Better Bonding for Coal Mines Proposed

By John McFerrin

            Ever since the passage of the federal Surface Mining Control and Reclamation Act, coal mines have had to post a bond to guarantee reclamation.  If the company went out of business, disappeared, or for some reason did not reclaim the mine site, the state could forfeit the bond and do the reclamation.

            In most situations, companies would post a bond backed by an insurance company, a cash bond, or some other type of financial instrument.  Because the bond was cash or backed by a bank or insurance company, the state was assured that the money would be available if it needed it for reclamation.

            In some situations, however, companies would do what was called “self bonding.”  They would submit financial records sufficient to demonstrate that, if they did not do the reclamation, money would be available for the State to take and do the reclamation.  They were, in effect, being their own insurance companies or banks, guaranteeing that their reclamation obligations would be met.

            Self-bonding worked well enough so long as the coal industry was prospering.  The assets of companies were pledged to guarantee that reclamation would be completed.  So long as there were assets, the reclamation was guaranteed.

            Then came the long term, and apparently permanent, decline in the coal industry.  Between 2015 and 2016, the country’s three largest coal companies (Alpha Natural Resources, Arch Coal, and Peabody Energy) filed for bankruptcy, leaving $2.3 billion in outstanding self-bonds. This summer, Revelation Energy and Blackjewel filed for bankruptcy, putting nearly 1,700 miners out of work, leaving the fate of thousands of acres of mines hanging in the balance, and potentially costing taxpayers hundreds of millions of dollars in outstanding reclamation costs.

            With the economic difficulties in the coal industry, companies that had previously had plenty of money suddenly didn’t have assets.  Their “self-bonding” became a worthless promise.  Reclamation was no longer guaranteed.

            Now there is a bill pending in Congress that would fix this problem, at least for future mines.  The “Coal Cleanup Taxpayer Protection Act of 2019’’, introduced by. Representatives Matt Cartwright (PA-08) and Debbie Dingell (MI-12), would eliminate self-bonding for future mines.

            For existing mines the solution is more complicated.  The Act would not magically put money for reclamation into the pockets of struggling coal companies.  Broke companies would still be broke.  Mining permits are, however, required to be renewed periodically.  When permits at existing mine come up for renewal companies would have to replace their self-bonding arrangement with an actual bond backed by a surety.

            The Act makes other changes to bonding practices as well.  Most notably for West Virginia, these include restrictions on alternate bonding systems.

West Virginia has always used what is called an ‘alternative bonding system.’  Under this system, companies would post a flat per acre fee which was designed to be relatively low.  The bonds were always designed to be inadequate to do the reclamation.

At least in theory, these inadequate bonds would be sufficient because West Virginia had its Special Reclamation Fund.  All coal companies pay into this fund based upon the tons of coal they produced.  If a company went under or disappeared, the Department of Environmental Protection could forfeit the inadequate bond and then take whatever it needed from the Special Reclamation Fund to pay the rest of the cost of reclamation.

This system only worked in theory.  In actual practice, the rate at which companies pay into the Special Reclamation Fund has always been too low to fund all the reclamation at bond forfeiture sites.  

This problem (and the West Virginia Highlands Conservancy’s involvement) has been going on for decades. Every year or two representatives of the West Virginia Highlands Conservancy (and occasionally others) would meet with the Office of Surface Mining and the West Virginia Department of Environmental Protection to talk about the Special Reclamation Fund.  All would more or less agree that the Fund was inadequate and that we needed to fix it.  Then another year or two would go by, the Fund wouldn’t be adequately fixed, and we would have the same meeting again.  A year or two later we would have the same meeting again.

Cindy Rank, Mining Committee Chair of the West Virginia Highlands Conservancy, described it this way, “This has gone on too long.  We have begged, pleaded and litigated since at least 1990 to make the state comply with the law. The state’s response has been to dance around the issue and make only incremental and inadequate improvements. OSM has known about the ever expanding liabilities and issued warning letters, but has not followed through with the necessary enforcement measures to make the state fulfill its legal responsibility under the law.  There is little consolation in knowing the predictions and warnings of the past years are coming to fruition in such devastating fashion and there is no excuse for allowing this to continue.” 

The proposed Coal Cleanup Taxpayer Protection Act of 2019 recognizes this problem.  It would require audits of bond pools such as the one West Virginia uses to assure that they are solvent.  Since an audit would very likely reveal that West Virginia’s bond pool is insolvent, this could result in West Virginia being required to strengthen its bond pool.

The bill (H.R. 4435) faces a long, uphill slog to passage.  It currently has six cosponsors; there is no companion bill in the Senate.

The West Virginia Highlands Conservancy has joined in a letter in support of this bill.