Title: The Continuing Impact of Coal Ash
Speakers: Brian Harms and Brooks Smith
Brian Harms (00:07):
Hey, Brooks. Great having you here today.
Brooks Smith (00:09):
Happy to be here.
Brian Harms (00:10):
Yeah. We’re very interested in talking about coal plants, the coal ash discussion that’s going on. Got a lot of people looking at coal plants staying on, not staying on, retiring, the liability of coal ash. Know that EPA’s taken a strong look at this. And while there are regulations in place, still a little bit unsettled, don’t you think?
Brooks Smith (00:34):
Absolutely. And it’s funny, I guess all the thought leadership these days is about the energy transformation in this country and what’s next. But I think there needs to be a little bit more thought leadership in what do we do with the legacy sites and the legacy of a couple hundred years of coal burning for electric power production. So in my space in this world of coal ash, it was a watershed moment in 2015 when EPA promulgated the first national rules. It was a huge moment because EPA had previously proposed alternatively to regulate coal ash as hazardous waste or non-hazardous waste. And to have gone down the first path would’ve been billions of dollars and a lot of emotional energy and litigation and compliance and enforcement. So we thought the path of non-hazardous solid waste regulation created a lot of opportunity to prudently close out these units, deal with corrective action where required and move on.
Right. And as you say, that was over eight years ago. And yet we find ourselves now on this plane of vast confusion because of litigation and changes in interpretation and a little interference from Congress to establish state permit programs. But we are now in a moment where for compliance counseling purposes it is incredibly hard to make good future looking judgments about how best to deal with the legacy of coal ash.
Brian Harms (02:16):
Yeah, absolutely. And I think it’s also probably because people are looking at the issue in different ways. So you’ve got the classic, because of the transition to renewable energy, the transition to carbon free, carbon neutral, whatever the term you wanna use is, that means a lot of coal plants are gonna get retired. So that’s the classic, right? Retired, got the coal ash, how do we deal with that liability? Do we have to dig it up? What do we have to do with it? But then because these coal sites have good infrastructure for other potential uses, especially energy, other energy projects, maybe even renewable energy projects, it’s like, okay, got this nice asset, has this liability coal ash. And in addition, you have utilities or other companies that are like, okay, I’ve got this great site. Maybe I need to re-power it.
And so land is a good one where we had a coal plant repurposed to be a natural gas plant. So there’s all these options, but there’s this liability sitting there, that coal ash liability and all those options.
Brooks Smith (03:14):
Yeah, spot on. And we thought that the rules answered that question pretty directly by saying an active facility for regulatory purposes had to be a coal-fired power plant. But that too has been reinterpreted to mean any power production of any kind, with or without a fuel source, which could pick up wind, solar, battery storage, natural gas. And then if you’re an active facility and you’ve transitioned, you still have that liability of dealing with the coal
Brian Harms (03:44):
Ash. And actually that’s interesting you say that because that’s the one thing that I think catches some folks off guard is that once you touch that land, aren’t you basically jointly and severally liable with everybody else who’s touched that land?
Brooks Smith (03:54):
Yeah, spot on. Your owner, operator, both responsible.
Brian Harms (03:58):
Yeah.
Brooks Smith (03:58):
Yeah. So it is
Brian Harms (03:59):
Some people don’t know that.
Brooks Smith (04:01):
Which
Brian Harms (04:01):
At first.
Brooks Smith (04:02):
Which can be perilous. Because there are lots of market opportunities. And as you say, these plants tend to be in great locations for infrastructure. They were purpose built and purpose located, but they might be tough to take on for some future purpose until the landscape clears up a little bit and those liabilities are addressed.
Brian Harms (04:24):
Yeah, exactly. I think what I’ve seen in terms of the transition is that people are definitely looking for different uses, but there’s a lot of new entrants who don’t necessarily know power and they just know renewable energy’s a good thing and I’m gonna go and invest in that. And I think what they miss out on in terms of the coal ash or any liabilities associated with whatever it is, brownfield, coal ash, whatever it is, what they think is that, oh, I’ll just get indemnity for that. When you have an indemnity, or when you cover that risk, well, where’s the money that’s gonna backstop hundreds of millions of dollars of risk or maybe tens of millions, hundreds of millions, a billion dollars of risk. Could be billions of dollars. So yeah.
Brooks Smith (05:04):
It strikes me in my space in the environmental world as one of those classic situations where something that was permissible for a century is no longer permissible. But to change the rules and apply them retroactively creates lots of these liability questions. And coal ash, of course, has been used throughout our nation’s history as structural fill, road bed. It’s everywhere. It’s in Portland cement. And there are well recognized beneficial uses of coal ash where its qualities as a byproduct of burning coal are scientifically sound and justified. But if you revisit those decisions made decades ago and say that a coal plant built up over the years with coal ash’s fill is now entirely a cleanup site that needs to be dug up and remediated, that’s a tough pivot for business purposes.
Brian Harms (06:04):
No. Agreed, agreed. And it is funny, when I first started working on projects, I remember first coal project worked on, they’re like, “Man, we’re gonna make tons of money on cement blocks.” Or something like that. It was like, “Oh, we’re gonna reuse this coal ash for whatever.” And I was like, “Oh, cool. That’s cool. I didn’t know that.” And you’re absolutely right. That was 20 something years ago. And now it’s like, hmm.
Brooks Smith (06:28):
And there are some incredible demonstration projects including by some of our clients to show what can be done with coal ash in an environmentally protective way. The problem is the clock is ticking. And there’s not enough time to deal with thousands of cubic yards of coal ash buried across the country according to the regulatory deadlines to get rid of it. And so some of those opportunities may be lost or squandered because there’s simply not enough time to effectuate them.
Brian Harms (06:58):
Yeah, exactly. Well, and it’s interesting too because you speak about time. I also think people are trying to get to carbon zero, carbon neutral, but also just the fact that you have folks have this capacity crunch that’s occurring right now. It feels like across the nation, utility companies are looking around and going, we have these wonderful lights shining on us right now. They won’t, if you don’t have the capacity, then all of a sudden these lights aren’t turned on. And so coal set might stay on longer. The re-powering we were talking about before, all these things become more real, but it’s because of this liability issue that, hey, is that capacity, is keeping that coal open a good idea? Is dealing with trying to figure out this liability and bank that into the cost of what this capacity might be suddenly becomes, oh, for the short term especially, and the short term could be longer than five years, could be 10 years, could be a little while.
And when I say short term, I mean almost like under 20 years, right? Right. And so
Could make it that, hey, even with that liability, I need the capacity, I need to keep the lights on. And a utility company is gonna say it’s much more important if we keep the lights on than pretty much anything else.
Brooks Smith (08:14):
And here’s the dilemma. I know that there are outspoken governors and state legislatures focused really on capacity and reliability that would desperately like to see some of these plants continue operating. Or perhaps convert to natural gas and continue to operate. The regulatory framework that we have in place today compelled all of the utilities across the country to stop disposing of their ash as of April 2021. And so any continued generation has this massive byproduct that has to be sent someplace else. And I don’t think it’s possible to permit new disposal capacity or truck it or barge it or rail it offsite for several hundred miles and make that a viable proposition.
Brian Harms (09:09):
Right.
Brooks Smith (09:09):
If we could solve that, then we might also solve the demand growth issue.
Brian Harms (09:15):
Yeah, exactly. So it’s tough because the hard part is it all adds cost. It adds risk because of the unknowns that we were talking about before. And so it just becomes a thorny issue that you just do the best you can right now and see where we go from there.
Brooks Smith (09:33):
Yeah. It’s also interesting to me that we are in a polarized world on the environmental front in particular. And used to be that euphemistically coal was a four-letter word, right? The war on coal was to stop coal fire generation. And now coal ash, the next euphemistic four letter word, and it’s eliminated at all costs because the fear of environmental disaster or environmental contamination or worse is so present now in the narrative that it has become this kind of sacred proposition that you cannot simply bury it in place and put a liner on it and move on. And I think that this particular administration and all of the focused environmental groups want to change direction and say the only safe option is to dig it up. And at some sites, the difference between properly closing it in place with a liner versus digging it up is a multi-billion dollar delta.
Right. And that has to go through state utility commissions. That has to go to either rate payers or shareholders. And until there are clear rules that say you have to do this or you can’t do that, it’s very difficult to go through the normal regulatory approval process. So it is very unsettled and, as I said at the start, it is tough counseling with so much uncertainty and so much bound up in the courts and in the administrative agencies. But hopefully we’re trending toward some outcome where we can have some form of all of the above energy supply, at least for some period of time, until we bridge to the new energy sources.
Brian Harms (11:31):
I agree 100% because it’s hard to be able to say to the folks, “This is how it’s going to be.” And I think there are a lot of folks who, “Hey, I realize it’s going to cost a lot. I’d rather know how much.”
Brooks Smith (11:44):
Right.
Brian Harms (11:44):
“Just tell me how much.” The not knowing is the hardest part.
Brooks Smith (11:48):
Right. And it is all about certainty. We lived through one of the first trials in the country involving coal ash, and took it up on appeal and won on this proposition of how can you safely dispose of coal ash, only to see our state legislature turn around a year later and compel a different outcome. But provided for cost recovery.
Brian Harms (12:15):
Oh, okay.
Brooks Smith (12:15):
And it provided the certainty that the utility needed in order to progress in that direction. And it’s not, are you for or against a different regulatory outcome. It’s tell us what is required. And of course, everybody’s motivated to do what is required. Right.
Brian Harms (12:31):
And that obviously then helps with, in my field with the transactions, the risk allocation, you know what it is, who takes what, that type of thing. It just makes those things easier where people actually will do the deals versus how do I price it? And then people are like, “I don’t know.”
Brooks Smith (12:48):
Right.
Brian Harms (12:49):
So.
Brooks Smith (12:49):
I’d be curious in your space with the emergence of environmental liability transfer companies if there is an opportunity for those enterprises to come in and propose to take on the risk, take on that owner-operator role, and let utilities walk away. I don’t know if that’s happening or not.
Brian Harms (13:09):
Yeah, I don’t think it’s happening, but I also think it’s because of everything we’ve been talking about is that it’s so uncertain that
Brooks Smith (13:16):
You can’t quantify
Brian Harms (13:17):
It. Correct. You can’t quantify it. I think once it becomes more certain, you’ve seen it in different areas, the tax credits or other environmental aspects where folks will come in, it’s because they know the liability they’re taking on. Or reps, warranties, insurance, or anything like that. They’re like, “Okay, I know what it is. I can quantify it. This is a difficult area because hard to quantify.”
Brooks Smith (13:37):
Yeah. Yeah. And you mentioned insurance earlier and I’m always fascinated by the opportunity for an insurance product to deal with an environmental problem. I understand that there are products that exist that in theory could deal with this at least for cost certainty. So you might project a cleanup and then have a cap above which insurance kicks in. But I think that those providers also struggle to define that number. And that’s where the real magic happens. How much are you covered for?
Brian Harms (14:08):
Exactly. So, but again, I just say such a thorny issue, such an issue that smarter people than me will be able to resolve at some point perhaps. But it’s all bound up in the political and the what’s the right outcome and those types of things. I don’t know that there’s an easy answer. Well, there is an easy answer, possibly. Put a number on it.
Brooks Smith (14:35):
Right.
Brian Harms (14:36):
But how do you get there?
Brooks Smith (14:40):
Yeah. Completely agree. Yep.
Brian Harms (14:42):
Brooks, it’s been great talking to you today. I think it’s a real important issue and I’m glad we were able to talk about it.
Brooks Smith (14:48):
Same here. I feel like we could keep talking for hours or revisit this every couple months and something would have changed.
Brian Harms (14:54):
I agree.
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