FRANKFORT, Ky. (Legal Newsline) – A Kentucky federal judge won’t stop state legislation that out-of-state coal producers claim discriminates against them – for now.
U.S. District Judge Gregory Van Tatenhove refused to grant Illinois-based Foresight Coal Sales’ motion for a preliminary injunction on Nov. 3, but he also did not grant Kentucky’s motion to dismiss.
“Although time may ultimately prove Foresight to be correct about the effects of S.B. 257, the principles of federalism instruct that a federal court should be reticent to enjoin a state law before the effects of that law have been borne out, except in the most extreme circumstances,” Van Tatenhove wrote.
At issue is a law that benefits state like Kentucky that impose coal severance taxes while harming companies from states that don’t.
When the Kentucky Public Service Commission evaluates rate changes to determine if they are fair, SB 257 says they weigh bids “based on the cost of the fuel less any coal severance tax imposed by any jurisdiction.”
Kentucky charges a 4.5% severance tax on coal mined there, while Illinois does not. Foresight says if its bids are lower than a Kentucky company’s, the Kentucky producer’s will artificially appear to be lower when the tax is factored in.
According to the suit, the PSC initiated the legislation to "preserve economic union and suppress interstate rivalry." The plaintiff says that such legislation violates nondiscrimination requirements and creates unfair commercial disadvantages.
Van Tatenhove had already rejected Foresight’s motion for temporary restraining order because he said the company failed to show it was likely to succeed on the merits.
Foresight argued the judge could block the law because it has already caused the company to change the way it conducts business.
“Here, the law does not award tax credit and there is no quid pro quo element to the law,” the judge wrote.
“Second, there is no monetary benefit to Kentucky should any other states decide to enact, modify or repeal their severance taxes. Finally, the law applies to any jurisdiction that imposes a coal severance tax and therefore is not discriminatory on its face.”