Environmentalists say judge's ruling supports view that state is failing to monitor coal mines

A judge's blunt finding that Kentucky doesn't have enough regulators or money to properly monitor a coal company should help make the case for more funding for such work, environmentalists said.

Franklin Circuit Judge Phillip J. Shepherd on Monday rejected the state's proposed settlement of violations by Frasure Creek Mining, which had been accused of cheating repeatedly on pollution monitoring.

Shepherd said that with a handful of enforcement personnel and a dwindling number of field inspectors, it was impossible for the Energy and Environment Cabinet to effectively regulate companies such as Frasure Creek that systematically violate their obligation to check for pollution at their sites and report violations to the state.

The cabinet enforces federal clean-water rules at coal mines and many other sites. Legislators have cut funding for the agency, which has fewer employees — but more duties — than in 1990, according to information in the decision.

If Shepherd's ruling doesn't make the case for more funding for environmental oversight, "I don't know what will get the legislature off its butt," said Ted Withrow, a member of Kentuckians for the Commonwealth.

"It makes the need very clear" for such funding, said Alan Banks, a member of Kentucky Riverkeeper.

The two groups were among several that protested the cabinet's proposed settlement with Frasure Creek.

The cabinet said in a statement that Secretary Lynn Peters has told legislators multiple times that continued budget cuts would affect staffing and programs.

"Ultimately, the funding challenge reinforces the need to reconsider how to pay for state services," the statement said.

Asked whether officials think the cabinet has enough staffers to enforce clean-water rules adequately, the statement said that as with nearly all other local, state and federal enforcement agencies, "there is always going to be more responsibilities for enforcement than personnel to address those issues."

"We continue to work toward accomplishing the goal of adequate monitoring" of pollution-discharge reports and the many other laws governing mining, the statement said.

The case before Shepherd began in 2010, when Frasure Creek was one of the largest coal companies in Eastern Kentucky, with underground and large mountaintop mines.

The law requires coal companies to check water draining from surface mines into streams, and report violations of pollution limits to the state, which can issue citations and require corrections.

A group called Appalachian Voices led an effort by citizens' groups to review the discharge reports from Frasure Creek and another company, ICG.

The groups said that they found numerous cases in which the companies had submitted false information concealing violations and that state regulators had failed to spot the problems.

The groups planned to sue, but the cabinet stepped in one day before the deadline and asked Shepherd to approve an agreement it had worked out with the companies to improve their monitoring and pay fines.

The proposed fine for Frasure Creek for violations at 39 mines was $310,000.

The environmental groups argued the settlement was too weak to deter Frasure Creek from committing more violations, and they won a court order — over the cabinet's objections — upholding their right to intervene.

ICG agreed to pay $575,000, settling its part of the case.

The decision before Shepherd was whether the cabinet's agreement with Frasure Creek was fair, adequate, reasonable and in the public interest.

Shepherd said the settlement, and the cabinet, fell far short.

The cabinet did not investigate environmental harm the company probably caused, and failed to consider the extent of the violations and the potential danger to human health and the environment, Shepherd said.

The cabinet said it didn't see enough evidence to conclude the company took part in fraud, even though many reports appeared to be copies of prior reports with no evidence of new sampling, Shepherd said.

Frasure Creek hired a company called S&S Laboratory to do its monitoring but signed off on the reports. The problems at the lab showed either a plan to submit false data or "incompetence so staggering as to defy belief," Shepherd wrote.

The lab has since closed.

Shepherd also concluded Frasure Creek's conduct warranted a stiffer fine.

The company faced a potential fine totaling $38 million.

Shepherd said the cabinet's proposed settlement probably wouldn't cause Frasure Creek to follow the law, in part because the benefit the company got from breaking the rules outweighed the cost of following them.

The cabinet concluded Frasure Creek got little economic benefit from its conduct, but that was "clearly erroneous," Shepherd said, noting that Frasure Creek began paying $30,000 more each month when it was required to hire a new lab.

"When one company so systematically subverts the requirements of law, it not only jeopardizes environmental protection ... it creates a regulatory climate in which the cabinet sends the message that cheating pays," Shepherd said.

That puts the many companies that follow the law at a competitive disadvantage, he said.

Frasure Creek, headquartered in West Virginia, was forced into bankruptcy by creditors last year. Attempts to reach company representatives recently have been unsuccessful.

The company is out of bankruptcy, but federal mining records list most of its mines in Kentucky as abandoned or idled. It has one active surface mine in Perry County, records show.

However, the company still has active permits at mine sites and a duty to monitor discharges, said Mary Cromer, an attorney for the Appalachian Citizens' Law Center who is involved in the case.