Call to Order and Roll Call
The second meeting of the Interim Joint Committee on Local Government was held on Wednesday, August 24, 2016, at 10:00 AM, in View Pointe Hall of the Muhammad Ali Center in Louisville, Kentucky. Senator Joe Bowen, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Joe Bowen, Co-Chair; Representative Steve Riggs, Co-Chair; Senators Julie Raque Adams, Ralph Alvarado, Christian McDaniel, Morgan McGarvey, Dorsey Ridley, Albert Robinson, and Damon Thayer; Representatives Linda Belcher, George Brown Jr., Ron Crimm, Mike Denham, Jim DuPlessis, Adam Koenig, Brian Linder, Michael Meredith, Phil Moffett, Jonathan Shell, Arnold Simpson, Chuck Tackett, James Tipton, and Jim Wayne.
Guests: Representative Tom Riner; Peter Goodmann, Division of Water, Daniel Cleveland, General Counsel, and Haley McCoy, Energy and Environment Cabinet; Talina Mathews, Stephanie Bell, Andrew Melnykovych, and David Spenard, Public Service Commission; Roger Recktenwald and Shellie Hampton, Kentucky Association of Counties; Brian Zoeller, Bingham Greenebaum Doll (BGD); Steve Estes, Star Energy Holdings; Deborah Bilitski and Sara Massey, Louisville Metro Government; Tom Fitzgerald, Kentucky Resources Council; Carol Travis Clark and Yolanda Walker, California Neighborhood Leadership Council; Martina Kennecke, Planning and Preservation, Inc.; Bert May, Kentucky League of Cities; Ron Wolf, Associated General Contractors of Kentucky; Mary Woolridge and Aaron Horner, Louisville Metro Council;
LRC Staff: Mark Mitchell, John Ryan, Joe Pinczewski-Lee, Jennifer Hans, and Cheryl Walters.
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Approval of Minutes
Upon the motion of Representative Tipton and a second by Representative Crimm, the minutes of the June 22, 2016 meeting were approved.
Regarding the topic of package sewer treatment plant abandonment, Senator Bowen stated that, for various reasons, owners of package sewer treatment plants sometimes become unable to run the plants and then may cease operations without provision for continuance of sewage treatment. This places the users in a precarious position and can put pressure on city and county resources to try to fill the gap left by abandonment. Spurred by this situation, 2016 HB 261 was passed which puts in place fiscal safeguards for future package sewer locations and the subsequent approval by the Public Service Commission. In addition, it also places notice requirements of the prospective utility’s location to state and local governments, as well as the Attorney General.
The issue of bio-digester location is got its prominence recently in Louisville with the potential location of a bio-digester plant within Louisville Metro. A bio-digester unit takes waste materials and processes them, producing methane. During the past winter, Louisville was dealing with the potential location of a bio-digester in the West End. Louisville Metro placed a six-month moratorium on the location until a policy could be established to provide for the location of the units in a deliberate way. While this has most recently been an issue in Louisville Metro, it has application throughout Kentucky.
Representative Riggs commented that the committee needs to be updated on these two issues. He also encouraged them to tour the Muhammad Ali Center and attend the State Fair while in town.
Package Sewer Treatment Plant Abandonment
Mr. Peter Goodmann, Director of the Division of Water (DOW), said that DOW implements most of Kentucky’s water regulatory programs, including the Clean Water Act. DOW regulates package wastewater treatment plants (WWTPs) via Clean Water Act discharge permits that require dischargers to meet technology and water quality-based standards. Package plants are operated by private utilities or are owned by neighborhood associations, school boards, or other entities, including the Kentucky Transportation Cabinet at state interstate rest stops. Package plants serve housing developments, subdivisions, mobile home parks, apartment buildings, campgrounds, and small businesses, and are generally located away from municipalities and other regional wastewater treatment collection and treatment facilities.
There are between 500 and 600 package WWTPs with Clean Water Act discharge permits. Thirty to sixty are regulated by the Public Service Commission (PSC). Most package plants date to the 1970s and 1980s and have significantly exceeded their design life. Older, poorly-maintained infrastructure leads to poorer treatment and lower quality of effluent, which leads to water quality and public health problems. These plants sometimes have aesthetic issues. They can become inundated with ground water because of cracked piping, and can be inundated with other sources of water inflow, such as that from sump-pumps. They often have trouble conducting advanced treatment to meet modern standards.
The demographics of the owners of these plants are changing. Many owners are older, and homeowner associations that own them may no longer be capable of operating them.
The PSC regulates the abandonment of regulated WWTPs via KRS 278.021, which establishes the criteria and process for removing and replacing owners/operators due to factors such as sudden death and insolvency. DOW works with PSC to identify interim and permanent solutions. However, non-PSC regulated package plants with discharge permits far outnumber those regulated by the PSC. In many cases, the responsible party lacks the technical, financial, and managerial capacity to operate the system. Many of the systems are not sustainable and will eventually fail physically, or the operators of the facilities will seek relief from local governments or other responsible entities. Compliance failures result in impacts to water quality and potential public health risks.
Rates often do not reflect the true cost to treat the waste flow or maintain infrastructure. Consequently, little or no investment is made in infrastructure repairs and upgrades because of insufficient capital.
The facilities generally serve economically challenged customers, have numerous vacancies, and experience high rates of people not paying their utilities. There are limited options for income challenges. The communities that are experiencing abandonment are looking to other regional facilities, municipalities, sanitation districts, water districts, and local governments to take over operation and maintenance of the package plants. Options include rehabilitating the WWTPs or otherwise connecting the system to an existing regional wastewater system. Solutions are site-specific and can be very complicated. Entities may not have the capital, the capacity or the authority to take on a system. Sometimes entities exist only on paper, have no assets, and are starting from scratch such as Farmdale Sewer District in Franklin County and Harrison County Sewer District. Certified wastewater operators working for other systems are hesitant to take on a system that is out of compliance and run poorly without guarantee that their license and livelihood will not be jeopardized.
In the previous 20 years, DOW has dealt with approximately five abandoned package WWTPs. Half of them were abandoned because the responsible party had died. Over the past two years, DOW has seen seven package plants go through abandonment of one form or another. DOW expects the trend of abandonment to increase over the next several years before leveling off.
Long-term solutions need to be identified for the systems. DOW is working with the Kentucky Infrastructure Authority (KIA) to tier/prioritize the WWTPs based on the age of the system, number of customers, potential for regionalization based on proximity to another system, willingness to be taken over by a local government or local entity, and creation of new entities. As abandonments occur, DOW is working with the PSC, KIA, local governments, sanitation and water districts, and potential receivers to identify a way forward. A funding source needs to be identified to provide capital and an incentive to potential interim and long-term owners and operators to take on the facilities. KIA has provided $500,000 in FFY 2016 State Revolving Funds (SRF) to two local government entities to take on abandoned facilities. Another $500,000 is identified for similar purpose in the FFY 2017 SRF Intended Use Plan. These funds are only for capital improvements and not for operation and maintenance.
Enforcement of violations is needed against permittees and operators of package WWTPs. Penalties on undercapitalized systems and with low revenue streams often can make repairs even more difficult. DOW’s goals are compliance and a long-term sustainable solution. Enforcement can push owners and operators of package WWTPs to abandon the facility.
Mr. Andrew Melnykovych, Communications Director for the PSC, discussed utility abandonment procedures. Abandonment does not equate to closure. Abandonment establishes an orderly process to address those situations in which an owner is no longer able, or willing, to operate a utility in a way that provides adequate services. KRS 278.020 and 278.021 establish an orderly process for the abandonment of a jurisdictional utility. There are two forms of abandonment: voluntary and functional (involuntary). Voluntary abandonment is where the owner/operator of the utility seeks to relinquish control and asks the PSC to declare the utility abandoned. Functional abandonment is where the PSC determines the existence of an imminent threat to health or safety of the customers or to the continued availability of utility service and initiates an abandonment case. In both types of abandonment, the statute directs the PSC to declare a utility abandoned if certain conditions occur with respect to the operations or financial viability of the utility. Financial non-viability tends to be the underlying in both types of abandonment.
Examples of issues leading to abandonment are: inability to get financing for capital improvements; inadequate cash flow for operations at current rates; unsustainability of rates necessary for adequate financing or operations; failure to pay wholesale suppliers, which is more prevalent in gas utilities; and loss of wholesale supply unrelated to financial issues.
The PSC’s process in abandonment proceedings includes (1) required notice from sewer utilities to a number of entities, including local government, (2) investigation, (3) hearing, (4) possible receivership, and (5) disposition, which would be either a return to the owner, liquidation, or closure. The PSC views abandonment as a last resort. Every abandonment case considers what options are available to provide continued service under the current operator. The PSC’s goal is to provide for continued operation of the utility. This usually means finding a new owner/operator. If continued operation of the utility is not possible, the PSC will seek to arrange an orderly closure that gives customers enough time to make alternative arrangements for the service provided. This may be done under the supervision of a receiver.
Cedarbrook in Harrison County is an example of a successful disposition to an abandonment issue. The Harrison County Sanitation District had been formed to take over the utility and operated as a receiver until it took over the utility services for Cedarbrook.
Mr. Roger Recktenwald, Director of Research Planning with the Kentucky Association of Counties, said that the more significant and consequential impacts of a system abandonment are visited mostly upon its customers. Mechanical devices must be maintained and updated over time. Utilities’ operations are ensured by regular inspections. The mechanical devices within utilities have an expected life and preparations must be made in order to not surprise customers with these expenses when the devices must be replaced. The customers of the plants must be the focus of managers, regulators, funding agencies, and others having involvement with the plants.
There has been a rash of abandonments. Package treatment plants operate differently than large, private, or public systems. The failing small package treatment plants have been charging rates lower than other treatment facilities.
Legislative and regulatory measures could further protect the customers and owners of existing, private wastewater systems in trouble, and assist with the results of a system abandonment when it occurs. These measures include: (1) consolidating DOW and PSC inspections and reducing the number of inspections on consistently complying systems, and increasing inspections on persistent violators; (2) granting inspectors greater flexibility and greater enforcement authority, requiring them to provide hands-on technical assistance and giving them the responsibility to follow-through to the point of problem resolution before making a referral to the Division of Enforcement; (3) devising and implementing formal, mandatory training for all owners/managers of private wastewater systems, similar to the trainings provided to board members of public systems set out in KRS Chapter 74 and conducted by the PSC; (4) encouraging KIA and DOW to continue the support provided to public utilities assisting with the aftermath of a system abandonment, through the SRF Program and possibly other targeted incentives; (5) requiring each private wastewater system to establish and fund a “facility replacement escrow account” for major equipment repair or replacement in the event of abandonment. The funds deposited in the account would be generated by customer contributions built into the system’s monthly rate structure, as approved by the PSC, and be accrued over time until a not-to-exceed amount has been reached. The use and control of the account would be limited exclusively to the entities that accept the responsibility of continuing the service to those customers affected by a utility abandonment. Funds accrued in the escrow account would not be considered a system asset and any funds withdrawn by the new owner would require prior authorization by the PSC; and (6) considering new legislation or regulations authorizing DOW to require a bond, in an appropriate dollar amount, for each permit holder of each private wastewater system, as a condition of granting a permit or for permit renewal that would be payable to the entity taking over the services in case of an abandonment. Kentucky law requires surety bonds for new facilities but does not require bonds for existing facilities.
Representative Riggs commented that bonding is a tool that is missing. A complaint that is expressed is that the PSC would not allow an adequate rate for the operation. Mr. Melnykovych stated that the rate-making process starts with the utility asking for a rate. A financial analysis involving necessary operational and capital needs accompanies rate increase requests. A problem has been that utilities are not seeking rate increases.
Representative Tipton commented that funding is imperative, and he favors the idea of alternative funding whether it be performance bonds or escrow accounts. Mr. Goodmann said that bond availability can be problematic and is concerned about mass abandonments. Appropriate rates are important. Mr. Melnykovych said bonds would be difficult to administer. The facilities were not intended to be permanent. Mr. Recktenwald added that the use of bonds needed to be researched. Package treatment plants will continue to be a useful tool.
Representative Belcher commented that incremental ways for funding plants needs to be reviewed. There has been a failed plant in her district since 2014, and something needs to be done because the affected citizens do not have time to wait.
In response to a question from Representative Belcher, Mr. Goodmann said that inspectors have access to engineers when a plant needs repairs. DOW has the power to enforce issues related to structural integrity of the plants.
Representative Belcher stated that Mr. Recktenwald made excellent suggestions.
In response to a question from Representative Wayne, Mr. Goodmann said that a developer has to submit a rigorous application for a permit to start a sewer package plant. Mr. Melnykovych added that the developer would have to come to the PSC for initial rates when the plant charges rates for service.
In response to a question from Senator McGarvey, Mr. Melnykovych said that in the last 3 years there were 7 utility requests for abandonment—not just from package sewer plants. A plant cannot be turned down for consideration for abandonment. The law states that the plant would be declared abandoned if the statutory conditions are met.
In response to a question from Representative Moffett, Mr. Goodmann said that since states operate in different manners, a best practice example is difficult to determine. Mr. Recktenwald noted that a conscientious developer would secure a certificate of need for the plant and apply for appropriate rates from the PSC. Mr. Melnykovych said that Arizona and California have unique procedures for abandonment.
Representative Linder commented that the problem is undercharging of rates.
Bio-Digester Location
Senator Bowen stated that he promised interested parties that the committee would discuss bio-digester location during the interim and that this meeting fulfills that promise.
Ms. Deborah Bilitski, Director of Develop Louisville with Louisville Metro Government, said that in February a six-month moratorium was put in place for bio-digesters to study the issue. In concert with public hearings, an ordinance was proposed and that the proposed ordinance from the Planning Commission to Louisville Metro Council included the following recommendations: (1) a bio-digester may be permitted in the M-3 zoning district upon the granting of a Conditional Use Permit and compliance with the listed requirements; (2) a bio-digester shall be a minimum of 2,640 feet from the nearest existing residential use, residentially-zoned property, college, school, institution of learning, religious building, park, playground, community center, hospital, nursing home, or assisted living facility; (3) vehicles delivering feedstock to the bio-digester shall not be offloaded until parked inside a fully enclosed receiving building; (4) all storage and process tanks shall have a berm with a concrete barrier to contain spills; (5) noise and landscaping standards are required that include full screening; (6) odor mitigation plans are required; (7) an emergency response plan is required; (8) traffic analyses are required to be submitted to the agency responsible for transportation planning; and (9) all biogas condensate shall be discharged into a sealed drainage system or recirculated back into the digester. Liquids may be discharged into a sewer only as approved by the Metropolitan Sewer District, or may be taken off-site in a closed tanker.
Mr. Brian Zoeller, with Bingham Greenebaum Doll, noted that Representative Riner’s bill from the 2016 legislative session intended to place controls on bio-digesters but did not become law. Louisville’s proposed zoning regulation is not supported by comparative regulations in other jurisdictions, is not supported by the science of anaerobic digesters, and is not consistent with other urban digesters operating throughout the country. One size does not fit all when it comes to regulating anaerobic digesters. Throughout the country, there are agricultural-based digesters, over 1,200 wastewater treatment plants using an anaerobic digester (municipalities, industrial—food and beverage, breweries, distilleries, and food manufacturers), and 38 standalone (non-agriculture and non-wastewater) anaerobic digesters (transfer stations and municipal solid waste).
There are several examples of existing urban-based anaerobic digester projects, which would not be allowed given the rules proposed by the Louisville Metro ordinance, and include locations in Brooklyn, New York, where tours of the plant are conducted; Louisville (Morris Forman WWTP); Bradenton, Florida (Tropicana Plant); Comstock, Michigan (Bells Brewery); Compton, California (Kroger Distribution Center); Buckner, Kentucky (Conagra Food Processing Facility); New Albany, Indiana (General Mills Plant, which is now closed); and Disney World, Florida (Harvest Power).
The food and beverage industry is the second largest industry in Kentucky and employs almost 50,000 people. The facilities typically generate waste streams that are well-suited for treatment using anaerobic processes. Digesters remove constraints for growth, facilitate expansion and job creation, and reduce stress on municipal systems such as wastewater treatment plants. Food and beverage companies in Louisville that could benefit from digesters include: Papa Johns, Dean Foods, Krispy Kream, Kellogg’s Snacks, Sysco, and Heaven Hill.
Waste streams are close to people. The potential risks of anaerobic digesters are mitigated when they are designed safely. There is limited energy content on-site which is approximately half of the energy of one tanker of gasoline. There is a narrow range for biogas to be explosive. The plants are built in compliance with fire codes, and ignition sources are limited. The plants include monitoring equipment, and the gas is contained at low pressure. Methane is lighter than air, so if there is an escape, it will dissipate. In addition, there are odor controls that are put in place.
Mr. Steve Estes, Chief Executive Office, Star Energy Holdings, said that his company had been working on anaerobic digesters in Kentucky since receiving an invitation to work on the food port in West Louisville. The technology for bio-digesters came from Europe which has 13,000 digester plants. The energy derived from digesters in some instances is used to heat homes, and digesters have been located in the neighborhoods containing the homes.
At the local level, his company has worked hard to educate people on the safety of these projects. No one disputes the necessity for waste diversion and the safety of these projects. The company has partnered with General Electric and has municipal solar installations in Benham in Harlan County, Kentucky.
Ms. Carol Travis Clark, California Neighborhood Leadership Council, noted that West Louisville is inundated with environmental injustices. Residents have respiratory disease from industrial and chemical factories. Anaerobic digesters are not conducive to being located in neighborhoods because of the gaseous products that they produce. The risks that accompany these gasses are explosions, fires, asphyxiation, hydrogen sulfide poisoning, disease and odor. The location of a digester will lower home values and raise insurance costs. The residents of the neighborhood want to feel safe.
Ms. Martina Kennecke, President of Neighborhood Planning and Preservation, Inc., (NPP) explained that in 2015, NPP joined with West Louisville neighborhoods, community advocacy groups, environmentalists and many concerned citizens to halt the construction of two methane plants in West Louisville Neighborhoods. During a visit to Louisville in 2015, an EPA official noted that the close proximity of the proposed anaerobic bio-digesters to residential spaces in Louisville would set a precedent. She said that no one from NPP would say that this technology should be ignored, as there is a garbage problem. There is a need to deal with waste. A loop using that waste to provide energy would be better than a linear approach.
The original plan indicated that the energy products would be shipped out of state. A favorable plan would benefit residents of Kentucky in terms of reduced energy costs. The original proposal would have the local neighborhoods bearing the costs and providing benefits to persons outside of the neighborhood and the state.
While the Brooklyn, New York digester is pretty, there are no homes across the street. The Disney location is guaranteed to have no unpleasant sights or odors. The local California neighborhood proposal has homes across the street, and pedestrians and traffic are in close proximity to the plant. Concerns with malicious intent regarding the plants and terrorism are ever-present.
The second proposed site off of Muhammed Ali Boulevard had homes about a block and a half or more from the site. The streets are narrow, and the truck traffic would disrupt quality of life in the neighborhood.
The plan seemed rushed. The group wanted more deliberation in the plan and expressed concerns about the developer.
During one of the preliminary meetings last year with Councilwoman Woolridge representatives of the project indicated that odors would not be present. A statement by an employee of the federal Environmental Protection Agency indicated that some plants had odors and some did not.
Keeping the plants profitable often necessitates a change in plan. The stillage from Heaven Hill, for example, may not be enough to keep the plant in operation. A plant in Wisconsin did suffer an explosion of one of its digesters.
The technology will come on like gangbusters. What the group is asking for is good planning and that Kentucky developers benefit.
Mr. Tom Fitzgerald, Executive Director of the Kentucky Resources Council, deferred his allotted time to speak, but noted Representative Riner’s and Metro Councilwoman Wooldridge’s involvement in the issue. The process works. A flexible, nuanced, and metered ordinance that is not “one size fits all” and that tries to ensure that these types of facilities are compatible with nearby land uses is being sent to the metro council for consideration.
Representative DuPlessis commented that some bio-digesters have a smell and some do not. Government should not dictate who builds the plants as long as the plants are engineered correctly and according to established standards. There needs to be legislation that enforces strict guidelines for odor and safety, but is not restrictive to the technology. He would like to see a balance.
Ms. Kennecke agreed, but suggested that engineers’ primary concern is whether the plant is working correctly technically. They do not have the day to day experience which speaks the truth for the community. Who brings the technology is not a decision of the government, but is a decision of the public regarding who could be their potential neighbor.
There being no further business, the meeting was adjourned at 11:55 a.m.