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A surface coal mine south of Gillette. The downturn in coal markets has some environmental groups and states questioning whether companies have enough funds to complete reclamation of mined lands. (Greg Goebel/Flickr Creative Commons)
Market woes raise questions over coal mines’ cleanup funds
Originally published by E&E April 28, 2015, and republished here with permissions — Ed.
Environmental advocates and states are scrutinizing coal mining company financial reports to determine whether they have enough money to cover the cost of returning sites to pre-mining conditions.
The Surface Mining Control and Reclamation Act, signed by President Carter in 1977, requires companies to provide bonds or other financial assurances just in case they go bust and can’t meet their legal obligations.
States like Wyoming and West Virginia allow companies to self-bond, as long as they meet certain requirements. But the coal mining downturn is raising questions about the ability of companies to make good on their promises.
“Taxpayers must not be left to foot the bill if these companies go bankrupt or attempt to escape their obligations through financial engineering,” said Bob LeResche, Western Organization of Resource Councils chairman and Powder River Basin Resource Council treasurer. “This was the promise made with the passage of [SMCRA] almost 40 years ago.”
Advocates say Wyoming, the nation’s top coal mining state, is central to the discussion because companies have about $2 billion in self bonding, mostly Alpha Natural Resources Inc., Arch Coal Inc., Cloud Peak Energy Inc. and Peabody Energy Corp. In March, WORC and the Powder River Basin Resource Council sent the Wyoming Department of Environmental Quality a letter asking whether Alpha still qualified for self-bonding.
The groups noted that “figures published in ANR’s latest public filing with the Securities and Exchange Commission suggest that ANR no longer maintains a ratio of ‘total liabilities to net worth of 2.5 times or less'” as required.
Alan Edwards, acting head of Wyoming DEQ’s Land Quality Division, said in response that the state was reviewing company financial documents, and asking for additional information, to evaluate Alpha’s future self-bonding.
“Alpha Coal was approved for a self-bond late last year on the basis of a careful review of all pertinent financial information,” he wrote. “Their next bond renewal date is not until fall 2015.”
In an interview, Edwards said recently he approved a self-bond renewal from Arch and is reviewing a request from Peabody. “They have to commit assets for the reclamation. They don’t commit stock,” he said. “If they pass, they are eligible under our rules and federal rules.”
In West Virginia, where Alpha is the only company that does self bonding, a Department of Environmental Protection spokesman said the company contacted the Division of Mining and Reclamation to discuss financial issues and prove Alpha still qualified.
“DMR Acting Director Harold Ward and DMR accountants are reviewing the proposal and have a meeting scheduled with Alpha later this week to discuss it,” wrote spokesman Jacob Glance in an email.
“If Ward and the DEP accountants don’t agree to this proposed calculation, Alpha will have to come up with an acceptable alternative that meets program requirements,” Glance said. “Until the matter is resolved, DMR and Alpha have agreed that the company will not pursue additional self-bonding in the state.”
In a statement, the company said it believes it is “currently in compliance with all state self-bonding requirements.”
“Alpha takes its operating responsibilities very seriously,” the statement said. “As such, we are in continuing dialogue with the appropriate state regulators on a range of topics, including our self-bonding status.”
Feds, states coordinating
Greg Conrad, executive director of the Interstate Mining Compact Commission, stressed during a recent interview that the federal Office of Surface Mining, Reclamation and Enforcement keeps an eye on state self-bonding standards.
“Everybody’s regs are in line” with OSMRE, Conrad said. “They seem to be comfortable with where things are as they know it.”
Still, Conrad stressed the importance of a national look at bonding issues, despite states running their own programs with limited OSMRE intervention.
“We need to make sure that we’re not just aware of how a company is positioned for the purposes of one state, but how they are positioned nationally,” Conrad said.
OSMRE spokesman Chris Holmes said states had asked the agency to set up a team to discuss the issue. The bureau will provide additional support to the state regulatory agencies as needed, he said.
“OSMRE is committed to helping states ensure that companies carry out the required reclamation when they have completed mining operations,” Holmes said.
An environmental community source said despite national rules under SMCRA for self-bonding, different states may come up with different conclusions about whether a company qualifies.
The source said Wyoming allows companies to deduct the cost of reclamation already completed at a mine from their liabilities. Plus, some companies self-bond based on their companywide financials, while others are based on the subsidiary running the mine.
Edwards said regulators focus on the entity that can back the reclamation. And he said Wyoming requirements have provisions that exceed federal rules.
“We actually have a couple of categories where we do not allow certain [financial] items to be included [by companies] that the federal rules allow,” he said.
In 2012, West Virginia lawmakers boosted the special reclamation tax on coal mining companies to make sure the state has enough money to deal with sites where companies went bust and forfeited their bonds.
Abandoned mines from before more modern environmental laws like SMCRA are a different issue, with cleanups funded through the industry-funded Abandoned Mine Reclamation Fund run by OSMRE.
Companies warn investors
Company investors have for months been on notice about potential problems with self-bonding. If regulators don’t allow companies to do it, they have to look for other ways of posting the required financial assurance.
Cloud Peak Energy Inc., which focuses on mining in Western states, wrote in a Securities and Exchange Commission filing that it “could fail to meet the requirements to continue to qualify for self-bonding which would result in us needing to increase our surety bonds which may not be available to us at attractive terms.”
Alpha wrote in another, “A failure to maintain our self-bonding status, an inability to acquire surety bonds or additional collateral requirements could result from a variety of factors, including a significant decline in our financial position or creditworthiness, and restrictions on the availability of collateral under our credit agreements and indentures.”
Arch, which reported a $113 million net loss in April, said in December it had more than $450 million in self-bonding because it has become more expensive and harder for mining companies to buy financial assurances in the marketplace.
“In order to address some of these uncertainties,” Arch said in an SEC filing, “we use self-bonding to secure performance of certain obligations in Wyoming.”
And Peabody Energy Corp., the country’s largest coal miner, said the company’s ability to self-bond reduced the cost of providing financial assurances.
“To the extent we are unable to maintain our current level of self-bonding due to legislative or regulatory changes or changes in our financial condition,” it said, “our costs would increase and our liquidity available for other uses would be reduced.”