Making Sense of the Rockwool Controversy

Plans by Rockwool (formerly Roxul USA, Inc.) to construct a 463,000 sq. ft. manufacturing facility in the City of Ranson have recently met with a firestorm of opposition. The facility, to be constructed on the old Jefferson Orchards property, will manufacture mineral wool insulation used in home and commercial construction.  Opponents argue that the plant will emit huge amounts of toxic air pollution in close proximity to schools, and claim that the approval process was intentionally under-publicized to avoid opposition. Proponents argue that this is the single largest development project in Jefferson County since the Penn National Casino, and that it will create 150 well-paid manufacturing jobs, boost ancillary business and generate tax revenue for a substantial future period. To a large extent, this has become a contest of values.

I admit that I have come to this controversy late and that there is a lot I don’t yet understand. As an observer, I was initially impressed with the maturity with which both sides approached it. Recently, however, the rhetoric from the anti-Rockwool faction has gotten rough and somewhat personal. Yet it is apparent that we are not dealing with villains on either side. One can hardly blame Rockwool for trying to develop its business in the U.S. or the JCDA for recruiting Rockwool to the county. The Rockwool project is the kind of development the JCDA has been pursuing for decades. It is what Authority members have understood their jobs to be. Conversely, the opposition is not made up of eco-terrorists determined to wreck any development initiatives. There is sincere concern about the environmental impact of this facility, as well as what it means for further industrial development in Jefferson County.

The Product and Manufacturing Process

Mineral wool insulation has become increasingly attractive in the building process because of its efficiency as an insulator and its fire resistance. Rockwool products are produced from a combination of natural basalt rock and recycled slag from the steel industry. These are melted, spun into a fiber and cured into insulation. The company claims that buildings account for 40% of all energy use, and two-thirds of that is used for heating and cooling. It argues that insulation can play a key role in reducing heating and cooling costs, reducing greenhouse gas emissions, and providing a more comfortable work/living environment.

Rockwool’s November 2017 application to the WVDEP stated that the furnaces will be fueled by both coal and natural gas. Milled coal will be delivered by truck and the gas by pipeline. At that time there were no overt plans for a gas pipeline to Ranson. But lo and behold, on June 16, 2018 Mountaineer Gas announced a new route for its proposed pipeline so it could serve the Rockwool project.

All other raw materials will arrive at the site by truck and be stored in enclosures or piles. One factor not sufficiently addressed by either side, or the state of West Virginia, is the cost of wear and tear on our highways from the heavy truck traffic, which will divert funds earmarked for road repair elsewhere.

The furnaces will operate at extremely high temperatures – greater than 2,700 F. Various filtering and capture technologies will be used to reduce the emissions from the process.  But excess heat from the furnaces, as well as particulate and greenhouse gasses that are not captured or filtered, will be emitted out of two 21-story smokestacks. Molten rock and slag will be extruded from the furnace, then spun and formed into the finished wool insulation, which will be shipped out of the facility by truck.

Rockwool recycles its own waste and when fully operational the facility will deliver no waste to the county landfill. The water and much of the heat generated in the manufacturing process will be captured and re-used.

Emissions and the Permitting Process

A critical step in the approval process for a new industrial site is an application to the West Virginia Department of Environmental Protection for a Prevention of Significant Deterioration (PSD) permit. A permit is required where a new facility is proposed for an area like Jefferson County that either has none of the regulated pollutants or is below the regulated maximum.

The application explains the manufacturing process and the places and manner in that process where emissions will occur. It then seeks to demonstrate that those emissions are below the limits set by federal and state regulations. This is an important point. Our federal and state governments have already decided what level of pollution is acceptable from “new sources.” If an applicant can show that its proposed facility will operate within those limits, then the regulations say the Secretary “shall” issue the permit unless there is some extraordinary reason not to do so. Many of us do not like where that leads, but that is reality.

The initial application for a permit was submitted by Rockwool on November 20, 2017. This application described the emissions expected from the facility’s operation. Public notice of the application was given in the November 22, 2017 Spirit of Jefferson. The notice, which was in the same size print as all other legal notices, listed the chemicals and particulate matter that have since become the major focus of opponents.

For example, Rockwool announced that its operations might annually emit 239 tons of nitrogen oxides, 148 tons of sulfur dioxide, 74.1 tons of carbon monoxide, 153,000 tons of carbon dioxide equivalents, 104 tons of methanol, 67.6 tons of formaldehyde, and so on. The public notice announced that written comments would be received by the WVDEP for 30 days and provided the telephone number for inquiries. This notice complied with the applicable regulation. In my opinion, opponents need to do better than to allege that Rockwool was somehow sneaky in notifying the public.  If there is any bone to pick with the process, it is with the laxity of the public notice regulations, not Rockwool’s compliance with them.

The WVDEP is required to make available for public inspection all of the relevant documents and to put another notice in a newspaper of general circulation containing the same information from the first notice, but additionally that there has been a preliminary determination in favor of the permit, soliciting public comment and providing the procedures for requesting a public hearing. This was published in the Spirit of Jefferson in March 2018. No public hearing was requested by any interested party so WVDEP did not hold one. As a state we should do better than this. Public hearings should be required for major new source pollution, not optional.

Apparently the emission amounts proposed in the application were below the permitted level in each case because the final permit, issued on April 30, 2018, approved the emissions.  Then on September 18, 2018 in response to the furor about the agency’s actions, the WVDEP issued the following statement:

There is no scientific evidence to suggest that the proposed facility will adversely affect human health or the environment. In addition to its plant in Mississippi, Rockwool has operated a similar facility in Canada for approximately 30 years. Based on the performance of the operations in Canada and Mississippi, and the WVDEP’s stringent air quality permit application review process, there is no reason to suspect that the facility in Jefferson County poses a threat to people living nearby or to the environment.

We are now left with the prospect of significant increases in toxic chemicals and particulate matter being emitted into the atmosphere at the Rockwool site, although most likely these will affect our neighbors to the east more than us. Notwithstanding Rockwool’s compliance with state emission limits, the Jefferson County environment will be considerably dirtier than before. The question is whether we value a clean environment more than the economic benefits that will accrue from the Rockwool project.

The Economic Bargain

The principal economic benefits Rockwool will bring to our community are manufacturing jobs and a substantial improvement in the property tax base that will fund schools. One thing our economy has lacked is solid manufacturing jobs for medium-skilled high school graduates. Rockwool says that when it is fully staffed, there will be 150 new jobs. A good portion of the 150 jobs, let’s say 120, will be in this category.  Others will be management and clerical jobs. Opponents argue that while all jobs are important, Jefferson County has 57,000 residents. They say 150 jobs are not worth selling our environmental soul.

Although Rockwool hasn’t disclosed a wage scale, competitive manufacturing jobs pay in a range between $15 and $22 per hour, in addition to benefits somewhere in the range of 22% to 40% of the wage rate.  So I’m figuring the annual payroll for Rockwool manufacturing jobs will be in the neighborhood of $6,500,000 ($20/hr. + 30% benefits x 2080 hrs. x 120 jobs). This money will be subject to state income tax and will circulate in the economy, boosting ancillary businesses such as grocery stores, gas stations, and the like. But it is not accurate to say that all this will be new money Rockwool brings to the county. Probably all of the people employed at Rockwool will come directly from other jobs, since unemployment is at an historic low. The new money will be the difference between what they were paid before and what they will earn at Rockwool.

In ten to twelve years, Rockwool will be paying millions of dollars of property tax to Jefferson County and the City of Ranson. Since these taxes will be based on the value of the taxed property at the time, it is hard to guess what they will be. We do know, however, that between 2020 when manufacturing operations will begin and 2030, Rockwool will pay vastly reduced taxes through what is called a PILOT Agreement. The Pilot Agreement has been approved by the Jefferson County Commission, the Jefferson County Board of Education, the City of Ranson, and several other officials.

The PILOT Agreement calls for real property tax payments of $225,000 in 2020 but no additional payments until 2026, when Rockwool will begin making escalating payments until an $815,000 payment in 2029. Presumably Rockwool will make full real property tax payments thereafter, which are not likely to be less than the 2029 amount.  Rockwool expects to install perhaps $75,000,000 in new equipment at the facility, but this will be completely exempt from personal property tax until 2028. Then the PILOT Agreement will permit personal property tax on the machinery, but will artificially lower the value of the machinery on which the tax will apply to 5% of its depreciated book value. This sounds like a sweet deal for Rockwool.

Some Conclusions

Although our decisions can’t be driven by this, it is hard to imagine any county in West Virginia – except Jefferson – that would turn down the opportunity for a facility like Rockwool, even considering the environmental impact. Most would be doing back flips to get it. Perhaps it is our relative affluence that allows us to be choosier.

So I am tempted – almost – to be understanding about the Jefferson County Commission’s role in this. When one looks around for a governmental body that could have slowed the process until everything was fully vetted and discussed, that body was the County Commission — not the JCDA which, as noted, is supposed to go out and secure opportunities for us to evaluate. Instead, all the Commission really did was climb on the bandwagon. The Commission has since issued a memo saying that it had no control over anything except whether the county signed on to the PILOT Agreement, but this ignores political reality and how much influence and control the Commission could have exerted if it had been solidly against the project.

Now some Commissioners are running for cover. Commissioner Tabb was one of the county officials who visited the Rockwool plant in Mississippi and was impressed with what she saw. But as of August 2, Commissioner Tabb changed her mind because of the citizen opposition to the air quality issue. She now opposes Rockwool. At the same August 2 Commission meeting, Commissioner Hudson said that the Rockwool situation is “starting to smell like a skunk.” Commissioner Compton also claimed he is opposed to the Rockwool project, saying “The reason I agreed to this was I essentially thought it was going to bring jobs. Did I think it was to this extent of pollution and whatnot? Absolutely not.”

It is not clear to me that anything can be done to stop the Rockwool project at this point. Permits have been issued and binding contracts have been entered. Rockwool has spent lots of money in reliance on these. If the County Commission or one of the other governmental agencies that approved the deal backs out, there will be expensive litigation and an uncertain result. Indeed, Rockwool through its attorneys sent a letter on September 12, 2018 asserting that the company would suffer damages up to $100 million if the Commission delayed the project.

What is clear is that the citizens of Jefferson County have not been well-served by our County Commissioners. They did inadequate due diligence and had no clue about about public sentiment on the environmental issues. As but one example, here is a statement in the PILOT Agreement that Peter Onoszko signed as Chairman of the JCC:

The Commission has found that the [Rockwool transactions] will promote the public interests and public purposes by, among other things, providing certainty and soundness in fiscal planning and promoting the present and prospective prosperity, health, happiness, safety and general welfare of the people of Jefferson County.

Really? That’s not going to go down well with the thousands of people who have signed up on the anti-Rockwool Facebook page and who pack public hearings night after night. Instead of owning their failure, our Commissioners profess to have been either duped or powerless. There needs to be some accountability in November.

Industrial Development in West Virginia

In early November 2017, West Virginia economic development officials announced a memorandum of understanding with China Energy, said to be the world’s largest energy company. The deal would involve an $84 billion investment in various West Virginia energy projects over a twenty-year period. These projects would focus on power generation, chemical manufacturing and underground storage of natural gas liquids and derivatives.

The central project would be the development of an “Appalachian Storage and Trading Hub,” which in simple terms would be an underground storage cavity into which natural gas would be pumped. Development officials have long argued that easy access to natural gas products via the hub and pipeline infrastructure would attract investment from the chemical and plastics industry.

The potential for more fossil fuel and petrochemical development has set off the predictable debate between environmentalists and progressives on one side and business interests on the other. The first volley came in an opinion piece in the Charleston Gazette-Mail on December 3, 2017, by Lissa Lucas, a candidate for the House of Delegates from Ritchie and Pleasants Counties. She argued

I can’t help but compare this [potential Chinese investment] to Antero’s $275 million dirty “investment” in my county, which has resulted in a frack dump upstream of the only public drinking water intake in the county, destroyed roads and an invasion of 600 freight trucks a day on a small community, in exchange for a handful of jobs that may not even go to local people.

She made two important points. First, natural gas collection and storage is dangerous. This was later confirmed in the Washington Post on December 13, 2017, which reported that a huge natural gas collection and distribution hub in Austria exploded the day before. Lucas pointed out that West Virginia is simply not prepared for industrial disasters now, much less those we would risk from the Appalachian Storage Hub. Second she argues that instead of further investments in fossil fuel extraction, West Virginia should be investing in “renewable tech” like solar panel manufacturing.

The response came in the December 5, 2017, Gazette-Mail from Mark Sadd, a Charleston lawyer representing energy and development clients. He first attacked Lucas as advancing a “reactionary” point of view because she rides “this broken progressive horse of politics and policy.” He argued that the new Republican majority in the Legislature has thrown off these progressive shackles, which he blames for decades of sluggish growth.

[Lucas’] damning rhetoric omits the possibility that politicians of opposing views genuinely believe that mineral extraction, though messy and polluting, on balance creates more advantages than disadvantages for their constituents and the greater society. For West Virginians, it enriches thousands of households with royalty income hitherto unrealized and fills government coffers through severance and other tax revenue.

He closed his piece by making this bold but incorrect assertion: “there is mounting evidence . . . that a strategy of lower taxation, privatization, deregulation and legal reform . . . is working for West Virginia.”

These two opinion pieces are great examples of the depth of our culture war. Since no details of the China Energy deal are available, and it may never happen, neither of these commentators is able to make any factually grounded arguments pro or con. They have both simply reacted reflexively, expecting the worst because of the opponent on the other side of the debate. Lucas sees greedy corporations and foolish politicians; Saad sees anti-progress environmentalists and progressives.

Saad is correct on one thing — environmentalists and progressives often automatically oppose any industrial development, no matter how it might contribute to prosperity. There is no way this can be a winning strategy. Instead we need to evaluate carefully any proposed industrial development and learn to welcome the best among them. These are not always going to be the clean tech kind Lucas advocates, but often they will be.

What should this evaluation entail? Here are some things to consider. What tax incentives are necessary to secure the development? These incentives frequently reduce property taxes on the developed property in hopes that income tax revenues over the long term will be more valuable. But this depends on how long the development will be in productive use and how many new jobs are created. Where will the development be located and how will it mesh with the existing culture and economy of the place? How will the true costs of operation be internalized into the development? Taking Lucas’s example of destroyed highways, how will the proposed development clean up its own mess instead of requiring the taxpayers to do it? What are the environmental risks and how likely are they? How realistic is an industrial disaster? How many West Virginians will be employed? For how long? In what jobs? The list is long.

In the Eastern Panhandle, we have recently had the same sort of debate over the proposed Potomac River Pipeline, which would provide natural gas to Morgan, Berkeley and Jefferson Counties. Opponents argue that the law now makes the ratepayers responsible for reimbursing Mountaineer gas for construction of the pipeline. They also point out that Mountaineer Gas would have the power of eminent domain to take private lands for the construction of the pipeline. And they argue that there are two pipeline incidents in the U.S. every day, including the 2012 Columbia Gas pipeline explosion in Sissonville, West Virginia, that destroyed several homes and melted an 800-foot section of I-77. Separately, the Pipeline and Hazardous Material Safety Administration reports that between January 2010 and November 2017, our natural gas transportation system leaked 17.55 billion cubic feet mostly of methane gas.

Taking the opposite position in the Martinsburg Journal, former Jefferson County Development Authority Executive Director John Reisenweber and Authority President Eric Lewis exhorted us to “build it now.” I think it fair to say that neither of these two gentlemen has ever met a development project he didn’t like. In the article they pointed out that natural gas is far more environmentally friendly than other fossil fuels. They further minimized the risk of accident by noting that there are already a dozen gas pipelines under the Potomac. But their major point was that the lack of natural gas has prevented industrial development in Jefferson County. Here we get to the nub of the issue.

Two of the factors to consider with respect to any industrial development project are where it will be located and how it will mesh with the existing culture and economy of the place. Putting aside the arguments about safety and environmental risk involved with a pipeline, do we need industrial development in Jefferson County? I think the answer is no.

Our unemployment is the lowest in the state and well below the national average. Our per capita income is the highest in the state. Our economy is based solidly in tourism, recreation, agriculture and government employment. A factory might be right for Berkeley, which has a history of large industrial installations and will soon be home to a gigantic Proctor & Gamble plant. But smokestacks are clearly not right for Jefferson. This view is not anti-development, it is simply opposed to the wrong kind of development for us. And since the industrial development that a gas pipeline would bring would be wrong for Jefferson County, we don’t need to decide who is right about a pipeline’s environmental impact or safety.

West Virginia’s High Stakes Stimulus Plan

The West Virginia Legislature has a single required duty when it meets each year — pass a balanced budget. When the regular session began in early 2017, the revenue available for funding state programs had dropped to $4.05B, approximately $500M less than was spent in the previous fiscal year. Against this backdrop, Governor Justice proposed a number of new revenue sources and programs, few of which got any traction.

Being in no mood to raise new revenues, the Legislature was prepared to force the state to “live within its means” by drastically cutting programs and services. But on June 13, at the proverbial last minute, the Governor sent a letter to the Speaker of the House of Delegates with a revised revenue estimate of $4.225B. This higher revenue estimate enabled the Legislature finally to pass a budget without hyper-cuts to state programs. But the estimate was based on wishful thinking and may force the Legislature to confront an even larger deficit next fiscal year.

Careful readers of the Governor’s revised revenue estimate would have noticed a portentous footnote that made his higher estimates dependent upon the passage of two bills related to roads:

These estimates are contingent on revenues and projected economic activity associated with the passage of Engrossed Senate Bill 1003, relating generally to WV Parkways Authority, and Engrossed Senate Bill 1006, increasing funding for State Road Fund, as recommended by the Governor.

So the final budget commits the state to certain spending in FY 2018 that will be “funded” by uncertain, estimated tax revenues from future economic activity. According to the Governor, that increased economic activity will be generated by ramped up roadbuilding and repair, itself dependent upon the public sale of new bonds. The bulk of these new bonds cannot be issued until voters approve the bond issue in a special referendum to be held October 7, 2017.

In fairness, $140M in new revenues for the roadbuilding effort will be secured by the $.035 per gallon increase in the gasoline tax, increasing the motor vehicle privilege tax and a variety of new DMV fees. Plus $400M to $500M in new bonds will be sold by the West Virginia Parkways Authority and financed by increased Turnpike tolls. The roadbuilding from those bonds will be confined to ten southern West Virginia counties contiguous to the Turnpike.

But the large majority of the new bond revenue will depend on public approval in the special referendum. This will be the second largest roadbuilding bond effort in state history and, if successful, will raise about $2.4B. The last such effort was a 1996 road bond amendment for $550M, or about $859M in today’s dollars. One major worry is whether the bond referendum will pass. Between 1973 and 1996, voters defeated road bond referendums three times and no road bond proposal has been before the public in 21 years.

In his public statements about the issue, Governor Justice has been apocalyptic about the possibility of a failed bond referendum, warning “[i]f it fails, this state is history. That’s all there is to it. . . . You will have a complete melt-down if this doesn’t go through.” Even if the referendum does pass, several months will be required to sell the bonds, issue and award contracts and get construction underway. None of the roadbuilding and repair financed by these new bonds can begin until the spring of 2018. On this schedule the state is unlikely to benefit from any increased economic activity until FY 2019.

There are other problems with relying on future economic activity from roadbuilding to fund the budget. Clearly there will not be a one-to-one return on the dollars spent, at least in the short run. A certain segment of the funds generated by the bonds will be consumed in state administration, and another segment in overhead and profit for the roadbuilding companies. Although wages to laborers will increase while the work is underway, there is no guarantee that these laborers will spend the money in West Virginia or be taxed as residents here.

On the other hand, there is an economic multiplier that always increases the benefit of public spending as it gets recycled through the economy. If we are careful, each stage of this spending can yield tax revenue. Furthermore, better roads will have a long term, although hard to measure, positive impact on the ease of commerce and may be part of attracting new business. The best that can be said for the roadbuilding stimulus is that it can pay off if everything goes according to plan or better. Yet how often does this happen?

The Governor should get some credit for pushing these measures through. He will certainly be the goat if, as seems likely, the expected revenues do not materialize in FY 2018 and the Legislature faces a larger deficit next spring.

The benefits from a roadbuilding stimulus plan, even if they occur, will mostly be short term – while the roadbuilding is underway. What we need instead of short term, stopgap measures, is a serious plan to stabilize and grow revenues. The Legislature knows what revenue tools are available – income taxes, sales and gross receipts taxes, excise taxes on certain items, estate taxes, and others. We need the proper mix of these revenue tools so that we take full advantage of good economic times in the coal and gas industry, but also have solid revenue streams when these industries decline. Above all we should avoid the faddish, trickle-down economics of corporate and personal income tax cutting so favored by some conservative Republican legislators.

 

 

Broadband in West Virginia

On December 4, 2016 the Legislature’s Joint Committee on Technology met to receive the report of the new Broadband Enhancement Council. Unfortunately, few legislators showed up but among those who did were Del. Paul Espinosa (R – Jefferson, 66) and Del. Sarah Blair (R – Berkeley, 59). Many Democrats were defeated in the election and new Delegates have not yet been assigned to committees.

It is widely accepted that fast broadband speeds are essential in the competition among states for new business. Other benefits include broadband-enabled virtual visits with medical professionals, lower cost online education and online job searches. We need adequate broadband throughout West Virginia but, as in many other ways, we lag far behind the rest of the country. Thirty percent of West Virginians do not have access to internet upload and download speeds that meet the FCC’s definition of broadband, and 50% of rural West Virginians do not. We rank 48th in the nation when it comes to broadband access.

The Council’s report was presented by Chair Robert Hinton, who is also the Executive Director of the Upshur County Development Authority. Hinton’s presentation was energetic and knowledgeable. He made clear that the Broadband Enhancement Council favors a 100 Mbps standard in West Virginia instead of the slower 25 Mbps standard that now is considered by the FCC to be broadband. The discussion raised the possibility of public/private partnerships to build out the “middle mile” infrastructure that will supply broadband to the unserved.

The middle mile can be likened to the interstate highway system connecting large distances, while the last mile can be likened to off-ramps and local streets. The last mile is the actual connections to broadband end users from the middle mile. Because of West Virginia’s terrain, the middle mile might be more complicated and expensive to construct here than in other states.

According to Hinton, a public/private partnership might involve state funding for construction of the middle mile in exchange for commitments from the providers, such as Frontier Communication, to build out the last mile and provide service at certain speeds or perhaps at a certain price.

Del. Espinosa, who is a former Frontier executive, asked several questions. Without referring specifically to the public/private partnership idea, Espinosa asked Hinton about proposed legislation from last session that would have required broadband providers to meet certain minimum broadband speeds. Espinosa said that he would be concerned about any requirements placed on providers that might end up “causing some people to lose service altogether.”

Espinosa later clarified his remarks, saying that that in his view there is already adequate middle mile infrastructure in West Virginia. The issue according to him is the last mile connections. He said there are customers in rural areas who are satisfied with as little as 3 Mbps and don’t want to pay for more. A state-mandated higher speed, with its likely greater cost to consumers, might actually cause some consumers to drop internet service. But it doesn’t seem like much to ask that providers figure out how to provide fast broadband service to all users, even those who would choose a less costly option, at a satisfactory return on investment. After all, this is the business they are in and providers in other states have solved the problem.

The Legislature will have to be sensitive to the industry’s ROI issues, but before long it should require internet providers to be creative and flexible about how to serve West Virginians.