfield Redevelopment Program will not increase the impact of the release upon the public; clarifies that the cabinet's authority to promulgate administrative regulations applies to establishing procedures for implementing the Brownfield Redevelopment Program, which may include administrative forms, technical standards, and fees to cover costs; deletes the reference to standards; states the property in the Brownfield Redevelopment Program is not subject to additional action under the cabinet's general authority; provides that to be eligible to avoid liability for the release of petroleum, a hazardous substance, pollutant, or contaminant from a person's property, the cabinet must find that the owner's certifications made with regard to the property are true; adds to the list of certifications to be made by the owner that the owner has not caused or

contributed to the release; specifies that the cabinet concur in writing that the intended future use of the property will not interfere with remediation of the release or increase the impacts of the release on human health or the environment; requires the owner to provide any person undertaking corrective or remedial action with access to the property.

b. What it does – Allows purchasers of contaminated properties to seek assurances from the cabinet that they will not be liable for discharges from the property as long as they meet eligibility requirements that mirror federal Brownfields liability defense standards, obtain Energy and Environment Cabinet approval for future use of the property and commit to allowing access to the property for any person performing cleanup.

2. HB 513 – AN ACT relating to tax credits for environmental remediation – Rep. Dennis Horlander (D-Shively) and Rep. Charles Miller (D-Louisville).

a. Summary -- Amends KRS 141.418 to allow the credit for environmental remediation to apply to the renovation or removal of a qualifying industrial building; expands the allowable credit from $150,000 per property to $300,000 per property and $300,000 per qualifying industrial building.

b. What it does – Allows the existing environmental remediation tax credit to apply to the renovation or removal of an industrial building on a qualifying voluntary environmental remediation property and increase the amount of the credit.

NATURAL RESOURCES REGULATORY UPDATE R. Clay Larkin

I. INTRODUCTION

The following is a summary of regulatory changes affecting natural resources in Kentucky in the past year. This presentation will address both final changes to the Kentucky Administrative Regulations and agency policy guidance materials, and proposed future changes to regulations and policies that have not yet resulted in proposed or promulgated regulations.

This presentation will focus primarily on state-level activities of the Kentucky Energy and Environment Cabinet, and particularly the Cabinet’s Department for Natural Resources (DNR), but certain regulatory changes implemented or proposed by other state and federal agencies will likely also have an effect on the natural resources industry, and those issues are also discussed.

Although Kentucky is home to a significant amount of timber, natural gas, oil, and other natural resources, there have not been significant changes in the past year to Kentucky’s regulations affecting these resources. Natural gas drilling, and particularly the practice of hydraulic fracturing, has been the subject of national media attention for the past several years, but “fracking” is unlikely to be a subject of regulatory change at the state level in the next year. Instead, most of the regulatory and policy activity in the past year in Kentucky has related to coal mining. Specifically, compliance with the Surface Mining Control and Reclamation Action (SMCRA)1 and the Clean Water Act2 and their state-law counterparts3 remain important topics.

II. ELECTRONIC SERVICE OF ENFORCEMENT DOCUMENTS BY DIVISION OF SURFACE MINE RECLAMATION AND ENFORCEMENT (DSMRE)

A. Coal operator compliance with SMCRA, KRS Chapter 350 and other state and federal environmental statutes and regulations is primarily monitored by inspectors with DNR’s Division of Mine Reclamation and Enforcement (DSMRE). Over the course of a year, these inspectors issue hundreds of enforcement documents to permittees.4 Service of these enforcement

1 30 U.S.C. §1201 et seq.

2 33 U.S.C. §1251 et seq.

3 Kentucky’s surface mining regulatory program is codified at KRS Chapter 350, and the regulations implementing that chapter are found at 405 KAR Chapters 1-26. Kentucky’s CWA regulatory program is based primarily on the statutory authority found in KRS 224.70 et seq., although authority for the program can be found in other portions of Chapter 224 as well. Kentucky’s CWA regulations are located at 405 KAR Chapters 4-11.

4 The federal Office of Surface Mining Report on Kentucky’s Regulatory Program for the most recently completed year indicates that Kentucky coal mining operations were issued 1,244 notices of non-compliance and 168 cessation orders from June 2012-June 2011. See

documents is a logistical and financial challenge due to their sheer number, and the fact that many of the violations are cited at facilities where few if any personnel are present to accept personal service (for example, at reclaimed facilities where no active mining is taking place).

B. Effective February 3, 2011, DSMRE regulations governing the service of enforcement documents were amended to allow for electronic service of documents. The regulations specifically revised by these changes include:

1. 405 KAR 12:020;

2. 405 KAR 5:085;

3. 405 KAR 5:095; and

4. 405 KAR 7:091.

These regulations now permit the Cabinet to serve, via e-mail: notices of non-compliance and orders for remedial measures, cessation orders, and notices of inspections of non-compliance. Previously, such notices were required to be served by hand delivery, certified mail, or registered mail.

Acceptance of service by e-mail is optional. Permittees can opt to continue to receive these notices by hand delivery or mail in accordance with the earlier version of the regulations. The electronic notice is to be served on the e-mail address identified in the permit for each operation. Operators should be careful to insure that the appropriate e-mail address is listed in their permit.

III. RECLAMATION ADVISORY MEMORANDA #S 149 AND 150 (CLARIFYING KPDES PERMITTING REQUIREMENTS)

A. Reclamation Advisory Memoranda, Generally

DNR has traditionally clarified certain regulatory requirements through the use of guidance documents known as Reclamation Advisory Memoranda.5 Under KRS 13A.130, such guidance documents cannot modify or expand existing regulations, but both DNR and the regulated community rely on the policy guidance set forth in RAMs in determining the contours of applicable regulatory requirements.6

Commonwealth of Kentucky, 29th Annual Evaluation Report: SMCRA, Lexington Field Office, Office of Surface Mining Reclamation and Enforcement (EY 2011) (available at http://www.arcc.osmre.gov/FOs/LFO/KY/AR/EY2011-KY-AR-FI.pdf) (last visited March 15, 2012).

5 Since 1978, DNR has issued 151 RAMs on a variety of topics. A complete copy of each RAM can be obtained at: http://minepermits.ky.gov/Pages/RAMs.aspx (last visited March 15, 2012).

6 Note, however, that KRS 13A does permit administrative agencies to afford such documents the same binding status as regulatory text if they are expressly incorporated by reference into the regulation in accordance with KRS 13A.224. Certain RAMs have been incorporated by reference

B. Procedural History of RAM #149 and 150

DNR issued RAM #149 on April 1, 2011, in response to widespread industry confusion regarding compliance obligations under Kentucky Pollutant Discharge Elimination System permits issued to coal mining operations. RAM #149 was soon superseded by RAM #150, issued on May 3, 2011.

The issuance of RAM #149 and 150 is largely attributed to the Cabinet’s wide-ranging investigations of coal mining KPDES compliance beginning in 2010. The industry’s compliance with these requirements was brought under considerable scrutiny following the well-publicized delivery to major coal companies of several “notice of intent to sue” letters under the citizen suit provisions of the Clean Water Act (33 U.S.C. §1365) by environmental groups.7 These notices of intent have been sent to at least three major Kentucky coal producing companies and have resulted in considerable litigation.8

C. Purpose of RAM #150

RAM #150 serves to “clarify KPDES permitting and discharge monitoring report (DMR) requirements for coal mining activities.” It also “includes requirements to provide information about the laboratory that provides KPDES DMR data and SMCRA surface water and groundwater monitoring data for each permit.” The various provisions of RAM #150 had different effective dates, but the entire RAM is now considered to be effective.

into DNR regulations. See, e.g., 405 KAR 8:010 Section 26(1) (incorporating by reference RAM #124). At this time, RAM #150 has not been incorporated by reference into Kentucky’s surface mining regulations.

7 The CWA citizen suit provisions allow private citizens to bring suit in federal court to enforce CWA requirements against any person, but require that sixty days’ notice of intent to sue be given before suit is brought. 33 U.S.C. §1365(b). This notice must be served on the alleged violator as well as the Cabinet and U.S. EPA. If these government agencies “diligently prosecute” an action addressing the violations identified in the notice letter, then private citizens are barred from bringing suit. Id.

8 A full discussion of these cases, which have resulted in numerous parallel proceedings (nearly all of which remain pending), is beyond the scope of this presentation. The cases include, but are not limited to: Energy and Environment Cabinet v. Nally & Hamilton Enterprises, Inc., File No. DOW-42445-039 (Office of Administrative Hearings, Agreed Order Entered November 16, 2011, currently on appeal by plaintiff-intervenors in Franklin Circuit Court as Appalachian Voices, et al. v. Energy and Environment Cabinet, et al., C.A. No. 11-CI-001731); Appalachian Voices, et al. v. Nally & Hamilton Enterprises, Inc., 6:11-cv-133-GFVT (E.D.Ky.); Energy and Environment Cabinet v. Frasure Creek Mining, LLC, et al., 10-CI-01867 and 1868 (consolidated, Franklin Circuit Court); and Frasure Creek Mining, LLC v. Shepherd, 11-SC-000485 (Kentucky Supreme Court).

D. KPDES Coverage Issues Addressed by RAM #150

The first issue addressed by RAM #150 is the general requirement to obtain KPDES permit coverage. RAM #150 clarifies that “[e]very new SMCRA permit is required to have KPDES permit coverage prior to initiation of any disturbance of the permit area.” This requirement was effective April 1, 2011.

Prior to the issuance of RAM #150, many in the regulated community believed that disturbance of the permitted area could commence before KPDES permit coverage was obtained, so long as a KPDES permit application (or application for coverage under the KPDES General Permit for Coal Mining Activities) had been submitted to the Division of Water, and the operation’s discharges complied with the effluent limitation guidelines for coal mining activities. It also appears that at times DSMRE had adopted this position in the exercise of its enforcement discretion. For example, on some occasions, rather than halting mining activity when an operation had not yet obtained KPDES permit coverage, DSMRE would permit operation to continue so long as the permittee diligently pursued issuance of the KPDES permit. This policy appears to have been adopted in recognition of the significant delays in permit issuance from the Division of Water.

An argument can also be made that 405 KAR 16:070 Section 1(g) (and its counterpart 18:070 Section 1(g)) authorize the practice of mining without a KPDES permit. That regulation states:

Discharges of water from areas disturbed by surface mining activities shall at all times be in compliance with all applicable federal and state water quality standards and either:

1. If the operation does not have a KPDES permit, the effluent limitations guidelines for coal mining promulgated by the U.S. EPA in 40 CFR 434; or

2. The effluent limitations established by the KPDES permit for the operation.

(emphasis added).

By appearing to create an “either/or” distinction between having a KPDES permit on the other hand, “or” simply complying with the effluent limitations guidelines on the other, the regulation creates a reasonable inference that there is no obligation to obtain a permit prior to commencing surface disturbance. OSM actually raised this concern as early as 1990 when it and EPA commented on Kentucky’s program in the Federal Register. See 55 Fed. Reg. 53490, 53501-502 (December 31, 1990).

The Cabinet’s position appears to be that despite this language in 405 KAR 16:070, a KPDES permit has always been required. In any event, the need for RAM #150 was apparent, and it settles the matter. A KPDES permit is now always required for new mining activity.

RAM #150 also clarifies that a KPDES permit application must be submitted for all SMCRA permitting actions adding more than one (1) surface acre to the SMCRA permit, and that KPDES permit coverage must be maintained until the permit obtains Phase III bond release.

E. KPDES Reporting/DMR Requirements Addressed by RAM #150

RAM #150 also clarifies that a DMR must be submitted in accordance with the schedule in the KPDES permit applicable to a facility, regardless of whether the outfall has been constructed. In the surface mining context, many of the KPDES permitted outfalls are “on-bench” sedimentation ponds, and numerous proposed ponds are listed in the SMCRA or KPDES permit application. Many of these ponds are not used or constructed until the mining project has progressed to the point where the ponds become necessary to control runoff. RAM #150 imposes an obligation to submit a DMR for these “unconstructed” outfalls that reflects that the outfall has not been constructed. Permittees are to report the status of the not-yet-constructed outfall as “NC.” The same requirement to submit a DMR also applies to outfalls that have been removed. SMCRA permitting requirements allow the removal of sedimentation structures as mining areas are reclaimed. Nonetheless, where ponds are removed (and therefore not discharging) permittees must submit DMRs for those removed ponds noting their status as “REM” for “removed.”

An issue of considerable confusion and controversy both before and after the issuance of RAM #150 is the reporting of “no flow” samples from on- bench sedimentation ponds. Many of these sedimentation structures rarely, if ever, discharge. RAM #150 clarifies that where a sample is attempted but no discharge is occurring, the permittee must provide an explanation of why there is no discharge in the comment box of the DMR. RAM #150 contains examples of the types of documentation that should be maintained to support a “no discharge” or “no flow” DMR, but permittees are already finding that there are disagreements between the Cabinet’s enforcement staff and the regulated community as to what level of documentation is sufficient.

F. Water Laboratory Information Required by RAM #150

RAM #150 clarifies that each DMR cover sheet must contain the name of the laboratory providing data on the DMR. Although DMRs are required to be reviewed and certified by a responsible official of the permittee or that official’s designee, many coal mining operators contract the sampling, testing, and record-keeping work in DMR preparation to third parties. The work of these contract laboratories was a significant focus of both environmental interest groups and the Cabinet in the recent litigation over KPDES permit compliance. The requirements applicable to these

laboratories are also being addressed through the Cabinet’s new wastewater laboratory certification process, discussed below.

G. Recordkeeping Requirements in RAM #150

Finally, RAM #150 requires a significant amount of information to be kept at the mine site, for review and inspection by DSMRE. These items include:

1. A copy of the mine’s current KPDES permit or “coverage” (presumably referring to the letter granting coverage under the KPDES Coal General Permit).

2. A copy of the KPDES best management practices plan (BMP) for the site.

3. BMP training and review records.

4. A copy of any required SPCC or GPP for the site.

5. A log of bypasses or overflows resulting in discharges from the site, which are also required to be reported on DMRs for the quarter in which they occur.

6. An on-site precipitation log if alternate effluent limits are to be requested and there is no other source of precipitation data within a five mile radius that can be corroborated with NOAA or other official precipitation data.

IV. WASTEWATER LABORATORY CERTIFICATION REGULATORY DEVELOPMENT

A. Another outgrowth of the Cabinet’s 2010 investigation and enforcement activities in the realm of coal wastewater compliance was the enactment of KRS 224.10-670 (effective June 8, 2011), which authorizes the Cabinet to develop regulations requiring laboratories that provide wastewater testing services to KPDES permit holders to be certified by the Cabinet. A similar certification requirement is already in place with respect to drinking water in Kentucky, and other states have a similar certification requirement for wastewater testing labs.

B. As enacted, KRS 224.10-670 authorizes the Cabinet to promulgate regulations that provide standards for the operation of wastewater testing laboratories (including in-house laboratories), fees for certification, competency evaluations, and issuance of certificates of competency to laboratories meeting the standards set by the agency. The statute requires the Cabinet to consider “among other things, nationally recognized certification programs and those tailored for individual states,” in developing the program.

C. The impact of the wastewater certification program on the natural resources sector could be considerable. At the time of the Cabinet’s investigation into these laboratories, many of the labs performing testing and monitoring services for coal companies did not hold the sort of national accreditation or certifications discussed in the statute.

D. The Division of Water (DOW) has held several meetings with interested stakeholders regarding the development of the certification program, and has circulated a proposed draft regulation and certification manual to this workgroup to review. Informal comments on the proposed regulation were accepted from the workgroup through March 15, 2012. DOW most recently reported that it expects to send a proposed regulation for review by the Legislative Research Commission by June 15, 2012.

E. DOW expects that as many as 400 laboratories or groups performing wastewater testing services may be subject to the requirements of the new regulation when it is promulgated.

V. POTENTIAL INCREASE IN SURFACE MINING PERFORMANCE BOND AMOUNTS

A. Surface mining operators are required to post performance bonds to insure reclamation operations will be conducted at the completion of mining operations. These bonds are required by statute, and the bonding requirements are detailed in extensive regulations promulgated by the Cabinet.9

B. The amount of performance bonds in Kentucky has not been increased since 1993. Kentucky is under significant pressure from both federal OSM and environmental interest groups to increase the amount of its performance bonds.

C. On January 5, 2011, the Lexington Field Office of OSM released a report on the adequacy of Kentucky’s performance bonding program, recommending that the bond amounts be increased. As a result of this report, OSM and DNR entered into an “Action Plan for Improving the Adequacy of Kentucky Performance Bond Amounts” on February 3, 2011.10 The action plan called for an iterative process between OSM, DNR, and the regulated and interested communities to work toward development of statutory and regulatory changes to increase the amount of surface mining performance bonds.

D. Because certain bonding requirements in Kentucky are determined by statutes, not just regulations, OSM has recognized that statutory requirements may be required to increase Kentucky’s bond amounts.

9 The bonding regulations are located in 405 KAR Chapter 10.

10 A copy of this agreement can be obtained at http://www.arcc.osmre.gov/FOs/LFO/KY/AP/ EY2011-KY-AP-Bond_Calculation.pdf (last visited March 15, 2012).

E. The subject of performance bond increases is currently undergoing discussion between the Cabinet, industry and other interested parties. No formal regulatory or statutory changes have been proposed at this time, but the issue is likely to be a very significant one in 2012 and 2013.

VI. INVALIDATION OF 405 KAR 24:030 SECTION 8(3)

A. In the recent case of Laurel Mountain Resources, LLC v. Energy and Environment Cabinet, 2012 WL 512580 (Ky. App. Feb. 17, 2012), the Kentucky Court of Appeals held that 405 KAR 24:030 Section 8(3) was invalid because it made Kentucky’s surface mining regulatory program more stringent than SMCRA.

B. 405 KAR 24:030 Section 8(3) is part of a larger regulatory scheme implementing the “lands unsuitable for mining” process. Under KRS Chapter 350 (and SMCRA), petitioners may seek to designate boundaries of land as unsuitable for mining, based on a variety of criteria, including: incompatibility with existing state and local land use plans; effects on fragile or historic lands; effects on renewable resource lands; and effects on natural hazard lands. See KRS 350.610. The lands unsuitable process begins with the filing of a petition with the Cabinet seeking to designate the area as unsuitable, and involves a public hearing and final determination on the petition by the Cabinet Secretary. If the petition is granted, it may bar either surface mining, or all types of mining in the area subject to the petition, or in a portion of the petition area.

Unlike the federal regulations, Kentucky’s regulatory program contains a provision, 405 KAR 24:030 Section 8(3), which states:

If the cabinet does not designate a petitioned area under Subsection (2) of this section, the secretary may direct that any future permits for the area contain specific requirements for minimizing the impact of surface coal mining operations on the feature that was the subject of the petition.

Laurel Mountain Resources involved a direct challenge to this regulation.

In the Laurel Mountain case, petitioners sought to designate approximately 2,000 acres in the Wilson Creek watershed in Floyd County as unsuitable for mining. Following a hearing, the Secretary denied the petition, but in the final order denying the petition, imposed several conditions on future mining in the area pursuant to 405 KAR 24:030 Section 8(3). Laurel Mountain Resources, as successor to Miller Brothers Coal, sought a permit in the area subject to the petition, and thus would be subject to the Secretary’s conditions imposed in the order denying the petition.

On appeal, Laurel Mountain pointed to KRS 13A.120, KRS 350.028(5) and KRS 350.465(2) & (4), each of which prohibit the Cabinet from promulgating regulations that make Kentucky’s regulatory program more

stringent than or inconsistent with SMCRA. The Court held that 405 KAR 24:030 Section 8(3) was invalid under these statutes because it was inconsistent with SMCRA. The Court of Appeals found that the federal regulatory program only allowed the imposition of restrictive conditions if a finding of unsuitability for mining was actually made – i.e., if the petition was granted (at least in part). In the Laurel Mountain case, the Secretary did not make such a finding, but instead found just the opposite, denying the petition. Thus, the Court held, the Secretary was not permitted to impose any restrictive conditions, because to do so would make Kentucky’s program more stringent than SMCRA.

The impact of the Laurel Mountain decision is not yet clear. The Cabinet is apparently evaluating the decision, and 405 KAR 24:030 Section 8(3) remains on the books, although it is not certain that the Cabinet will invoke it in future cases. The Court of Appeals remanded the petition in Laurel Mountain to the Cabinet for further consideration.

VII. PROPOSED REVISIONS TO “STREAM BUFFER ZONE RULE”

A. Beginning in 1983, OSM regulations11 prohibited the placement or dumping of material from coal mines within 100 feet of a perennial or intermittent stream. This requirement, known as the “Stream Buffer Zone” Rule or “Stream Protection” Rule, was modified by the Bush Administration to permit the placement of material within 100 feet of streams provided there was no other reasonable alternative and certain conditions were met.

B. In June, 2009, however, various federal agencies including OSM, EPA, and the Army Corps of Engineers entered into a major Memorandum of Understanding addressing numerous regulatory aspects of coal mining in Appalachia. One of the requirements of the MOU was that OSM would revise the currently existing Stream Buffer Zone Rule. OSM announced that it was preparing these revisions in April, 2010. In its April, 2010 proposal, OSM stated that it would likely revise the definition of “material damage” to watersheds outside the permit area and adopt a more stringent definition. SMCRA bars the issuance of permits that would result in such “material damage,” so if the new rule is issued as proposed by OSM, it is expected to reduce the availability of permits for surface coal mining operations in Kentucky.

C. OSM has announced that it plans to finalize the new Stream Buffer Zone Rule this year. The proposal has, however, received considerable negative commentary from the regulated community, particularly in Appalachia, where industry expects that certain operations will not be

11 Although the discussion of this rule is taking place largely at the federal level, Kentucky’s regulatory program is required by law to be consistent with SMCRA and its implementing regulations. Accordingly, any federal changes will ultimately be adopted in corresponding changes to the Kentucky surface mining regulatory program. For convenience, and because a full discussion of this major topic is beyond the scope of this presentation, this section discusses only the proposed federal changes.

71 able to comply with the rule. Continuing development of the new Stream Buffer Zone Rule will be the focus of considerable attention throughout 2012.

NATURAL RESOURCES CASE LAW UPDATE Dennis J. Conniff

Objective of the Presentation: The objective of this presentation is to identify case law decided since January 2, 2011, that may have significance to the practice of natural resources law.

I. COMMONWEALTH OF KENTUCKY, ENERGY & ENVIRONMENT CABINET V. PHILLIP J. SHEPHERD 2011 WL 3586410 (UNPUBLISHED OPINION NOT REPORTED IN S.W.3D (2011). SEE KY ST RCP RULE 76.28(4) BEFORE CITING).

A citizen group filed notices of intent to sue for alleged violations of the federal Clean Water Act against two coal companies. Pursuant to 33 U.S.C. §1365(b), the notice letters triggered a thirty (30) day period during which the United States Environmental Protection Agency (EPA) and the Energy and Environmental Cabinet (Cabinet) could investigate the alleged claims and bring enforcement actions. If diligently prosecuted, the enforcement action would preclude the citizen groups from pursuing their claims against the alleged violators.

The Cabinet filed complaints against the alleged violators within the sixty day period in the Franklin Circuit Court, and simultaneously filed proposed consent judgments that it had negotiated with the coal companies. The Cabinet and the coal companies subsequently filed a motion to enter the consent judgments.

The citizen group moved to intervene in the action filed by the Cabinet. The Court granted the motion to intervene, but held the intervening complaint in abeyance pending the Court’s review of the motion to enter the consent judgments. The Court also permitted the interveners a period of ninety (90) days to conduct initial discovery on the issue of whether the proposed consent judgments were “fair, adequate, reasonable, and consistent with the public interest.”

The Cabinet and one of the coal companies filed petitions with the Court of Appeals for writs of prohibition and mandamus to prohibit enforcement of the order allowing intervention. The Cabinet asserted that KRS Chapter 224 does not provide for citizen participation in enforcement proceedings.

To prevail on petitions for extraordinary relief, petitioners bear the substantial burden of demonstrating (a) that the circuit court is proceeding or is about to proceed outside or in excess of its jurisdiction; or (b) that the circuit court is proceeding erroneously within its jurisdiction for which the petitioners have no adequate remedy by appeal or otherwise and a great and irreparable injury will result unless the petition is granted. Citing Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004).

The Court of Appeals held that the Franklin Circuit Court had subject matter jurisdiction over the motion to intervene because the Cabinet filed its action in the Franklin Circuit Court. Consequently, the Franklin Circuit Court had the authority to rule on the motion to intervene pursuant to CR 24.01.

The Court of Appeals also held that the petitioner has an adequate potential remedy to correct any potential error that might occur from the grant of intervention. The requirement to engage in the limited discovery authorized by the Circuit Court did not constitute an irreparable injury because the extraordinary remedies of prohibition and mandamus do apply to preparation and defense at trial.

II. LAUREL MOUNTAIN RESOURCES, LLC V. COMMONWEALTH OF KENTUCKY, ENERGY & ENVIRONMENT CABINET, ___ S.W.3D ___ (KY. APP. 2012), 2012 WL 512580 (THIS OPINION IS NOT FINAL AND SHALL NOT BE CITED AS AUTHORITY IN ANY COURTS IN THE COMMONWEALTH OF KENTUCKY).

A citizen filed a petition to designate a portion of a watershed as unsuitable for surface coal mining operations. Subsequent to the filing of the petition, a mining company applied for a permit in the watershed. The Cabinet allowed the mining company to become a party to the unsuitability petition proceedings.

The Cabinet issued an order denying the petition, which addressed each allegation raised in the petition and explained how each failed to support an unsuitability determination. Despite rejecting all of the petition’s allegations and declining to designate the watershed as unsuitable for surface mining, the Cabinet nonetheless imposed five restrictive conditions on all future surface mining in the watershed pursuant to 405 KAR 24:030 Section 8(3).

The mining company appealed to the Franklin Circuit Court and alleged that 405 KAR 24:030 Section 8(3) was invalid because it was impermissibly more stringent than federal law. The appeal was denied by the Franklin Circuit Court, and the appeal to the Court of Appeals ensued.

The Court of Appeals held that 405 KAR 24:030 Section 8(3) is more stringent than the Surface Mining Control and Reclamation Act, and is thereby null, void and unenforceable pursuant to KRS 13A.120(1). The Court held that to impose restrictive conditions pursuant to 405 KAR 24:030 Section 8(3), the Cabinet must make a finding that the petition area is unsuitable for all or certain types of surface mining before it can subject the area to the imposition of restrictive conditions. The action was remanded to the Cabinet for further proceedings.

III. NATIONAL MINING ASSOCIATION V. JACKSON, 816 F.SUPP.2D 37 (D.C. CIR. 2011).

This was an action by permit applicants against the Environmental Protection Agency, the United States Army Corps of Engineers (Corps) and the Department of Interior challenging implementation of an inter-agency plan to review pending Clean Water Act Section 404 permit applications related to Appalachian surface coal mining. Section 404 permits are required to discharge dredge and fill material into waters.

Pursuant to 33 U.S.C. §1344(a), the Corps has sole authority to issue Section 404 permits, but, in doing so, must apply guidelines that it develops in conjunction with the EPA. To implement this provision, the EPA and the Corps

74 promulgated 404(b)(1) guidelines, which are codified at 40 CFR Part 230 (2010). The 404(b)(1) guidelines provide that “[n]o modifications to the basic application, meaning, or intent of these guidelines will be made without rulemaking by the Administrator [of the EPA] under the Administrative Procedure Act.” 40 CFR Section 230.2(c). Pursuant to 33 U.S.C. §1344(a), the EPA is also given the authority to prevent the Corps from issuing a Section 404 permit for certain disposal sites, known as the 404(c) veto authority, if the EPA determines that certain unacceptable environmental effects would occur if the disposal sites were approved, after notice and an opportunity for public hearing.

In 2009, the EPA, the Corps and the Department of Interior signed a Memorandum of Understanding implementing the inter-agency plan on Appalachian surface coal mining. One element of the MOU was to implement an enhanced coordination procedure for review of Section 404 permit applications for Appalachian surface coal mining activities. Concurrent with the MOU, the federal agencies issued two separate memoranda outlining the formal details of the enhanced coordination process. These memoranda permitted the EPA to apply the 404(b)(1) guidelines used by the Corps and to direct the Corps on which permit applications must go through the enhanced coordination process.

The Court decided that the motions of the parties presented two questions of law:

1. Whether the enhanced coordination process violated the Clean Water Act because it amounted to actions in excess of the EPA’s statutory authority; and

2. Whether the EPA’s utilization of the enhanced coordination process in the absence of notice and comment violated the Administrative Procedure Act.

The Court held that the enhanced coordination process exceeded EPA statutory authority and enjoined the process. In reaching its decision, the Court applied the two step inquiry of Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984). Under the Chevron test, the Court must first decide whether Congress has clearly addressed the precise question at issue. If so, the inquiry ends. If not, the second inquiry is whether the administering agency has acted on the basis of a permissible construction of the statute. Whether there is an ambiguity in the statute is for the Court to decide, and the Court is not required to give deference to the agency on the existence of an ambiguity.

The Court decided that Section 404 of the Clean Water Act expressly made the Corps the permitting authority for Section 404 permits, and that it specifically identified EPA’s role in the permitting process. The Court held that the EPA had impermissibly extended the scope of its role in the permitting process through the enhanced coordination procedure, since the EPA gave to itself the authority to apply the 404(b)(1) guidelines, which under the Act were required to be applied by the Corps as the permitting authority.

New rules that result in substantive or major legal additions to existing rules or regulations are subject to the notice and comment procedures of the Administrative Procedures Act (APA) as legislative rules. But, the APA makes an

exception for rules related to agency organization, procedure or practice. If an agency adopts a new position inconsistent with an existing regulation or affects a substantive change in the regulation, the notice and comment procedures are required. Because the Court held that the enhanced coordination procedures transferred from the Corps to the EPA the task of applying the 404(b)(1) guidelines, the Court held that the enhanced coordination procedures were legislative in nature, not procedural, and were subject to the notice and comment requirements of the APA.

IV. COMMISSIONER OF THE DEPARTMENT OF PLANNING AND NATURAL RESOURCES V. CENTURY ALUMINUM COMPANY, __ F.SUPP.2D __ (D.V.I. 2012), 2012 WL 314000.

This is an action under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq. (CERCLA) for damage allegedly caused to the natural resources in and around an industrial property located on St. Croix in the Virgin Islands.

Following the filing of the action, defendants retained the services of two marine biology consultants. At the request of defendants’ counsel, these consultants performed dives into the allegedly contaminated waters adjacent to the industrial property. The consultants were not designated as testifying experts.

In response to the plaintiffs’ request for production of documents, the defendants did not produce documents related to these consultants or list any such documents on a privilege log. Plaintiffs filed a motion to compel production of only the scientific data and/or recorded observations, such as photographs or videotape, prepared by these non-testifying experts. Plaintiffs did not seek production of any opinion offered by the non-testifying experts.

Pursuant to Rule 26(b)(4)(D) of the Federal Rules of Civil Procedure, facts known or opinions held by a non-testifying expert retained in litigation are not discoverable absent exceptional circumstances under which it is impractical for the other party to obtain facts or opinions on the same subject by other means. Plaintiffs asserted that exceptional circumstances existed to justify production because of the constantly changing conditions inherent in the marine environment at issue make every test and observation unique and impossible to reproduce. The Court recognized that in similar cases courts have found that exceptional circumstances exist if one party’s expert had the exclusive opportunity to observe or test a particular condition or object at a point in time critical to the litigation, such as immediately after an environmental disaster or the collapse of a man-made structure.

The Court denied the motion to compel on the grounds that the data and observations at issue, even though unique, did not relate to a moment in time critical to the litigation. Since the discharge of hazardous substances into the environment from the industrial facility had occurred over a period of many years, the Court held that the plaintiffs failed to demonstrate that the defendants’ non- testifying experts collected their data or made their observations at a special moment of consequence to the litigation.

V. MINARD RUN OIL COMPANY V. UNITED STATES FOREST SERVICE, 670 F.3D 236 (3RD. CIR. 2011).

Owners of mineral rights in the Allegheny National Forest brought an action against the United States Forest Service to enjoin the Service from implementing a policy that would halt owners from drilling in the National Forest until an environmental impact study was completed under the National Environmental Policy Act.

The Forest Service manages the surface of the Allegheny National Forest, but mineral rights in most of the National Forest are privately owned. Owners of mineral rights are entitled to reasonable use of the surface to drill for oil or gas.

Until 2009, use of the surface by owners of mineral rights to drill for oil and gas had been managed by the Forest Service through a cooperative process. Owners would provide sixty (60) days advance notice to the Forest Service of their drilling plans, and the Service would issue owners a Notice to Proceed. As a result of a settlement agreement with environmental groups, the Forest Service dramatically changed its policy and decided to postpone the issuance of notices to proceed until a multi-year forest-wide environmental impact study was completed.

Primarily at issue is whether NEPA requires the issuance of a notice to proceed to be preceded by an environmental impact study.

An environmental impact study is required if the issuance of a notice to proceed is a major federal action. There are three types of major federal action:

 Where the agency itself undertook a project;

 Where the agency supported a project by contract, grant, loan or other financial assistance; or

 Where the agency enabled the project by lease, license, permit, or other entitlement for use.

The Forest Service asserted that it is authorized to regulate the use of National Forests to preserve them from destruction pursuant to 16 U.S.C. §551. The Services’ special use regulations provide that all uses of National Forest Service land are designated special uses and must be approved by an authorized officer. 36 C.F.R. §251.50(a). The Forest Service asserted that drilling by owners of mineral rights in the National Forest is a special use subject to its approval.

The Court disagreed. The Court held that the special use regulations do not apply to reserved mineral rights. Interpreting the federal Weeks Act that authorized the acquisition of surface rights and applying Pennsylvania law applicable to ownership of land, the Court held that the Forest Service is not entitled to notice from owners of mineral rights prior to surface access and its approval is not required for surface access. Instead, the Service may only request and negotiate accommodation of its state law rights as a surface owner. Consequently, the issuance of a notice to proceed is not the issuance of a permit

that would be a major federal action subject to an environmental impact study. The Court affirmed the preliminary injunction prohibiting enforcement of the new policy.

VI. SIERRA CLUB V. VAN ANTWERP, 661 F.3D 1147 (D.C. CIR. 2011).

Environmental groups challenged the issuance of a Section 404 permit for discharge of dredge and fill material to a wetland for construction of a large mall in Florida. The environmental groups challenged the permit on Clean Water Act, National Environmental Policy Act and Endangered Species Act grounds. For purposes of this discussion, the Court’s holding on the NEPA issues is intentionally omitted.

Pursuant to the Clean Water Act, the Corps cannot issue a Section 404 permit if there is a practicable alternative to the proposed discharge that would have less adverse effect on the aquatic system. 40 CFR Section 230.12(a)(3)(i). An alternative is practicable if it is available and capable of being done after taking into consideration cost, existing technology and logistics in light of overall project purposes. 40 CFR Section 230.10(a)(2). The environmental groups contended that there were practicable alternatives, including other sites or alternative ways of using the site for which the permit was issued, and contested the Court’s determination of the practicability issue.

One of the asserted contentions was that the Corps incorrectly used the site’s fair market value as the cost, rather than the lower out-of-pocket cost for which the property was acquired. The Court rejected this contention. The Court found that the Corps use of the fair market value was reasonable, since opportunity costs (the value the owner could realize by a current sale) is a well-recognized form of cost. The Court held that “reliance on the developer’s acquisition cost would create the odd possibility that an alternative practicable for one applicant would be impracticable for another. An applicant with a low acquisition cost could resell the site at market value and thereby enable a successor developer to refute practicability claims that had been fatal for the seller.

The environmental groups also contended that the Corps failed to properly take into account the planned number of parking spaces, which accounted for a large share of the mall’s surface, on the grounds that there would be more parking than at any existing comparable mall in the area. Both sides agreed that the parking ratio exceeded that of nearby malls. But the developer defended the above average ratio by pointing to the above average proportion of restaurants included in the project plan. The Court rejected this contention because the Corps is required to evaluate the practicability of alternatives in light of overall project purposes. Finding that the project had not been designed to preclude the existence of any alternative sites, the Court held that the Corps acceptance of the parking ratio was not arbitrary or capricious.

The Endangered Species Act (ESA) requires federal agencies to ensure that an action is not likely to jeopardize the continued existence of an endangered or threatened species, or result in the destruction or adverse modification of habitat necessary to protect an endangered or threatened species. 16 U.S.C. §1536(a)(2). If an action may affect listed species or critical habitat, formal

78 consultation with the Fish & Wildlife Service is required. 50 CFR §402.14(a). The regulations to implement the ESA create an exception to that requirement where, as a result of informal consultation, the federal agency determines, with the written concurrence of the director of the Fish & Wildlife Service, that the proposed action is not likely to adversely affect any listed species or critical habitat. In this instance, the Corps engaged in informal consultation only with the Fish & Wildlife Service.

Two endangered species were at issue, the indigo snake and the wood stork. The Corps determined that the project’s mitigation measures would bring about a net gain of wood stork foraging habitat, and rejected the environmental group’s contention concerning the wood stork on that basis.

Regarding the indigo snake, the applicable conservation guidelines submitted in the developer’s own application noted that the indigo snake is especially vulnerable to habitat fragmentation because of the indigo snake’s large range. Despite this information in the application, the Corps and the Fish & Wildlife Service did not address the fragmentation risk. Consequently, the Court remanded the issue to the Corps to make a determination on the issue of habitat fragmentation.

DEPARTMENT FOR NATURAL RESOURCES: TRENDS IN PERMITTING AND ENFORCEMENT OVERVIEW OF THE DEPARTMENT FOR NATURAL RESOURCES Steve Hohmann, Commissioner, Department for Natural Resources (DNR)

The Department for Natural Resources (DNR or the Department) is the largest governmental agency within the Energy and Environment Cabinet, consisting of nearly 800 employees and including nine separate and distinct statutory units – The Commissioner’s Office, the Office of Mine Safety and Licensing, and the Divisions of Abandoned Mine Lands, Conservation, Forestry, Mine Permits, Mine Reclamation and Enforcement, Oil and Gas, and Technical and Administrative Support.

The Department through its statutes and regulations (KRS Chapters 350, 351 and 353) is responsible for the permitting and enforcement of all surface mining permits and oil and gas wells. This work is performed primarily through the Divisions of Mine Permitting, Mine Reclamation and Enforcement, and Oil and Gas.

I. BACKGROUND

A. Permitting Requirements

1. In general -- KRS 350.060 and various sections of 405 KAR 8:030 and 8:040 require any surface mining applicant to first obtain a permit to conduct mining and reclamation activities in the Commonwealth. A permit is also required for coal exploration activities. Permits are required to cover any surface coal extraction activities; underground permits that have surface impacts are also required to permit the surface effects of their activities.

2. These permits are sometimes referred to as being SMCRA permits because they are based in large part on the permitting standards set out in the federal Surface Mining Control and Reclamation Act of 1977. PL. 95-87. Since 1984, Kentucky has had the primary authority to control its surface mining program. 30 CFR 917.

3. Time for issuance -- Permit applications, depending on type, are supposed to be issued in a set period of time, usually sixty-five working days from the date a new application is determined to be administratively complete. 405 KAR 8:010, Section 16. Permit applications not timely processed are called delinquent permits.

4. Components -- Some of the more critical components of the surface mining permit are:

a. Ownership and control information/past violation history.

b. Mining sequence plan which sets out the mine extraction plan.

c. Sediment and erosion control plan and hydrologic assessments.

d. Topsoil handling plan (particularly important in prime farm land areas).

e. Reclamation plan and contemporaneous reclamation plans detailing how the mining areas are to be returned to their approximate original contour within the statutory deadlines, unless a variance is approved.

f. Post-mining land use plan.

i. The post-mining land plan describes how the land will be used upon completion of mining. It must be same or higher level of use. Commercial development, for example, is a higher use than pasturage or hay land.

ii. Permittees, however, are being encouraged to employ reforestation techniques as outlined in Reclamation Advisory Memoranda (RAMs), Nos. 124 and 144.

g. Blasting plan.

i. The plan can be approved as part of the permit application or within thirty days of commencement of mining activities.

ii. Blasting plans are typically handled through a separate permitting process and are reviewed by both the Division of Mine Permits (DMP) and the Explosives and Blasting Branch within Division of Mine Reclamation and Enforcement (DMRE).

5. Bonding -- Before issuance, all permittees must post a surety bond in the amount calculated by DMP. KRS 350.060(11), KRS 350.062.

6. Other required permits -- Before surface mining activities can begin, a permittee must obtain all other needed permits and licenses, including a license from the Office of Mine Safety and Licensing (OMSL) and the Mine Safety and Health Administration (MSHA). The mining entity must also obtain in accordance with the Clean Water Act, CWA (Federal Water Pollution Control Act, (33 USC §§1251-1376) a Section 401 permit from the Division of Mine Permits, a Section 402 permit from the Division of Water (KPDES), and in some instances, a Section 404 permit from the United States Army Corps of Engineers. (401, 402, and 404 refer to sections of the CWA), 33 USC §§1341, 1342 and 1343,

82 respectively. The following is a brief review of the elements of these non-SMCRA permits: a. Section 401 – Water Quality Certification.

This certification allows the entity to gain final approval of a 404 permit. b. Section 402 – Discharge Compliance and Monitoring.

i. In Clean Water Act parlance this is the National Pollutant Discharge Elimination permit (NPDES). The Kentucky Division of Water has primacy to administer this program on behalf of EPA under its regulations and issues a KPDES.

ii. General Permits used to be the norm. They were basically one-size-fits-all surface mining permits that were issued for purposes of monitoring effluent discharges from mine sites, primarily manganese (mg), iron (fe), and acidity (pH) and alkalinity, total suspended solids and conductivity. c. Individual Permits are needed in instances where the permittee is discharging into impaired waters, outstanding resource waters or otherwise does not qualify for a General Permit. d. Section 404 – Infill and Dredging Permits.

i. These permits are needed in instances where the permittee will be filling in or dredging “waters of the United States.”

ii. This type of permit is applicable to a mining hollow fill that is sited in an area where the Corps has made a jurisdictional determination (JD) for waters of the United States that a 404 permit is required. e. The definition of “waters of the United States” was significantly expanded in the U.S. Supreme Court decision of Rapanos v. United States, 547 U.S. 715 (2006) with its “significant nexus” test. As a result, the Corps of Engineers is heavily involved in reviewing permit applications that are proposing to locate hollow fills in areas where the Corps has jurisdiction.

f. Miscellaneous permits and clearances.

i. Clearance letters for absence of threatened or endangered species may be required from U.S. Fish and Wildlife Service.

ii. Certificates from State Historic Preservation Office (SHPO) may be necessary.

B. Enforcement (Surface Mining Permits)

1. In general.

a. Once a permit is actually issued, it becomes subject to inspection and enforcement by the Environmental Inspectors within the DMRE. Inspections are performed in the field using electronic tablets. All enforcement “paper” is primarily electronic and managed through the “Doctree” system, the Department’s electronic filing system.

b. There are thirty-nine performance standards set out in 405 KAR Chapters 16 (Surface) and 18 (underground). Inspections are conducted pursuant to 405 KAR 12:030.

2. Inspections.

a. KRS 350.465 mandates inspection of permits. Frequency of inspections is set out in 405 KAR 12:010, Section 4.

b. Inspections are conducted monthly with one complete inspection and three partial inspections performed quarterly.

c. Inspections also include reviewing ground and surface water reports required under SMCRA as well as the review of Discharge Monitoring Reports required by the KPDES permit and submitted pursuant to 405 KAR 16:070/18:070.

d. Inspections can lead to the following enforcement actions, if violations of SMCRA or KPDES are observed:

i. Notice of Noncompliance.

a) Inspectors are required to cite observed violations which cannot be immediately corrected. Violations are cited in a Notice of Noncompliance (405 KAR 12:030) and served in accordance with 12:030, Section 5. The inspector gives the operator a deadline to have the corrective action to abate the noncompliance completed.

b) New feature – Per a recent amendment to KRS 350.130 in 2010, enforcement documents can be sent by registered email to permittees who submit their email addresses to the Department. (Applicable only to Natural Resources, not DEP).

ii. Cessation Orders.

a) If the violation is not abated within the deadline for completion given in the Notice of Noncompliance, the inspector may issue a Failure to Abate Cessation Order.

b) Cessation Orders carry penalties of $750 a day per violation and are in addition to any penalty assessed for the noncompliance.

c) Inspector also has the authority to issue Imminent Danger Cessation Orders, if a practice or condition is creating an imminent danger to the health or safety of the public or to the environment.

d) Illegal Mining Cessation Orders are issues in situations where an inspector identifies surface mining operations that do not have a permit.

3. Bond forfeitures and permit revocation in general.

a. Permits can be revoked and performance bonds can be forfeited for failure to complete required reclamation work or to abate violations cited in a Cessation Order.

b. Three types of forfeiture actions are possible:

i. If a permit is expired, it can be administratively forfeited by DMRE Division Director. 405 KAR 10:050, Section 2.

ii. Unexpired permits can only be forfeited through the filing of an administrative complaint. Sureties that post the performance bond must first be given an opportunity to reclaim the permitted area in lieu of forfeiture. 405 KAR 10:050, Section 3. See also KRS 350.130.

iii. Even if the violations are timely reclaimed, if there is a persistent pattern of violations (two or more in a

twelve month period) due to the unwarranted failure of the permittee to comply or if willfully caused by the permittee, the permit can be revoked and the bond forfeited. 405 KAR 12:030, Section 8.

4. Alternative enforcement.

a. In general.

i. The Department has the authority to seek specific injunctive relief against the owners and operators to perform required reclamation or reimburse state for costs expended towards reclamation.

ii. The Department also has the authority to seek individual penalties against any owner or operator who willfully authorizes the commission of a violation or willfully fails to comply with an order of the Department. KRS 350.990.

b. Citizen’s requests for inspection and ten day notices.

i. Citizens may request through 405 KAR 12.030 that DMRE personnel conduct an inspection of a mine site to determine if the site is in compliance. Inspection and response must be made within ten days.

ii. Alternatively citizens may file a request with the federal Office of Surface Mining (OSM), which oversees state enforcement for an inspection. These requests are routed to DMRE for an investigation and report. If OSM is not satisfied with state response it can issue a federal Notice of Noncompliance.

C. Oil and Gas Permits

1. Permitting in general.

a. Starting in the 1960s, legislation was put in place requiring oil and gas operators to obtain from the Department for Mines and Minerals an oil or gas well permit. Through a series of reorganizations, those functions are now being administered by the Division of Oil and Gas (DOG). KRS 353.570 et seq. and 805 KAR 1:020, et seq.

b. The components of permits, including the posting of a surety bond, are set out in KRS 573.590. Most wells are

located in the east, south central and western portions of the state.

c. Horizontal wells now constitute 21 percent of all wells being drilled.

d. An important function of the Division is the supervision of the plugging of abandoned wells through the abandoned well plugging program. KRS 353.180.

2. Compliance inspection.

a. DOG implemented a five-year inspection plan that requires all producing wells to be routinely inspected at least once every five years (as directed in the Inspector’s Manual).

b. Oil and gas inspectors perform a variety of inspections during the lifetime of the oil or gas well operations. The following are the types of inspections performed by DOG inspectors:

i. Pre-spud Inspections of well site and constructed access road are performed on severed mineral tracts to ensure compliance with regulatory standards. “Spud” is the term used for the commencement of rotary drilling of the well. The well operator must notify the inspection at least twenty-four hours prior to drilling or spudding.

ii. Drilling Inspections are performed during the time the well is being drilled to verify that surface/intermediate casing is set at sufficient depth to protect drinking water aquifers.

iii. Completion Inspections are conducted at the end of drilling.

iv. Production Inspections are an inspection of the gathering lines of producing well after the wellhead is tied into gathering line. The purpose is to verify that gathering line has good integrity and pipeline markers installed.

v. Plugging Inspections are conducted when production ends. The inspector will review well data in order to design the plugging and abandonment procedures for the exhausted well. The operator is required to provide all well data to inspector.

vi. Final Reclamation Inspections are conducted on severed mineral tracts to ensure erosion control

measures are in place and reclamation completed after well is plugged and well site reclaimed.

3. Violations.

DOG has fourteen field inspectors, down from eighteen, three years ago. Violation issuance procedure is as follows:

a. If an inspector identifies a field violation of any section of KRS Chapter 353, he forwards the finding to the Frankfort office, which issues the Notice of Violation.

b. Regulatory authority for issuance of Notice of Violations is set out in KRS 353.500 through KRS 353.720.

c. The oil and gas operator is notified via certified mail and directed to contact the inspector to correct the violation.

d. Bond forfeiture of the oil or gas well permit occurs if violation is not abated.

4. Citizens’ inspections.

DOG personnel respond to citizen inquiries. Citizens are in many ways the eyes and ears of the Division. The following are typical complaints that are investigated by the DOG inspectors:

a. Leaks at casing head or discharge/release of oil around stuffing box on production tubing.

b. Poorly constructed access roads or excessive water run- off.

c. Well site hasn’t been reclaimed per reclamation plan, discharge or debris from well site may impact stream or adjacent property.

d. Slides from well sites, access roads, gathering line right- of-ways. If slides are also related to surface mining activities, DMRE is notified.

e. Allegations that gathering lines were not properly installed or there is no-right-of way agreement.

f. Reports of gas from water wells or contamination. The inspector will inspect adjacent wells in vicinity.

II. TRENDS

A. Impacts of Budget Reductions to the Department

1. Personnel impacts.

a. Since 2008, the Department has seen a cumulative reduction in its budget of about 20 percent to 25 percent.

b. The effect of these cuts is being primarily felt by the Division of Forestry, Division of Conservation and DOG.

c. Notwithstanding these drastic cuts, the Department is still able to get the bulk of its work done, effectively and on time – mainly through innovation and reallocation of resources.

2. Equipment impacts.

a. Reductions in state funds have impacted DMP and DMRE because the Department could not meet its 50/50 match requirements for funds allocated by the federal government through its administrative and enforcement grant to DNR. In FY 2010, OSM deobligated $1.8 million in unused funds due to lack of match.

b. Because of lack of matching general funds, the Department could not match the money set aside by OSM for the purchase of new equipment. Department has not been able to update its equipment, inspector tablets, computers or vehicles in more than three years.

B. Permitting

1. Permits.

a. In 2010, KRS 350.060 was amended to increase the amount of permitting fees from $375 to $2,500. 405 KAR 8:010.

b. Since 2010, DMP has been able to restore its staff level to its historic norms of about 100 personnel.

c. Because of previous budget cuts and corresponding loss of DMP personnel, delinquent permits reached a high of 180 permits in late 2009 and early 2010.

d. The result of the increased fees has been a drastic decline in the number of delinquent permits to less than 1 percent of the pending applications.

2. E-Permits.

DNR RAM 147 provided the coal mining industry with notice that effective January 1, 2011, all surface coal mining permits would have to be submitted in an electronic format.

Results of electronic permitting:

a. There has been a substantial decrease in the turnaround time for the review and resubmission of permit applications.

b. Several permitting sections can now work on a given permit application simultaneously. Permits are no longer being handled in a linear fashion, whereas before, the paper application could only be reviewed one section at a time.

c. The e-permitting process is being redesigned which will allow for the following improvements:

i. Establishment of a direct data connection to the Surface Mining Information System;

ii. Addition of extracts to allow reviewers to verify submitted data through GIS;

iii. Addition of new tools which will evaluate data prior to submission and after receipt; and

iv. Creation of additional tools to assist the consultant in preparing the application.

C. Enforcement

1. Permit load.

a. The DMRE has sustained some losses in personnel over the past two years. This reduction is a continuation of a downward trend.

b. The average permit load per inspector, as of July 2011, was twenty-six.

c. By agreement with OSM the average permit load should be twenty-four permits per inspector. With the loss of personnel and the continuing inability to fill vacancies, the inspector-to-permit ratio may worsen.

2. Frequency.

a. DMRE and OSM also measure the frequency of permit inspections by each inspector. If an inspector misses a mandatory inspection, frequency of inspection declines. 405 KAR 12:010, Section 3(5).

b. Historically, frequency had been kept in the high 90th percentile.

c. Due to decrease in personnel as referenced above, beginning in 2009, the frequency ratio dropped to 83rd percent.

d. Declining personnel numbers may continue to adversely impact frequency of inspection.

3. Effects resulting from loss of personnel.

a. To balance its permit load and to maintain quality inspections, the DMRE has taken a triage approach, meaning active permits are given first priority and regulatory frequency rates are maintained. Inactive permits, such as permits given a phase II bond release, are given a lower priority.

b. Industry compliance with regulatory standards has decreased. Although it may be a coincidence, between 2000 and 2005, industry was deemed by OSM to be in compliance with all regulatory standards 83 percent of the time. However, compliance has declined and was 77 percent in 2009, 65 percent in 2010, and 70 percent in 2011.

4. Increase in enforcement actions – counterintuitive trend.

a. The number of notices of noncompliance issued over the past five years has increased from a low of 542 in FY 2005 to 1,248 in FY 2011 despite DMRE personnel reductions.

b. The number of Cessation Orders increased from forty-one in FY 2005 to 179 in FY 2011.

c. Assessed penalties increased from $3 million in FY 2005 to over $10 Million in FY 2011.

d. DMRE inspectors cited violations of water monitoring and other surface water related issues more than any other performance standard in 2011. During 2011 DMRE inspectors cited 3,246 violations of performance standards. Of those, 732 were citations for water related violations.

5. Decrease in flyrock events.

a. In general, a flyrock event is a blasting operation that results in overburden material being ejected from the permitted area or coming too close to a protected structure located on a permitted area. 405 KAR 7:070; KRS 351.330(14).

b. Flyrock events have decreased significantly from a high of nineteen in 2008 to only two in FY 2011.

c. The significant reduction in flyrock events is due in part to an enhanced enforcement process, which mandated the immediate suspension of blasting licenses and certifications. In extreme instances where two or more flyrock events occur within a six month period, the blasting contractor’s license to operate is subject to suspension as well.

6. Bond forfeitures.

a. Bond forfeitures have gone up from a low of seven forfeitures in 2007 to a high of twenty-four in both 2008 and 2009 and eighteen forfeitures in 2010.

b. The increase in forfeitures is due in part to an increase in the number of administrative bond forfeiture actions initiated by DMRE and better coordination between Office of General Counsel and DMRE.

D. Trends in Oil and Gas

1. DOG permitting.

a. There has been a steady decline since 2009 in the number of horizontal drilling permits, from a high of 367 permits in FY 09 to only 241 permits in FY 11.

b. The number of well head permits has also declined from a high of 2,261 in FY 08 to a low of 1,141 in FY 11.

c. This trend is expected to continue since a major driller recently announced that it would be suspending operations in Kentucky.

2. DOG inspections.

a. The number of inspections performed has remained relatively steady but is dropping from a high of 14,174 inspections in FY 2009 to 12,418 in FY 2011.

b. This decline is reflective of a decline in permitting activity in the oil and gas industry and a reduced number of DOG inspectors.

III. ISSUES CONFRONTING DNR

A. Bond Calculations and Adequacy of Performance Bond Amounts

Statutes require each surface or underground mining permittee in Kentucky to post a reclamation bond prior to the issuance of a mining permit. The reclamation bond for each operation must be sufficient to guarantee that the Commonwealth has adequate funds to reclaim the site if the bond is forfeited. Kentucky last reviewed and changed its bonding rates to accurately reflect the cost of reclamation in 1992-93. Since that time the cost to reclaim forfeited mine sites has increased while the bond amount provided to the Commonwealth has not. Consequently, a large gap has developed between the true cost of reclamation on a forfeited site and the amount of bond available to the DNR to adequately perform reclamation.

DNR has determined that requiring adequate full cost reclamation bonds for each site is impractical and unaffordable to many coal operations in the Commonwealth. Therefore, DNR is planning to address this issue by: 1) implementing new bonding protocols that increase the amount of the individual bond and; 2) establishing a bond pool reclamation fund to supplement the individual bond for each mining permit in case the individual bond is insufficient to achieve adequate reclamation. (DNR currently operates a bond pool established by statute. This pool is voluntary and entry to the pool is based on an applicant’s compliance record with surface mining regulations. Not all mining operations are eligible to enter this pool.)

OSM has advised DNR that its bonding program is deficient in requiring sufficient reclamation bond and is requiring the Commonwealth to adjust its bonding program to conform to SMCRA and statutory standards.

B. Permitting without Hollowfills and In-Stream Ponds

1. In general – necessity of 404 permits.

a. Uncertainty in the water quality implications surrounding the 404 permitting process have severely impacted 404 permit issuances from the COE.

b. Due to the delay in 404 permit issuance, mine operators have great difficulty properly disposing of excess spoil from mining. Mine operators are finding innovative and controversial methods to cope with the spoil disposal problem.

2. Sediment control.

a. Another issue facing coal operators involves in-stream sediment control ponds. A typical hollowfill has a sediment control pond at the toe of the hollowfill, which may be in the center of the wet weather drainage channel for the hollow that is being filled. However, placement of the sediment structure at such a location nearly always requires the issuance of a 404 permit, unless the pond can be located above the area where the Corps jurisdiction begins.

b. Typical solution by permittees to avoid the need for a 404 permit is to propose a series of on-bench structures outside the 404 jurisdictional area.

3. Off-site impacts.

a. Absence of hollowfill permits and enforcement issues in determining whether a permit is in compliance with its backfilling and grading plan and AOC requirements are creating, on some permits, major stability issues leading to off permit slides during heavy rainfall events and mudflows to receiving streams.

b. The presence of on-bench sediment control ponds, which frequently leak, often creates instability on the steep slope area below the discharge point of the sediment structure.

NATIONAL RESOURCES ROUNDTABLE: CURRENT ISSUES IN PERMITTING AND ENFORCEMENT Joseph J. Zaluski, J.D.

I. STEVE GARDNER AND JOE ZALUSKI TESTIFY BEFORE HOUSE SUBCOMMITTEE

On November 18, 2011, Steve Gardner and Joe Zaluski of ECSI testified before the House Subcommittee on Energy and Mineral Resources regarding the Office of Surface Mining’s (OSM) draft environmental impact statement (EIS) for the stream protection rule.

Mr. Gardner and Mr. Zaluski were repeatedly asked by Congressman Lamborn to testify about the EIS and had resisted until OSM Director Joseph Pizarchik made certain statements on November 4 before the same committee during a hearing entitled "Jobs at Risk: Waste and Mismanagement by the Obama Administration in Rewriting the Stream Buffer Zone Rule." ECSI felt compelled to tender documents that countered statements made by Director Pizarchik that impugned the contractor and subcontractors.

II. LINKS FOR VIDEO AND WRITTEN TESTIMONIES

Director Joseph Pizarchik testimony http://www.engrservices.com/DocumentFiles/PizarchikTestimony.pdf

Video of the November 18 hearing (ECSI testimony begins at 1:58:30) http://resources.edgeboss.net/wmedia/resources/112/2011_11_18_emr.wvx

Mr. Gardner’s written statement (attached and link below) http://www.engrservices.com/DocumentFiles/JSG%20Written%20Statement.pdf

Mr. Zaluski’s written statement (attached and link below) http://www.engrservices.com/DocumentFiles/JJZ%20Written%20Statement.pdf

III. STATEMENT OF J. STEVEN GARDNER, PE

Statement of J. Steven Gardner, PE President and CEO ECSI, LLC

Before the Committee on Natural Resources Subcommittee on Energy and Mineral Resources U.S. House of Representatives November 15, 2011

My name is Steve Gardner. I am President and CEO of ECSI, LLC, an engineering consulting group based in Lexington, Kentucky. ECSI’s core business is mining, in particular coal mining in the United States. ECSI was

95 subcontracted by Polu Kai Services (PKS) as subject matter experts to assist with the EIS for the Stream Protection Rule.

Approximately two years ago, I received a call from someone at OSM who asked if ECSI would be interested in being involved in drafting the Stream Protection Rule EIS that was going to be contracted. He stated that the reason ECSI was being approached as a recommended subcontractor was our reputation with both regulatory and regulated community. OSM intended the process to be a minority/small business set aside contract so that they could issue quickly. OSM was recommending subcontractor teams to be ECSI, a national geotechnical firm, and Morgan Worldwide (recognized for their work in the environmental community).

In conversations with OSM personnel, it was our understanding that OSM had a preferred, minority business contractor who would contact ECSI. In due course, we received a call from PKS who was responding to an RFP issued by OSM to perform an Environmental Impact Statement on the Proposed Stream Protection Rule. PKS advised us that they were assembling a team of consultants to perform this complicated, nationwide programmatic EIS and that they were looking at our firm to be the mining experts on the team. They were also retaining MACTEC, a large national consulting group to perform geotechnical and environmental aspects, Morgan Worldwide to contribute their mining and environmental expertise to complement and balance our involvement, and Plexus Scientific for their NEPA experience, project management, logistics and final EIS drafting. ECSI assisted PKS in preparing the proposal and budget, and eventually a contract was issued to PKS. We assembled a team of experts in mining. These included nationally recognized academic experts in mining, hydrology, and reclamation (some of whom are experts that OSM has utilized on a routine basis).

The EIS project kicked off in June 2010 with a meeting in DC between PKS, the subcontractors and OSM’s team. During that meeting, we learned that OSM had two teams assembled. One was a rule writing team and the other an EIS team. An immediate issue that came up was the short timeframe within which OSM wanted the EIS prepared. PKS and the subcontractors voiced their collective concern that the accelerated timeframe was overly ambitious. OSM team members agreed and advised that there would likely be time extensions granted and budget increases to adequately prepare an EIS of this magnitude. The original date for delivery of the Draft EIS was February 2, 2011. The assignments were allocated and ECSI was charged with reviewing the concepts of the proposed rule and predict production impacts nationwide. A copy of the draft rule dated May 25, 2010 was provided to the PKS team at that time.

There were two key issues that the PKS team brought to OSM’s attention during that kickoff meeting, pertinent to the EIS and NEPA process:

 OSM did not believe that public meetings were necessary, and that the Notice of Intent (NOI) and request for public input within the NOI, as published in the Federal Register, was adequate. Virtually everyone on the PKS team agreed that the NEPA process called for public meetings to be held so that affected communities could comment. The PKS team

convinced OSM of the necessity of public meetings, which added approximately four months to the process. Public meetings (termed “open houses”) were held across the country. These meetings were poster sessions where the various alternatives for the rule were outlined and the public was given the opportunity to submit written comments or oral statements.

 It was unclear to the PKS team if the proposed rule applied to underground coal mining methods. That question was repeatedly posed to OSM, and several months into the project at a team meeting in Atlanta, the PKS team was informed that the decision had been made that the proposed rule would be applied to underground mining. This took both the PKS team and many of the OSM personnel present by surprise. The PKS team received a letter dated October 7, 2010 from OSM stating that it was disingenuous to suggest that the rule did not apply to underground mining. The PKS team felt that the last minute inclusion of underground mining impacts was a major change in scope and schedule to the EIS, and requested additional time and budget to properly evaluate the impacts. OSM denied this request and insisted that underground mining had been part of the original scope of work all along and that the contractors were well aware of this. This disagreement is well documented in the record.

After this initial four month delay for scoping meetings, OSM began to embed its own engineering and science personnel in the various contractor EIS working groups, ostensibly to speed up the process.

To determine impacts on coal production under the various Alternatives, including the proposed rule (termed the “Preferred Alternative”), ECSI planned an analysis of production impacts utilizing “typical mine” models of all mining methods from each coal producing region, and applying Alternatives to those mines to determine production impacts. However, that effort proved to be impossible within the prescribed schedule and budget. As an alternative to the “typical mine” analysis, an Expert Elicitation methodology was proposed and approved by OSM. That methodology and the major assumptions are described in detail within the Draft EIS at Section 4.0.6.1, as submitted by PKS on February 23, 2011. A subgroup was formed to perform the expert elicitation production impact analysis, which included members of ECSI, Morgan Worldwide, PKS, and OSM personnel. As an additional validation of the elicitation process, ECSI proposed that selected coal companies from each coal region be surveyed on what they believed the production impacts would be under each Alternative. OSM originally approved of this approach, but hours prior to sending the survey out, OSM withdrew its approval.

Coal production impacts under each Alternative were forecast and the results were distributed to the rest of the PKS team, including the team members performing economic analyses. The production impact numbers were then utilized to predict job impacts nationwide.

A joint PKS and OSM team meeting was held in February in OSM’s offices in DC. During this meeting, OSM “suggested” that the PKS team revisit the

97 production impacts and associated job loss numbers, and with different assumptions that would then change the final outcome to show less of an impact. The EIS team unanimously told OSM that it was not appropriate to change assumptions just to get a different answer. The team was also very concerned with the specific instruction from OSM to make the assumption that the 2008 Stream Buffer Zone (SBZ) Rule was in effect and being enforced across the U.S., which was not true. No state with an approved SMCRA program had promulgated the 2008 SBZ Rule, especially since the rule itself was subject to the litigation which brought about the SPR. If the PKS team assumed that the 2008 SBZ was in effect as part of the baseline existing environment, the nexus from the SBZ to the SPR would show less production, and therefore less job loss impact. The PKS team unanimously refused to use a “fabricated” baseline scenario to soften the production loss numbers.

In order to meet the revised February 23, 2011, deadline for submission of a Preliminary Draft EIS, the PKS team inserted “placeholders” in the narrative of the document and a general disclaimer into the document to succinctly describe the situation with respect to OSM’s change in instructions to the PKS team, assumptions and baseline data:

“[NOTE -- As a direct result of recent instructions from OSM, the production impact analysis with a baseline thermal energy balance adjustment using the 2008 EIA production figures will be changed to a production/benefits analysis using the 2010 EIA dynamic production forecast as the baseline without a static thermal balance component. Section 4.06, Methodology, will be revised to reflect the new OSM-approved methodology. In addition, OSM has indicated that:

 the SPR implementation timeline should be shortened from the previously approved 12 years to 8½ years;

 that Chapter 2 may be further modified (Alternative 5 as previously approved may not reflect the current rule provisions and other Alternatives may have to be modified to reflect these changes); and

 that the production impacts/benefits should be tested by applying the alternative analysis to typical mines for each Region.

These new instructions will likely require substantial changes to Chapter 4, as well as changes to Chapter 2.]”

It is important to note that Chapter 2 of the EIS is the description of all Alternatives, including the “Preferred Alternative,” upon which the entire EIS impacts analysis is based.

Shortly after the February meeting with OSM in DC, the PKS team received a notice that the contract with PKS was not going to be renewed.

I had the opportunity to review the testimony of Joseph G. Pizarchik, Director of OSM during the November 4, 2011, Subcommittee on Energy and Mineral Resources Hearing and would like to address comments made during the hearing:

1. Mr. Pizarchik made the statement that the job loss numbers were “placeholders” and were “fabricated.” As I have previously stated, the EIS team, which included OSM personnel, performed the analysis to the best of its ability given the deadline and budget. When OSM did not like the result of the analysis, OSM asked that the team change the baseline conditions and use alternative assumptions to alter the coal production and job loss numbers.

2. Plagiarism was alleged against the PKS team in drafting the EIS. Under NEPA, it is preferred that the drafters of an EIS utilize as much existing information as possible and not “reinvent the wheel.” While I cannot speak for the entire PKS team, ECSI utilized text from previous EIS documents, as directed by OSM, where appropriate and cited those documents in its references. In fact, ECSI posed the question to OSM personnel of whether we should simply cite previous EIS documents or if we should put the actual text in the SPR EIS. ECSI was directed by OSM to put the text in the SPR EIS rather than merely cite to another document for ease of the reader.

3. Despite Mr. Pizarchik’s claim that OSM was at “arms length” during the process, OSM personnel were intimately involved in the EIS throughout.

Thank you for the opportunity to appear before the Committee today to testify about our involvement with the Stream Protection Rule EIS.

IV. STATEMENT OF JOSEPH J. ZALUSKI

Statement of Joseph J. Zaluski Executive Vice-President ECSI, LLC

Before the Committee on Natural Resources Subcommittee on Energy and Mineral Resources U.S. House of Representatives November 15, 2011

My name is Joe Zaluski, I am Executive Vice-President of ECSI, LLC, an engineering consulting group based in Lexington, Kentucky. ECSI was subcontracted by Polu Kai Services (“PKS”) as a subject matter experts to assist with the EIS for the Stream Protection Rule.

In preparation for addressing you today, I watched the entirety of recent testimony by Director Pizarchik before this Committee. I would like to comment on several statements made by the Director.

We have submitted materials to the Committee for your review and those materials are rather voluminous. I do not know if they were also supplied to you by the Office of Surface Mining. They have been supplied to you today as a result of this Congressional Inquiry.

First, as to the credentials of the subject matter experts, I respectfully disagree with any implication that the team was not well qualified. If you wish to elaborate upon that during the question and answer period, I will be glad to do so. However, as to ECSI, I can tell you that the President of the company, Steve Gardner, has spent nearly thirty years in the mining consulting business in virtually every aspect. He is a Professional Engineer and has been involved in various state and national legislative efforts concerning mining, as well as the every day permitting and operational aspects of all types of mining operations. He is extraordinarily active in national organizations and has been recognized by them for his achievements.

Without taking up too much time, I can advise that I became involved in SMCRA before there was a SMCRA. As an attorney, I first worked for the Commonwealth of Kentucky while SMCRA was being lobbied in Congress. I began my career involvement with the regulation of surface and underground mining at that time and have continued, literally, ever since. I helped draft part of SMCRA, I served on the first regulation drafting committee with Walter Heine who became the first Director of OSM in 1978; and participated in the adoption and drafting of the first SMCRA based regulations. I helped in the drafting of Kentucky’s program, both at the regulatory and statutory level. I have been involved with mining in virtually every aspect, not just with rule making, but from the permitting, problem solving and litigation perspective. I have been involved at the local and national levels and believe that I am well respected by counsel and other professionals on virtually every side of the mining issues that have arisen over the years. I served as one of the first chairmen of the Natural Resources Section of the Kentucky Bar Association; and have served as President of the Energy and Mineral Law Foundation, a nationwide nonprofit academic and continued education organization celebrating its thirtieth year in existence. I have published in this area and know the subject matter very well. I hope that is why I was asked to participate in this process.

Contrary to the Director’s intimation that the subcontractors were inept, I believe that the train wreck of an attempt at an EIS was caused by OSM’s constant change in direction, instructions, assumptions and restrictions. All that is well documented in the materials we have supplied to the Committee. In fact, an email that will give you some idea as to the relationship between OSM and the contractors is dated December 15, 2010.

We were developing impacts to various types of mining across the nation and believed that our contract specifically required us to solicit industry input on the impact of various alternatives on various types of mining operations across the country. We had packaged up material and had lined up several companies to review our work. At the last moment before sending the material out, we contacted OSM to advise them that we were about to undertake that step. We received an email back through Polu Kai that was written in red and stated “under no circumstance is the internal workings of this team and/or the rule team

100 to be released to outside parties. See suggestions below.” The actual email from OSM to Polu Kai stated as follows:

As per my meeting with OSM Director Joe Pizarchik, no part of the SPR rule text or EIS are to be sent to any parties for the purposes of the EIS preparation at any time. He indicated that this direction is non-negotiable, and that violations would have extreme consequences.

His alternative suggestions for how to proceed are two-fold:

1. Contractor team members working with OSM staff should develop our “best estimates” based on sound science and engineering, and provide those as a part of the draft EIS. He and I chatted about the possibility of error, but agreed that the comment period for the draft EIS will give the opportunity for all sides to provide us with additional information. Additionally, he indicated that we should be able to explain exactly how the numbers and assumptions for impacts to coal production were derived, including being able to explicitly list all factors used by the consultants to generate their estimates.

2. The Director suggested that we develop an internal team of mining engineers and other appropriate experts from OSM and other federal agencies to “peer review” the methodology used by the consultants. His suggestion was to include mining engineers in OSM regional and field offices, USGS, BLM and other DOI and non-DOI federal agencies.

My suggestion is that we have a call tomorrow to strategize on how best to proceed.

I think that email really sums up the relationship between OSM and the EIS team. The contractors were threatened with “extreme consequences;” and in the alternative suggestions from the Director makes it very clear that OSM understood that “best estimates” would be used; and, in the second paragraph, that there was a very close working relationship between OSM and the EIS team. This was certainly not the impression that the Director left when he testified before you.

Having been involved in the SMCRA at the national level and the rulemaking at that level, as well as at the state level, I and others stated to OSM at the kickoff meeting for the EIS that the schedule for accomplishing this task was absurdly short. A reasonable schedule for this process, which should have involved all regulatory authorities, state and national, should easily have been set for three years.

Contrary to what the Director stated, OSM was intimately involved throughout this process with not only regularly scheduled face-to-face meetings and

101 telephone conferences, but constant phone calls and emails -- most with conflicting instructions. As you will see from the documents supplied to the Committee, OSM embedded dozens of its employees into the EIS Team. We met with them constantly. They approved methodologies, especially with regard to production shifts. They supplied the team with assumptions for financial models. Examples of the assumptions would include which production numbers to use nationwide and requirement that as we determined production shifts that we maintain a national thermal balance. These instructions came directly from OSM.

The assumptions that we were directed to take by OSM, contrary to the Director’s testimony, are set forth in the exhibits to the February 15, 2011, letter tendered to the Committee. In addition to the February 15, letter I just referred to, there is a second letter dated February 23, 2010, to the OSM contracting officer responsible for the implementation of the consulting contract with PKS and subsequently ECSI, LLC. I direct your attention in particular to the tab entitled “PKS Detailed Response to OSM Cure Notice,” pages 1-20. Every statement made in that section is well documented by emails, letters and other exhibits attached to that same letter.

I would direct attention to the following:

Attachment 1 – OSM, in December 20, 2010, confirms the methodology proposed by the contractors for determining production shifts, if any.

Attachment 2 – as late as February 6, 2011 the consultants are still attempting to resolve with OSM the baseline for calculating production shifts. This was approximately two days before OSM issued its Cure Notice.

Attachment 4 – is also worth noting that OSM at this time had reversed its position that the national thermal balance had to be maintained during implementation. These changes were very significant as far as their impact on the work of the EIS team.

Attachment 5 – Bill Winters of OSM on February 18, 2011, changed the implementation timeline from 8½ years to 12 years. This would be another significant change that would likely affect production shift and job loss.

Let me conclude my remarks by again reflecting back on the development of the initial SMCRA regulations and what is known as the permanent program. The process took years to accomplish with the input from states that had mining within their borders. A great deal of time and expertise went into that effort. The Stream Protection Rule, although it may have a fairly innocent and noble name, seeks to rewrite the very heart of the entire program. To try to accomplish this in short order was a mistake, a big mistake. The experts involved asked very pointed questions of OSM that simply could not be answered.

Thank you for this opportunity.

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IV. FINAL REQUEST FOR ADMINISTRATION TO COMPLY WITH DOCUMENT REQUESTS ON REWRITE OF MINING RULE

Chairmen intend to move to compel production if deadlines not met.

WASHINGTON, D.C. – As part of the House Natural Resources Committee’s nearly year-long investigation into the Obama Administration’s rewrite of the 2008 Stream Buffer Zone Rule, Committee Chairman Doc Hastings (WA-05) and Energy and Minerals Subcommittee Chairman Doug Lamborn (CO-05) sent a letter today to Secretary of the Interior Ken Salazar calling for the Administration to comply with repeated document requests that have gone unanswered. The letter clearly states the Chairmen’s intent to move to compel cooperation and production of these documents if the February deadlines are not met.

“This is a serious matter that impacts the livelihood of entire communities and the jobs of thousands of coal miners across the nation, and the Department’s failure to fully comply with repeated requests for information can no longer continue. This letter provides notice of our intent to move to compel cooperation and production of documents specified in this letter should they not be provided in the time requested,” wrote Hastings and Lamborn in the letter.

The Obama Administration’s Office of Surface Mining (OSM) is in the process of rewriting a 2008 coal mining rule (the Stream Buffer Zone Rule) that took five years of study and development to complete. Analysis from the draft Environmental Impact Statement of the Obama Administration’s proposed rewrite determined the new rule could cost at least 7,000 mining jobs and cause economic harm in twenty-two states. The Obama Administration later criticized and dismissed the contractor it had selected to conduct this analysis.

There are serious questions regarding why this rewrite was initiated, how the rulemaking process itself is being managed, and the impacts the proposed rule will have on jobs, the economy and coal production.

Beginning February 8, 2011, seven letters have been sent by Chairman Hastings to the Obama Administration seeking additional information and documents. Not a single deadline has been met and the Administration continues to withhold the vast majority of requested material.

Today’s letter specifically asks for certain categories of documents and communications that were originally encompassed in oversight request letters from February 8, 2011, February 10, 2011 and April 1, 2011. Among the documents requested are:

 Recordings of meetings and conversations between the Department and contractors. There are known to be forty-three digital audio recordings totaling thirty hours in combined length.

 Documents and communications related to the decision to disregard the 2008 Rule and to conduct a new Environmental Impact Statement.

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 Documents and communications related to the dismissal of the contractor after it was made public that their economic analysis showed the rewrite of the rule would cost thousands and jobs and cause economic harm.

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A LOOK AT KENTUCKY'S RENEWABLES: OPPORTUNITIES & CHALLENGES Scott R. Smith, Senior Consultant Smith Management Group

______What Are Renewables? ______

• Sunlight ______• Wind ______• Geothermal heat ______• Biomass ______• Hydroelectric power ______• Biofuel

______Government Drivers For Renewables ______

• U.S. Energy Policy Act of 2005 ______• U.S. Energy Efficiency Security Act of 2007 ______• U.S. Farm Bill of 2002 & 2008 ______• U.S. Farm Bill of 2012 (Under Consideration) • Kentucky’s Energy Strategy ______• Kentucky General Assembly HB #1-2007 ______• Kentucky General Assembly HB #2-2007

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______National Growth in Electricity Generation from Biomass Sources ______Driven by: ______– State Renewable ______Portfolio Standards (RPS) ______programs, – Low-cost ______feedstocks, and – Federal ______renewable fuels standards.

______Regional Growth of Renewable Energy ______Regional growth is based on: ______1. The availability of renewable energy ______resources; and ______2. State Renewable Portfolio Standards. ______

______How Do You Evaluate What Is Feasible? ______• Available resources in Kentucky ______• Total costs over lifetime of system ______• Type and costs of technology • Access to capitol ______• Transmission availability ______• Public policy • Externalities ______• Siting issues • Workforce availability/expertise

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______Challenges to Renewable Energy Production in Kentucky ______• Initial costs are high. ______• Kentucky has not had a major driver to help ______encourage the use of renewables. • Historically low electricity prices. ______• Redundant technical requirements that increase interconnection costs. ______• Utility standby charges for backup power. ______• Arbitrary electricity prices for systems outside of net metering policies. • Lack of standard siting requirements.

______Which Renewables Will Currently Work for Kentucky? ______• Kentucky Site Bank study reviewed and ______ranked sites for solar, wind, biomass, coal to ______liquids/gas and nuclear (www.kysitebank.com). ______• From a renewable standpoint, biomass was ______substantially the best alternative for large scale production of power or fuel. ______• Other renewables are viable on a small-scale and distributed basis and will play a role in the near future.

______Opportunities for Energy Potential in Kentucky ______

2025 Renewable Energy ______Potential for KY ______

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______What Forms of Biomass Are Currently Feasible? ______• Solid Biomass ______– Direct Combustion ______– Co-Firing – Anaerobic Digestion ______• Liquid Fuels – Ethanol ______– Biodiesel ______• Biogases – Landfill Gas – Synthetic Gas

______Challenges of Using of Biomass ______• Federal cellulosic ethanol targets are difficult because: ______– Storage issues. – Transportation questions. ______– Logistical and infrastructure concerns. ______• “United States could not meet the mandated 2022 biofuels targets for cellulosic ethanol without unexpected ______technological breakthroughs.” From: National Academy of Science report ______(10/17/2011). • “Dedicated open-loop biomass plants remain too expensive to compete successfully with renewable capacity.” From: EIS Annual Energy Outlook 2011.

______Landfills and Landfill Gas ______

• Landfills ______– Municipal solid waste power plants burn ______solid refuse cleanly & safely in many ______urban areas in the U.S. • Landfill Gas ______– MSW Landfills are the second largest ______source of methane emissions in the U.S. (23 percent).

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______Anaerobic Digester Systems ______

• Byproducts from wastewater ______treatment facilities, ethanol & distiller ______industries and livestock operations ______can be converted to biogas. • 2003 assessment of wastewater AD ______plants in Wisconsin concluded-cost ______effective 1,000,000 gallons/day.

______Woody Biomass ______• Kentucky is ranked in top five states for ______production of industrial wood ______residues. (1.5 million ______T/Y). • Can be used to Forested land covers 12 million ______acres (47%) of Kentucky (Turner, produce products 2008). such as fuels, chemicals and power.

______Woody Biomass ______• National Biomass Partnership estimates 3.5 ______million T/Y of underutilized biomass is available. ______• Another 3.78 million dry T/Y could be realized ______by using 25 percent of land not cropped or enrolled in Conservation Reserve Program. ______• The net growth of merchantable trees could ______yield 1.9 million dry T/Y (Turner, 2008). • TOTAL of an additional 9.18 million dry T/Y without diverting biomass from existing use.

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______ECOPOWER CASE STUDY: ______WOOD TO ENERGY ______

______The ecoPower Story ______• 50 megawatt wood ______power plant. • Located in Perry Co., ______KY. ______• Uses low quality logs, wood chips, sawdust ______and bark left over from sawmills. ______• Plans to sell renewable electricity to utilities.

______Environmental and Economic Benefits ______• Extensive forest resources are readily available. ______• Reduces wildfire risks. ______• Creates market to sell underutilized low- quality logs and other wood by-products. ______• Improves forest health and sustainability. ______• Generates local jobs.

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______

Projected annual savings to a utility (based on 20 year contract)

______

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NOT UP TO STANDARD? HB 167 AND KENTUCKY'S RELUCTANCE TO ADOPT A RENEWABLE PORTFOLIO STANDARD Anthony E. Chavez1

Despite the wave of renewable portfolio standards (RPS) adopted throughout the nation, Kentucky has yet to approve such legislation. Recent analysis indicates that an RPS requirement would benefit the state in a number of ways. Because of these advantages, Kentucky should seriously consider adopting its own renewable portfolio standard.

An RPS requires that a set percentage of electricity within a state derive from renewable resources.2 As of this writing, thirty-three states have enacted RPS legislation. These standards require that renewable energy sources provide a set percentage of the electricity in these states. The percentages in these RPS mandates range from 10 percent to 50 percent. Electricity providers must achieve these standards from as soon as 2015 to as late as 2030.3 Two other states, Iowa and Texas, require that a set number of megawatts come from renewable resources.4

RPS programs can provide several benefits. First, they help to spur the development of renewable energy sources. Between 1998 and 2007 over 50 percent of new non- hydroelectric renewable capacity occurred in states with RPS programs. 5 RPS requirements can also improve the environment. They accomplish this by reducing air pollution, reducing waste, preserving habitats and conserving natural resources. 6 Renewable energy sources also reduce the emissions of carbon dioxide. Studies have found that RPS requirements can displace CO2 emissions at a rate that is, on average, 25 percent greater than that of a natural gas plant.7 RPS mandates also diversify the sources of energy, thereby reducing the volatility of electricity rates.8

1 Assistant Professor of Law, Chase College of Law.

2 Uma Outka, "The Renewable Energy Footprint," 30 Stan. Envtl. L.J. 241, 247 (2011).

3 Center for Climate and Energy Solutions, Renewable & Alternative Energy Portfolio Standards, January 20, 2012, available at http://www.c2es.org/what_s_being_done/in_the_states/rps.cfm. Despite attempts to pass a national clean energy standard, Congress has yet to approve one. Ari Natter, "Tough Road Ahead for Congressional Passage of Clean Energy Standard, Analysts Say," Bloomberg BNA Environment Reporter, March 11, 2011.

4 Center for Climate and Energy Solutions, supra note 3.

5 Ryan Wiser & Galen Barbose, Renewables Portfolios Standards in the United States 12 (April 2008).

6 Environmental Protection Agency (EPA), Renewable Portfolio Standards Fact Sheet, April 2009, available at http://www.epa.gov/chp/state-policy/renewable_fs.html.

7 Cliff Chen, Weighing the Costs and Benefits of State Renewables Portfolio Standards in the United States: A Comparative Analysis of State-Level Policy Impact Projections 17-18 (2009).

8 EPA, supra note 6; see also Chen, supra note 7 at 18 (noting that renewables significantly reduce the risks of cost increases).

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Despite the widespread adoption of RPS requirements, Kentucky still has not adopted an RPS mandate. Several such bills, however, have been submitted in the state legislature. In January of this year, Representative Mary Lou Marzian introduced House Bill 167, the Clean Energy and Opportunity Act.9 The bill provides that utilities will provide at least 12.5 percent of their electricity from renewable sources by 2021. It identifies eligible sources as solar, wind, low-impact biomass, hydroelectric, and geothermal. HB 167 also specifies that 1 percent of total sales must derive from solar power.10 In addition, the bill requires that by 2021 utilities offset at least 10.25 percent of sales through energy efficiency programs.11

Coal, of course, shapes many aspects of life in Kentucky. Kentucky contains more coal mines than any other state, and the state ranks third nationally in coal production.12 Historically, Kentucky has relied upon coal for nearly all of its electricity generation. As recently as 2010, for instance, 92 percent of its electricity came from coal-fired generation.13 Because of its abundance of coal, Kentucky’s electricity rates are the

9 HB 167, available at http://www.lrc.ky.gov/record/12RS/HB167.htm. Currently, the bill is under review in the House Tourism Development and Energy Committee. Phil Impellizzeri, Study Shows Renewable Energy Mandates Would Increase Energy Costs for Kentucky, (March 12, 2012), available at http://www.bipps.org/study-shows-renewable-energy-mandates-increase- energy-costs-for-kentucky/.

10 Kentucky Sustainable Energy Alliance, Renewable and Efficiency Portfolio Standard, available at http://www.kysea.org/legislative-policy-work/2011-legislative-goals/renewable-and-efficiency- portfolio-standard. This is not the first RPS bill submitted to the Kentucky General Assembly. In 2010, House Bills 3 and 408 also sought to impose renewable portfolio standards. HB 3 would have required that 10 percent of electricity derive from renewable sources by 2022. It also would have mandated a percentage of electricity from low-carbon sources or efficiency programs that would increase to 44 percent by 2034. Kevin McGuire & Mary Beth Naumann, “Competing Bills Setting Forth a Clean Energy Portfolio Standard Filed in Kentucky General Asembly: Part II; House Bill 3, May 7, 2010,” available at http://eem.jacksonkelly.com/2010/05/competing-bills- setting-forth-a-clean-energy-portfolio-standard-filed-in-kentucky-general-assembly-p.html. HB 408 would have mandated 12.5 percent from renewable sources by 2020 and a reduction of at least 10.25 percent of retail sales through energy efficiency programs. Kevin McGuire & Mary Beth Naumann, “Competing Bills Setting Forth a Clean Energy Portfolio Standard Filed in Kentucky General Assembly: Part I; House Bill 408, March 26, 2010,” available at http://eem.jacksonkelly.com/2010/03/on-february-9-2010-state-representatives-harry-moberly-d- madison-dennis-horlander-d-jefferson-mary-lou-marzian-d-.html. The House did not approve either bill before the close of the 2010 session.

11 “Competing Bills Setting Forth a Clean Energy Portfolio Standard Filed in Kentucky General Assembly: Part I”, supra note 10.

12 “Kentucky Sustainable Energy Alliance, Kentucky’s Energy Challenge,” available at http://www.kysea.org/kys-energy-challenge.

13 Synapse Energy Economics, Inc. (Synapse), Potential Impacts of a Renewable and Energy Efficiency Portfolio Standard in Kentucky 1 (2012) (hereinafter “Synapse”. This is a study commissioned by the Mountain Association for Community Economic Development and the Kentucky Sustainable Energy Alliance. It estimates the impacts of an RPS requirement in Kentucky that requires a renewable energy percentage of 12.5 percent and energy efficiency reductions of 10.25 percent by 2022.

114 fourth lowest in the nation.14 As a result, Kentucky’s per capita energy consumption is the second highest in the nation.15

Despite Kentucky’s significant coal reserves, this resource is not applied exclusively to the generation of electricity. In fact, the state’s electricity sector accounts for only 26 percent of the state’s coal sales. The remainder is sold to the state’s industrial sector or shipped out of state.16 Consequently, only 67 percent of Kentucky’s coal is used to generate the state’s electricity.17

Natural gas, however, is becoming a more significant part of Kentucky’s energy portfolio. This is occurring because gas-fired power plants are replacing coal plants scheduled to retire beginning in 2016. As a result, even without the passage of an RPS requirement, experts predict that by 2022 coal generation will fall to 71 percent of the state’s energy portfolio.18 Approval of the RPS mandate, however, is projected to reduce Kentucky’s coal dependence to 63 percent.19 During the same period, the proportion of electricity provided by natural gas is estimated to drop from 25 percent to 15 percent.20

The proposed RPS requirement will also reduce the state’s overall consumption of energy.

HB 167, as noted previously, will impose increased use of energy efficiency measures. Presently, Kentucky’s efficiency policies rank only thirty-seventh nationally. As a result, Kentucky’s utility rates have remained higher than they needed to be. For instance, the top fifteen states in energy efficiency achieved annual savings that were ten to twenty times greater than the annual reductions achieved by Kentucky’s utilities.21

Besides its effect on energy sources and consumption, the RPS proposal will also increase employment and business opportunities when compared to reliance primarily upon coal and natural gas. These positive results would stem from three primary factors. First, the portion of expenditures for renewable sources and for energy efficiency that remain in Kentucky are higher than are those for coal and natural gas. 22 Second,

14 U.S. Energy Information Administration, “Residential Average Monthly Bill by Census Division, and State, 2010”, available at http://www.eia.gov/electricity/sales_revenue_price/pdf/table5_a.pdf.

15 The California Energy Commission, “U.S. Per Capita Electricity Use By State In 2010,” available at http://energyalmanac.ca.gov/electricity/us_per_capita_electricity-2010.html.

16 Synapse, supra note 13, at 9.

17 Id. at 8.

18 Id. at 1.

19 Id. at 2.

20 Id. at 5.

21 Synapse, supra note 13, at 24.

22 Projections suggest that most renewable energy will derive from local sources. The Synapse study anticipates that the primary in-state sources will be biomass, wind, hydro, and solar. In addition, utilities likely will purchase out-of-state wind energy, too. Id. at 27.

115 renewable sources tend to be more labor intensive than coal and natural gas.23 Third, over time efficiency and renewable sources are expected to be less expensive, leaving more discretionary income to spend on other discretionary goods and services. 24 Although electric bills are projected to increase under the RPS, they are projected to be 8-10 percent lower with the RPS than without its passage.25 This reduction will result primarily from a decline in the use of energy of approximately 8 percent because of increased energy efficiency.26

Kentucky’s adoption of an RPS requirement will have other benefits, as well. As noted previously, one significant benefit of an RPS mandate is the reduction in fossil fuel emissions. HB 167 will significantly reduce these emissions. By 2022, carbon emissions under the proposal will be lower than under a business as usual approach by as much as 15 percent.27

Despite these apparent benefits, critics have challenged the value of renewable portfolio standards in general and HB 167 in particular. A major target of criticism has been the effect of an RPS on a state’s electricity rates. A study produced earlier this year compared the changes in utility rates during the past decade in coal-dependent states with and without RPS requirements. It concluded that utility rates increased by smaller percentages in states without RPS mandates than in those carbon-dependent states without RPS requirements. According to this study, from 2001 to 2010 the residential utility rates for coal-dependent non-RPS states increased by 24.3 percent; during this period, the utility rate increase for coal-dependent RPS states was 54.2 percent.28

These statistics, however, appear to be selective. For instance, the study excludes Kentucky from the coal-dependent, non-RPS states upon which its statistic relies. This exclusion is significant. During the period in question, Kentucky’s average retail price for electricity increased 58.7 percent, more than double the increase of the “coal-dependent,

23 Id. at 37. Synapse projects that by 2022 the net increase in jobs will exceed 28,000. Id. In addition, a larger percentage of investments in energy efficiency and renewable energy remain in the local economy than does money spent on traditional sources of electric generation. Id. at 34. These results are consistent with the findings of other studies. Lawrence Berkeley National Laboratory reviewed a dozen studies that evaluated the employment effects of RPS mandates. All but one predicted net employment gains, though the magnitude of the increases ranged by a few hundred to several thousands. Chen, supra note 7 at 17.

24 Synapse, supra note 13, at 6.

25 Id. at 39. The study notes that this differential would be even greater if a carbon tax or other form of regulation were approved prior to 2022.

26 Id. at 41.

27 Id.

28 Robert Bryce, “The High Cost of Renewable-Electricity Mandates, Energy Policy & the Environment Report,” February 2012, available at http://www.manhattan- institute.org/html/eper_10.htm.

116 non-RPS” states relied upon by the report.29 Furthermore, the preponderance of other analyses contradict these results. Of more than thirty studies of the cost impacts of RPS requirements, twenty-three found that rate increases would not exceed 1 percent, and only two predicted rate increases greater than 5 percent.30 These studies found a median rate increase of 0.8 percent.31

Because of the numerous benefits of renewable portfolio standards, most states have enacted RPS mandates. Although Kentucky’s coal resources are important drivers of its economy, the enactment of HB 167 should benefit the state’s economy as well as its environment. The time has come for Kentucky to enact its own renewable portfolio standard.

29 Specifically, the average retail price increased from $4.24 to $6.73. Energy Information Administration, Table 1, 2010 Summary Statistics, available at http://www.eia.gov/electricity/data.cfm#summary; Energy Information Administration, State Electricity Profiles 2001 74, October 2003, available at http://www.eia.gov/electricity/state/ archive/062901.pdf.

30 Chen, supra note 7 at 19.

31 Id. at 38. The cost increases can be anticipated to be even lower in Kentucky, because these nationwide results incorporate higher cost increases in the Northeast. Costs are higher there because of the region’s lower renewable resource potential and its higher costs in developing renewable projects. Id. at 10.

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ELECTRIC UTILITY INDUSTRY UPDATE: TRANSITION OR TRAIN WRECK? Robert J. Ehrler, Jr.

______

Natural Resources Roundtable: ______Current Issues in Permitting & ______Enforcement ______

Electric Utility Industry Update: ______Transition or Train Wreck? ______April 10, 2012 ______Bob Ehrler Senior Counsel & Environmental Policy Manager LG&E and KU Energy LLC

______Timeline of Electric Utility EPA Regulations ______

AIR LAND WATER ______Beginning Effluent CAIR Phase I Revised CAIR – Revised SO2/NO2 Guidelines Effluent Guidelines Seasonal Ozone Proposed Clean Secondary proposed rule final rule expected NO Cap NAAQS x Air Transport NAAQS expected ______SO2 Rule (CATR) Effluent Guidelines Compliance CAIR Revised CAIR – Revise Ozone Primary PCB Proposed PCB Final Vacated Final CATR NAAQS NAAQS Rule Expected Rule Expected 316(b) Compliance /CSAPR 316(b) PCB Compliance ______316 (b) Rule CAIR NO 2 CO2 NSR CO2 NSPS final rule Vacated Remanded Primary Regulation proposed expected NAAQS rule ______

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ______Begin Begin CAIR Final EPA Beginning CSAPR Final New PM2.5 CAIR Phase I Nonattainment Rule for NAAQS Phase II Annual Phase I Annual Designations for Next PM2.5 CCR Designations SO2 & NOx Caps CAMR & Annual SO2 Cap NO2, & SO2 NAAQS Delisting Mgmt EGU HAPS MACT NOx Cap HAPs MACT Revision Begin Compliance Rule vacated Compliance Proposed proposed rule Compliance with Requirements under CO2 NSPS CSAPR SO & Final CCR Rule Rule for CCR HAPS MACT 2 final rule NO Phase I Management 316(b) proposed final rule x rule expected Court Stay 12/30/11

-- adapted from (EPA 2008) Updated January, 2012

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Key Regulatory Drivers of ______Compliance Strategies ______• Cross-State Air Pollution Rule (CSAPR) ______• Mercury and Air Toxics Standards (MATS) • National Ambient Air Quality Standards ______(NAAQS) ______• Coal-Combustion Residuals (CCR) Rule ______• Cooling Water Intake Rule • Effluent Guidelines

______Greenhouse Gas New Source Performance Standards ______• EPA released a proposed rule on March 27, 2012 ______• The rule provides for an emissions standard of ______1,000 lbs CO2/MWH - the level of emissions achievable though new natural gas combined-cycle ______technology • The rule applies to new sources rather than ______existing or transitional sources (those with permits ______where construction will commence within twelve months) • The rule would essentially bar new coal-fired generation without carbon capture and sequestration

______Annual Generation Profile ______PPL Generation LGE-KU Generation ______Coal 97% 32% ______49% Nuclear ______Hydro and 8% Renewables ______11% Natural Gas 2% and Oil 1%

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______Environmental Controls ______

______

Kentucky ______Generating Capacity – 8,367 MW Ghent – 1,918 MW Mill Creek – 1,472 MW ______Trimble – 2,203 MW Green River – 163 Ghent MW Ohio Falls – 52 MW Haefling – 36 MW Trimble County Ohio Falls ______Cane Run – 577 MW Tyrone – 71 MW Cane Run Zorn Zorn – 14 MW Brown – 1,644 MW Haefling Paddy’s Run – 193 MW Dix Paddy’s Run Tyrone Dam – 24 MW Mill Creek ______Brown ______Green River ______

Key Hydro Coal Nuclear Gas/Oil Renewable

______LG&E/KU Generation Planning ______

2005 ______• Construction of Trimble County Unit 2 • 750 MW coal-fired unit ______• $1.2 billion cost ______2011 • Retirement of three coal-fired plants: Cane ______Run, Green River, and Tyrone • Construction of 640 MW combined-cycle ______natural gas plant at a cost of $680 million • Purchase of 495 MW simple-cycle natural gas peaking plant at a cost of $110 million

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Estimate up to $4 billion in capital ______costs needed over next ten years ______Annual ______Capital Operating Regulation ($M) Expense ($M) ______Air $3,300 – 5,000 $150 – 300 CCR $700 To be ______determined ______Water To be determined

Potential rate impact ______of proposed EPA regulations ______

Due to these regulations, by 2019, rates could ______increase by more than 20 percent and almost $550 million annually ______

Note: This calculation does not include potential compliance costs for water regulations, Renewal Portfolio Standards (RPS) or carbon dioxide (CO2) reductions

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PRACTICE BEFORE THE OFFICE OF ADMINISTRATIVE HEARINGS Matthew L. Mooney, Environmental Hearing Officer

I. PREHEARING

A. Filing

1. The petition/complaint.

a. Two common types:

i. You have been arbitrary and capricious.

ii. Here is everything I have on the subject.

b. Give the bureaucratic numbers (NC, CO, NoV, CRI, permit number, etc.) in the pleading.

c. Attach the operative documents.

2. Answer/response.

a. Amend the Petition before an answer if you must.

b. Motions to dismiss or for more definite statement.

3. Electronic filing.

Administrative hearings are moving into the modern age, and the Cabinet is no exception, although it is slower than most. We are slowly moving toward scanning all filings, recording every hearing digitally, letting the public see (or hear) them on the Internet, and allowing electronic filing of documents. We are not quite there yet.

a. Regulatory problem.

b. Fax filing to 502-564-4973.

c. Email [email protected].

d. Follow-up with hard copy.

B. First Prehearing Conference

1. Talk to opposing counsel before the conference.

a. Open the door.

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b. Orient them.

c. Discover the dispute.

2. Talk to your client before the conference.

a. About representation.

b. About conditions.

c. About other negotiations.

3. Waive time limits.

a. DEP Case time limit 180 days.

i. Complete waiver.

ii. Partial waiver.

iii. Piecemeal does not work.

iv. Showdowns do not work.

b. Prehearing deadlines.

i. Set reasonable time limits.

ii. Change them with an Agreed Order if necessary.

4. Discuss prehearing discovery if you need it.

i. Set a reasonable time period.

ii. Reset deadlines as necessary but with Agreed Order.

iii. Don’t run discovery right up to the prehearing motion filing deadline.

5. Scheduling other conferences.

a. Prehearing Orders.

You should always get a prehearing order memorializing each prehearing conference; however, our Office has been cut by almost half in the last few years and orders do not always go out as they should or as quickly as they should. If there is a very short time between conferences, no order may appear for the first conference.

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b. Scheduling.

If you give me an email address, I will send you a meeting request from Outlook in an open source format that many email/calendaring programs can use. This will help busy counsel keep up with conferences. However, it is counsel’s obligation to keep up with his or her own calendar. Counsel is notified of the next conference at the end of each conference and is responsible for marking his or her own calendar, even if a prehearing order is not sent.

c. Show Cause.

If you fail to appear, you will be sent a show cause order to give some explanation why you did not appear on pain of default. A copy of these orders is generally sent out to your client as well, which may cause problems.

C. Subsequent Prehearing Conferences

1. Call opposing counsel before the conference.

This is the first question I ask and usually no one has talked to anyone else. And this is usually twenty to forty days after the filing of the Petition/Complaint. You should talk to Cabinet counsel about your filing and determine if there is a chance of settlement.

a. About settlement.

b. About drafting and agreement.

c. See thirty-day hell below.

2. Read the Prehearing Order setting the conference.

All too often, counsel do not appear to read the orders scheduling prehearing conferences. Those orders will tell the counsel where, when, and how to participate in the conference. Most often, these conferences are by phone and specific instructions are put in the orders scheduling the conference regarding participating by phone.

3. Appear at the time set.

a. You are to call us.

b. We have no obligation to track you down.

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4. Use the conference line.

a. If directed to in the Prehearing Order.

b. If you have more than four (all we can handle).

c. Avoid patching others in on your line.

5. Be open to coordination and consolidation.

a. Surface mining PACs and PAHs.

b. Multiple DEP cases DWM/DOW.

6. Address the transcript problem.

This is an increasingly prominent problem we face in the Office. State government has been required to cut down and tighten up its budgets. One of the consequences of this was that the Cabinet stopped asking for a transcript of every hearing. Indeed, it is getting to be rare when the Cabinet does ask for a transcript. If you want a court reporter at a hearing, you must get one. The Office has moved to making unofficial electronic records for use in the Cabinet’s own process. Some statutes require a transcript on appeal, which now must be made from the audio or video recordings of the hearing.

a. Cabinet is saving money.

b. Alternative -- Agree to split cost?

c. Agree to use the electronic record.

i. Designate which is first, second.

ii. Agree what to do if a failure.

iii. Limited use – within the Cabinet process.

D. Dispositive Motions

1. Should you even make one?

a. Admit there is a dispute of fact if there is.

b. Admit the law is arguable if it is.

c. Take a practical view.

i. Will the motion resolve the entire case?

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ii. Could you have a reasonable hearing and brief those issues afterwards?

2. EVERY assertion of fact in briefs must be supported.

a. Just because you say it does not make it so.

b. Don’t assume the Hearing Officer knows.

c. Don’t assume everything is “in the record” just because you:

i. Filed it with your Petition/Complaint.

ii. Filed it with the Cabinet.

d. Give admissible evidence in support.

3. Attach everything that needs to be "in the record."

a. All documents to which you refer.

b. No cases (unless really hard to find).

c. No state regulations (federal yes).

d. No statutes.

e. Do not rely on attachments to the petition/complaint.

4. Oral argument.

a. Only if necessary.

b. May be by phone.

E. Settlements and Settlement Orders

1. Ask for a reasonable amount of time.

2. Scheduling and pester conferences.

a. Thirty day status hell.

b. Fourteen day status hell.

3. Be patient with Cabinet counsel.

a. Things must be approved.

b. Orders must be seen by everyone.

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II. THE HEARING

A. The Hearing Officer

1. Roles.

a. Judge.

b. Jury.

c. Bailiff.

d. Court reporter/videographer.

e. Clerk.

f. Janitor.

2. Function as presiding legal officer.

a. Make a full and complete record.

i. Ensuring complete electronic recordings.

ii. Marking and organizing exhibits.

iii. Swearing witnesses.

iv. Admitting or denying evidence.

v. Ruling on motions.

vi. Ruling on objections.

b. Accurate and clear record.

i. Track appearances.

ii. Track evidence.

c. Swear witnesses.

d. Rule on objections.

3. Function as the fact-finder.

a. Listen (and hear) all the testimony.

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b. Look at all exhibits.

c. Take notes.

4. Counsel needs to be prepared to:

a. Stop when the Hearing Officer is distracted.

b. Wait for the Hearing Officer to respond or ask questions.

c. Repeat objection, evidence for the Hearing Officer.

B. Opening Arguments

1. If you can, be brief, but at least set the stage.

2. Concentrate on the facts you will show.

C. Evidence

1. Remember: the Hearing Officer is the initial fact-finder.

Counsel often rush along in a hearing without considering what they are doing with their evidence, especially their documentary evidence. The Hearing Officer is the initial finder of fact, and indeed this is often the one place a Hearing Officer can make an impact: by framing the facts. Yet at hearing, counsel rarely give the Hearing Officer documents they are questioning the witness about, or indeed even show the original document to the Hearing Officer during testimony.

a. Show the fact-finder your evidence during the hearing!

i. Show the Hearing Officer the original.

ii. At the hearing give the Hearing Officer a copy.

b. Otherwise you only get post-hearing consideration.

c. Helps ruling on objections.

2. What you should use:

a. Evidence (even expert evidence) that is helpful to making findings.

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b. If you cannot point to a finding the evidence could support directly or indirectly, do not use it.

This is probably the thing I ask counsel most often when ruling on a piece of disputed evidence: how will this help me make any finding of fact? If counsel cannot answer that, I generally exclude that evidence.

c. Hearsay evidence.

3. What is the evidence in the record?

a. Testimony of witnesses.

i. Transcript.

ii. Audio and/or video recording.

b. Exhibits, everything that is:

i. Read into the record;

ii. Referred to (if asked);

iii. Offered; or

iv. Admitted;

v. And is marked with a label or identifying mark at the hearing.

c. Avowal evidence.

i. Exhibits.

ii. Testimony.

4. Stipulations.

a. How.

i. Put them in writing.

ii. Read them into the record.

iii. File them in the record.

iv. Get agreement on the record.

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b. What.

i. Authenticity of documents.

ii. Undisputed facts pertinent to the issue.

iii. Mundane facts not really in issue, i.e., names, places, other things referred to, document numbers, dates, days of week, times.

c. When.

i. At the very beginning of hearing.

ii. During the hearing.

iii. Do not leave the Hearing Officer hanging on the mundane.

a) Permit face sheets.

b) Names (counties, cities, roads, hollows, creeks).

5. Tangible evidence.

a. Copies, copies, copies.

i. Show to opposing counsel.

ii. It would be nice if the Hearing Officer had one.

iii. Do not delay the hearing to make copies.

b. Offer your tangible evidence for the record.

Counsel often seem to forget that a hearing is a formal legal proceeding, the purpose of which is to give each party a chance to put forth its case in a controlled and orderly manner. While they are often informal in nature, counsel should still -- for the record -- offer their evidence to the Hearing Officer for inclusion in the record. This marks the place in the hearing at which evidence was admitted or excluded.

i. Actually formally “offer” the evidence “for the record.”

ii. Offer the original marked exhibit, not a copy.

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c. Mark the exhibit with a label.

i. The original labeled exhibit IS the evidence for the record; keep it safe.

ii. Refer to the exhibit by the label.

iii. Give the witness the labeled exhibit, not a copy.

iv. Only draw on the labeled exhibit – not a copy.

d. Get the magic word(s) from the Hearing Officer.

i. “Admit.”

ii. “Exclude.”

e. If excluded, put it in by avowal anyway.

i. Formally “offer” it “for avowal”;

ii. Or “as a proffer of proof.”

iii. Go through question and answer on the record if needed;

iv. Or at least summarize for the record what it would have shown.

f. Make sure you put the exhibit you just used to question the witness back in front of the witness after questioning.

6. Testimonial evidence.

Asking a direct question is an art form litigation counsel (and if you are in a hearing, you are litigation counsel) must learn. While the form of the question is often not objected to, the failure to use direct questioning does affect how a Hearing Officer can use the witness’s testimony, particularly if counsel gives a long prefatory statement to the question.

a. Direct examination.

i. Always qualify your witness.

ii. Ask direct questions on direct, not leading questions.

iii. Object to leading questions on direct.

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iv. Keep your witness on track.

v. Do not question regarding stipulated facts.

b. Cross-examination.

i. Stick to the direct or you open it up.

ii. If you lead too much, you testify and it is not useable.

iii. You rarely get anything good on re-re-re-re-cross.

iv. Impeachment should really impeach.

c. Long questions.

i. Compound questions are objectionable and often unusable.

ii. Prefatory remarks before a question are often objectionable and confusing.

d. “This” and “that.”

i. Testimony by the witness when referring to a map or photograph such as “that is the x” or “this y hit that x there” is very vague.

ii. Refer to the exhibit, ask what “this” and “that” means, state for the record what you believe “this” and “that” is.

7. The kitchen sink: do not put in evidence that is …

In some DEP cases we have been deluged with thousands of pages of documents, none of which are referred to by anyone, relied upon by anyone, or the subject of any motion, argument, or objection. Such evidence is often technical in nature and usually unexplained. If counsel wishes the Hearing Officer to use such evidence, he should get some kind of explanation of that evidence in the record.

a. Oversized (use a photo).

b. Demonstrative.

c. Not referred to in testimony or otherwise.

d. Not relied on by you as support.

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e. Cumulative.

f. Not in dispute that can be summarized.

g. Supports a stipulated fact.

h. Unexplained.

i. Pile-o-documents problem.

ii. Technical or scientific evidence.

8. Recording the hearing: the transcript problem.

This problem is referred to above. Parties wishing to use the unofficial digital record should get an agreement on how to treat that record. The digital record the Office uses is often recorded on a machine that runs constantly from the early morning until the end of the day of hearing. Accordingly, those recordings include many things that are not "on the record." Consequently, after the hearing, the Hearing Officers are cutting out all portions of a recording between the time the Hearing Officer says he is going "off the record" until the Hearing Officer says you are "on the record."

a. Cabinet is saving money and not ordering transcripts.

b. No transcript = much or most of the record is missing.

c. Alternative solutions -- splitting transcript costs.

d. OAH digital workaround: digital audio/video recordings.

i. Warning of use in Notice of Hearing.

ii. Stipulation or agreement to use on record.

iii. Designation of primary and backup.

iv. Citation form.

v. Constant recordings.

e. OAH recordings are digital recordings.

i. Edited down to the portions "on the record."

ii. Files intended to be played on a computer.

iii. Not playable DVDs.

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D. Objections

Counsel should keep in mind they make objections to the Hearing Officer, not to opposing counsel. Addressing the Hearing Officer helps the objection be resolved, and avoids wasting time addressing opposing counsel, who is being paid to oppose objections.

1. STOP the witness from answering.

2. State your objection.

3. Let the other side have its say.

4. Don’t get in a conversation/argument with opposing counsel.

5. WAIT for a ruling.

a. Sustained, overruled.

b. BEFORE you go on.

c. EVEN if you withdraw (the record).

d. DO NOT start questioning without a ruling.

E. Closing Arguments

1. If you can, be brief and show how facts relate to law.

2. Review the evidence, bring it together.

3. State the legal argument.

F. After the Hearing

1. Set the post-hearing briefing schedule.

2. Establish the electronic record was made; if not, decide what to do.

Things go wrong with electronic recordings. If the record of the hearing is wholly or partially blank or unusable, counsel should address what must be done.

3. Do not steal the exhibits.

At the end of the hearing, let the Hearing Officer count up the exhibits to make sure he or she has them all. Counsel sometimes

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put an exhibit in their cases and walk away with it unknowingly. If it is an important piece of evidence, this can cause problems.

III. POST-HEARING

Post Hearing Briefs:

A. Set Specific Dates or Measureable Periods

1. Time for transcription.

2. Time to work with audio/video recording.

3. Statutory time limits.

B. Scheduling

1. The ninety-day model.

a. Thirty days – brief party one.

b. Thirty days - response brief party two.

c. Fifteen days - reply brief party one.

d. Fifteen days - response to reply brief party two.

2. The fifty-day model.

a. Thirty days simultaneous – party one & two.

b. Fifteen days simultaneous – party one & two.

c. Five days simultaneous – party one & two.

C. Consequences of Scheduling Models

The fifty-day model generally results in a relatively short initial brief that reads more like a closing argument, followed by a simultaneous response from each side that really holds the substance of the parties’ arguments. I have even been known to give more pages for the response brief than the initial brief.

1. Ninety-day model.

a. Page limits tend to be larger.

b. Pages limits decrease each step; and

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c. Responsive briefs are supposed to address what has already been raised.

2. Fifty-day model.

a. Page limits for first two are same.

b. Reply briefs very short.

D. Change the Post-Hearing Filing Deadlines

1. By agreement; and

2. Submit an Agreed Order.

IV. EXCEPTIONS

A. Ad Hominem

1. Does not work.

2. Not reading exceptions anyway.

As a policy, I do not read exceptions unless and until the Secretary adopts some part of the exceptions. At that point, I read the exceptions to see whether the Secretary has overruled some part of Recommended Order because of a factual finding or a legal conclusion, or is just exercising his authority to make a policy-based decision.

B. Exceptions.

1. Nature.

a. Argumentative.

b. Persuasive.

c. Critical of the subject.

2. Problems.

a. Often just negative, the Hearing Officer’s:

i. Character (see above).

ii. Rationale, without giving alternative reasoning.

iii. Weighing of the evidence, without giving a basis for a different weight.

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b. Often do not:

i. Object to specific Findings and Conclusions by numbered paragraphs.

ii. Consider how the entire series of Findings and Conclusions should be changed – the “NOT” problem.

3. Suggestions.

a. Offer alternative findings and conclusions:

i. In the form of replacement findings and conclusions.

ii. Use words like “find” and “conclude” in the replacements.

iii. Address everything addressed in the replaced finding and conclusion.

iv. Use the same numbers.

v. Offer correlative changes for other findings and conclusions.

b. Benefits.

i. The Secretary can incorporate just the changed findings and conclusions offered by the party, not the entire exceptions filing.

ii. The exceptions do not become part of the Final Order by referral.

iii. The Final Order adopting specific alternate findings and conclusions is clearer and stands on its own.

C. Draft Secretary’s Order

All too often, when going back to look at a Secretary’s Order that does not follow my Recommended Order, I find the Final Order has in effect adopted the exceptions brief of one party into the Final Order. This often makes it almost impossible to add the Recommended Order to the Final Order (minus the exceptions) to get an intelligible ruling.

1. The worst:

“I adopt the exceptions set forth in the party’s brief.”

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a. This in effect incorporates the exceptions into the Final Order, which then consists of:

i. The Recommended Order.

ii. The entire exception brief filed by the party.

iii. The Final Order.

b. Exceptions do not lend themselves to incorporation.

i. Often do not detail what finding, conclusion, or part thereof, should be replaced.

ii. Often have no alternate findings or conclusions.

2. The best:

“I adopt the party’s exceptions and reject finding of fact number twelve (12) in the Recommended Order and in its stead adopt and incorporate the party’s alternate finding of fact number twelve (12):” -- then setting out the alternate finding as stated in the exceptions.

a. This does not incorporate the entire exception brief into the Final Order.

b. States a Final Order in the same manner as the Recommended Order.

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