It seems like when killing a mob with 'lightning' spell the mobs do not drop any items. I am not sure if this is intended or if this is a cause of the lightning effect being seen as 'environmental damage'? I've noticed that other forms of lightning such as a 'thundering' enchantment from another mod does allow for mobs to drop loot.

This is intended. Ars Elemental adds a focus that lets you preserve drops.