Coal company bankruptcies jeopardize reclamation

The public could foot the bill for billions in cleanup costs.

 

L.J. Turner gazes across a pit so massive its size is hard to fathom. Enormous draglines dredge up shiny black coal. Once, Turner grazed cattle on 6,000 acres of publicly owned grassland here. Then the land was swallowed by Peabody’s North Antelope Rochelle Mine, the world’s largest coal mine. Thirty-some years ago, the rancher says, before mining companies turned Wyoming’s Powder River Basin into the nation’s most productive coal region, they made a promise: When they finished extracting coal, they would restore the land.

Under federal law, companies must reclaim the land they’ve mined. To ensure that cleanup is completed, they must provide financial guarantees — bonds, cash or collateral to cover the entire cost of reclamation. That way, even if the company goes out of business, the public is protected from expensive cleanup bills or abandoned mines that scar the land, pollute waterways and eliminate rangeland and wildlife habitat. These days, for a big Powder River Basin mine, reclamation costs can reach several hundred million dollars.

Instead of setting aside cash or getting a financial institution to guarantee that land will be reclaimed, though, several of the biggest coal companies, including Peabody, took advantage of a provision of the Surface Mining Control and Reclamation Act of 1977 that allows them to self-bond. That means companies with adequate finances can make legally binding promises they’ll cover reclamation costs. The companies benefit because they avoid tying up their money or spending it on surety bonds.

But recently, after decades as industry stalwarts, some of those companies, including Peabody, have seen their finances nosedive, and fears about whether they will be able to meet their growing financial obligations to restore the land have reached a crescendo.

If those self-bonded companies go bankrupt without adequate assets to back their reclamation liability, state and federal taxpayers could find themselves responsible for filling in those massive pits, reseeding grasslands and trying to restore damaged streams, springs and aquifers. At a congressional hearing last month, Interior Secretary Sally Jewell said self-bonding has become a “big issue,” given coal companies’ financial fragility. “It does potentially leave the states and the taxpayers at risk.”

 

Belle Ayr mine has the highest production costs in the Powder River Basin, at $11.81 per ton in 2013. Alpha Natural Resources, which owns the mine, filed for bankruptcy in 2015, and the company may not be able to meet its reclamation obligations.
Evan Anderman

As long as a mining company meets financial requirements, states can accept a self-bond. State conditions vary but must be at least as strict as federal standards. (Similar self-bonding rules apply to hardrock mining, but currently attention is focused on coal because of the industry’s financial crisis.) The total covered by self-bonds for Western coal mines has swollen in recent years. Most of it, $2.25 billion, is in Wyoming, which produces 40 percent of the nation’s coal. Colorado and New Mexico have much less self-bonding, and though Utah also allows it, the state currently has no self-bonds. Montana, the West’s second-largest coal producer, does not allow any self-bonding.

Western states that permit it say that mining companies are up-to-date on reclamation and have yet to default. But Turner and some environmental groups have long complained that reclamation was happening too slowly. Now, they fear it may not happen at all. “I’m just very concerned (companies are) going to try to use bankruptcy to get away from doing anything,” Turner says.

Arch Coal, which is self-bonded for nearly half a billion dollars in Wyoming, filed for bankruptcy in mid-January, following Virginia-based Alpha Natural Resources, which filed in August. These bankruptcies leave big question marks over whether the companies can or will keep their reclamation commitments. Others could follow. Alpha, Arch and Peabody made huge investments in metallurgical coal before prices tanked, leaving them swamped in debt. And the outlook for coal is increasingly dim as electric companies switch to low-cost natural gas and as climate change policies encourage cleaner power sources.

The coal industry’s rapid financial decline caught regulators by surprise, and its implications for self-bonding remain unclear. “We all anticipated that the use of self-bonds and corporate guarantees was a safe and reliable bonding alternative for well-positioned mining companies,” says Greg Conrad, executive director of the Interstate Mining Compact Commission, which represents state regulators. Now, he says, that confidence is gone: “You’ve got an industry on the ropes here. … There’s a lot of uncertainty about how that’s going to play out.”

Wyoming’s experience with Alpha illustrates just how murky the situation is. State regulators told Alpha in May that it no longer met financial criteria for self-bonding, and gave the company 90 days to come up with another guarantee for the estimated $411 million needed to reclaim its two Powder River Basin mines. But Alpha failed to do so before it filed for bankruptcy.

Wyoming reached an agreement that $61 million for reclamation would get first priority in bankruptcy court. In exchange, the state is allowing Alpha’s mines to continue operation, despite the invalid self-bonds. Kyle Wendtland, administrator of the land-quality division of the Wyoming Department of Environmental Quality, says that if Alpha emerges from bankruptcy, as the state expects, it will be required to post new reclamation bonds and will no longer qualify for self-bonding.

Right before Arch, an even bigger company, filed for bankruptcy, environmental groups pressed Wyoming to revoke its self-bonds. But the state rebuffed that effort, saying a subsidiary of the company still qualified for self-bonding to guarantee the reclamation of 78,000 acres — roughly the size of Utah’s Arches National Park. “Bankruptcy should not be used as a haven for the company to escape its obligations,” says Bob LeResche, chairman of the Powder River Basin Resource Council.

For now, Conrad thinks that there’s only a minimal risk that big surface mines in the West will default, though he admits, “If the markets continue to go south, we could have a bigger problem on our hands.”

In the meantime, at least one Western state is moving away from self-bonding. “We think it is less secure than other forms of financial assurance such as corporate sureties or cash bonds,” says Todd Hartman, spokesman for the Colorado Department of Natural Resources. Peabody currently is selling its Colorado mines, and Hartman says the buyer will not be allowed to post self-bonds. Officials in Wyoming and New Mexico, though, say rethinking self-bonding would require lengthy regulatory processes that have not yet begun. At the federal level, the Department of Interior, which oversees mine reclamation, recently created a new task force to help states ensure that reclamation continues to be guaranteed despite companies’ poor finances. Bonding for reclamation was not included in the multi-year review of the federal coal program that Interior launched this month.

While the bureaucrats and politicians sort out what to do, people like L.J. Turner worry about what’s at stake. Even the small uranium mines from the 1950s have left lasting scars on his ranch. Nature alone won’t quickly reclaim the vast amounts of land, restore the streams or recharge the aquifers damaged by today’s coal mining, he says. “It will be a disaster.”

This story was reported in collaboration with Leigh Paterson at Inside Energy, a public media project focusing on America’s energy issues. More at insideenergy.org.