Wyoming’s shakiest coal operators have the biggest outstanding reclamation obligations, according to a new report — just one indication, the authors say, that declining coal markets could overwhelm the system designed to ensure mining companies clean up their mess.
Wyoming regulators argue their protections can withstand the turbulence.
The report, by the Western Organization of Resource Councils, says the mines that recently bankrupt Blackjewel and Cloud Peak are offloading to new players have the largest proportions of unreclaimed coal mine land in the West.
Almost 45% of coal mine land in Wyoming is unreclaimed as the industry enters its “twilight years,” according to the report compiled by the conglomerate of western environmental and landowner groups, which includes the Powder River Basin Resource Council.
Illustrative of the authors’ larger worries are the two companies with the most unreclaimed land in the West — Cloud Peak Energy and Blackjewel. The two companies set off alarm bells for Wyoming last year when they filed for bankruptcy in proceedings that raised concerns about the future of the Powder River Basin mining industry. Both companies will leave more than half their mine land unreclaimed, according to the report, as they try to finish offloading mines to new and unknown operators.
Advocates involved in the report say they found no conclusive ties between the two companies’ financial collapse and the large amount of unreclaimed land. But they believed the companies financial health played a role, said the PRBRC’s Bob LeResche.
“As those two companies are running out of money and operating at a loss, they of course want to put as little as possible into … something that’s not a profit center,” he said.
Officials at the Wyoming Department of Environmental Quality, meanwhile, saw neither a connection nor cause for concern.
Technical mining considerations have led to more unreclaimed acreage at some of Cloud Peak and Blackjewel’s mines. That skews the data for the companies as a whole, DEQ Land Quality Division Administrator Kyle Wendtland said.
Cloud Peak’s Cordero Rojo mine has stability issues that require digging out and maintaining larger piles of removed earth, Wendtland said. “Their reclamation at Cordero is delayed a little bit,” he said, and it’s “to make sure they have a safe and stable [mine structure] to protect their people,” he said. At Blackjewel’s Eagle Butte, miners had to relocate a highway, which also delayed reclamation, he said.
State regulators appear to be “just kind of whistling past the graveyard,” LeResche said.
He and others worry that mines will close without completing reclamation, bonds will fall short and taxpayers will pay the cleanup bill, LeResche said. “If [the mines] get cleaned up at all.”
Wendtland, however, called such concerns overblown. DEQ has a system in place to ensure that each acre of land dynamited, shoveled and moved by giant mining equipment will be restored to an “equal or better” land use, as rules and regulation demands, he said.
Mining and reclaiming: ‘concurrent’ in theory
Strip mining in Wyoming disturbs a lot of ground. Coal mining has chewed up 187,000 acres, according to the WORC report, which equates to more than 292 square miles. The report authors used data from the federal Office of Surface Mining Reclamation and Enforcement.
To access the state’s coal seams, immense volumes of dirt are loosened with explosives and removed, leaving long trenches in the earth. The “overburden” — the earth taken out above the coal — is stored on site. During reclamation, that material is replaced and miners shape the ground to mimic its former appearance. They then seed the new ground with native plant species.
The two processes — mining and reclaiming — are supposed to happen simultaneously. Federal law calls for them to occur “as contemporaneously as possible.”
Reclamation is supposed to be the financial responsibility of mining companies. When a company finishes extracting the last of the coal from a mine, rules and regulations call for it to continue reclamation until the job is finished. The work maintains some jobs in mining communities after mine closures.
“Timely coal mine reclamation is a win-win for Western communities,” Montana rancher and PRBRC member Mark Fix said in a press release that accompanied WORC’s report. “It re-opens land for livestock and recreation, it creates good job opportunities, and it minimizes the huge risks to the public if a coal company goes broke.”
Wyoming has several examples of successful coal mine reclamation, Wendtland said. At the former Dave Johnson Coal Mine outside of Glenrock, wind turbines sit atop reclaimed land that was once pocked by deep trenches.
Wendtland, who comes from the coal mining industry, said he helped reclaim close to 7,000 acres in his previous career both at Glenrock and in the Powder River Basin.
If the state’s regulatory system operates as intended, a similar result would unfold at the many Powder River Basin mine sites. The trenches will be filled in and the land will have an “equal or better” use, Wendtland said. And the state’s taxpayers won’t pay a dime.
The report, however, suggests the amount of unreclaimed mine land is outstripping reclaimed land. This is particularly true of acreage designated as “long-term facilities.” The designation captures the wide roads mining companies build to accommodate the massive equipment used to mine and haul coal. It also includes structures — mine offices and warehouses, conveyor belts and repair facilities.
To the report authors, the poor economic health of the industry and the large amount of unreclaimed land create an alarming combination. “Reclamation has always been done with coal mining revenues,” LeResche said. “As mining profits declined, the incentive to reclaim declined as well.”
The costs of reclaiming those final areas, including the long-term facilities, will come due at a time when coal companies no longer earn revenue from coal sales, report authors found. Economists and industry analysts are making increasingly dire predictions for the Powder River Basin, including the projection of looming closures for smaller and more unprofitable mines.
“The risk is growing day by day as the unreclaimed areas grow and the useful profitable life of the mines shrink, and at the end it’s pretty inevitable what’s going to happen,” LeResche said. “The mine is going to shut down with a lot of unreclaimed land.”
The state hedges against that possibility through reclamation bonds — financial instruments that in theory guarantee the clean-up money if the owner becomes insolvent. The state would call on those bonds if a company entered a Chapter 7 bankruptcy — liquidation.
Though Blackjewel teetered on the edge of such a fate, ultimately none of Wyoming’s recent coal company bankruptcies have resulted in permanent mine closures. They have instead gone through Chapter 11 bankruptcies — reorganization — in which the companies sell the mines or shed debt and reemerge intact.
If a company did shutter its mines and liquidate, DEQ would ask the citizen oversight board overseeing the agency to collect the reclamation bonds, Wendtland said. With the money from the bonds, the state would put the reclamation project out for bids from outside contractors.
Holding the bag
Watchdogs like the PRBRC worry DEQ’s bonds won’t cover the full amount — and unforeseen costs — of reclamation and that taxpayers will have to cover the gap. Many coal companies today are bonded through third-party surety companies. LeResche worries those companies won’t easily give up the bonds because it’s to their benefit to hold on to the money.
“The surety is not going to just cough up the money when DEQ asks,” LeResche said. “You’ve got a big debate and probably court cases over what reclamation they have to do.”
The report also raises concerns about self-bonding — where companies guarantee reclamation bonds against their own financial health. “These ‘selfbonds’ are not reliable for a company that goes bankrupt,” the report said. “There is no money or assets pledged to fund reclamation.” Wyoming has taken the ability to self-bond out of its regulations, but some companies still hold the bonds.
Wendtland argued that the state adequately bonds for cleanup by recalculating the amounts each year. Bonds include current disturbance, plus the acreage the company plans to disturb the following year, he said. Each year, the amounts are updated and increasing costs like fuel prices and inflation are taken into account, he said.
The department completed a lengthy update of its bonding rules last year, DEQ spokesperson Keith Guille said, designed to take into account a new financial landscape. The PRBRC, and LeResche himself, applauded those rule changes in public comments, Guille said.
“I’m not disappointed,” about the subsequent report criticizing reclamation rates, Guille said, “but it puts it in the context that we did get support for these rules.”
Wendtland also dismissed concerns about “zombie mines,” where owners essentially mothball mines but say they intend to resume mining one day. The limbo status allows companies to avoid completing reclamation. A recent investigation by two news organizations found 150 “zombie” coal sitting idle around the country, though none are in Wyoming.
Mining insufficient coal would trigger federal regulators to pull a company’s coal lease and send it into bankruptcy, Wendtland argued. Wyoming would then collect its bond. “I don’t see where this zombie mine thing is really accurate,” Wendtland said.
Wyoming already has an example of a failed reclamation process, LeResche said. The state continues to spend its own money to plug orphaned gas wells left over from coal-bed methane production. The riotous boom industry left properties in the hands of decreasingly sound operators when it busted.
Though coal has a long history of stability, watchdogs and analysts worry that recent turbulence is leading to a similar trend. “Everybody’s trying to get rid of their reclamation liability by fobbing these things off on weird entities,” LeResche said.
DEQ has been passive during bankruptcy proceedings, LeResche said. Rules and regulations aside, the agency will need the political will to take on the state’s prized coal industry and force reclamation, he said.
“One would hope that they will be more aggressive when one of these big mines finally closes,” he said.
Blackjewel’s mines have been sold to Eagle Specialty Materials, a new LLC created as an offshoot of FM Coal, an Alabama-based company. Cloud Peak’s mines were purchased by Navajo Transitional Energy Company.
There are question marks around both companies. Navajo Transitional Energy Company is owned by the Navajo Nation, and is facing heat at home for its Wyoming acquisitions. The company has also clashed with Montana regulators over that state’s desire that it waive the legal protections of the Navajo tribe’s sovereign immunity.
Powder River Basin Resource Council representatives and other advocates have expressed concern that sovereign immunity could be used to block state regulators and dodge reclamation and other legal obligations.
Eagle Specialty Materials, meanwhile, has already missed a mineral tax payment to Campbell County and been uncommunicative with local officials, according to reporting in the Gillette News Record. The company also continues to contend with the legacies of Blackjewel’s apparent financial mismanagement.
In a filing with the bankruptcy court, two equipment companies claim ESM is using heavy equipment it hasn’t paid for. Komatsu and Wyoming Machinery Company have indicated to the federal court in West Virginia that they seek to take back their machinery, including giant shovels essential to mining and worth millions of dollars.
Both ESM and NTEC are operating under the reclamation bonds of the companies they bought the mines from, Wendtland said. Neither has submitted applications to transfer mine permits yet, he said, though he is expecting them soon.
At that point DEQ would ensure the new companies have proper bonding, he said. Wyoming will require NTEC to waive its sovereign immunity to operate in the state, he said.
The permit transfer process is an opportunity for regulators to push for increased reclamation, LeResche said.