May 10, 2023 - Ethics expert says GOP hopeful would ‘absolutely’ have a conflict of interest. It’s ‘for the people to decide’ if there’s a problem, says a former Kentucky governor.
As the two have vied for the GOP nomination for Kentucky governor, Kelly Craft has frequently attacked Daniel Cameron because as attorney general he supported closing a coal-fired power plant in West Virginia to avoid burdening Kentucky ratepayers with the cost of required upgrades to the more than 50-year-old Mitchell plant.
What Craft doesn’t say is that her husband’s coal company, Alliance Resource Partners (ARP), has a contract to sell coal to the West Virginia power plant.
In a filing before the West Virginia Public Service Commission, ARP is listed among 10 other coal mining companies as having long-term contracts to supply coal to the Mitchell plant. ARP’s contract to supply coal to the Mitchell plant began on Jan. 1 and runs through the end of 2025.
Kentucky has had many friends of coal in the Governor’s Mansion and other elected offices. None have had the kind of financial stake in the coal industry that Kelly Craft and her husband would have if she becomes governor.
ARP has a vast coal mining presence across the Ohio Valley that includes owning three coal mining complexes in Kentucky in Union, Hopkins and Pike counties.
The publicly-traded company appears to have accounted for more than half of Kentucky’s coal production in 2022. ARP’s annual report, published in February, said its three Kentucky operations mined approximately 15.8 million tons of coal last year. Statewide coal production was 28 million tons, according to state coal production data. ARP’s annual reports says it’s the second-largest coal producer in the eastern United States with more than $2 billion in revenue brought in last year from sales of coal mined in Kentucky, Indiana, Illinois and West Virginia.
Photo: Tasos Katopodis, Getty Images For Kelly Craft Via The Kentucky Lantern
The president and CEO of the company is Joseph W. Craft III, the husband of Kelly Craft. Joe Craft’s trust gave more than $1 million to a political action committee supporting Craft’s candidacy, something that Kelly Craft says she didn’t know about. Kelly Craft has spent millions of her own money during her candidacy, reporting that she has loaned her campaign almost $9.3 million.
An expert in governmental ethics says the company’s large presence in Kentucky could create a conflict of interest if Craft were elected governor because she would be in a position to influence state regulation that impacts her family’s business and finances.
Kathleen Clark, a professor of law at Washington University in St. Louis, said Craft’s omitting her husband’s company’s contract to supply coal to the Mitchell plant is an example of a lack of transparency in political advertising.
“She’s free to criticize,” Clark said. “But what she’s not mentioning is her own personal financial stake.”
“As an ethical matter, there absolutely will be a conflict of interest because she will have, frankly, a financial interest in appointing people and perhaps taking other government action that benefits herself and her husband financially, and that may or may not be what’s in the public interest.”
A spokesperson for Craft’s campaign did not directly answer questions about how Craft would avoid a conflict of interest as governor and whether her messaging on coal is self-interested.
Former Democratic Gov. Paul Patton said he had “minor interests” in coal, an industry that had enriched him, when he became governor in 1995. Patton said it ultimately would be up to voters to decide whether Craft’s connection to her family’s sprawling coal enterprise is an issue.
“It’s a legitimate question, but it’s a question that could be asked of almost anybody,” Patton said. “You got some personal relationships, and there’d be some suspicion that you would use those personal relationships to a nefarious purpose. But that’s for the people to decide.”
Craft’s advocacy for — and Alliance’s reliance on — coal
As she campaigns, Craft touts the continued use of fossil fuels in Kentucky. The state is one of a little more than a dozen where the large majority of electricity is still generated from burning coal.
“Right now, Kentucky has an edge with our fossil fuels,” Craft said during a recent debate on KET. “I have personally, my family has created thousands of jobs in this state. I understand how to create jobs.”
The Craft campaign website states that “[w]e must keep the coal plants running” and that she would “not allow the premature closure of coal plants.”
However, Kentucky’s utilities have different plans at a time of rapid transition in the energy industry and as pressure mounts to reduce the heat-trapping gasses that burning coal puts into the atmosphere. Utilities that are significant customers of ARP have announced moves to retire some or all of their coal-fired power plants to replace them in part with natural gas.
ARP has existing contracts to supply coal to major utilities including East Kentucky Power Cooperative, LG&E and KU and Duke Energy. In 2022, according to the company’s annual report, it received “more than 10%” of their total revenue “from each of Duke Energy, Louisville Gas and Electric Company, and Tennessee Valley Authority.”
ARP depends “on a few customers for a significant portion of our revenues, and the loss of one or more significant customers could affect” the company in adverse ways, the company’s annual report says.
“If we were to lose this or any of our significant customers without finding replacement customers willing to purchase an equivalent amount of coal on similar terms, or if these customers were to decrease the amounts of coal purchased or change the terms, including pricing terms, on which they buy coal from us, it could have a material adverse effect on our business, financial condition, and results of operations,” the report states.
The Tennessee Valley Authority plans to retire all of its remaining coal-fired power plants by 2035 and replace the generation in part with burning natural gas. Louisville Gas and Electric and Kentucky Utilities also plans to retire some of its coal-fired power plants to in part move to natural gas, too.
It’s a part of a larger trend of utilities across the country pivoting away from coal to lower-cost natural gas and renewables as coal has struggled to economically compete as a cost-effective electricity generation source.
Total electricity generation from renewables across the country surpassed coal for the first time last year, and a report this year from the nonpartisan research group Energy Innovation Policy and Technology LLC found 99% of all coal-fired power plants across the country, including all operating plants in Kentucky, were more expensive to operate than new solar or wind installations.
Kentucky legislature created new hurdle to retire a coal plant
Yet most utilities in Kentucky seeking to retire a coal plant now have an additional hurdle to overcome, thanks to a new law passed this year by the GOP-dominated state legislature and strongly supported by the Kentucky Coal Association, an industry lobbying group that’s aligned with the Craft family coal company.
Before the passage of Senate Bill 4, the new state law, utilities previously had to provide notice of the retirement of electric generation facilities to the Kentucky Public Service Commission. The regulatory body can approve such proposals as long as the utility successfully argues to the commission that the retirement is necessary and that other reasonable options were considered.
But with SB 4’s passage, state law now explicitly requires the commission to make sure that whatever replaces a retiring fossil fuel plant or unit maintains or improves the “reliability and resilience of the electric transmission grid” before approving the proposal, along with other prerequisites.
Sen. Robby Mills, R-Henderson, the sponsor, and other Republicans had cited rolling blackouts implemented by some Kentucky utilities due to arctic temperatures last winter for why the legislation was needed, raising concerns that ongoing retirements of coal-fired plants threatens the reliability of the electric grid.
However, utility leaders earlier this year told lawmakers that frozen components in a natural gas pipeline were a main cause of the rolling blackouts.
Investor-owned utilities such as LG&E and KU and Duke Energy strongly opposed the legislation saying that it would “jeopardize” the affordability and reliability of electricity in the state and that Kentucky’s energy grid needed to be diversified. The Kentucky Association of Manufacturers also opposed the bill, saying it was a bad policy that would increase energy costs.
Tom FitzGerald, a longtime environmental advocate who was formerly the executive director of the Kentucky Resources Council, said the governor’s appointments to the Public Service Commission could have more significance in light of utilities now having to seek explicit permission from the commission to retire fossil fuel generation.
Those commision appointments from a governor have to receive confirmation from the GOP-controlled state Senate, which has traditionally been pro-coal.
Former Sen. Paul Hornback, a Republican from Shelbyville, served on a Senate committee that vetted PSC appointments. Hornback said during his 12-year Senate tenure, he never experienced a governor who heavily weighed in on the commission appointment process.
Hornback said the Senate serves as a check on the governor’s appointment power. “The governor could make an appointment, but the Senate could come back when they come back in session and take them back out,” he said.
Last year, the Senate denied a commission appointment made by Democratic Gov. Andy Beshear, who is seeking reelection. Senate President Robert Stivers did not clearly detail why the appointment was denied.
Hornback said he would be more concerned about the influence that a potential governor Craft could have over the Kentucky Energy and Environment Cabinet, which regulates coal mining, and how the cabinet under her governorship would interpret regulations regarding mines.
In March after SB 4 had passed the state legislature, Mills said Joe Craft never spoke to him specifically about the bill during this year’s legislative session, but the two did have conversations in recent years over how to keep fossil fuel plants “going, burning.”
“He has advocates that work for him that are here on a daily basis,” Mills said, referring to the state Capitol and Annex.
The Mitchell plant’s status
In a statement to the Lantern, Craft campaign spokesperson Weston Loyd again attacked Cameron on his role in recommending the retirement of the Mitchell plant in West Virginia.
His statement echoed remarks from the original ad that Craft’s campaign aired in March about the Mitchell plant and Cameron’s role in it, referencing an Ohio Valley ReSource report from 2021.
“The facts remain the same, Daniel Cameron did not stand with Kentucky when he let the Mitchell plant close down,” Loyd said. “The plant services 165,000 Eastern Kentuckians across 20 counties. Their utility rates are now at risk thanks to Daniel Cameron’s dereliction of duty.”
Yet because of actions taken by West Virginia’s utility regulator entirely separate from Kentucky, the Mitchell plant is still slated to continue operating through 2040.
The Ohio Valley ReSource had reported Cameron in a joint filing with Kentucky Industrial Utility Customers told the Kentucky Public Service Commission the Mitchell plant provided “little to no economic value to the commonwealth.”
He recommended the state’s utility regulator reject a request from utility Kentucky Power for $67 million in upgrades to meet federal environmental regulations and allow the plant to close in 2028. The upgrades would have been paid for with a surcharge on electric customers’ monthly bills.
Kentucky Power has a 50% stake in the plant, which it uses to service about 165,000 customers in Eastern Kentucky. Wheeling Power in West Virginia owns the other half, and both utilities are subsidiaries of Ohio-based American Electric Power. AEP unsuccessfully tried to sell Kentucky Power to a subsidiary of a Canadian utility company earlier this year.
Cameron in his joint filing said Kentucky Power’s economic analysis “grossly” overstated the price of solar power as a replacement for the Mitchell plant, which, according to the ReSource, the Sierra Club also asserted in the case.
Kentucky Power disagreed with the attorney general at that time, according to the Ohio Valley ReSource, a utility spokesperson saying that the Mitchell plant provided low-cost power and delayed “the need to procure hundreds of millions or billions of dollars of replacement generation.”
Ultimately, the Kentucky Public Service Commission ruled in a July 2021 order that Kentucky Power only proved to the commission that some of the necessary upgrades needed to operate beyond 2028 were “reasonable and cost-effective.”
The Mitchell plant needed all required upgrades to operate past 2028, something that Kentucky’s utility regulator denied. But West Virginia’s utility regulator — which was hearing a coinciding request from Wheeling Power to upgrade the Mitchell plant — did approve all the required upgrades, which, according to Kentucky’s PSC, will allow Wheeling Power to operate Mitchell through its expected retirement in 2040.
Cameron’s campaign manager in a statement said the attorney general’s recommendation for the Mitchell plant to be retired was “not to protect one company’s contract” but to “protect Kentucky ratepayers from massive increases.”
“When it comes to the Mitchell Plant, General Cameron believed that Kentucky taxpayers shouldn’t subsidize a coal plant in West Virginia that used little to no Kentucky coal, employed zero Kentuckians, and whose upgrade would raise rates on hard-working Kentuckians,” said Gus Herbert, the campaign manager.
It is unclear if Kentucky Power will still use power generated by the Mitchell plant beyond 2028 if only Wheeling Power, the subsidiary that co-owns the plant, is allowed to operate it after that year.