Earlier this month, amid a flurry of news about health care, hurricanes, and rising tensions with North Korea, President Donald Trump announced that he would nominate retired coal executive Kenneth Allen to the board of the country’s largest public utility.
Allen’s impending nomination to the federally-owned Tennessee Valley Authority typifies the Trump administration’s approach to political appointments: Find someone deeply embedded within the industry they will now oversee, and set off a slew of new conflict of interest concerns.
The Tennessee Valley Authority (TVA), which was founded in 1933 by congressional charter and currently serves nine million consumers across seven states, provides electricity to consumers and local power distributors across the southeastern United States. Members of its nine-person board of directors help guide policy for the utility, including signing off on long-term planning and deciding what kinds of power sources to add or retire. That means that, if confirmed to the board, Allen could end up in a position to directly boost the relationship between the TVA and his former employer, Armstrong Coal.
But more than giving Allen a chance to guide the TVA toward coal-friendly policies, serving on the utility’s board could offer Allen an opportunity for personal enrichment. TVA has been a longtime customer of Armstrong, and still currently purchases coal from the company. And, according to public filings, Allen is still receiving payments from his former employer on the basis of the amount of coal mined and sold from various Armstrong-owned properties.
According to company filings with the U.S. Securities and Exchange Commission (SEC), Allen received $484,165 in compensation from Armstrong in 2016, his last full year of employment with the company. Allen’s compensation came from a combination of salary, bonuses, and money earned from an “overriding royalty agreement,” wherein Armstrong agreed to pay Allen $0.05 per ton of all coal mined, extracted, and sold from certain reserves held by the company.
More than half of his income — $209,165 — came from the overriding royalties agreement. That same year, Armstrong produced 5.9 million tons of coal from its five active mines. According to the agreement, Armstrong will continue to pay overriding royalties to Allen until 2027 or until all recoverable coal covered by the agreement has been mined. If Armstrong’s production continues at the 2016 level, Allen is set to make some $2 million over the next decade from the sale of coal.
“In my view, it would appear to me that it is a blatant conflict of interest, given that the TVA is a public utility,” Stephen Spaulding, chief of strategy and external affairs at Common Cause told ThinkProgress. “Given that Armstrong Coal has done business with the TVA, that’s a textbook definition of a conflict. The way forward would for him to divest of any financial interest in Armstrong Coal.”
Allen’s employment agreement with the company — outlined in SEC filings — states that the royalty agreement would only end if Allen were terminated without cause; there is no indication that such an event took place before Allen left the company on June 1, 2017. Armstrong Coal did not respond to ThinkProgress’ repeated request for comment or clarification.
While working as Armstrong’s COO, Allen criticized TVA’s plans to retire two coal-fired units at the utility’s Paradise Steam Plant in Kentucky, saying the closure would have a “dramatic effect” on local coal producers like Armstrong Coal. In 2014, at a Greater Muhlenberg Chamber of Commerce Meeting in Kentucky, Allen argued that retiring those units would impact both coal’s share of power generation in the state as well as cost the state hundreds of jobs (those units were retired in early 2017, and replaced by natural gas). In doing so, Allen effectively argued that the TVA’s transition away from coal — and towards cheaper, cleaner sources of energy like natural gas or renewables — would negatively impact Armstrong’s business.
Allen has also been a long-time critic of attempts to reduce greenhouse gas emissions from the power sector because he sees the effort to reduce pollution as an economic threat to the coal industry. In 2014, he blamed EPA regulations — as well as low natural gas prices — for the closure of a mine in Kentucky, as well as the subsequent layoff of more than 100 workers. Allen criticized Obama’s efforts to curb pollution from coal-fired power plants, calling the Clean Power Plan “the most onerous regulation in American history.” He argued that the rule would have “devastating consequences on America’s economy,” and said that the Clean Power Plan would “slam the door shut on an already-reeling coal industry.”
The TVA has a complicated history with coal. The utility currently operates eight coal-fired power plants, and its record has been marked by serious coal-related pollution issues, from coal ash leeching into groundwater to the largest coal ash spill in U.S. history. Over the last decade, however, the utility has made efforts to move away from the fuel source, making plans to take some 5,000 megawatts of coal out of its energy mix in the next few years.
Earlier this year, TVA CEO Bill Johnson told the Associated Press that retiring old coal plants made the most financial sense for TVA consumers — and that the trend would likely continue despite the Trump administration’s promise to revive the coal industry.
“Our statutory duty is to produce electricity at the lowest feasible rate,” Johnson said. “And when we decided to close the coal plants, that was the math we were doing. We weren’t trying to comply with the Clean Power Plan or anything else. What’s the cheapest way to serve the customer? It turned out to be retiring those coal plants.”
But Johnson acknowledged that Trump could have an influence on the direction of the utility through his nominations for the board of directors, which consists of nine members. Four Obama appointees remain, meaning that if Trump’s four nominees are confirmed, the board will be equally split (for unknown reasons, Trump chose not to fill the ninth seat at this time). That means that a single board member will likely exert limited influence on the board as a whole — but that could change in coming years, as Obama appointees’ terms expire, allowing Trump to eventually gain a majority within the board.
And while a single board member exerts limited influence over the board as a whole, Stephen Smith, executive director of the Southern Alliance for Clean Energy, noted that Allen is not a typical nominee.
“I cannot easily pinpoint another individual that was appointed to the TVA board that had the kind of narrow background to one particular fuel source that Allen represents,” Smith told ThinkProgress. “I think he will be a man on a mission, to some degree, and given that his entire career has been dedicated to coal, that mission will be to push a pro-coal agenda within TVA.”
Amanda Garcia, a Tennessee-based staff attorney with the Southern Environmental Law Center, agreed with Smith’s assessment, describing Allen’s nomination “strange,” especially at a time when the utility itself seems to be actively moving away from coal.
“Trump’s nomination of Mr. Allen raises the specter that Trump intends TVA to be ground zero for his coal protectionist agenda,” Garcia told ThinkProgress in an email. “Given Mr. Allen’s background as a coal industry executive, we expect the Senate to fully investigate whether he satisfies all of the qualifications for Board service, including fully disclosing his financial interests in the energy industry and upholding TVA’s commitments to providing low-cost power, technological innovation, and environmental stewardship for the Valley.”
If confirmed to the TVA board of directors, Allen’s agreement with Armstrong would violate the utility’s conflict of interest policy, which states that directors cannot hold financial interest in any entities engaged in the generation, transmission, or sale of electricity, or in any company that would reasonably be perceived to be adversely impacted by the success of the TVA.
According to Craig Holman, government affairs lobbyist with Public Citizen, federal ethics laws require that Allen divest from his financial holdings within one year of his confirmation. The law further requires Allen to recuse himself from any actions on the TVA Board of Directors that would directly or substantially impact Armstrong Coal until his divestiture is complete.
“The TVA code of conflict is very clear on this matter: Kenny Allen is required to divest himself of the conflicting financial arrangement with Armstrong Coal within one year of joining the board of directors,” Holman told ThinkProgress via email. “As long as Allen’s compensation is tied to the success or failure of Armstrong business activities (beyond $25,000), he holds a financial conflict of interest with his official duties on the TVA board.”
A TVA spokesperson told ThinkProgress that the utility would not be looking into potential conflicts of interest regarding any directors until after the nominees have been confirmed by the Senate. And while there is currently no confirmation hearing scheduled for the nominees, it’s unlikely they will face much opposition from the Republican-led Senate (though nominees will have to go through the confirmation process before the Senate Environment and Public Works Committee). After Trump’s nominees were announced, several Republican Senators issued statements of support, with Senate Majority Leader Mitch McConnell (R-KY) specifically praising Trump’s nomination of Allen, calling him a “strong choice” and citing his “experience providing affordable and reliable energy.”
Like many other coal companies in the United States, Armstrong has noted a significant downturn in profits in recent years, claiming a net loss of $17.2 million in its second quarter of 2017. Citing “recurring losses from operations,” the company noted in August that it might need to file for bankruptcy in order to restructure, or else face “involuntary bankruptcy or liquidation” from its creditors. If Armstrong were to voluntarily file for bankruptcy, it would be the seventh coal company to do so since April of last year. Even if Armstrong were to lose the mining operations covered by their royalty agreement with Allen — through sale, bankruptcy, or for some other reason — the agreement is set to “run with the land,” meaning that Allen would simply receive royalty payments from the operations’ new owner.